Growth and Innovation – Energy

Growth and Innovation – Energy

The research was conducted with participation of 163 global Energy CEOs from Australia, China, India, Italy, Germany, Japan, France, Spain, UK and US.

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A deeper look at Oil & Gas: Unsurprisingly, the fall in the oil price has focused CEO’s attention on financial and organizational restructuring. Free cash flow forecasts have been slashed and small/mid cap companies now need to focus on managing their access to capital markets. With equity markets essentially closed to this group, their relationships with lenders have become as important as ever, especially as the number of covenant negotiations and waiver requests in the sector is dramatically increasing.

Alternative funding solutions are also becoming more popular as ‘distressed funds’ seek investment opportunities. Larger, more diversified companies now employ significantly more rigorous capital allocations programs, prioritizing value over volume, and are also focused on making significant organizational changes and headcount reductions. Interestingly however, acquisitions are also a key growth focus area, presumably as the more financially strong companies look for distressed ‘bargains’ as a result of low oil prices. To date however, largely due to successful restructuring, large numbers of such distressed situations have not arisen.

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Only 8 percent are somewhat or significantly less confident than last year at the prospects of growth in the industry over the next 3 years.

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Forty-one percent have the same level of confidence at the prospects of growth in their company over the next 3 years, only 9 percent are significantly more confident than last year.

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Organic growth will stay the same over the next three years while inorganic growth will increase from 4 percent to 23 percent.

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Acquisition at 44 percent and financial restructuring at 42 percent best fits their future growth strategy. Sale at 8 percent and dividend payout at 6 percent are the least fit for future growth over the next 12 months.

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Only 4 percent of CEOs do not plan to make any changes to their company capital structure over the next 3 years, 54 percent of CEOs consider acquisition to be key for their company growth strategy over the next 3 years.

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CEOs believe 2018(37 percent) will be the year that their company will record its greatest profits. Only 1 percent believe 2015 will be the year to record the greatest profits.

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CEOs categorize themselves as very aggressive(47 percent) and moderately aggressive(46 percent) for their overall growth strategy, only 7 percent are moderately conservative.

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Overall focus on growth at 58 percent is more important to the company’s overall well-being over the next 3 years.

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Overall 91 percent of energy companies have started implementation or a fully developed process across all units. This is among the highest of the other industries second only to auto and healthcare.

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CEOs state 92 percent of their organizations are innovating fast enough to ensure a competitive future.

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The greatest barrier to innovation in energy companies is budget constraints at 17 percent followed by current technological resources or capabilities not up to date at 14 percent.

© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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