Comment: More growth and streamlining needed at Celanese

20 March 2000 18:32  [Source: ICIS news]

LONDON (CNI)--The speed at which German chemicals company Celanese moves to reshape its portfolio has been surprising.

Even senior management admit that they have been able to realign and restructure faster than expected. The time it took former parent Hoechst to launch the new company clearly helped – even though it was a frustrating and worrying period - but accelerated chemical industry restructuring was a bonus.

Looked at in bald financial terms, the 1999 figures show that Celanese gained more than Euro900m from divestments by the end of the year. Net debt was cut from Euro1.48bn to Euro570m, with a little help from Hoechst (cash from receivables of Euro706m used to pay back credits), giving the company much greater room for manoeuvre and a chance to promote internal growth rather than worry too much about the business mix.

Internal growth is sorely needed now. Parts, but not all, of the chemical industry are booming, and Celanese dearly needs a lift at the operating level. Celanese looks for growth in acetyl products but has some real streamlining to complete as it battles with higher raw material prices. The company wants to forward integrate and expand geographically in chemical intermediates. It is looking for new applications in acetate products and Ticona technical polymers. There are opportunities to broaden the product range and introduce new grades in the performance products segment, which includes the Trespaphan oriented polypropylene (OPP) film producer and Nutrinova sweeteners and sorbates.

Celanese had a hard time last year. At the annual press conference today, chief financial officer Perry Premdas mentioned strong volume growth (between 4% and 11%) in acetyl products, at Ticona and especially Nutrinova's sweetener, Sunnett. He also talked of better profits from Ticona and Nutrinova. However, both acetyl products and chemical intermediates suffered heavily from higher raw material prices. The sharp decline in sales of acetate products have forced the company to announce closure of over a third of filament capacity over the next two years.

In all respects the company has to focus tightly on costs and cost control and on where it can grow most effectively. There are a lot of positive noises coming from Celanese but the company is also proving that actions speak louder than words. Apart from the announced closures the company has let it be known clearly that it wants to focus on bigger, more efficient production plants. The large new acetic acid plant at Clear Lake in Texas is a case in point as is the acetic acid plant in Singapore, part of a Euro300m complex. On the other hand, the company will benefit from new introductions such as cyclo-olefin copolymer (COC), being produced in Germany, and on the bigger ultra high molecular weight polyethylene (PE) plant in Texas.

Celanese could only manage to scrape by with an EBITDA (earnings before interest, tax, depreciation and amortisation) of Euro377m last year, a fall of 35%. The operating loss was Euro521m largely because of special charges. However, even taking out these charges, the results are not good. Premdas said that the return on capital employed during this restructuring phase does not meet strategic goals. Improving profitability is the top priority in the phase ahead.

Certainly, this means some more reorganisation but it also means a lot more restructuring and greater focus on the more efficient and production locations and run-downs elsewhere.

By Nigel Davis, Editor, Chemical Insight

Nigel Davis writes Chemical Insight twice each month (24 times a year) giving timely coverage of issues which are vital to the industry’s future. Insight’s critical comment and detailed company analysis make it unique in the industry. Further details from +44 20 8652 3397. Fax: +44 20 8652 8952. Comments can be e-mailed to nigel davis@rbi.co.uk

By: Neil Sinclair
+44 20 8652 3214

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