Versalis turns a corner as Italy stops being 'sick man of Europe’ - CEO

05 October 2017 09:00 Source:ICIS News

Daniele Ferrari, Versalis

LONDON (ICIS)--Investment in Versalis' leaner structure and new production methods for green chemicals show that Italian energy major Eni is fully committed to its petrochemical subsidiary, while Italy's economy has improved and the country should not be considered "the sick man of Europe” anymore, its CEO said this week.

Daniele Ferrari said the recovery in Italy has helped Versalis’ financials, with earnings before interest, taxes, depreciation and amortisation (EBITDA) at €300m for the January-June semester. Sales stood at €5.0bn, the CEO added.

He said that despite the “difficult” restructuring undertaken at the company in the past, which put it at odds with employees’ representatives, the current structure has allowed for a more profitable business and more specialised products helping higher margins.

“We are also having a positive free cash flow, which is allowing us to finance our investments and operations and return some cash to the shareholders, which is pretty unique in the history of the Italian chemical industry,” said Ferrari.

Asked whether the option of divesting Versalis could come back to Eni's board at some point, he said that is a subject for Versalis owners to decide, without commenting further, but added the Italian energy major is committed to grow the subsidiary's operations. 

"There is a renovated commitment from Eni and we are very happy about that,” he said.  

The Italian major is the sole owner of Versalis, and the company has 4,800 employees, a third of them in its sites overseas – in France, Germany, Hungary and the UK.

Eni was in conversations with investment fund SK Capital in 2016 to sell part of the subsidiary, but the talks collapsed in June that year, a fact celebrated by one of Versalis' unions as they feared the loss of jobs had a foreign owner taken over the subsidiary.

Ferrari would not comment on the negotiations which ended in collapse, but did so on the previous restructurings.

“The company remains absolutely committed to our sites outside Italy, as well. The Versalis’ shape you see today is the shape for the future. After some closures in the past, the company is leaner and ready to undertake growing projects,” said Ferrari.

“It was a difficult time [closures]. Sometimes there were difficult discussions [with trade unions] but when a business is about to decide whether to collapse or not, it is important that all stakeholders [including the unions] take their own responsibilities as well.”

Some economists think Italy’s economy has finally turned a corner, despite the political instability caused by the Prime Minister’s resignation in December 2016 after losing a referendum on constitutional changes.

Italy’s second-quarter GDP rose by 0.4%, while compound annual growth stood during that period at 1.5%, according to the European statistical agency Eurostat. Italian growth still lags behind that of other eurozone countries like Spain (0.9% for Q2 and 3.1% annually), France (0.5% and 1.8%) or Germany (0.6% and 2.1%).

The manufacturing sector, however, continued to expand at healthy rates in September, with the monthly Purchasing Managers’ Index (PMI) at 56.3 points. A reading above 50.0 points shows economic expansion, while one below would show contraction.

It is that healthy manufacturing sector’s performance that is also helping Versalis, said Ferrari, who dismissed the idea of Italy being "the sick man of Europe" anymore, despite the mediocre growth rates and high levels of public debt.

“As one of the companies that places a lot of business in Italy, I see economy picking up and the consumption of plastics is increasing, in line with the rest of Europe. We don’t feel we are the sick man of Europe anymore to be honest – we are now more aligned with other eurozone countries,” he said.

“The Italian economy has a lot of SMEs [small- and medium-enterprises], which makes our industry very strong. For instance, we have a lot of transformers in the plastics and chemical industries which deliver product for the whole of Europe.”

Ferrari went on to comment on how the economics of naphtha crackers, which seemed doomed to deteriorate when the crude oil price stood at around $100/bbl, had improved in the last four years, prompting the company to abandon a project to make its cracker in Dunkirk, France, into a mixed-feed one.

Moreover, he said that Versalis had decided to modernise its Porto Marghera cracker, north of the county near Venice, in order to take full advantage of its drive to make the site a key supplier in what he described as a “chemical cluster” in the area.

The cluster would include chemical facilities in Ravenna, Ferrara and Mantova which are connected to Porto Marghera through pipelines, as well as being able to barge product by sea, in the case of Ravenna and Porto Marghera.

“We decided to invest in Porto Marghera because it is at the heart of this chemical cluster’s operations. We are committed in an overhauling program which includes optimization of the plants and the existing infrastructures, and two new boilers are being installed so we will have the right size for our ethylene, propylene and C4s operations, among others,” said Ferrari.

“The economics of naphtha cracker in Europe changed completely [from 2014 onwards] and I have felt it here at EPCA – there is a renewed positive mood about naphtha crackers and that also give us long-term confidence about Porto Marghera,” he added, mirroring upbeat comments from other petrochemicals sources. 

Ferrari’s interview took place on the sidelines of the European Petrochemical Association (EPCA) annual meeting, in Berlin between 30 September and 3 October.

The president of EPCA starting his tenure on Wednesday, the executive at French chemical major Arkema Marc Schuller, said in an interview with ICIS that despite the stellar 2017 for European chemicals, companies should be on guard given future evident challenges.

He specifically mentioned the UK’s departure from the EU (Brexit) and potential end of stimulus by the eurozone central bank in 2018.

While other chemical players in Europe like INEOS or Saudi Arabia’s SABIC have started to take advantage of shale gas coming from the US in the form of ethane to produce polymers, Ferrari said that for the moment Versalis’ crackers will remain naphtha-based.

“Four years ago, we had started to prepare the cracker of Dunkirk [in France] to accept ethane. However, when the crude oil price dropped significantly we decided to put the project in standby, because we need the by-products as well,” he said.

“Our naphtha-based cracker is ethylene and propylene, but also the whole by-products chain, the heavy products, which have a big value for us, like styrene, polystyrene, C4s, butadiene (BD) and elastomers, among others. If you use ethane, you basically chop all this end of the chain, you can only get ethylene and polyethylene.”

Crude oil prices, despite efforts by several producing countries both within OPEC and outside it, remain at levels far from the $100/bbl seen in 2014.

On Wednesday, deliveries for December of the international referential Brent stood at $55.68/bbl, while deliveries for November for the US referential West Texas Intermediate (WTI) stood at $50.20/bbl.  

“Moreover, some consultants argue the price of ethane is set to grow considerably from now to 2020,” concluded Ferrari, making the case for Versalis’ continued naphtha-based crackers. 

Interview article by Jonathan Lopez

Clarification: Re-casts Versalis' ownership structure in paragraph 6

Picture source: Versalis

By Jonathan Lopez