ICIS Top 100 Chemical Companies: Westlake Chemical rises to the top

27 September 2013 10:23  [Source: ICB]

ICIS is delighted to name US-based Westlake Chemical as the ICIS Company of the Year for 2013.

The award is made for outstanding financial performance in 2012 and based on a detailed analysis of critical financial measures and ratios and the data collected for the ICIS Top 100 Chemical Companies – a listing of the world’s major producers published in the 9 September issue of ICIS Chemical Business.

Westlake had a terrific year in 2012, driven by its clear US ethane-advantaged feedstock position. Net income hit a new record, having climbed by 49% to $386m (€291m) from 2011, which was itself a record year. Operating profits in 2012 rose 38% year on year to $615m.

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Rex Features

The company’s olefins business produced record results on growing global olefins demand and, more importantly, the vitally important ethane cost position that Westlake enjoyed on the US Gulf Coast.

The vinyls segment delivered improved financial results based on advantaged feedstock and globally competitive power costs. The Westlake story is that of the US shale gas advantage writ large.


BOOSTING CAPACITY

The company decided quickly to invest heavily to expand production capacity. It has been generating significant amounts of cash that are being ploughed back into the business.

Special dividends were paid to shareholders in 2012 who also saw their regular dividend increased for the eighth consecutive year. Westlake Chemical’s share price nearly doubled in 2012 and is up around 33% so far this year.

For most of the major chemical and petrochemical producers, 2012 was a difficult year following an overall strong 2011.

Asia demand growth was slower from early in the year and the eurozone crisis hung over European market sentiment, demand and profitability. US economic growth was relatively weak and Latin American chemicals growth reduced.

Those companies that were able took advantage of cheaper power and lower natural gas liquids (NGLs) feedstock costs in the US brought about by the shale oil and gas boom. The shale revolution is underpinning a new period of growth in the petrochemical and chemical industry in North America and driving a manufacturing renaissance.

The ICIS analysis encompasses 120 companies from its Top 100 listing of the major global chemical producers. Part of the analysis looks at the year-on-year performance of these companies in terms of top-line growth and growth in profits and margins. A ratio analysis takes into account important performance metrics.

OTHER TOP PERFORMERS

The highest scoring companies in the ICIS Company of the Year analysis, based on 2012 performance, include Switzerland-based companies Givaudan and Syngenta; US-based firms CF Industries, FMC, Sherwin-Williams and Georgia Gulf; Netherlands-based companies AkzoNobel and LyondellBasell; and Belgium’s Solvay.

This is a diverse group but illustrates the facts that in 2012, certain products were more successful than others and the focus of some companies paid off much better than that of others. For some, acquisitions had a great impact on the full-year financial results.

Businesses related to food and agriculture performed strongly in 2012 for most producers. The global agrochemical producers did well as did many fertilizer makers. Coatings producers were also able to deliver a stronger performance than some other companies in the broader chemicals sector.

KEY FACTS

  • Sales: $3.57bn (-1.3%)
  • Operating profit: $615m (+38%)
  • Operating margin: 17.2% vs 
12.3% in 2011
  • Net income: $386m (+49%)
  • Net margin: 10.8% vs 7.2% in 2011
  • Stock price gain: 98%
The ICIS analysis underscores the year-on-year gains made and the underlying relatively strong margins delivered by some of the top 20 chemical producers by sales including Solvay, LyondellBasell, France’s Air Liquide and Germany’s Bayer MaterialScience.

Westlake’s sales dropped 1.3% in 2012 to $3.57bn compared with 2011 but its returns were much higher. The average sales growth for the 120 companies included in the ICIS Company of the Year analysis was 3.1% and 49 firms managed to grow faster than this.

Thirty-five companies managed to push operating profits higher in 2012 but some steep profit falls were reported. The operating results translated into a generally weaker bottom-line performance for the industry. The margins and returns delivered by chemical companies vary widely but gas-based producers in chemicals and fertilizers produced some of the strongest returns in the sector.

Those returns nevertheless were reduced for a great many in 2012 with only half the 60 firms for which ICIS has data managing to push their return on assets higher.

ICIS collects a significant amount of data on chemical company performance for its Top 100 Chemical Companies listing – a great deal of which is used to score companies for the Company of the Year award.

Chemical companies are investing more with capital spending rising on average by 23% in 2012. ICIS had spending data for 90 firms and the data show that chemical companies are more willing to invest in fixed assets now that the worst of the crash is past and as more opportunities present themselves, particularly in the advantaged feedstock environment in North America.

Chemical companies are investing heavily to capitalise on abundant supplies of NGLs in the US. In Asia, investment is heavy in methanol-to-olefins (MTO) and methanol-to-propylene plants (MTP), with the methanol produced from coal.

Apart from operations reliability, technical knowhow is a critical business element for most players. The data collected by ICIS show that across the 57 companies for which it has numbers, 46 pushed research and development (R&D) spending higher in 2012.

The average R&D/sales ratio for these companies was 2.6%, although the ratio varies widely between firms. Overall R&D spending for the group rose by 4.9%.


By: Nigel Davis
+44 20 8652 3214



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