Edited from: “outlook” and 10-K annual report
Hexion will focus on realising anticipated synergies and cost savings on a timely basis while maintaining the efficiency of its operations. Any substantial diversion of management attention or difficulties in operating the combined business could affect its sales and ability to achieve operational, financial and strategic objectives.
Hexion will focus on:
developing new products that will make it more competitive;
remaining aware of competition from other chemical companies;
competition from producers of materials that are substitutes for formaldehyde-based resins that could lead to declines in its net sales;
concentrate on acquisitions and joint ventures that it has pursued and may present unforeseen integration obstacles and costs, increase its leverage and negatively impact its performance; and
further concentrate on its growth strategy.
The R&D strategy includes:
developing new or improved applications based on its existing product line and identified customer needs;
developing new resin products and applications for customers in order to improve its competitive advantage and profitability;
providing premier technical service for customers of specialty products;
providing technical support for manufacturing locations and assisting in plant optimisation;
ensuring that its products are manufactured in accordance with its global environmental, health and safety policies and objectives;
developing lower cost manufacturing processes globally; and
expanding production capacity.
Outlook
Hexion says that there can be no assurances that:
any global recovery will continue;
it will be able to realise margins that it has historically achieved as feedstock costs decline; or
its feedstock costs will not rise faster than its product prices and, therefore, reduce its margins.
Hexion expects to generate increasing free cash flow (cash flow from operating activities less anticipated capital expenditures) in the future due to improving operating characteristics and the absence of one-time costs associated with the Hexion formation. Its products are generally less capital intensive to manufacture than many other products in the chemical industry and, as a result, it has relatively low maintenance capital and moderate working capital requirements.
Furthermore, due to its income tax assets and other structuring considerations, it expects to have very low cash tax requirements for the foreseeable future. Additionally, it is currently targeting $250m in synergies from the Hexion Formation, of which $125m of net cost savings have been specifically identified, which should further improve free cash flow.
Its plan indicates that its $250m synergy target will consist of approximately 40% in purchasing savings, 20% in manufacturing efficiencies, 15% in selling, general and administrative (SG&A) expense savings and 25% in new product development and global product line management.
All of these factors will enable the company to generate increased free cash flow, which it anticipates will be available to reduce indebtedness or for other strategic purposes.
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Financial highlights: Hexion, year ended 31 December
|
|
2008 |
2007 |
2006 |
2005 |
2004 |
|
Sales ($ m) |
6,093 |
5,810 |
5,205 |
4,442 |
2,019 |
|
Operating Profit ($ m) |
-893 |
302 |
286 |
-- |
-- |
|
Net Profit ($ m) |
-1,190 |
-65 |
-95 |
-87 |
-105 |
|
Total Assets ($ m) |
3,180 |
4,006 |
3,508 |
3,209 |
2,696 |
|
Number of Employees |
6,800 |
6,400 |
6,900 |
7,000 |
-- |
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Hexion
Company Structure
Hexion Specialty Chemicals is a producer of binder, adhesive, coating and ink resins for industrial applications. The company was formed through the combination of privately owned Borden Chemical, Bakelite, Resolution Performance Products and Resolution Speciality Materials in 2005.
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