InterviewOmnova Solutions will build on wider specialties portfolio

28 March 2012 17:48  [Source: ICIS news]

(recasts, amending company descriptor in first paragraph)

LONDON (ICIS)--New products and growth in Asia will help underpin performance in the current financial year, executives with US-headquartered specialty chemical producer Omnova Solutions said on Wednesday.

The company is facing pressure on sales volumes in certain US markets and in Europe but is expecting new product offerings globally as well as demand growth from facilities in China and India to help strengthen the business in 2012 and beyond.

Omnova Solutions reported on 20 March adjusted income from continuing operations up 44% year on year at $9.9m (€7.4m) in the first quarter of its 2012 fiscal year, which ended on 29 February 2012, built on sales growth of 1.5% to $275.9m.

“We are still concerned about volumes," Jim Hohman, president of the company’s Performance Chemicals segment, said in an interview with ICIS, adding: “We would like for volumes to have been higher in the first quarter.”

But Hohman and Olivier Faussadier, general manager of the segment, pinpointed a styrene butadiene (SB) latex capacity expansion at the firm’s manufacturing facility in Caojing, China, as one of the production projects that will underpin growth.

The executives also highlighted oil field chemicals and high-performance coatings as expanding businesses.

Sales for the $50m 2011 turnover oil field chemicals business could double in three to five years, Hohman said. Performance chemicals segment turnover was $9567m in the twelve months to 29 February 2012.

Mechanical completion of the SB latex expansion in China, which will cost Omnova Solutions between $10m and $20m, is due at the end of this year. Production from the unit will be focused on specialties markets, which in China currently are growing healthily.

“We are expecting now to be in a stronger position to serve the tyre markets in Asia [with specialities],” Hohman said.

Omnova Solutions has not witnessed slower growth in China largely because of the specialty nature of its products and the fact that it is still expanding capabilities in terms of production volumes and its presence in certain markets, he added.

The Caojong facility and a number of plants outside the US were added to the Omnova Solutions portfolio following its December 2010 acquisition of France-headquartered specialty polymers and resins producer Eliokem.

The Eliokem business was complementary to Omnova’s and the acquisition was accretive in the first year, Hohman said.

An enlarged global production footprint and a more extensive product and technology portfolio are expected to continue to benefit the enlarged group.

“[Our] first-quarter results were quite strong,” Hohman said, “despite the fact that markets were not strong.”

The company’s carpet products businesses have suffered for quite some time from the construction downturn and the very low level of new housing starts in the US. Omnova Solutions also makes products for coated paper, a business which in North America has been flat or in decline.

“The atmosphere in the US is more positive than in Europe,” Hohman said. The expanded group is active in France, for instance, which has produced only low rates of economic growth in recent quarters.

“Much of our success over the years has been driven by new products and innovation,” Hohman said.

Since the Eliokem acquisition, the company has been looking hard at what he calls “adjacent technologies” and opportunities that lie just outside the company's areas of product and technical expertise.

“We focus very much on sales from new products,” Hohman said, “and in making sure that we have a robust [product] pipeline.”

Omnova Solutions has had to deal with highly volatile raw material costs over the past few years – it is a major buyer of butadiene in North America, for instance, and a significant purchaser globally.

It is, nevertheless, an established buyer – both Omnova Solutions and Eliokem were at one stage spun off from large tyre and rubber producers – and has long-standing arrangements with a handful of suppliers.

“We have benefitted from broader raw material supply base,” Hohman said. The rationale for the Eliokem acquisition, however, was greater diversity in end-use markets and an extended global reach.

Hohman believes that the answer to structural pressure on butadiene availability in North America will have to be met by on-purpose supply from butane dehydrogenation facilities.

“The challenge of raw material supply can be met with technology,” he said.

($1 = €0.75)

By: Nigel Davis
+44 20 8652 3214

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