Chemicals industry performance - profitability without growth
We recently published our latest Chemicals Winners' analysis for 2018. The Winners' analysis lets companies understand and diagnose their performance relative to the industry.
2018 was a strong year though growth slowed down for the Chemicals industry as a whole. Despite reduced growth and macroeconomic challenges arising from Brexit, increasing protectionism, trade uncertainties and a general economic slowdown, companies were able to generate returns of nearly 2 percent over the cost of capital. Key takeaways include:
> Invested capital grew by 1% despite revenue growth of 9%, driven by increased raw material costs
> Industry profitability held steady but overall profit dollars grew
> 64% of companies earned above their cost of capital – a 3 percentage point increase over the previous year
> Industry debt increased by 10% driven by the closing of several mega-mergers
> The Chemicals industry underperformed the S&P 500 for 2018, -8% TSR vs. -6% for S&P 500
It was evident that investors valued profitability over growth, which manifested within three indicators highlighted below:
> Companies that generated above-industry TSR were more profitability-focused than growth-focused
> There was reduced growth-focused M&A activity across all sizes of companies and all types of investors
> Instead of investing in inorganic growth, chemical companies returned more capital to shareholders and dividend payouts grew by USD 9 bn, 19% over 2017 levels
For more details, read our full study here.