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Huntsman Looks to Innovation, Integration and Global Growth
Posted on December 12th, 2017 by Nigel Davis in Chemicals Industry News and Analysis
Capturing superior and sustainable growth in developed world markets is proving increasingly difficult for established chemical companies. Steady, maybe, but unexciting, almost certainly, industrial and consumer demand means that the superior growth nut has become difficult to crack.
Companies constantly seek new, often technology-driven, business opportunities. When they can, they turn to mergers and acquisitions (M&A), which, if successful and managed right, can provide a real shot in the arm.
US chemical major Huntsman’s CEO Peter Huntsman was understandably positive for the future in the third quarter results conference call at the end of October, which came immediately after the announced collapse of the deal with Clariant.
He was certainly frustrated by the fact that just a few shareholders could have such a significant impact on events. The merger had been many years in the making and was for Huntsman “a truly unique opportunity.”
However, having to step back from that opportunity, while hugely disappointing, did not negate the fact that Huntsman currently is in a good place.
“Our future has never looked better,” he told financial analysts. “We will have plenty of opportunity to expand volumes and margins over the next year or two.”
Speaking with him at some length in London in November, it was clear that the challenge for the company is to innovate faster while it benefits from the tight supply/demand situation in methyl di-p-phenylene isocyanate (MDI).
Huntsman is happy to creep capacity for the polyurethane precursor and let others do the heavy lifting.
He made it quite clear that Huntsman would not invest in a major MDI facility in the future. Permitting takes too much time and the significant capital investment (of about $1bn) is very difficult to justify to shareholders.
Companies like Huntsman do best if they can exploit alternative growth opportunities.
The company has a much stronger balance sheet than it has had in the past and with the opportunity to divest more of its stake in titanium dioxide (TiO2) producer Venator, is able to look closely at where it wants to be in five years’ time.
Urethane systems are growing well above GDP rates – at something between 7% and 8% in certain markets as they replace glass, vinyls and rubber compounds in all sorts of applications.
“In the next five to 10 years you will see the Huntsman logo on a product in a store,” Peter Huntsman suggested.
The big opportunities lie in the aerospace, composites and automobile markets. So, China is a draw – the company employs Chinese nationals in its China operations, a strategy that helps it get close to the customer.
Huntsman is making money in China, the CEO said, and moving downstream faster than some of its major, domestic competitors.
The drive for liquidity – Peter Huntsman expects the company to achieve investment grade metrics next year – has proved successful, aided by the globally tight MDI market and the partial Venator spin-off.
“Our sole objective has been to pay down debt,” Peter Huntsman told ICIS.
Next year, the company could be generating between $4bn and $6bn of cash. “So we will have a real war chest,” he added.
“The merger with Clariant was a merger of opportunity,” he said – and about eight years in the making. Now, the company is looking to bolt-on acquisitions that can provide the opportunity to grow faster than the market.
Peter Huntsman believes the best deals will be found in Europe, not in the US, where transaction multiples have become too high.
And he sees Europe as a centre for innovation, welcoming the opportunity to take smaller businesses and to rapidly globalise their product portfolio.
The acquisition of the UK’s IFS Chemicals earlier this year is a case in point.
It has given Huntsman the opportunity to expand into the growing downstream MDI systems market in the UK and very much farther afield and has added to the company’s list of more than 25 MDI facilities worldwide.
Peter Huntsman believes that there is more opportunity (for growth) now than there has been in the past, driven basically by innovation and trade.
The explosion in individuality helps drive demand for new types of plastics and textile products in markets that were once much more uniform.
Huntsman has a broad base of market-oriented businesses that help focus the technological expertise developed over generations in former chemical industry majors like ICI and Hoechst.
According to the CEO, as the company looks at each of its businesses, it asks how it is able to go further downstream into niche or new applications and how it is able to innovate faster.
“How do you integrate something that is new and globalise it,” Peter Huntsman said.
Innovation, integration and globalisation are the keys that, for this company, are likely to provide the opportunities to unlock superior growth.
Read more news and analysis stories from ICIS, go to www.icis.com/about/news/
All opinions shared in this post are the author’s own.
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