Chemical and pharmaceutical business show confidence

Most companies in Britain’s £50 billion chemical and pharmaceutical industry predict they will increase sales and exports in the next 12 months. The latest survey from the industry’s trade body, the Chemical Industries Association, shows a confident picture for the rest of 2015 and beyond. Nearly 60% of companies expect sales and export growth, while almost 50% of businesses will increase capital expenditure and grow employment numbers.

This good news has been welcomed by Steve Elliott, Chief Executive of the Association who said “These numbers, in the teeth of fierce global competition, reflect the hard work of chemical and pharmaceutical companies and their workforces’ right across the UK”. Elliott also paid tribute to the level of research and development investment saying “R&D investment is key to UK growth and the fact that 98% of companies will maintain or grow their R&D commitment is a sign of confidence these companies – the majority of which are foreign headquartered – have in the UK”.

Looking at first quarter performance for the year, the sector is bucking the trend with stable growth compared to the relatively poor manufacturing growth performance. Almost half of chemical and pharmaceutical businesses recorded sales and exports growth. There was also stability in terms of employment, research & development investment and capital expenditure.

The survey also looked at opportunities and threats with companies seeking to expand their global market access and at the same time as being concerned by what happens to the sterling exchange rate, the European economy and energy & raw material prices.

Elliott concluded “We are at the centre of a global market and it is vital that the UK continues to attract chemical and pharmaceutical investment. In particular companies are worried about escalating energy and raw material costs. The new government must tackle this challenge urgently to allow the strong performance of our sector and its contribution to the UK to continue.”

Chemical Industries Association (CIA) is the organisation that represents chemical and pharmaceutical businesses throughout the UK

Details of the survey

The survey was conducted in April 2015 and completed responses were received from 40 of the 99 chemical and pharmaceutical CIA member companies.

In future the survey will be conducted during the first month of every quarter and the results released early in the in second month. The next survey will be conducted in July 2015 and the results will be released in early August 2015.

Key results

  1. UK chemical businesses were very positive in their sales outlook for the next twelve months; the majority of respondents (around 60%) expect sales and exports to increase while only 5% expect sales and exports to decline. The remaining businesses expected no change.
  2. However, not as many chemical businesses expect their margins to increase as a result of higher sales; 25% expect margins to increase whereas 18% expect margins to fall. The majority expects their profit margins to stay the same.
  3. Competitive pressures were identified by 83% of respondents as a reason why they have not been able to increase their profit margins in the last three months. Currency movements (49%), energy costs (27%), raw material costs (27%) and a lack of customer demand (27%) were some of the other reasons.
  4. As the UK’s foremost exporting sector it is clear that expanding global markets are important to chemical executives. Expanding markets in Asia (15% of respondents), Europe (14%) and the United States (10%) were three of the biggest opportunities identified by chemical executives for their business in the next twelve months.
  5. As expected the biggest threats to businesses relate to international competitiveness. An increase in the value of sterling is seen as the biggest threat (18%) in the next twelve months. This followed by higher raw material prices (12%), a shrinking European market (11%), the ability to hire or retain skilled workers (9%) and higher energy prices (8%).
  6. The industry continues to create new jobs with 44% of chemical businesses expecting to increase employee numbers in contrast to only 10% that expect to reduce employee numbers.
  7. R&D investment and capital investment intentions are longer term measures of business confidence.
  8. Research and development (R&D) helps to create new products and more efficient and environmentally friendly production processes. Almost a quarter of respondents expect to increase R&D expenditure over the next year, while 73% expect no change to their planned R&D expenditure and only 2% expect to reduce expenditure.
  9. Capital investment is needed not only to ensure that current capacity is maintained but also to expand capacity and introduce new products and processes. Overall almost half of respondents (44%) expect to increase capital expenditure over the next year, while 41% expect no changes to their capital investment plans. Only a minority (15%) expect to reduce capital investment.

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