Arkema CEO Thierry Le HenaffPARIS (ICIS)–Arkema is likely to pursue fewer large-scale acquisitions in 2015 following its purchase of adhesives maker Bostik last year, the CEO of the France-headquartered chemicals producer said on Thursday.
The company agreed to acquire France-headquartered Bostik for €1.74bn from Total, its own former parent, in late 2014, and also brought a €200m thiochemicals plant in Malaysia on stream at the start of this year, but is keen to keep its financial gearing levels at an acceptable margin, according to Arkema CEO Thierry le Henaff.
“Maybe we will have a bigger appetite for acquisitions in a few years’ time, but we want to maintain gearing at 40% and if you want to maintain at this level you need to be reasonable in terms of acquisitions,” he said.
The company issued two €700m bonds, along with a €350m share capital increase in late 2014 to help finance the Bostik acquisition. It is also planning €700m-worth of small asset disposals over the next few years.
“We have said we would make small divestments, even in product lines that you’ve not much aware of, a few tens of millions of euros here and there,” Le Henaff said.
Smaller investments have not been ruled out, with Arkema announcing the acquisition of Oxido, an Italy-based organic peroxides producer with annual sales of €20m, earlier this week.
It has also extended an option deadline to increase its share in a Chinese acrylics production joint venture it runs with local producer Jurong Chemical. Extended to January 2016, the call option could see Arkema increase the amount of capacity it has access to at the site by 160,000 tonnes/year, to 320,000 tonnes/year.
Despite currency tailwinds on the back of a weakening of the euro against the dollar helping to buoy Arkema’s fourth-quarter net income by 9.5% year on year to €23m, weak markets for several of the company’s key products drove down profits for the full year down 35.1% to €239m.
“We have been very strict in terms of finance but the 2014 results were marked by difficult market conditions for fluorogases, acrylates and also polyamides at times, which means [Arkema’s] performance was disappointing compared to our ambitions a year ago,” Le Henaff said.
Acrylic monomers are languishing at the bottom of their market cycle and unlikely to improve this year, according to Le Henaff, while fluorogases earnings suffered from increased competition and an unfavourable product mix.
Polyamides did not perform as poorly, but were competing against a very strong market in 2013, and were impacted further by a maintenance shutdown of Arkema’s unit in Mont, France, in the second quarter of the year.
However, results for these three products obscured a much stronger performance on the balance sheet by many of the company’s other lines, according to Le Henaff.
“These three products shouldn’t hide the fact that nine lines out of 12 have shown an improvement, and profitability has gone up for these. There is a lot of groundwork [being done] in product lines that are less cyclical,” he said.
The group is predicting that favourable currency conditions will continue through much of 2015, offsetting the expected weakness in acrylic monomer markets, but that conditions are likely to remain “volatile and contrasted” for different regions and product lines.
Some European producers have benefited from a degree of margin uplift for some products on the back of the fall in oil prices, although the extent of those margin gains may not be as great as some analysts have predicted.
Arkema has forecast a limited impact from the fall in crude prices this year, although raw material prices have started to come down for some products, according to Le Henaff. There is no single across-the-board effect on pricing, and the impact is difficult to predict.
“Not all raw materials derived from crude have gone down [in price]; on the contrary,” Le Henaff noted.
By: Tom Brown