Annual analysis shows sharpened portfolios, focus on costs

23 September 2002 20:31  [Source: ICIS news]

Chemical companies have become much more focused in what they do and in how they tackle costs.

The Reed Chemical Group (RCG) Top Performers analysis for 2001 and fiscal 2001/2002, for instance, which is published today, pictures a sector dominated by just four large, diversified companies in terms of sales and a host of growing but decidedly mid-sized concerns.

Merger and acquisition (M&A) activity in the sector, even though it has slowed markedly over the past 18 months, is helping create companies much more closely aligned to specific end-use markets. Globalisation, and hence size, is still an issue but along lines that are defined at the segment rather than the corporate level.

There is little change in the rankings by sales compared with 2000 but the Top Performers analysis shows the sector dominated by BASF, Dow Chemical (following completion of its merger with Union Carbide), DuPont and Bayer. These diversified companies each generated sales of more the $25bn last year.

The oil major chemical affiliates, Atofina, Exxon Mobil Chemical and Shell Chemicals follow in the rankings and there is a large group of companies with sales in 2001 of between $7bn and $13bn.

European companies tend to dominate the upper reaches of the rankings by sales. The impact of M&A activity in the US industry in 2000 and earlier is apparent lower down the sales table.

Degussa has moved down the sales league table following completion of some of its divestment programme. BP and Solvay have moved in the listings after their portfolio realignments.

The real up and coming companies, however, are the likes of Saudi Basic Industries Corporation (SABIC), which will climb higher in analysis of the 2002 figures following its purchase of DSM Hydrocarbons, and Reliance Industries, following completion of its petrochemical sector investments and purchase of IPCL (Indian Petrochemicals Ltd). At some stage the slowly merging major Japanese players will move in the rankings as will the South Korean Petrochemical producers trying hard to overcome acute financial difficulties.

M&A activity has not surprisingly all but ground to a halt in the difficult operating and financial environment. In the US that is hardly surprising - transaction values slumped to around 8.3 EV/EBITDA (enterprise value over cash flow) in the first half of 2002 compared with 13.9 times at the 1999 peak, according to analysis commentary published in the three RCG publications: ECN, A CN and Chemical Market Reporter. Sellers have been frightened off.

That having been said, however, some deals are being done – or are expected to be concluded this year. Relatively small, ‘bolt-on’ acquisitions are more commonplace than the difficult, larger deals.

The Top Performers analysis charts a difficult year for chemical companies, which had to cut back much further to cope with the slump in demand and plunging prices in 2001. The focus in the sector was clearly on cost control.

Cutbacks in capital spending and employee numbers are illustrated in the published analysis. Further detail from the data collected to prepare the listings shows broad cutbacks in selling, general and administrative costs.

Unfortunately, 2002 has provided little respite for the most beleaguered firms. There were clear gains for the petrochemical players and to a lesser extent the specialty chemical makers in the first half, but the industry has not seen the bounce-back some had hoped for. There are real concerns for business in the fourth quarter particularly. And while it is too early to predict the outcome for 2002, the Top Performers analysis next year is likely to illustrate the impact of further portfolio reshaping among companies in chemicals and certainly a further focus on costs.

Sales, profits, assets and major spending for the leading chemical companies in 2001

Company

Sales

Change

Net profit

Change

Total

Change

R&D

Change

Capital

Change

($m)

($m)

Assets

($m)

Spending

($m)

($m)

BASF

28928

-9.6%

5214

372.4%

32822

-4.4%

1110

-18.3%

2703

-16.4%

Dow

27805

-5.9%

-385

loss

35515

-1.3%

1072

-4.2%

1587

-12.2%

Bayer

26948

-2.2%

859

-46.9%

32968

1.6%

2215

7.3%

2329

-1.1%

DuPont

25370

-13.1%

4339

87.5%

40319

2.3%

1588

-10.6%

1494

-22.4%

Atofina

17410

-6.2%

1434

19.1%

ExxonMobil

15943

-8.9%

882

-24.0%

872

-40.6%

Shell

13767

-12.1%

230

-76.8%

10782

-4.2%

685

-5.6%

Mitsubishi Chemical

13416

1.9%

-341

loss

16927

11.4%

637

24.4%

752

15.6%

Akzo Nobel

12559

0.8%

597

-29.1%

11505

1.7%

754

7.2%

732

13.4%

BP

11515

2.4%

1926

21.5%

Degussa

11503

1.1%

375

3.7%

16135

-5.4%

412

ICI

9344

-17.1%

176

loss '00

9161

-11.2%

-10.2%

142

-8.8%

Asahi Kasei

9008

-5.8%

39

-79.4%

8990

-3.8%

Huntsman

8000

-5.9%

Solvay

7766

-1.6%

359

-6.9%

9791

19.9%

304

-5.3%

2338

223.5%

Sabic

7694

7.9%

476

-51.0%

23860

0.1%

72

-6.3%

611

-50.4%

Lyondell Chemical

7691

-20.1%

-98

loss

6703

-4.9%

32

-8.6%

177

-8.3%

Sumitomo Chemical

7674

-2.2%

228

-13.0%

10499

-4.3%

550

17.5%

Takeda

7574

4.3%

1776

60.5%

14809

12.4%

Air Liquide

7413

2.8%

625

7.7%

10730

4.7%

123

2.7%

981

8.6%


By: Nigel Davis
+44 20 8652 3214



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