The year the cheering died

23 September 2002 00:00  [Source: ICB]

The slowdown in 2001 hit the industry hard, compounded by the events of 11 September. The Reed Chemical Group annual Top Performers survey charts the chemicals downturn, from the fall in sales, to the cutbacks companies made. Chemical Insight's Nigel Davis reports

There is no hiding from the fact that 2001 was the most difficult year in decades for the global chemical industry. North American petrochemical producers hit the low point of the cycle in the fourth quarter while their European counterparts followed suit in the early part of 2002. Asia struggled throughout the year with Japan particularly remaining depressed.

Companies had to battle hard to cope with the impact of the deep recession in manufacturing, and that struggle has continued into 2002. In 2001, speciality chemical manufacturers saw markets in electronics and telecommunications slump: the chemical sector followed the downturn in automobiles and construction. Even the fine chemicals business was dogged by the slowing rate of new drug development and the pharmaceutical sector's own troubles in getting new products to market.

By the end of the year business activity had slowed to a point where many companies decided it was better to let 2001 slip into memory than to try to battle against the odds. Plants were shut down and factories closed.

Against this backdrop, the Reed Chemical Group (RCG) annual Top Performers survey does not make comfortable reading. The survey reflects the full impact of the chemicals downturn, from the fall in sales for key global players and the sharp impact on profits, to the cutbacks companies found it necessary to make.

Indeed, 2001 in chemicals was characterised by two things:the impact of manufacturing recession and the economic slump on business and the way in which companies fought back by cutting costs and paying more obvious attention to the bottom line.

All the RCG publications and online services have worked together to compile data for this survey, which this year cover the top 150 producers of chemicals. The survey is truly global and aims to give readers a clear picture of the comparative financial performance of companies from very different parts of the world.

Companies may operate in different segments of the industry, but it is easy to see from the comparisons made here that the downturn affected all players. Those few companies that made gains often only did so with the help of radical restructuring.

Clear signs

Our main table is ranked by sales. Companies are ranked in dollar equivalent terms using Federal Reserve Bank of New York exchange rates for the end of the reporting period. We have looked at the top chemical companies and taken corporate figures wherever appropriate to ensure we have as large a set of data as possible. Where appropriate, we have focused solely on the chemical operations of larger concerns like the chemicals businesses of the major oil companies.

We have looked at operating profit data and comparisons, to give a feel for comparative operating performance, and charted firms' capital spending commitments, to show how producers are investing for the future. Other data illustrate financial performance and the trend in R&D spend and employee numbers.

The data clearly show how hard chemicals sales were hit in 2001 by the poor operating environment. Companies charted steep falls in volumes as well as in prices - the average fall in sales for the Top 50 companies was 4.1%. This is a significant number and it took often drastic action to stem the impact on operating performance.

The cuts came thick and fast in chemicals in 2001. Companies sought to maximise operating returns by ramping up efficiencies and curtailing discretionary spending. They put stops on capital projects and cut into R&D investment. The impact of these actions will be felt this year and well into the future.

Companies in the US were expecting more from 2001 than they got. The same was certainly true in Europe, where a surprising degree of optimism prevailed until almost mid-year. As it turned out, companies were hoping against hope that US growth would help pull chemicals out of the doldrums. But a spate of profit warnings in mid-year reflected reality and the fact that business in 2001 was going to remain tough.

The tragic events of 11 September in the US almost brought business to a halt for a while. The war in Afghanistan heightened global uncertainty. Indeed, the remainder of the year was extremely difficult, to say the least.

The drop in sales values led directly to a fall in operating profits of more than a third for the Top 50 companies. The steep fall in operating margins shows how difficult it was for producers to cut spending fast enough to cover the fall in revenues. The cutbacks in selling, general and administrative costs give some idea of the extent of the constraint put on operations - or the efficiency increases driven through by most companies. Across the board, companies cut further than ever before. Employee numbers fell again. In chemicals in 2001, the drop among the Top 20 firms was 4%.

