The ICIS Top 100 Chemical Companies: LG Chem is the ICIS Company of the Year

24 September 2010 12:52  [Source: ICB]

South Korea's largest chemical producer boosted sales by 8% and operating profits by 45% in an incredibly difficult year for the industry


 Gareth JJ Burgess

ICIS is delighted to reveal that LG Chem, South Korea's largest chemical producer, is the winner of the ICIS Company of the Year Award for superb financial performance in 2009.

LG Chem managed to grow last year against the backdrop of the global financial crisis and the economic slump. The company produces widely-used petrochemicals - butadiene-­styrene-based synthetic rubber for tires, ­polyvinyl chloride (PVC) and the plastic ­acrylonitrile-butadiene styrene (ABS). It also makes rechargeable batteries, electronic materials and high-performance films.

Both these areas of business - petrochemicals and electronics - were expanded in 2009. The company registered an 8% increase in group sales in local currency, a 45% increase in operating profits and a 51% jump in its net income for the year at a time when so many other firms experienced the worst of the slump.

LG Chem attributed the results to outstanding individual business performance, as well as favorable external market factors - the weak Korean won, the impact on petrochemicals of more stable oil prices and China's economic stimulus packages.

"This award marks a symbolic achievement for LG Chem. LG Chem's significant outperformance results from its tireless efforts to create innovation and introduce a new culture of change to the organization, while improving global competitiveness as well," says LG Chem CEO and vice chairman Peter Bahnsuk Kim.

He adds that LG Chem's "success DNA" will help its business grow further as a leading global company, focusing not only on the petrochemical and information and electronic materials businesses, but also on new businesses such as advanced batteries for electric vehicles.

 "LG Chem's significant outperformance results from its tireless efforts to create innovation and introduce a new culture of change to the organization"
Peter Bahnsuk Kim
CEO and vice chairman, LG Chem
LG Chem was the clear lead performer in the ICIS analysis of the data collected for the ICIS Top 100 Chemical Companies annual listing. This analysis looks at the overall financial performance of the leading chemical companies and the chemical company affiliates of the oil majors. It takes into account important productivity measures and looks closely at year-on-year financial trends.

Last year was extremely difficult for all chemical companies. Closely tied to manufacturing industry and to the vital parts of the global economy hardest hit by the recession, chemical producers were under unprecedented pressure. Production had been cut back severely toward the end of 2008 as the economic crisis went into full swing.

Demand growth improved, however, through 2009, driven largely by China and the stimuli - financial and otherwise - given to its economy. Chemical companies that could export to the recovering China markets were able to compensate for slower recovery in other regions. But the sharp downturn in the construction and automotive sectors hit chemical makers particularly hard. Few if any businesses were immune from the downturn.

The Top 10 performers in the detailed ICIS Company of the Year analysis for 2009 are LG Chem, Air Liquide (France), Chevron Phillips Chemical (US), Lubrizol (US), FMC (US), Kuraray (Japan), Kemira (Finland), Praxair (US), SIBUR (Russia) and Valspar (US). Other specialty chemical firms, namely Givaudan (Switzerland), RPM (US), Syngenta (Switzerland), Daicel Chemical (Japan) and Orica (Australia) also had a particularly good showing.

Specific market conditions or specialized product portfolios lay behind the excellent performance of most of these companies in an extremely difficult year for businesses of every kind. The performance of the largest, globalized and largely diversified chemical players reflected the tough market conditions in most petrochemical, polymer and, indeed, speciality chemical lines.

Total sales for the Top 100 Chemical Companies were $997bn (€696bn at end 2009 exchange rates) in 2009, down by 19.8% from a peak in 2008. These leading companies generated about 39% of total global chemical shipments, excluding pharmaceuticals, in 2009.

The Top 10 players in chemicals by revenues accounted for about 36% of the total sales figure for the year, but their sales were markedly lower than in 2008. UK-based Shell Chemicals, Netherlands-based LyondellBasell Industries and UK-based INEOS were among the 10 companies recording the steepest falls in sales in 2009, their revenues plunging by 43.9%, 39.2% and 36.8% in US dollar terms, respectively. US-based ExxonMobil Chemical saw sales fall by 29.4%.

Germany's BASF, the largest chemical company by sales, clearly benefited from a diverse product portfolio and its position in oil and gas, and recorded a more modest 17.3% fall in sales in US dollars. US-based Dow Chemical's sales were down by 32.9%, while Saudi Arabia's SABIC saw sales fall by a significant 31.6%.

When top-line growth is disturbed like this, profits are bound to suffer. Companies cut back hard in 2009, with head counts severely reduced and capital spending and research and development constrained. Such shifts are reflected in key financial and productivity measures.

The decline in operating profits hit operating margins for the big fertilizer producers last year. But Iran's National Petrochemical Co., South Africa's Sasol, SABIC, Shin-Etsu of Japan, Germany-based Merck KGaA and Quattor of Brazil were also among those seeing margins at this level fall by more than 5%.

Operating profit relative to the number of employees dropped most sharply among the Top 10 group of companies for LyondellBasell and Dow Chemical, even though both players cut back sharply on the numbers in the workforce.

Retaining productivity was a key goal throughout the industry in 2009 but was very difficult to achieve in such a harsh operating environment. When it came to the bottom line, fewer chemical companies in 2009 booked losses compared with 2008 - 16 compared with 24. The inventory holding losses that skewed the figures in the earlier year were avoided. There were not the wild swings in commodity prices and the cost of oil. The oil price, however, marched steadily upwards over the course of the year and, in doing so, helped to push chemical prices higher, particularly for the commodity chemical makers.

SABIC produced the strongest net margin, 8.8%, among the Top 10 chemical industry players in 2009, even though its margin was depressed by 39.7%. US-based DuPont managed to raise its net margin in 2009 to 2.9%. The chemical net margin at Exxon­Mobil was also pushed higher by 10.6% to 5.6%.

LG Chem, the ICIS Chemical Company of the Year, managed to buck the general trend by taking advantage of favorable market conditions in important businesses in calendar 2009.

The petrochemicals unit saw sales fall by 4.3%, but pushed operating profits 61.5% higher. Information and electronic materials sales accounted for 31% of the consolidated group total for the year and were up by 55.4% on 2008. The division's operating profit was up by 10.4%.

LG Chem's most visible growth engine is its automotive battery business. It has an exclusive contract with US automaker General Motors to supply batteries for the Chevy Volt, and has pursued similar contracts in China and South Korea.

The LG Chem subsidiary, Compact Power, began building a $300m lithium ion battery plant in Holland, Michigan, US, in July. US President Barack Obama attended the groundbreaking ceremony.

For more on LG Chem, and other key chemical players, visit our Company Intelligence site

By: Nigel Davis
+44 20 8652 3214

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