Capital Expenditure Report

Capital Expenditure Report Executive Overview

The investment behavior of companies in different industries varies strongly. In this periodic report, ARC Advisory Group looks at a number of different manufacturing industries to identify trends in capital expenditures (CapEx) and their drivers. We calculate our CapEx Index using the same rigorous methodology we use for the ARC Automation Index, which is based on publicly available data provided by major companies (end user, rather than supplier companies in this case). This report also includes ARC’s contextual comments on the individual industries.

Capital expenditures (CapEx) are a leading indicator for automation markets. When confidence in vertical industry markets decline, a decline in investments often follows. In this regard, 2015 was a terrible year with most process industries showing strong declines in their capital investments. The strong appreciation of the US dollar was another major factor. Currency effects alone accounted for a 15 percent drop in CapEx in Europe and Japan.

Global Capital Expenditures

The last quarters since ARC’s last Capital Expenditure report have been exciting. A couple of things happened that caused the CapEx to remain negative, while half of the world remained positive. How is this possible?

Let’s first have a look at China. Investments here dropped strongly in the first half of 2016 and then recovered at a breathtaking speed across most industries. In some cases at a solid double-digit growth rate.

Second, the development in the discrete industries was overall very good. Not until Q4 2016 did automotive start to cut back on capital expenditures. Overall, discrete industries are in good shape. Urbanization and the rising middle class will continue to have a positive long-term impact, while shortening lifecycles in developed economies maintain in-vestment at a high level.

Looking at the hybrid industries, the picture is better than our charts show. That’s because we focus on large companies, which have suffered more than the smaller ones. Overall, development here continues to be very stable.

In the process industries, the low oil price, overcapacities in steel (globally) and cement (locally), and a consolidation of mines hit the commodity sector very hard. Chemicals – especially fine chemicals – were less affected and some enjoyed a sudden drop in feedstock prices, while consumer demand was robust. The latest development shows a stable oil price and we expect that CapEx will increase in future.

Capital Expenditure Report Table of Contents

• Executive Overview

• Discrete Industry Developments

• Hybrid Industry Developments

• Process Industry Developments

   

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Keywords: Capital Expenditures (CapEx), Automation Index, Automation Markets, Capital Investments, ARC Advisory Group.