27 September 2010 00:00 [Source: ICB]
CEO Jeffry Quinn seeks an ongoing transformation of the specialty chemical company, potentially adding a fourth segment
After undergoing a radical transformation from a commodity chemical-dominated company to one with specialized high-margin businesses, US-based Solutia is targeting solid growth through investment and mergers and acquisitions.
Solutia's business segments are advanced interlayers, performance films and technical specialties. It is the top producer of polyvinyl butyral (PVB) resins for automotive and architectural glass, and solar encapsulants - the clear coating covering solar panels. It also provides ethylene vinyl acetate (EVA)-based solar encapsulants after a recent acquisition. The firm's technical specialties segment comprises rubber additives and heat-transfer fluids.
Solutia is considering acquiring a fourth business segment, said Quinn. While he would not identify which product areas it could cover, he indicated that it would have to complement Solutia's manufacturing, process technology, logistics or commercial expertise.
The segment would also have to be a high-margin business. "One of the high-grade problems we have is that with EBITDA [earnings before interest, tax, depreciation and amortization] margins approaching 28%, it is a challenge to find opportunities to grow our business that don't degrade what makes Solutia special; our margin profile," Quinn said.
Solutia will also continue to look for bolt-on acquisitions.
In June, Solutia acquired Germany-based solar encapsulants producer Etimex Solar for €240m ($304m). In May, the firm bought Singapore-based window films business Novomatrix for $73m (€55m). Novomatrix did not produce the polyethylene terephthalate (PET)-based films, but bought them from suppliers and marketed the products. "We can make all the products that Novomatrix was marketing out of our Martinsville, Virginia facility," Quinn said. "We're looking for synergistic bolt-on acquisitions, much like Etimex Solar and Novomatrix."
Solutia is targeting 10-15% annual sales growth in 2010 and in the coming years, driven by its advanced interlayers and performance films businesses.
"We're seeing a continuation of very strong demand. Our automotive businesses have recovered nicely on a global basis and are doing well, solar is doing well, and we are even seeing surprising strength in the architectural end-market," he said. "We're cautiously optimistic as we are seeing continued growth with Asia leading the path and China being a strong component of that," he added. Solutia posted sales of $1.67bn in 2009, an increase of 21% from 2008, and adjusted EBITDA of $386m, up by 2%. Quinn expects EBITDA to grow by another 20% in 2010.
Solutia is considering back-integrating into EVA production for its solar encapsulants business.
"We currently buy EVA resin from multiple sources and extrude the sheet for photovoltaic applications, but we are evaluating long-term options on that. Certainly backward integration is among the options," said Quinn. "We are the industry leader in producing PVB resins, and some of the same skill sets, technology and knowledge base would apply well to the EVA side."
There are a number of opportunities to acquire EVA production capabilities, Quinn said.
Solutia's acquisition of Etimex Solar added EVA-based solar encapsulants to Solutia's product portfolio. Solutia already produced PVB-based encapsulants.
EVA accounts for 80-90% of the solar encapsulants market, with PVB making up the rest, noted Chris Reed, Solutia's business management director of advanced interlayer photovoltaics.
The solar end-market accounted for 7% of Solutia's sales in the 12 months to the end of June, including the pro forma effect of the acquisition of Etimex Solar. Quinn sees this market growing at 20-25%/year.
The company is expanding its Suzhou, China facility, boosting PVB capacity with a new production line by the end of 2011, and adding one for the production of EVA encapsulant by the end of June 2011. The expansion costs are not being disclosed, but Solutia plans overall capital expenditures of $55m-65m for 2010.
Additional reporting by Brian Ford in Houston and Helen Lee in Singapore
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