ISP looks to innovation and M&A

27 February 2006 00:00  [Source: ICB Americas]

AFTER SUCCESSFULLY overcoming the challenges of spiraling raw materials costs and hurricanes in 2005, International Specialty Products (ISP) is banking on new product launches and acquisitions to speed up the growth momentum this year.

“By and large, we are pleased with 2005, as we posted double-digit growth in net sales and operating income. We absorbed huge raw material cost increases, the damage by Hurricane Rita and some internal manufacturing problems,” says Sunil Kumar, president and CEO of ISP.

Kumar and his team are quietly confident of further upside in 2006, and the roots of their optimism are not hard to find. Acquisitions and new product launches will be key contributors while debottlenecking of capacities will also help boost volumes. The external environment too appears favorable. In what Kumar describes as a “happy confluence,” raw material costs have started easing in recent months while end-product prices are on their way up.

Acquisitions Spur growth

Acquisitions will continue to be an important platform for growth. Wayne, N.J.-based ISP has already announced two in the promising biocides business this year. The first was for Progiven, a French industrial biocide producer with 700 customers in more than 50 countries. The second deal, which is for Milker & Grüning’s biocide assets, is expected to close in the second quarter.

“We are hopeful of doing two to three more [acquisitions] in 2006, but they will be small ones,” states Kumar. And while acquisitions form an integral part of ISP’s growth strategy, they account for less than one-third of the company’s growth, stresses Kumar.

Benefits from innovation

ISP is also confident that its strong track record of introducing new products will start delivering dividends in 2006.

“It does take several years in the markets that we participate in for new products to materialize or to convert into sales,” points out Stephen Olsen, senior vice president of sales Americas, global R&D and marketing.

In the pharmaceuticals business, ISP is banking on the tablet coatings market, which it entered in late 2005. The entry will take full advantage of the investments made in technical centers at São Paulo, Mexico City, Shanghai, Hyderabad and Istanbul.

“We will now have full formulation capability in every region and this is going to be very important to the launch of tablet coatings,” says Olsen.

Among other products, a new grade of excipient for the direct compression tablet market will be introduced, which Olsen says is more cost-effective than the wet granulation process.

The personal care business has also seen a number of important launches and several more are scheduled for the first half of this year, particularly in the polymer areas. “Traditionally, ISP has been known in personal care as a hair-fixative company. But our range is much broader than that and I think people will recognize this as we commercialize some of our new products in 2006,” says Olsen.

Dealing with commoditization

But Kumar admits that some products are experiencing a shrinking market. One example is sunscreen, which has seen commoditization and the entry of competitors from China and India. “Just to maintain sales requires tremendous effort and innovations,” says Kumar. ISP has discontinued manufacturing the sunscreen, but as a service to its customers it continues to supply product by sourcing it from low-cost producers.

ISP boosts industrial output

Turning to industrial chemicals and elastomers, the focus is on boosting output. Steven Post, senior vice president operations, says that butanediol (BDO) production at ISP’s Marl facility in Germany, was over 100,000 metric tons last year.

An expansion is under way at the emulsion styrene butadiene rubber (ESBR) facility in Port Neches, Texas, which ISP acquired from Ameripol Synpol in 2003. “We have the infrastructure to add capacity; we can easily do a 50% increase,” says Post. ISP had announced in 2005 that it planned to double capacity within two years to 340,000 metric tons.

Another acquisition that is delivering results is the BDO plant at Lima, Ohio, which ISP acquired from BP in March 2005. Modifications are under way at the facility, which started its life as a demonstration plant. Once complete, it will meet ISP’s 50,000 metric ton annual BDO requirement in the US, thereby releasing the Marl capacity for the merchant market. The Lima plant may also produce gamma butyrolactone (GBL) and maleic anhydride (MAN), both of which will be used captively.

Global expansion

Looking ahead, Kumar is keen on expanding ISP’s presence in China and India, preferably through an acquisition as this would be faster than building a plant from scratch. “We will do something this year in a couple of key markets,” he says.

In the meantime, ISP is upgrading its technical centers in the two countries to global R&D centers. The Hyderabad location will focus on the pharmaceutical business while Shanghai will concentrate personal care and performance chemicals.

By: Malini Hariharan
+65 6780 4359

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