Four major speciality chemicals companies have outlined their near-term plans and expectations this month. Andrew Warmington rounds the details up
With half-year results in, September has seen a succession of companies in the fine and speciality chemicals space explaining the near-term growth plans to investors and/or the media, with several broad themes emerging. Lanxess did so at a company media day in New York on 17 September, while DSM and Kemira later held capital markets day' in Basel and London respectively and Arkema held an investors day in Paris.
Lanxess used its event to announce a new mid-term goal in its key performance indicator, EBITDA before exceptionals, and the path it will follow to get there. Having increased EBITDA before exceptionals by 20%/year since 2004 and achieved 5-10% year-on-year growth in it for 2012, the company expects to hit its 2015 goal of €1.4 billion a year early and is now aiming for €1.8 billion in 2018.
"We have transformed Lanxess into a growth company," said Axel Heitmann, chairman of the board of management. "In order to achieve our new mid-term goal, we will stick to our proven dual-track strategy of organic and external growth."
This growth will be driven by what Lanxess calls its proven elements of success: premium products focused on mega-trends, flexible asset and cost management, a global reach, with emphasis on emerging markets, innovation and technology, and an entrepreneurial, performance-oriented business culture.
By sticking to a price-before-volume approach, foregoing business when it cannot achieve an appropriate price, Lanxess has managed the price volatility of raw materials and other input costs and has passed on roughly €1.8 billion in added raw material and energy costs over the last 30 months. This has been critical to the 'premium products' strategy.
The mega-trends Lanxess is following and will continue to follow are sustainable mobility, urbanisation, agriculture and water. In the context of the first, Heitmann cited the company's synthetic rubber for 'green tyres' and lightweight car materials. 'Green mobility' products like these accounted for 17% of sales, about €1.5 billion, in 2011 and increased by 20% year on year in 1H 2012. Lanxess aims for sales of €2.7 billion in this field in 2015.
The focus will also continue on emerging, high-growth markets, notably Asia-Pacific, where Lanxess has seen 70% growth since 2005; it has also seen nearly 40% growth in the Americas. The "disciplined dual-track growth strategy", with a roughly two-to-one ratio of organic to external growth, will also continue, prioritising capital expenditure projects over acquisitions.
Heitmann - Lanxess will stick to its dual-track growth strategy
Most of the €1.4 billion in capex over the last two years, Heitmann noted, has gone to the Performance Polymers segment for debottlenecking, retrofitting and greenfield sites. In emerging markets, greenfield investments have dominated, notably the new neodymium-based performance butadiene rubber plant in Singapore for green tyres. This cost about €200 million and will be the largest of its kind in the world, generating a projected €300-350 million/year in sales by 2017.
In the same area, Lanxess is spending €235 million to build an ethylene propylene diene (EPDM) rubber plant in China, aiming for sales of around €400 million/year once it is running at full capacity. EPDM is used in many automotive applications, such as windshield wipers and door seals, and China is now the world's largest automotive producer.
Although acquisitions have continued, the company will maintain its "prudent" financial policies, which emphasise reliance on a long-term debt maturity profile and retaining solid investment-grade ratings, which have stayed at BBB since 2007. It is committed to maintaining a ratio of net financial debt to EBITDA before exceptionals at 1-1.5 over a normal business cycle. As of the end of Q2, it had a liquidity reserve of over €1.8 billion in liquid assets and undrawn credit facilities.
Symbolically, perhaps, Lanxess was listed on the German benchmark index DAX 30 exactly a week later. Heitmann rang the bell of the stock exchange when it opened in the morning and waited together with the CFO of the Deutsche Börse, Gregor Pottmeyer, for the opening share price, which was €66.29.
DSM's annual capital markets days, meanwhile, focused on progress made with the 'DSM in Motion' strategy for focused growth. Feike Sijbesma, CEO and chairman of the managing board, said: "While we remain cautious on the near-term macro-economic outlook, the robustness of our portfolio reinforces our confidence that DSM's strategic focus will continue to create value for shareholders and other stakeholders."
Overall expectations for the year have not changed and the 2013 EBITDA target of €1.4 billion was confirmed, assuming no further economic deterioration. 'DSM in Motion' will trim some 1,000 jobs and structural savings of €150 million/year are anticipated. The other 2013 target of >15% return on capital employed is unlikely to be achieved, due to recent acquisitions and the state of the economy.
That said, DSM is on track to achieve its sales targets for 2015: organic sales growth of 5-7%/year, doubling sales in China to over $3 billion, taking sales in high growth economies from 32% to 50% of sales (they were 43% in 1H 2012, as opposed to 34% from Western Europe and 20% from North America) and 'innovation sales' from 12% to 20% of the total.
Sijbesma - Robust portfolio gives DSM confidence
Similarly, DSM affirmed its aspirations for its four 'clusters'. Among these, for Pharma that means EBITDA towards 15-20% and 'leveraging partnership for growth'. DSM Pharma is expected to deliver a slightly improved EBITDA this year, despite the 50% deconsolidation of DSM Anti-Infectives, a maker of penicillin APIs that struggled for many years.