Shareholder value

The industry has been applauded in some circles for the way in which it has restrained spending on new plant and machinery and sought to give more money directly back to shareholders. Indeed, narrowing growth prospects in chemicals, the impact of the economic downturn and, perhaps more worryingly, the continuing overhang from excess capacity - in some speciality sectors as well as in certain petrochemical markets - point to the validity of that position.

The raw data show how companies cut back on capital spending in 2001 - the top US companies by 21% and the top European companies by 9%. The cutbacks highlight the fact that chemical producers are more wedded to attempts to produce more from less but also reflect the industry's position in the cycle. As cash flows improve spending can be expected to rise again.

Companies want to innovate more and some firms appear determined to maintain research investment to lift at least the potential for new growth. But, for many, 2001 saw a cut in R&D spending. The average fall in R&D spending for the Top 50 players was 0.5%, which indicates a more significant cutback in real terms.

The Reed Chemicals Group industry data - which goes back over more than two decades - shows clearly that chemical industry R&D spending has fallen in real terms in recent years and is a disturbing longer-term trend for what claims to be an innovation-led industrial sector.

M&A activity slowed dramatically in 2001, but large parts of the industry continued to pay the price of earlier expensive forays into new business. Many companies were hit hard in 2001 by high interest charges, and this provides at least one of the main reasons behind the drive by most firms to lift cash flows to help reduce debt burdens.

The bottom line

The credit quality of many companies in the sector, particularly in North America, has been closely scrutinised through this downturn and will continue to be as the sector slowly begins to improve from the low point. There is no doubt that some companies have been pushed to the brink, and they need a much more advantageous operating environment if they are to recover quickly

That low point is exemplified by the bottom line figures shown in the table. Thirty seven chemical companies recorded a net loss in 2001, probably fewer than at the last low point in the cycle in the early 1990s, but a significant number nevertheless. By this measure, the companies hardest hit by the downturn in 2001 were in bulk chemicals and petrochemicals. Speciality producers were not exposed to the same pressures in the chemicals cycle but were hit by the manufacturing recession in the US and the more widespread economic downturn.

Sector recovery has been apparent so far this year. Bulk chemicals and petrochemicals players particularly have recovered strongly on the back of rapidly filling product pipelines and inventories. Much the same can be said of the speciality chemical producers, which have seen growth return. Concern remains, however, over the robustness of the economic recovery and when real market growth will take over as the key driver in chemicals.

In 2002, chemical companies have recorded sequential month-by-month and quarter-by-quarter improvements and have continued to constrain costs and discretionary spending. Comparisons will look better as the year progresses, but from the current standpoint, 2002 will be another difficult year for the sector.

It is one, however, in which firms sincerely hope they will have seen the worst of the downturn and a return to some semblance of year-on-year growth. The RCG Top Performers analysis for 2002 will show whether they will have proved to be right. n

Data compiled from company reports by staff on ACN, Chemical Insight, CMR, CNI and ECN. Readers interested in more comparative data for the sector should contact either Hema Raval at CNIe-mail: hema.raval@cnionline.com orNigel Davis at Chemical Insight ate-mail: nigel.davis@rbi.co.uk

Top ten global players by net profit, $m

Company	Net profit, $m	Change
BASF	5214	372.4%
DuPont	4339	87.5%
Takeda	1776	60.5%
DSM	1259	144.0%
ExxonMobil	882	-24.0%
Bayer	859	-46.9%
Air Liquide	625	7.7%
Akzo Nobel	597	-29.1%
Merck	583	150.2%
Air Products	519	-2.5%

Top ten global players by capital expenditure, $m

Company	Capital spending, $m			Change
BASF	2703		-16.4%
Solvay	2338		223.5%
Bayer	2329		-1.1%
BP	1926		21.5%
Dow Chemical	1587		-12.2%
DuPont	1494		-22.4%
Sinopec	1443		92.5%
Atofina	1434		19.1%
Air Liquide	981		8.6%
ExxonMobil	872		-40.6%

