Spolchemie's Francois Vleugels lays plans to lead the producer to safety

To the rescue

15 March 2010 00:00 [Source: ICB]

Francois Vleugels is blazing a trail across the Czech chemical industry. After Unipetrol, his latest venture is a turnaround at beleaguered resin producer Spolchemie

Spolchemie
MANY PEOPLE like to think they thrive on a challenge. But with his recent appointment as general manager of near-bankrupt Czech epoxy resin producer Spolchemie, Francois Vleugels seems to go one step further by taking on a company in really dire straits and giving himself just a year to turn it around.


Spolchemie

When Vleugels took over at Spolchemie in August 2009, he inherited a group that was expanding too fast just as the economic downturn really kicked in.

"They'd over-expanded in the good times, believing there was no end to growth. In view of the size of the company, it was over-ambitious to target Europe, the Far East and the US," he says.

Its ambitious plans included the construction of a 180,000 tonne bulk liquid epoxy resin tank facility in Texas, US. This opened early in 2009. There were also plans for an epichlorohydrin (ECH) plant in Malaysia. In February, Vleugels revealed that he had shut down the Texas facility and was reconsidering the Malaysia venture.

These expansions, plus lower demand caused by the downturn, put Spolchemie in big trouble with its banks and facing a cash flow crunch. Customers were in trouble, cutting orders and delaying payments. The cash crisis meant Spolchemie struggled to pay raw materials suppliers, leading to production delays and delivery problems.

As part of a long-term refinancing plan, the company's shareholders (it is 63%-owned by Czech private equity group Via Chem Group) agreed to hand all of its assets to five banks as collateral against debts of koruny (Kc) 2.77bn ($161m, €110m).

The company's growth strategy first floundered when US-based Hexion Specialty Chemicals decided not to go ahead with the sale of its specialty epoxy resins business in Germany and the US to Spolchemie. The deal had relied on the merger of Hexion and US chemical group Huntsman, which failed to go through.

As part of Vleugels' rescue plan, Spolchemie shed more than one-fifth of its 950-strong workforce by the end of 2009.

When he took over, he says: "We were unable to meet commitments to banks and suppliers and were technically insolvent. [Sales] had totally dropped from over Kc5bn in 2008 to Kc3.2bn in 2009 and we were unable to buy raw materials. I could see a way out - that's why I took the job. If there had been no hope, it would have been a waste of time. The sooner you get in, the easier a rescue is. I should have been there three months earlier."

After negotiating a standstill agreement and new payment schedule with the banks, Vleugels put a rescue plan together that was also agreed by banks and shareholders. Vleugels had to act swiftly to stop any further cash hemorrhaging. The company needed to generate a minimum earnings before interest, tax, depreciation and amortization (EBITDA) of €20m ($27m) to cover its obligations, but was operating at only €5m.

"We developed a plan to capture savings of more than €10m which included the staff reductions. We are on track. This is 80% complete. We also have some redundant buildings for sale." Vleugels is also trying to improve the business systems for the company: "We're often flying blind. We don't have a good management accounts system or ERP [enterprise resource planning]. In this crisis, we need to see results immediately."

Revenue growth of €40m was also required to get the company back on track. Vleugels claims the company has already regained its lost market share in epoxy resins, but is waiting until prices improve before achieving the revenue target. Spolchemie is No. 3 in epoxies in Europe and export oriented, with less than 10% of production being sold domestically. "The rescue plan was in place by November. We had a new budget for 2010 which included savings and we got additional cash from the owners but not enough to save the company. Now we've boosted sales by 50%, so working capital could be an issue." Vleugels showed customers the rescue plan to help prove the company could again be a reliable supplier: "We haven't let them down," he says.

NEW DIRECTION
Once the company has stabilized, Vleugels will focus on developing Spolchemie's new green technology for manufacturing ECH, a key raw material for epoxy resins. "Our new process uses glycerin, a by-product of biodiesel manufacture. It's very efficient," he insists, adding that the products are already in commercial production.

Having a renewable feedstock could be a great selling point for companies trying to boost their green product portfolio and cut their carbon footprint, he believes. Spolchemie is currently having the carbon savings of the new route analyzed so that its green claims can be marketed.

Vleugels also sees opportunities in producing more specialized epoxy resins - grades of polyester resins, plus liquid and solid resins. "We have low-cost raw materials and a worldscale plant and will have to move more and more into specialties. I don't believe Europe is the land of commodities."

He leaves Spolchemie in August (see Chemical Solutions box below) and is looking for other, equally challenging, turnaround situations.

IS SPOLCHEMIE SAFE?
"We see a lot of movements in raw material prices, so more cash will be needed. The cost of BPA [bisphenol A] has shot up by €300/tonne [$408/tonne] since November connected to benzene, which has also increased. There is a lot of stress on the cash situation. The war is not over yet."

CHEMICAL SOLUTIONS
After his abrupt departure from Czech chemical and oil group Unipetrol, in February 2009, Vleugels and some colleagues set up a turnaround group known as Chemical Solutions. This group was contracted to Spolchemie. It took Chemical Solutions eight weeks to put the rescue plan together and have it approved. The team consisted of experts in production, maintenance, supply chain management, procurement, human resources, as well as legal and corporate governance. After Vleugels leaves Spolchemie in August, he says: "I want to do something different with my life. I want to have fun and I like the chemical business. There must be many distressed companies around with good manufacturing assets."