ICIS Top 100 Companies: NOVA Chemicals is the ICIS Company of the Year

24 September 2012 10:00  [Source: ICB]

The ICIS Company of the Year for 2012 is Canada-based NOVA Chemicals, a firm that, rescued from near bankruptcy in 2009, has been restored as a growing and profitable olefins and polymers producer.

Nova

 NOVA Chemicals

Nova's Corunna, Canada plant

NOVA, owned by International Petroleum Investment Company (IPIC) - an investment arm of the Abu Dhabi government - scored the most points in the ICIS annual analysis of chemical company performance in 2011. The company scored highly in terms of the returns it generated in 2011 at the operating and net level. It also made impressive year-on-year gains in a wide number of ratios and metrics used to perform the analysis.

NOVA's sales in 2011 grew by 14.5%, but those gains were turned into operating profits growth of 69% and the company's net profit more than doubled. Profit margins to sales and assets improved markedly while debt was paid down. NOVA has been working hard to capitalise on the clear ethane feedstock advantage it has at its crackers in Canada. The company made in 2011, in the words of CEO Randy Woelfel, "a change in our financial integrity".

The transformation in 2011 was significant. The company signed important, largely shale gas related, ethane supply deals that will see it well positioned for growth in the future.

NOVA 2020

In June 2011, it revealed the 'NOVA 2020' strategic plan to take full advantage of emerging supplies of ethane for its crackers and plans to expand its ethylene and polyethylene (PE) production capabilities.

NOVA made some bold moves. It was the first polylefins producer to secure ethane from associated gas in the North Dakota Williston Shale basin and the first to secure significant ethane from oil sands off-gases. The company's Sarnia location in eastern Canada will be the first chemical plant to consume ethane from the Marcellus shale deposit in the US northeast.

For the full year in 2011, NOVA generated a large amount of cash and a record net profit of $615m (€467m). Net debt was reduced to the point where the year-end 2011 debt to equity ratio was approximately 25% - a level comparable with some of the strongest players in the industry, according to CFO Todd Karran. Capital spending is rising and will increase further as the NOVA 2020 projects come to fruition.

The newfound ethane-related competitiveness has buoyed the industry in North America and is already having a positive impact on downstream industrial development.

So while a particularly strong performer in 2011, NOVA was by no means alone. Other producers took advantage of low ethane and other natural gas related feedstock costs in North America, while many firms continued to capitalise on strong chemical demand growth in emerging markets in the first half.

The year was one of two halves, nevertheless, with a strong first quarter for the upstream petrochemical players giving way to a difficult second half as demand and prices dropped. The fourth quarter was challenging to say the least across broad swaths of the industry.

STRONG YEAR FOR TOP 100

The average gain in operating profit or EBIT (earnings before interest and tax) across the ICIS Top 100 Chemical Companies of 8.4%, however, shows that 2011 was a strong year for the sector. The strongest performers in 2011 in the diverse group of companies that make up the Top 100 ICIS chemical players - the top 100 in the sector by annual sales - were those able to capitalise on low-priced gas feedstock, emerging market growth and in the case of the dominant fertilizer producers, strong agricultural demand.

The fertilizer producers, particularly, stand out in the ICIS Company of the Year analysis with most exhibiting strong sales and profit growth and much improved margins. Firms producing titanium dioxide, a product which has risen sharply in price on supply/demand tightness, also performed remarkably well.

The top five players in the ICIS analysis were NOVA Chemicals, US-based Praxair, Saudi Arabia's SABIC, Canada's Potash Corp of Saskatchewan and US-based Eastman Chemical. Major players such as Norway's Yara, and Germany's BASF were also well placed.

Nine companies produced operating profit to sales margins of more than 25% last year, while 10 firms produced net margins of more than 15%. Profit and margin changes were wide ranging but gains outnumbered losses across the companies analysed. The devastating earthquake and tsunami in Japan had a significant negative impact on the fortunes of Japanese players and is reflected in the ICIS Company of the Year analysis and rankings.The data set used in the ICIS Company of the Year analysis is collected for the ICIS Top 100 Chemical Companies listing which was published in the 10 September issue of ICIS Chemical Business. It includes sales and profits information alongside other financial metrics such as employee numbers; capital spending; research and development spending; total assets; property, plant and equipment data; and selling, general and administrative (SG&A) expenses among others.

The data show that 2011 was a successful year for many players in chemicals.

These firms represent a broad range activities. They include the major diversified chemical majors such as BASF and US-based Dow Chemical, the mainstream petrochemical players, including the chemical activities of the international and state-controlled oil companies, as well as many more specialised firms - some focused on relatively few product lines and customer industries.

CAPITAL SPENDING PICKS UP

Capital spending across this diversified group of companies was up an unweighted 28.6% and major gains were posted year-on-year by the largest players in the industry.

The gains illustrate the new mood of optimism in the industry and the fact that many companies in 2011 were generating significant amounts of cash and were keen to invest in upgrading plants, adding new production capabilities and acquiring more assets.

BASF lifted capital spending by 34% in 2011, with its property, plant and equipment spending up 4%. China-based Sinopec's capital spending on chemicals rose 16% while Dow Chemical lifted capital spending by 26% and Netherlands-based LyondellBasell by 52%.

While some of the more commodity-oriented and large chemical companies were putting cash into new assets in 2011, others were focusing more on research.

The research and development (R&D) to sales ratio for the ICIS Top 100 Chemical Companies in 2011 was 2.5% and up just 0.2% on 2010. But the average masks a wide range of individual company ratios. It does not show, for instance, that companies such as US-based Solutia, Switzerland-based Clariant, US-based Celanese and Belgium's Solvay pushed R&D spending higher relative to sales in 2011.

A further sign that the industry was in positive mode in 2011 was in the 4.2% rise in employee numbers.


By: Nigel Davis
+44 20 8652 3214



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