MTM announces increase of 94% in pre-tax profits

10 January 1991 00:00  [Source: PCE]

A set of good interim results anywhere in the chemicals industry is certainly a welcome sight at the moment; when the company involved is UK-owned and based, there is even more cause for celebration.

An ebullient Richard Lines, chairman and co-founder of Teesside-based MTM Chemicals, announced record results for the six months ending June 1991. Turnover is up 70% to £61.4m ($107m) and pre-tax profits have risen no less than 94% to £10.3m. He told Performance Chemicals that short-term profits will come from improved margins, rather than increased volumes.

Lines attributed the company's success to the accuracy of MTM's strategic positioning and flexibility of operation within the more recession-resistant sectors of the international fine chemicals industry. The results particularly reflect the significant contribution made by the company's largest acquisition to date, Hardwicke Chemicals, in the US.

The recession has led to a certain amount of destocking among customers and some credit-stealing, which has caused an increase in working capital. The strong dollar has translated dollar borrowings, which remained virtually unchanged over the period, to show a $13m increase, according to MTM's finance director, Tom Baxter.

Of MTM's two major 'bread and butter' businesses, agrochemicals has suffered because of adverse weather conditions during the critical spring period. Stock levels are correspondingly higher than they would normally be at this time of year. In this field, MTM is evolving away from generics into higher quality areas and carrying out an increasing amount of custom synthesis.

The pharmachemicals business has strengthened following restructuring of the company's Birstall operation. MTM's smaller business sectors, performance and speciality chemicals, continue to experience strong demand and export growth in niche markets such as oilfield chemicals and personal care products.

The star performer of the portfolio is research chemicals, a relatively new venture for MTM, following its acquisition of Lancaster Synthesis two years ago. This sector accounted for 23% of total profit from 10% of turnover in 1990 and in the first half of 1991 has already produced 16% of total profit (£1.6m) from 9% of turnover.

The latest Lancaster Catalogue of research chemicals, contains details of around 12 500 products for supply in gram quantity, 30% of which are believed to be unique. Some 50% of them are actually produced by the company and all are available ex-stock. A further 1100 products are available at short notice in quantities up to 250kg. MTM claims to be the global number two in the research chemicals market after Sigma Aldrich Fluka, which has an estimated 60% share.

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The rest of the market is fragmented between minor players. Lines hinted that some of these could be of interest to MTM. 'We are always looking at ways to expand our range of expertise and products through the acquisition of new chemistry and technology. The research chemist wants to save time and effort when ordering his chemicals, therefore the more we can offer him within one catalogue the better.'

'This is not a cheap or easy field to break into - MTM's "entry fee" through the acquisition of Lancaster Synthesis, was £20m, - which means it is unlikely that there will be a whole string of companies trying to enter the market on a "me too" basis. Considerable resources, both financial and human, are needed. At MTM we have around 200 research chemists employed in this sector.'

Following the Hardwicke acquisition, the geographical emphasis has lifted away from the UK to the US, which is expected to account for around 40% of turnover by the end of 1991. There is also a healthy chunk of business (22%) carried out in mainland Europe. The company has a sales and marketing operation in Hong Kong, but Lines does not think it likely that any production facilities will be set up in Asia-Pacific, at least not in the near future.

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Capital investment for the rest of 1991 and into 1992 will concentrate on consolidation. Capacity needs to be expanded at Teesport, debottlenecking must be carried out and a new small-scale research chemicals facility is scheduled in the US. As much as 30% of overall investment is earmarked for compliance with health, safety and environment legislation.

The trend is for customers to reduce the number of their suppliers, based on selection by quality and health, safety and environmental 'vetting'. Companies which have not complied with these requirements, said Lines, will soon find themselves forced out of the market. He also warned against the temptation to cut prices in an attempt to gain business, 'the road to disaster'. Instead, he advised, 'Companies must reinvest and not become dependent on a limited range of products and markets or a small customer base.'





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