LONDON (ICIS)--This time last year, it was said that 2016 was one of the most turbulent years in recent memory in terms of political upheaval, with the UK’s vote to leave the EU trumped by the US election, which led to a reality television star becoming President.
The question on everybody in the European industrial sectors’ mind was what ramifications these decisions would have on trade between the EU and the US, between the EU and the UK and even between the UK and the US.
Twelve months on and the answers to those questions are still far from clear, with the UK and the EU only just wrapping up phase one negotiations over the Brexit deal and Donald Trump seemingly more distracted by the flashing Twitter notification on his phone than actually making any decisions.
As a result, most players in the European chemicals industry have remained in a halfway house between wait-and-see mode and carry-on-as-normal mode throughout the year.
For some European companies, however, the turbulence came from other sources. Both AkzoNobel and Clariant were involved in failed takeover bids from US counterparts PPG and Huntsman respectively, with activist investors playing a crucial role in both deals.
Dutch producer AkzoNobel was the subject of a takeover bid from PPG but it remained steadfast in its belief that it would be better off if it remained a standalone company, an idea that activist investor Elliott Advisors disagreed with.
Ultimately, PPG withdrew its bid, but AkzoNobel’s success came at a cost, with Ton Buchner resigning from his position as CEO due to ill health, while a potential merger with fellow coatings firm Axalta failed to materialise, leaving the company in limbo.
Q3 financials missed expectations, with earnings before interest and taxes (EBIT) down 13% year on year, while net income was down 24%. The company is now readying to spin off its specialty chemicals business and, as such, 2018 is looking likely to be a pivotal year in the company’s history.
Swiss firm Clariant, meanwhile, looked all set to merge with US counterparts Huntsman before investors White Tale Holdings, who opposed the merger, began a hostile accumulation of shares and ultimately left Clariant with no choice but to withdraw from the deal.
Luckily, Clariant escaped breakup fees of approximately $210m due to the involvement of White Tale in the scrapping of the deal, however, the company will undoubtedly be effected by the change in plans that has been forced upon them.
While Q3 financial results were solid, with earnings before interest, tax, depreciation and amortisation (EBITDA) up 13% and sales up 12% in the quarter, it remains to be seen whether the firm is capable of achieving the growth it had previously forecast, considering its current circumstances.
Elsewhere, the usual suspects – Germany’s Covestro and BASF – both had a successful 2017 financially, posting healthy year on year growth figures throughout the year.
In the third quarter, Covestro posted a 50% year-on-year increase in EBITDA at €862m, well above analyst expectations, on the back of higher prices and volumes. Sales rose 16.9% to €3.53bn and net income nearly doubled to €491m.
This allowed the company to announce a share buyback scheme to the tune of roughly €1.5bn, or up to 10% of the outstanding stock capital, the “first major buyback by a European chemical company in many years”, according to analysts at Barclays Research.
In December, the company announced a €200m investment in its methyl di-p-phenylene isocyanate facility in Tarragona Spain. This was a definitive signifier of Covestro’s recent success as only two years previously, the company announced the closure of the then 170,000 tonne/year plant.
Meanwhile, BASF announced, on the back of healthy third quarter earnings, the decision to raise its outlook for 2017, saying that it now expects “EBIT before special items to considerably exceed the level of the second half of 2016”.
In the third quarter itself, the company posted a 50% jump in net income to €1.34bn, with sales rising 9% year on year and EBIT up 34%. In the first nine months of the year, net income was up 35% versus 2016, with sales up by 13% to €48.4bn.
With end of year results season only a matter of months away, companies will now be busying themselves with their respective 2018 outlooks with one eye on Washington and another on London.
Deja vu, perhaps?
Pictured above: UK Prime Minister Theresa May meets US President Donald Trump at The White House
Picture Source: REX/Shutterstock