Top ten global players by number of employees

Company	Employee numbers			Change
Bayer	116 900		-4.3%
Sinopec	101 353		na
BASF	92 545		-10.4%
DuPont	79 000		-15.1%
Atofina	71 312		-1.3%
Akzo Nobel	66 300		-3.1%
PetroChina	66 264		na
Degussa	53 378		-15.2%
Dow Chemical	52 700		-1.1%
BOC	43 171		1.1%

Top ten global players by R&D spend, $m

Company	R&D ($m)			Change
Bayer	2215		7.3%
DuPont	1588		-10.6%
BASF	1110		-18.3%
Dow Chemical	1072		-4.2%
Akzo Nobel	754		7.2%
Syngenta	723		-3.0%
Mitsubishi Chemical	637		24.4%
Merck KGaA	514		5.7%
Degussa	412		na
Solvay	304		-5.3%

 

Top ten global players by sales/employee, $m

Company	Sales/ 2001			Change
Lyondell	2330606		na
Georgia Gulf	978815		-17.8%
Terra Industries	827404		0.5%
Sterling Chemicals	805634		-32.2%
Nova Chemicals	694348		-16.7%
Occidental Chemical	678814		na
ChemFirst	633947		19.4%
Borealis	623087		na
Huntsman	615385		8.6%
Mitsui Toatsu Chemical	558954		na

Top ten global players by R&D, as % of sales

Company	R&D/ sales 2001			Change
Syngenta	11.4%		5.1%
UCB	8.8%		na
Lubrizol	8.6%		1.2%
Bayer	8.2%		na
Ethyl	8.0%		-8.0%
Merck KGaA	7.7%		na
IFF	7.3%		-4.8%
DuPont	6.3%		2.9%
Akzo Nobel	6.0%		na
Wacker-Chemie	5.4%		na

The top 100 chemical companies by sales in 2001 (US$m)