The conpany's targets for the Nutrition cluster are more clearly defined: sales growth of 2% over GDP and an EBITDA margin of >20% and towards 23%. DSM Nutrition's EBITDA this year is expected to be well above 2011. Much of the focus in Basel was on how the company portfolio has been transformed by its growing presence here. Indeed, one of the two days was focused entirely on nutrition.
Including food, feed and personal care but not pharma, 'health & nutrition' accounted for 38% of DSM's net sales in 2011 That amounted to about €4.4 billion, three times more than any other market, and the importance of nutrition will continue to grow both absolutely and releatively. Indeed, it accounted for about 67% of DSM's total EBITDA in 1H 2012 on a pro forma basis when including the recent acquisitions of Ocean Nutrition Canada and Tortuga, on top of the earlier Martek buy.
DSM, Sijbesma claimed, paid conservative multiples for these businesses - 8 x EBITDA, compared to 9.15 in similar transactions by others in this market. The firm now claims a "unique portfolio" with leading or medium-sized positions in vitamin forms, carotenoids, enzymes, yeasts, polyunsaturated fatty acids, organic trace materials and pre-mixes, something which none of its six main competitors, such as BASF and Cargill, have.
Subsequently, it emerged that DSM is in discussions to acquire the cultures and enzymes business, a €45 million/year supplier to the dairy and meat industries in Europe. If this is completed, it would be the eighth acquisition for DSM in nutrition since September 2010. The business would probably be combined with DSM Food Specialties.
Sijbesma also noted two new growth platforms where the life sciences and material sciences meet. DSM Bio-based Products & Services, he said, is a "front-runner in bio-based materials and fuels", with very strong potential in cellulosic bio-ethanol, where it has a stake in POET, and, in partnership with Roquette, in bio-succinic acid. DSM Biomedical, meanwhile, is growing strongly and acquired medical device materials supplier Kensey Nash earlier this year.
At its own capital markets day, Kemira said that it expects revenue and operative EBIT to be at much the same level as in 2011, allowing for uncertainty in Europe and a slowdown in global economic growth. Medium term financial targets were unchanged. These are revenue growth in mature markets of >3%/year and >7%/year in emerging markets, EBIT of >10% of revenue, positive cash flow after investments and dividends and a gearing level of <60%.
Kemira also set the timeline for its 'Fit for Growth' restructuring programme that was launched in July. The expected cost-saving impact includes €10 million in 2012, €50 million in 2013 and €60 million in 2014; half via redundancies and half by manufacturing network consolidation and leaner operations. 14 sites are now under review. The ultimate goal is to reach at least 10% EBIT margin in 2014.
Büchele - Starting to think about Kemira in 2020
Of the €85 million restructuring charges connected to the programme, €35 million will be cash costs and €50 million being write-downs. €55 million of the total will be booked in 2H 2012, the rest in 1H 2013. The company expects to make savings in all its segments €22 million each in Paper and Municipal & Industrial, €12 million in Oil & Mining and €4 million in ChemSolutions.
"Our main focus is on delivering 'Fit for Growth', but we have also started to analyse how the company should look in 2020. The highest growth in our accessible markets is focused on Asia-Pacific and South America," noted CEO Wolfgang Büchele. He also reaffirmed Kemira's long-term commitment to the paper industry, more details of which will be communicated with the Q1 results in 2013.
Finally, Arkema has presented "its 2016 ambition to become a world leader in speciality chemicals and advanced materials". The targets for that year are sales of €8 billion and an EBITDA margin of 16% while maintaining gearing below 40%. For 2020, it aims to achieve €10 billion and 17% respectively.
To achieve these targets, Arkema "will continue to implement its profitable growth strategy focusing on end-markets and countries offering a strong potential for development". Sales growth will ideally be balanced between organic growth, based on innovation and expansion in high growth countries, with a more balanced approach between China, India, Brazil and the Middle East, and bolt-on acquisitions, mainly in high performance materials and downstream of acrylic monomers.
More immediately the 2012 target was confirmed as EBITDA close to €1 billion. "Confident in its long-term prospects, Arkema announces that its dividend per share will already show a significant step-up in 2012 and targets beyond a 30% pay-out ratio on adjusted net income," the company stated.
In July, Arkema completed the divestment of its Vinyl business. This following on from the acquisitions of Hipro Polymers and Casda Biomaterials in China in early 2012, are seen as the last steps of its transformation. The company also launched a new strapline of 'Innovative Chemistry' and three newly formed business segments: High Performance Materials, under Pierre Chanoine, Industrial Specialties and Coating Solutions, which has been split off from Industrial Specialities, though both are headed by Marc Schuller. The three are broadly similar in size at present, though High Performance Materials is expcted to reach 38% of the total by 206.
Subsequently, on 1 October, Arkema finalised two of the portfolio changes that are moving it further into specialties. Its Coatex subsidiary acquired an acrylic additives and emulsions production site from Resicryl in Brazil that will manufacture the full range of rheology additives and waterborne emulsions for the minerals, paper, construction, water treatment and cosmetics markets in South America. The tin stabilisers business, meanwhile, was sold to PMC, enabling Arkema to focus its functional additives activity on organic peroxides for use as reaction initiators, acrylic impact modifiers and glass coating additives.
From Online Issue: October 2012