InterviewRecovered Spolchemie dusts off expansion plans

22 November 2011 15:39  [Source: ICIS news]

LONDON (ICIS)--Spolchemie remains determined to realise its ambition to become a global production player, despite setbacks that have so far thwarted its international expansion plans, the CEO of the Czech synthetic resins producer said on Tuesday.

The overriding priorities clearly had to be to steer the company through the renewed economic turbulence and continue to pay down major debt, but in the longer term the firm was still eyeing possible production moves in Malaysia and North America, added Paul Yianni, who was appointed CEO in January.

Spolchemie, said Yianni, had essentially emerged fighting fit from the near-insolvency that it had faced in the wake of the 2008 financial crisis and was this year poised to achieve record annual net profit and revenues, despite the fresh downturn.

“For about three or four months in 2009, all of our revenues were basically diverted towards [paying off] the banks,” Yianni said. "It is a measure of the strength of this company that we could lose these revenues and still continued to operate.

“Now, looking ahead, we do need to diversify production outside Europe,” he added. "We are too Europe-centric."

At the beginning of this year, Spolchemie's debt stood at around koruny (Kc) 2.7bn ($142.5m, €105.6m). Approximately Kc400m of that should have been repaid by the end of 2011, said Yianni.

“We are servicing our debt without a problem and we are repaying at a normal, if not better than normal, rate,” said Yianni.

The company's debt to earnings before interest, tax, depreciation and amortisation (EBITDA) proportion of more than 3, benchmarked with the ratios of peers, “is completely reasonable”, he added.

Net profit for 2011 should come in at more than Kc350m, “a lot better than anything we have done before”, Yianni said, forecasting that net revenues should hit Kc5bn, exceeding Spolchemie's historical high of Kc4.7bn, attained in 2008.

In January 2009, the company lost what it regarded as an excellent opportunity to expand production abroad when US-based company Hexion Specialty Chemicals (since combined with Momentive Performance Materials) opted 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 a merger between Hexion and US chemical group Huntsman, which failed to go through.

Finding itself over-extended amid the global economic slump, with 2009 revenues plummeting to Kc3.2bn, Spolchemie put its project to construct a 50,000 tonne/year epichlorohydrin (ECH) plant in Malaysia on ice, scrapped efforts to secure a location in North America where it could invest in epoxy resin production and shed more than one-fifth of its 950-strong workforce.

Yianni, however, said the Malaysian investment process remains alive.

“But we need a partner, or perhaps several partners, because if we build it, it will be a joint venture,” he added.

“We have a very good site, and an incentive package from the Malaysian government recognising this as a nationally important project because it combines two national priority industries: petrochemicals and oleochemicals,” Yianni said. "We could actually build it very fast as we have already purchased a lot of the equipment.

“In terms of North America, we identified a preferred site, but that is as far as things got,” he added.

Right now, of course, with all market players having to brace themselves for new rounds of economic strife partly stemming from the failure to resolve the eurozone sovereign debt crisis, Spolchemie had to keep more immediate matters in mind, Yianni said.

“Everybody is going to have a problem. The market in sales volumes is down about 20% [year on year]; we are back to 2009 levels,” he noted.

“Underlying demand is the problem. The person who delays buying a car, the person who delays buying a refrigerator, or a house.... It all knocks back and we are at the top of the food chain,” he said.

However, having reeled off advantages enjoyed by Spolchemie, including a fully integrated resins player, a stable customer base, stable market share, a weakened euro that is a boon to exports, the disappearance of many smaller competitors in the aftermath of the financial crisis, an excellent technical side, excellent people, good plants, good products, professed global leadership in environmental resins and a claim to being the lowest-cost European resins producer, Yianni said he had every confidence in the company's prospects.

“There's still strong competition, and lots of it, but we have made a complete recovery and we ourselves are one of those strong players,” he said.

($1 = €0.74)
($1 = Kc18.95, €1 = Kc25.57)

By: Will Conroy
+44 20 8652 3214

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