	Company	Sales, $m	Change, %	Operating profit/EBIT	Change, %	Net profit	Change, %	Total assets	Change, %
1.	BASF	28 928	-9.6	542	-78.5	5214	372.4	32 822	-4.4
2.	Dow Chemical	27 805	-5.9	35	-98.9	-385	-	35 515	-1.3
3.	Bayer	26 948	-2.2	1434	-51.0	859	-46.9	32 968	1.6
4.	DuPont	25 370	-13.1	na	na	4339	87.5	40 319	2.3
5.	Atofina	17 410	-6.2	975	-32.7	na	na	na	na
6.	ExxonMobil Chemical	15 943	-8.9	na	na	882	-24.0	na	na
7.	Shell	13 767	-12.1	97	-91.3	230	-76.8	10 782	-4.2
8.	Mitsubishi Chemical	13 416	1.9	263	-47.5	-341	-	16 927	11.4
9.	Akzo Nobel	12 559	0.8	1398	-4.3	597	-29.1	11 505	1.7
10.	BP Chemicals	11 515	2.4	242	-76.6	na	na	na	na
11.	Degussa	11 503	1.1	433	-16.1	375	3.7	16 135	-5.4
12.	ICI	9344	-17.1	631	173.0	176	-	9161	-11.2
13.	Asahi Kasei	9008	-5.8	344	-52.4	39	-79.4	8990	-3.8
14.	Huntsman	8000	-5.9	na	na	na	na	na	na
15.	Solvay	7766	-1.6	559	-5.7	359	-6.9	9791	19.9
16.	Sabic	7694	7.9	1059	-34.8	476	-51.0	23 860	0.1
17.	Lyondell Chemical	7691	-20.1	112	-67.0	-98	-	6703	-4.9
18.	Sumitomo Chemical	7674	-2.2	519	-18.7	228	-13.0	10 499	-4.3
19.	Takeda Chemical Industries	7574	4.3	2119	24.4	1776	60.5	14 809	12.4
20.	Air Liquide	7413	2.8	1049	5.6	625	7.7	10 730	4.7
21.	Dainippon Ink & Chemicals	7383	0.0	na	na	299	-35.8	8388	0.0
22.	Mitsui Chemicals	7179	1.4	282	-23.8	58	-55.2	9780	-1.3
23.	DSM	7094	-1.5	464	-30.6	1259	144.0	7633	9.3
24.	EMC	7091	-20.1	-299	-	-508	-	9890	-7.0
25.	General Electric	7069	-11.9	1596	-20.8	na	na	10 154	3.8
26.	Teijin	6959	21.3	222	-32.5	7	-93.9	8324	4.4
27.	Merck KGaA	6701	11.7	780	17.5	583	150.2	7348	0.2
28.	Sinopec	6593	-8.5	-92	-	na	na	9458	2.4
29.	Rhodia	6479	-1.9	14	-96.8	-190	-	7975	-5.8
30.	Sekisui Chemical	6371	-7.5	23	-16.4	393	7.1	6031	-13.8
31.	Syngenta	6323	-7.6	642	-7.4	223	0.5	10 709	-9.4
32.	BOC	6110	7.2	887	7.7	371	-22.7	3599	-4.2
33.	Norsk Hydro	5970	0.6	na	na	223	27.9	5995	-7.2
34.	Clariant	5947	-6.7	677	52.4	-748	-	6359	-18.5
35.	PPG Chemical	5943	-6.0	na	na	na	na	5266	-9.0
36.	Equistar	5909	-21.2	na	na	-283	-	6308	-4.2
37.	Basell	5877	na	-217	-	-190	-	5406	-2.4
38.	Chevron Phillips Chemical	5871	-21.4	89	na	-480	-	5860	-12.2
39.	Shin-Etsu Chemical	5841	-4.0	865	1.8	516	6.2	9709	1.8
40.	Air Products and Chemicals	5717	4.6	861	-2.2	519	-2.5	8084	-2.3
41.	Rohm and Haas	5666	-10.8	na	na	395	11.6	10 350	-8.0
42.	Showa Denko	5410	-5.1	146	-35.2	-261	-	7867	-5.3
43.	Eastman Chemical	5384	1.7	na	na	110	-63.2	6086	-7.1
44.	Praxair	5158	2.3	800	13.2	430	18.5	7715	-0.6
45.	Sherwin-Williams	5066	-2.8	490	-	263	-15.0	3628	-3.3
46.	Reliance Industries Ltd	4847	na	541	na	na	na	na	na
47.	Celanese	4537	-2.1	-470	-	-343	-	6288	-7.6
48.	Ciba Specialty Chemicals	4438	-6.8	462	-12.4	230	-15.5	7060	-3.2
49.	Ineos	3942	na	na	na	na	na	na	na
50.	Polimeri Europa	3864	na	na	na	na	na	na	na
51.	PetroChina	3839	-4.8	na	na	na	na	8933	-3.8
