InterviewMaterialScience CEO: demand will improve, 2011 a one-off

28 February 2012 17:25  [Source: ICIS news]

LEVERKUSEN, Germany (ICIS)--Bayer MaterialScience’s performance in 2011 may have been slightly lower than it expected, as price rises did not fully offset increases in raw material and energy costs in the second half of the year, but the segment’s CEO on Tuesday said he was far from concerned.

In fact, Patrick Thomas remains upbeat, dismissing the fall in earnings as a one-off.

“If we look at demand in January and February, we are back at normal sales levels, with earnings coming back up again, so I don’t see what happened in the fourth quarter as typical – I think it was a one-off,” he said.

In the fourth quarter of 2011, earnings before interest, tax, depreciation and amortisation (EBITDA) at MaterialScience fell by 49.5% year on year to €150m ($200m) as sales grew by 0.5% to €2.60bn.

MaterialScience said factors including the euro crisis, the sluggish recovery of demand and the real estate industry in north America and the strict measures adopted to tackle inflation and economic overheating in Asia all had a negative effect on the company segment.

Earnings were also diminished by higher operating costs, partly arising from the commissioning of MaterialScience’s new toluene di-isocyanate (TDI) facility in China.

“We had to build our TDI unit [in China] and start it up – that didn’t help our profitability because TDI costs came in but the market was oversupplied. Growth of TDI was relatively slow,” he said.

Thomas added that MaterialScience was hit with a lot of unavoidable costs in the last quarter arising from shutdowns, turnarounds, a major flood in Thailand and problems involving the segment’s facility in Antwerp, Belgium.

“There were a million one-offs in there that are nothing to do with trading [conditions],” he added.

Despite the poorer performance at the end of 2011, Thomas said that there were no plans to consolidate the business segment to cut costs.

Asked about the possibility of acquisitions in 2012, Thomas said the option looks unlikely.

“Bayer is the leader in polyurethanes and polycarbonates and the degree to what other assets we can buy is very limited. We have 20% plus market share in all the sectors we are in, so, legally, it would not be very easy to acquire,” he said.

“What we continue to do is buy up interesting technologies and downstream activities which add to our geographical reach or our technological portfolio.”

However, Thomas would not speculate on any projects in the pipeline.

Looking at MaterialScience’s focus of expansion, Thomas said countries in southeast Asia such as Laos, Cambodia, Vietnam and Thailand, or what he called beyond-Bric (Brazil, Russia, India, and China), were areas for MaterialScience’s future growth.

At MaterialScience, sales in the emerging markets advanced by 7.0% year on year in 2011 to €4.57bn.

In its annual report the group said that it achieved its largest sales gains in eastern Europe, especially in the Czech Republic, Poland and Russia.

However, sales development in the emerging markets of Asia-Pacific varied by country. In China, business was down, partly because of a decline in demand from the second quarter, while sales in Malaysia, Indonesia, and Thailand were positive. The emerging markets accounted for more than 42% of total sales at MaterialScience, short of the 42.9% in 2010.

Thomas said that MaterialScience is interested in the dynamics of China developing because of its impact on other countries.

China has an ageing population and, longer-term, it will reduce the amount of exports of basic material, and you are already seeing some of the printer manufacturers starting to look at lower-cost labour countries,” he said.

If you look for areas of educated, lower-cost labour, it’s in southeast Asia. I think the whole area of Laos, Cambodia, Vietnam and Thailand will be hugely important and then dropping into Indonesia, which has a lot of manufacturing capability.

“I think it’s logical industry will follow that labour market and we will follow that industrial market – it’s an exciting zone,” he said.

($1 = €0.75)


By: Franco Capaldo
+44 (0)20 8652 3214



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