3/12/2008 su Arkema
Arkema confirms earnings target despite downturn
FRENCH SPECIALTY chemicals producer
Arkema is confident it can still meet its earnings targets, despite the economic downturn, and is counting on China to help it deliver the improvements.
Asia will be at the heart of Arkema's transformation strategy, chairman and CEO Thierry Le Henaff told journalists at a press conference in Shanghai in October. The company intends to increase its share of sales in Asia to 20% by 2012, from a projected 15% in 2008 and from 13% in 2007.
The company has been reorganizing its operations following its spin-off from Total in 2006,
and plans to continue cutting costs and realigning its portfolio. Between 2005 and 2007 the company cut its head count by 17% to 15,194 while raising earnings before interest and tax (EBIT) by 129% to €293m ($371m), Le Henaff said.
Arkema is sticking by its target to raise its earnings before interest, tax, depreciation and amortization (EBITDA) margin to 12% by 2010, from an estimated 10% in 2008. To achieve this, the company calculates that it will need to raise its EBITDA by €140m, of which €70m will come from productivity improvement and restructuring projects, €30m from new products and geographical expansions and €40m from mergers and acquisitions (M&A).
Projects already underway are expected to generate €65m of the €140m total, said Le Henaff, while the remaining €75m "will have to come from new projects that we still have to launch."
Restructuring is continuing in fluorochemicals, functional additives and polyamides, and new production capacity has been added for hydrogen peroxide in Shanghai and refrigerants in Calvert City, Kentucky, US.
Regarding M&A activity, the company purchased the Coatex specialty polymers and additives firm from Swiss industrial minerals producer Omya in 2007 and acquired Spanish oil company Repsol YPF's polymethyl methacrylate (PMMA) business earlier this year.(
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Arkema's strong balance sheet will help the company cope with the economic downturn and allow it to pursue acquisitions, Le Henaff said. Arkema has a low debt level, with a gearing of about 25%, and a €1.1bn credit line that has been renewed to 2013, he continued. "This means we have the safety we need in our balance sheet, first to cope with the current environment and second, to make some small to medium-sized bolt-on acquisitions in the next couple of years."
In the acrylics business, for example, Arkema will continue to seek bolt-on acquisitions of high-value polymers following the purchase of Coatex, he said.(
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Arkema plans to focus on high-margin products and divest or improve less profitable products. The company will concentrate on five core technology platforms: acrylics, methacrylates, thiochemicals, fluorochemicals and polyamides.(
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"The idea is to refocus Arkema on the best product lines, and eventually divest less profitable lines," explained Le Henaff.
The company's push into Asia is vitally important. To achieve its goal of increasing its share of sales in Asia to 20% by 2012, the company needs to invest €200m in Asia by 2012, Le Henaff said. Investments will be focused on China, as well as India, Japan and Korea, and project locations will depend largely on access to a competitive supply of raw materials.
In China, sales will be boosted by the hydrogen peroxide expansion in Shanghai and development of Arkema's fluorochemicals operations in Changshu. In addition, the company has formed two joint ventures with Japanese industrial group
Daikin - one for the production of HFC-125 in Changshu, and the other for marketing refrigerant fluid blends in the Asia Pacific region.
Arkema also plans to establish research and development (R&D) operations in China to complement its R&D technical center in Kyoto, Japan, Le Henaff said.
Projects under study in China include a further hydrogen peroxide expansion (see box) and the construction of a production plant for Coatex, according to Arkema executive vice president Marc Schuller. The company is also considering construction of
acrylic acid and derivatives plants, possibly in India, Singapore or the Middle East.
In November, Arkema revealed that net income for the third quarter rose by 8.1% to €40m on the back of price increases. Sales rose by 5.1% to €1.45bn. Le Henaff said that since October, there had been a sudden demand slowdown, particularly in automotive and construction. This had been amplified by destocking and limited the visibility on the economic outlook in the fourth quarter.
Arkema says products in its five chosen core technology platforms - taken from the industrial chemicals and performance products segments - have an EBITDA margin potential of 15-20%. Other products from these two segments, including organic peroxides, surfactants, glass coatings, oil additives and hydrogen peroxide, are classified as 'specialty niches' and have an EBITDA margin potential of above 15%, it says. The vinyl products segment is expected to break even from 2008, in low-cycle conditions, and have an EBITDA margin of 7-9% in mid-cycle conditions in 2010.
Arkema plans to speed up its transformation by accelerating its business development in Asia, reducing its fixed costs and focusing R&D efforts on new markets, concluded Le Henaff. Growth will be underpinned by securing competitive long-term access to strategic raw materials, building a manufacturing footprint in each major geographical zone, and increasing downstream activities through M&A and organic growth.
"We will continue to accelerate the transformation of the company," he insisted. "We've done a lot since the spin-off but we still have a lot to do."
NEW HYDROGEN PEROXIDE CAPACITY FOR CHINA: Arkema has doubled the capacity of its hydrogen peroxide plant, a joint venture (JV) with Shanghai Coking, to 80,000 tonnes/year and the partners are already studying a debottlenecking. "There are plans to raise the capacity to 100,000 tonnes/year," revealed Liu Xungeng, president of Huayi Group, parent company of Shanghai Coking. Arkema is considering additional opportunities to invest in hydrogen peroxide in China, revealed Marc Schuller, executive vice president with responsibility for industrial chemicals, energy and purchasing. "The existing site is almost reaching its limit," he said. "The next major expansion would be at another site." Arkema is also studying the construction of acrylic acid and derivatives plants, possibly in India, Singapore or the Middle East, according to CEO Thierry Le Henaff. A proposed acrylic acid JV with Essar Chemicals in Vadinar in Guajarat state, India, has been delayed because of a lack of
propylene feedstock availability, he said.
TAKING ADVANTAGE OF NEW REGULATIONS: Arkema's first HFC-125 refrigeration plant, under construction in Changshu, China, is scheduled to start up in early 2010. The project, a joint venture with
Japanese industrial group Daikin, takes advantage of new regulations in Europe and the US governing the phase-out of HCFC-22. The plant will have an initial capacity of 15,000 tonnes/year, with potential expansion to 25,000 tonnes/year depending on market conditions, executive vice president Pierre Chanoine said. The HFC-125 output will be blended with HFC-32 to produce the refrigerant blend HFC-410A, which will replace HCFC-22 as it is phased out. HFC-410A will then be sold to air-conditioning original equipment manufacturers (OEMs) and the air-conditioning units will be exported to Europe and the US. "We are adapting our assets to the new regulations," Chanoine said. HCFC-22 will be banned completely in Europe from the end of 2009, while in the US, the refrigerant will be banned from new equipment from the end of 2009, he added. In China, HCFC-22 is not scheduled to be banned until 2040, said Dominique Namer, Arkema's regional general manager for Asia-Pacific
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