52.	Hitachi Chemical	3623	-18.0	98	-71.5	24	-75.9	3153	-8.5
53.	LG Chem	3622	11.4	287	-21.3	125	-24.1	3331	3.4
54.	Linde	3450	2.5	512	10.8	na	na	na	na
55.	Honeywell	3313	-18.3	52	-84.4	na	na	4053	-4.5
56.	Borealis	3300	-0.1	48	3.8	-36	-	3059	-5.8
57.	Tosoh	3221	0.3	118	-45.3	3	-95.1	4312	7.0
58.	Sasol	3208	83.1	316	37.2	na	na	na	na
59.	Nova Chemicals	3194	-18.4	-	-	-128	-	4359	-8.3
60	Occidental Chemical	3092	-18.5	41	-86.0	-394	-	4074	-16.0
61.	MG Technologies	2900	-1.6	na	na	-32	-16.3	2163	6.6
62.	Solutia	2817	-11.6	-6	-	20	-83.7	3408	-4.8
63.	Cognis	2789	-1.9	155	-21.3	45	-50.0	2820	46.0
64.	Kemira	2757	-1.3	162	-17.6	79	-66.1	2752	1.7
65.	Crompton	2719	-10.5	-54	-	-124	-	3232	-8.4
66.	Nan Ya Plastics	2669	-13.4	na	na	225	-62.6	6984	7.3
67.	PolyOne	2655	40.6	-17	-	-46	-	2061	-15.2
68.	Hercules	2620	-16.9	287	-35.4	-2	-	5049	-8.7
69.	Wacker-Chemie	2514	-7.6	61	-78.2	-60	-	2833	-8.7
70	Rutgers	2477	-11.0	29	-79.4	60	-	2142	-8.9
71.	Dow Corning	2438	-11.4	56	-61.6	23	-	5141	-20.6
72.	Transammonia	2400	na	na	na	na	na	na	na
73.	Potash Corp of Saskatchewan	2387	-6.1	229	-29.9	121	-38.8	4377	10.7
74.	Shanghai Petrochemical Co	2370	-5.4	55	-66.0	14	-86.5	3415	18.5
75.	Johnson Matthey	2368	-5.3	216	15.6	na	na	na	na
76.	OM Group	2367	166.7	169	22.2	80	12.2	2541	87.2
77.	UCB	2203	12.3	415	23.6	283	18.5	2282	11.3
78.	Tessenderlo Group	2162	3.7	122	-19.4	73	-28.3	1927	11.9
79.	Repsol	2136	-29.4	-39	-	na	na	na	na
80.	Agrium	2063	10.1	31	-80.9	-57	-	2363	-0.3
81.	Denki Kagaku Kogyo (Denka)	2052	6.2	206	5.1	42	-32.3	2781	-2.7
82.	Orica	1999	10.1	31	-57.6	-95	-	1845	4.2
83.	RPM	1986	-1.1	167	-5.0	102	61.7	na	na
84.	IMC Global	1959	-6.5	247	-38.1	-67	-80.7	4249	-0.3
85.	FMC	1943	-5.2	195	-27.3	100	-35.1	2477	-19.1
86.	Formosa Chemicals & Fibre Corp	1921	5.4	na	na	132	-63.7	5200	9.5
87.	Valspar	1921	29.5	161	-1.8	74	-14.8	2226	97.9
88.	Engelhard	1889	-2.0	na	na	na	na	na	na
89.	Lubrizol	1845	3.9	173	-8.1	94	-8.7	1662	0.2
90.	International Flavours & Fragrance	1844	26.0	na	na	135	-9.8	2269	-8.8
91.	Ube Industries	1741	1.7	27	-69.3	na	na	2445	14.8
92.	Thai Petrochemical Industry	1734	5.2	120	na	202	-	2998	-0.8
93.	WR Grace	1723	4.6	na	na	79	-	2717	5.1
94.	Siam Cement	1713	3.7	97	-19.4	58	-28.3	1526	11.9
95.	Formosa Plastics Corp	1709	15.5	116	-6.0	192	-48.0	4704	2.5
96.	Cabot	1698	7.9	182	na	136	19.3	1919	-10.1
97.	Airgas	1636	0.4	125	15.8	54	11.8	1717	8.6
98.	Great Lakes Chemical	1595	-4.5	-277	-	21	-84.2	1690	-20.8
99.	Millennium Chemicals	1590	-11.3	82	-61.5	-43	-	3004	-6.7
100.	Ferro	1501	3.7	9348	31.3	71	-28.5	39	-46.4

Data compiled from company reports by staff on ACN, Chemical Insight, CMR, CNI and ECN. Readers interested in more comparative data for the sector should contact Hema Raval at CNI on e-mail: hema.raval@ cnionline.com

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