Eastman is the ICIS Company of the Year

The company performed consistently and strongly in the ICIS ratio-based analysis with its year-on-year improvements. Another major deal could set the stage for further profit growth

Eastman Chemical is the ICIS Chemical Company of the Year based on 2013 financial performance. The US-based company’s performance was outstanding in a difficult year and the producer of chemicals, fibres and plastics materials was a clear leader in the ICIS analysis of the world’s major chemical producers. The analysis looks closely at margin performance and year-on-year growth in a number of financial measures and ratios to arrive at a Top 10 for overall performance in 2013. US producers dominate the latest listing. Along with Eastman, the Top 10 includes Celanese, Albemarle, Germany’s Merck KGaA, Westlake Chemical, Ashland, Dow Chemical, IFF, PolyOne and PPG Industries.

Copyright: Marie Emmermann/Skizzomat

Eastman delivered impressive financial results in 2013. The company generated record operating cash flow, and its free cash flow sets it up for further growth, said CEO Mark Costa in the company’s annual report. He called the 2013 financial performance “outstanding” in a difficult business environment. For the fourth consecutive year, the company produced double-digit earnings per share (EPS) growth. It generated an operating margin of 17%. Its planned acquisition of global amines producer Taminco for $2.8bn announced in September 2014 could set the stage for further profit growth.

The high level of performance was driven by market-leading businesses, balanced deployment of cash and actions taken to improve the portfolio, Costa said in January 2014, when the full year 2013 financial results were first announced. Eastman completed the acquisition of specialty films producer Solutia in July 2013.

Its broad portfolio sells products into end-use markets such as transportation, construction, consumables and tobacco. And it has broadened its customer base in recent years. The company exceeded expectations in consolidating Solutia, Costa said. It captured cost and tax synergies and continued to work on operational alignment.

Eastman, along with other chemical companies in 2013, was challenged by the low-growth operating environment and pressure on product prices. The company’s adhesives & plasticizers businesses particularly came under significant price pressure in oversupplied markets. The company performed consistently and strongly in the ICIS ratio-based analysis with its year-on-year improvements placing it well among the top 10 performers.

US-based Celanese produced the second highest earnings performance in its history. “We did this by overcoming poor economic performance for most regions of the world,” the company said. “We generated record operating cash flow and improved the quality of our balance sheet, ending the year with the lowest net debt in our history while increasing share repurchases and our cash dividend.”

ALBEMARLE FLEXES ITS BALANCE SHEET
US-based Albemarle’s CEO Luke Kissam called 2013 a new beginning for the company. “From a financial standpoint, in 2013, we fell short of our financial goal of achieving year-over-year operating earnings growth. However, our businesses generated excellent cash flow, maintained top-tier profitability levels and enabled us to return $660m to shareholders – an amount of capital that was the highest for a single year in our 20-year history as a public company,” said Kissam.

“We modestly leveraged our balance sheet to fund a portion of this significant return of capital, yet the tremendous cash generation capacity of our businesses enabled us to still end the year with a strong balance sheet and the flexibility to continue funding growth opportunities while returning cash to shareholders on a regular basis,” he said.

Those comments highlight the mix of operating performance, astute financial management and strategic drive that are necessary to place a company among the top financial performers in the industry on an annual basis. Albemarle has used its strong balance sheet in an agreement to acquire US-based specialty chemicals producer Rockwood Holdings for $6.2bn.

MERCK KGAA TRANSFORMATION
Merck KGaA management said the company’s transformation was on track in 2013. “Merck is in a strong financial position, despite a consistently challenging market environment,” said CEO Karl-Ludwig Kley.

“Thanks to solid organic growth of 4.2%, which nearly offset negative exchange rate effects in full, we maintained our sales at €10.7bn. EBITDA [earnings before interest, tax, depreciation and amortisation] pre-one-time items, our most important earnings figure, increased by 9.7% to a record level of €3.3bn. At €1.2bn, profit after tax more than doubled,” he added.

WESTLAKE POSTS RECORD RESULTS
Westlake Chemical, the ICIS Company of the Year last year, was in fifth place in the analysis of 2013 financial performance. The company reached new levels of profitability in 2013 producing a record net income of $610.4m.

“These record results were driven by the globally advantaged ethane feedstock position of our two vertically integrated business segments and our value-added product mix,” said the company’s senior management. “We delivered an industry leading total return to shareholders of 55% and a return on capital employed of 38%.”

Chemical company performance may have been broadly spread in 2013, although fewer companies reported losses compared with prior years. Top line growth for the Top 100 chemical companies in this analysis was 3.7% in 2013 and profits growth was relatively muted.

The ICIS data shows that companies have been focusing on costs and what they can do to push margins and returns to shareholders higher. 2013 was a difficult year for the chemicals sector and companies had been challenged to capture growth, and cut costs where they could.

Globally, however, the bar was set high, with the best performers in the industry challenged to beat an average sector operating margin of around 10%, and a net margin of close to 8%.

The ICIS Company of the Year analysis encompasses a larger data set than the Top 100 and including some of the “bubbling under” category producers helps push the top line sector sales growth average to closer to 4.8%, slightly higher than the chemical industry average. The operating profit growth average was only just above that for sales. The net profits average in 2013, however, was virtually flat compared with 2012.

The challenges facing company performance become more widely apparent when viewed in this way. To improve in 2014, companies will need to capture volume growth and higher prices, although the sector backdrop is not entirely encouraging.