Edited from “To our stockholders” and “outlook” annual report and website
Eastman Chemical states that its strategy builds on the clear potential of industrial gasification and the strengths of its core businesses, allowing it to focus on growth. After several years of reshaping the company into a leaner, more stable and profitable operation, it is now setting its sights on the future and is looking at ways it can succeed in its current marketplace.
“The world today is a dynamic place. Our suppliers and customers are large global companies, and we’re seeing new entrants in our markets every year. Perhaps more than ever, people care about the legacy they leave future generations and are ready to take action to address social and environmental concerns. Many companies see these challenges as threats”, says chairman and chief executive offer, Brian Ferguson.
“At Eastman, we see these as opportunities for which we can take an unconventional approach to succeeding in the marketplace. We have developed a number of transforming initiatives which do more than simply respond to challenges. They allow us to both embrace change and turn challenges into competitive advantages”, continues Ferguson.
On this basis, the company has made the forecast of doubling earnings per share to $10 by 2012. In addition, it expects earnings to improve each year from 2008 to 2012, with a 10% to 15% increase in 2009 earnings, over 2008. Its strategy for achieving this level of performance focuses on two areas: industrial gasification and growth in its existing businesses.
“Both the global diversity in our revenue and operating margins and the end-market diversity from the products we provide our customers give Eastman a firm position for growth. We’re building on core businesses like Specialty Plastics and Fibres. We’re improving the Performance Polymers segment. And we’ve come to depend on solid performance in our Performance Chemicals & Intermediates and Coatings, Adhesives, Specialty Polymers and Inks segments, which contain product lines based on proven technologies”, says Ferguson.
The company expects growth initiatives in its Specialty Plastics, Fibres, and Performance Polymers segments to contribute about $3/share to earnings by 2012.
In its Specialty Plastics segment, its key priority is to increase operating earnings to a level approaching $100m in 2009, with continuing improvement thereafter. It has converted polyethylene terephthalate (PET) capacity to copolyester production, adding 50,000 tonnes/year in 2008, and another 50,000 tonnes/year is expected by 2010. It also plans to capitalise on the growth in the liquid crystal display (LCD) market, with revenue from cellulose esters used in LCD screens expected to double to $100m in 2009.
In its Fibres segment, Eastman has been working on an expansion at its acetate tow Workington, UK, facility which it expects to complete at the end of 2008.
Also in this segment, Eastman expects to put in place a strategy for growth in Asia.
In Performance Polymers, it has continued with major changes in this segment resulting in a smaller, more profitable business. Its intent is to drive operating margins to around 10% by 2009. It is doing this by completing the divestitures of its “non-strategic” PET manufacturing facilities outside the US and by transforming its South Carolina facility.
“We plan to have reduced conventional PET polymers capacity by 400,000 tonnes/year; shut down Eastman’s less efficient dimethyl terephthalate (DMT) intermediates assets; increased purified terephthalic acid (PTA) intermediates capacity; and eliminated approximately $30m of annual costs”, says Ferguson.
By the end of 2008, it expects over 60% of its PET capacity to be based on its IntegRex technology. Eastman is also pursuing licensing this technology to gain additional revenue and earnings stream for the company. As a result of these actions, it expects that the Performance Polymers segment, which had been its largest revenue business, will become its smallest. However, it will yield greater profitability, with operating margins expected to approach 10% for full year 2009.
Another area of the Eastman strategy includes the two industrial gasification projects it has underway in the US. The first is in Texas, and the second is in Louisiana. It anticipates that together they will contribute approximately $2/share to Eastman’s earnings by 2012.
“Using industrial gasification for the production of chemicals is an environmentally responsible choice. Unlike most other applications of gasification technology, industrial gasification has the capability to readily capture nearly all the carbon dioxide from the process. The captured carbon dioxide can then be sold into the enhanced oil recovery market which provides a viable alternative for storing carbon dioxide”, says Ferguson.
The Texas project is expect to start up in 2011, and is being developed by Eastman and is owned jointly by Eastman and Green Rock Energy, which is a company formed by the D.E. Shaw Group and Goldman, Sachs & Co. to invest in gasification projects.
Eastman is a minority owner of the Louisiana project, which is sponsored by Faustina Hydrogen Products, and primarily owned by Green Rock Energy. Its business model includes securing contracts now for future product from these plants.
Outlook
Looking ahead, Eastman states that the two most significant challenges that it will face are the uncertain prospects for the US and global economies and the volatility of raw materials and energy costs.
However, it believes it will continue to benefit from the actions it has taken over the last several years to improve its profitability. As a result, it expects full-year 2008 earnings per share to be similar to 2007 earnings per share of $5.06, excluding gains and charges in both periods related to strategic decisions.
ICIS Chemical Business magazine has unveiled the ICIS Top 100 Chemical Companies, with rankings based on 2008 sales.
A PDF of the ICIS Top 100 Chemical Companies is available for download on ICIS connect.
See the article and analysis of the ICIS Top 100 on ICIS news.
Financial highlights: Eastman, year ended 31 December
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
Sales ($ m) |
6,726 |
6,830 |
6,779 |
6,460 |
6,019 |
|
Net Profit ($ m) |
346 |
300 |
409 |
557 |
170 |
|
Total Assets ($ m) |
5,281 |
6,009 |
6,132 |
5,773 |
5,839 |
|
Diluted earnings per share ($) |
4.55 |
3.58 |
4.98 |
6.90 |
2.20 |
|
Number of Employees |
10,500 |
10,800 |
11,000 |
12,000 |
12,000 |
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