27 May 2011 11:09 [Source: ICB]
CEO Craig Morrison to direct investments in specialty businesses and BRIC countries
US-based specialty chemicals and materials company Momentive Performance Materials will focus on expanding its downstream specialty operations in emerging market regions. It also sees big opportunities to create new formulations for the automotive, construction and electronics sectors, based on its unique portfolio of technologies. "While vertical integration is an essential part of our strategy, we will focus more CAPX (capital spending) into specialty chemical product lines than upstream," said chairman, president and CEO Craig Morrison, in an interview with ICIS.
Momentive is a large-scale producer of epoxy resins and is back-integrated into feedstocks bisphenol A (BPA) and epichlorohydrin (ECH). It also produces phenolic resins, acrylic resins, urea-formaldehyde resins, silicones and quartz materials.
The company produces liquid epoxy resins (LER) to make specialty epoxies, as well as selling LER on the merchant market.
"Vertical integration has worked out well, especially in a tight market," said Morrison. "We continue to look to optimize production upstream, but will use most of our capital to move downstream."
On May 13, Momentive signed a memorandum of understanding (MoU) with Taiwan's UPC Technology for a joint venture to produce specialty phenolic resins in China. The first plant in the joint venture will be built in Zhenjiang, in Jiangsu province, and is expected to be completed in late 2012. Capacity figures were not disclosed.
"We consider this a very attractive growth region where demand is growing for under-the-hood applications in automotive, as well as the electronics and construction sectors," said Morrison. "We will continue to build capacity as demand warrants."
Momentive's capital expenditures have amounted to about $200m-250m (€143m-178m) annually in the past, and will likely be within this range in the near future, noted Morrison.
The company's specialities focus will help it meet its goal of achieving 18% earnings before interest, tax, depreciation and amortization (EBITDA) margins within the next five years from a current 15%, he said.
Momentive also aims to have the BRIC (Brazil, Russia, India and China) and the rest of the world category account for over 40% of sales within five years, from a current level of about 30%.
In 2010, the company opened a 450,000 tonne/year phenol and urea-formaldehyde resins plant in Montenegro, Rio Grande do Sul, Brazil. "We are not ignoring Western markets - it's just that these are well-established and mature. Building in the BRIC regions is critical to meeting our growth objectives," Morrison said.
"In epoxy resins and phenolic resins, we see significant opportunities to expand through joint ventures, stand-alone expansions and bolt-on acquisitions," he added.
Momentive expects continuing strength in the LER market in Asia through 2011. "We see strength in LER and feedstocks BPA and ECH continuing through 2011, especially in Asia, which tends to set the trend globally," said Morrison. "We see market conditions as favorable for us to maintain first quarter performance throughout the year." In the first quarter of 2011, the epoxy, phenolic and coatings resins segment of Momentive posted a 79% year-on-year gain in earnings, before EBITDA, to $152m, on 28% higher sales of $911m.
Of the 28% sales growth, 10% was volume and 18% pricing and product mix. LER in China is "quite tight" along with feedstock BPA, noted Morrison.
Feedstock ECH has also been quite tight over the past year in China, hampered by environmental regulation changes that have led to capacity being taken down, he added.
"Growth in the construction and transportation sectors in the BRIC countries is absorbing LER volumes," said Morrison.
The CEO is bullish on the long-term growth prospects in China, despite perceived volatility.
"The underlying dynamics are there to support significant growth. There is no reason to believe the Chinese government won't continue to be successful in limiting inflation and managing growth," Morrison said.
Momentive's CEO is looking to specialty chemicals, like those used in auto manufacturing
As for the US construction sector, the housing market continues to be challenging. "Our performance has been strong because we've introduced new products and taken costs out - but we haven't seen a significant rebound on the residential side," said Morrison.
"We've seen a stronger rebound on the civil engineering side because of stimulus programs, as well as the commercial side." However, the CEO predicts "significant" upside when the US housing market comes back.
Having a varied portfolio of assets and technologies, Momentive sees a big opportunity to combine epoxy resins and silicones to create new formulations.
"Cross-fertilization of technology and development of new products is a big opportunity for us," said Morrison.
"We can modify epoxy resins with silicones to deliver new performance characteristics. This is one of many cross-technology opportunities we are exploring across our technology platform."
Epoxy resins and silicones share numerous end-use markets such as construction, automotive, electronics and wind power applications.
Epoxy resins offer superior strength and durability, while silicones can be used as an additive to provide a wide range of additional physical properties, Morrison noted.
"Here we have a tremendous opportunity to formulate new applications in many end-use segments," he said.
Additional reporting by Lee Han Min in Singapore
RELOADED FOR AN IPO
Momentive Performance Materials Holdings has undergone a major transformation, and is preparing for an initial public offering (IPO).
The company filed its S-1 registration statement with the US Securities and Exchange Commission on April 21. It is the second attempt by its owner - US-based private equity firm Apollo Management - to take the company public, although in a different form than the first.
Today's Momentive is the result of a series of acquisitions through the years by Apollo. It is a merged entity created in October 2010, from US-based companies Hexion Specialty Chemicals and Momentive Performance Materials Inc. - both Apollo-owned businesses.
Hexion Specialty Chemicals was a combination of legacy US companies Resolution Performance Products, Resolution Specialty Materials, Borden Chemical and Bakelite.
It all started with Apollo's $860m (€601m) acquisition of Anglo-Dutch energy and chemicals company Shell's epoxy resins business in 2000, which it renamed Resolution Performance Products (RPP).Then, in 2004, Apollo bought US-based firm Eastman Chemical's coatings, adhesives, specialty polymers and inks unit for $215m, renaming the business Resolution Specialty Materials (RSM).
Apollo bought out US-based Borden Chemical for about $1.2bn in 2004, bringing the urea formaldehyde resins business to its portfolio, as well as Borden's CEO Craig Morrison, who now heads up Momentive.
In 2005, Borden Chemical bought out Germany-based Bakelite, a producer of phenolic and epoxy resins. Later in 2005, Borden Chemical merged with RPP and RSM to form Hexion Specialty Chemicals. Hexion then filed to go public that year, but pulled its offering in 2006 because of tough market conditions.
In late 2006, Apollo acquired US-based GE Advanced Materials for $3.8bn, adding silicones and quartz to the mix. That business then became Momentive Performance Materials Inc.
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