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ICIS company of the year: the many ways chemicals can pay
Posted on October 13th, 2016 by Matt Weber in Chemicals Industry News and Analysis
Dow Chemical has been named the ICIS Chemicals Company of the Year. This was based on 2015 financial performance which showed that though sales dropped due to turmoil in petrochemicals pricing, Dow was able significantly increase operating and net profits by focusing on performance materials.The success of Dow and other top chemicals companies in 2015 is evidence that petrochemicals producers with a differentiated product portfolio are in a better position to succeed in the current market climate than those without.
By Nigel Davis, ICIS
In this low growth, low oil price environment, for manufacturing companies it is all about capturing growth and driving profit performance the best you can.
Chemical producers can’t always differentiate products but over the past year or so the more specialized and customer-focused offerings have helped lift those that can.
To perform successfully, upstream petrochemical producers must be adept at riding the commodity cycle. But those with a more differentiated product portfolio usually have the advantage and do better than most.
The ICIS Company of the Year is chosen on profits and margin performance and the award this year to Dow Chemical highlights the outstanding nature of both for the company in 2015.
Based on reported financials, Dow stood out among the ICIS Top 100 chemical companies as reported operating and net profits pushed higher and returns against sales and assets improved markedly.
Dow raised its operating cash flow – operating EBITDA (earnings before interest, tax, depreciation and amortisation) – by 2.8% in 2015, a solid performance in a difficult year. Chemical company sales, particularly for the upstream producers, were hit in 2015 in the relatively low volume growth environment and as upstream chemical prices dropped.
Dow’s sales in 2015 fell by 16.1%. The company reported sales volumes up 1% with a 17% negative impact from lower prices.
The crude oil price collapse was mirrored in chemicals but the differential provided the lift to margins that helped push profits higher for so many companies.
The Dow story in 2015 also included the sales of important assets in chlorine and other businesses. And the gains from the divestments helped lift profits at the operating and net level.
Dow has been transformed as management has sought to focus the company more closely and unlock shareholder value. Gains in 2015 totalled $2.2bn at the pre-tax level.
And that transformation continued. Dow is in the process of fully consolidating the highly successful Dow Corning joint venture. Approval of the agreed merger with DuPont is expected early next year. Following that the combined companies will be split apart releasing new agriculture, materials and speciality companies onto the market.
The ICIS Company of the Year analysis is always fascinating for the nuggets of performance it reveals and what sometimes might turn out to be trends – both positive and negative – for companies operating in the sector.
In 2015 it clearly was a case of upstream petrochemical and polymer producers making very good money despite a significant drop in sales values. Lacklustre industrial growth provided little in the way of volume demand. But liquids cracking became much more competitive in the low oil price world. At the same time, still low gas prices in the US worked to the benefit of those chemical companies cracking ethane alongside other natural gas liquids (NGLs).
This year the comparisons (this time with 2015) will not look as good. And somewhat higher oil prices will have helped to dent absolute margins. And what looks like a slower for longer second half will not help financial performance for 2016 as a whole.
The leading companies in the analysis of 2015 were Dow Chemical, South Korea’s Lotte Chemical, Air Products, Borealis, Braskem, AkzoNobel and Albemarle.
The diversity in that list highlights the way in which certain companies perform at different rates in the cycle.
Albemarle showed the greatest positive sales change in the analysis reflecting its acquisition of Rockwood. Its improved financials were responsible for its final ranking.
Lotte Chemical and Borealis reported significant profit increases in 2015.
Dow’s much improved operating and net profits in 2015 placed it highly in the rankings of companies by operating and net profits to sales margins and in operating and net profits to assets margins. The analysis takes into account year on year growth in these measures.
Lotte Chemical, which is building a cracker on the US Gulf with Axiall, produced a record operating profit in 2015. And in 2015, the company was the most profitable within the highly diversified Lotte Group.
A 14% increase in operating income and a 15% increase in net income helped position Air Products in the analysis, while Borealis produced record results in even against the headwinds of the slow growth and oil price impacted operating environment.
Its 2015 story highlights the positive consequences of the extreme tightness in polyolefins supply in Europe in 2015 due to stronger demand and unplanned cracker outages. This produced record polyolefins industry margins.
The start-up of the Borouge 3 project in Abu Dhabi also gave the company a boost with the low density polyethylene plant and a second polypropylene plant coming on-stream in 2015, other units have been started up earlier.
Braskem reported higher sales and significantly higher operating and net profits in 2015. The company reported record high EBIDTA in 2015, up 17% from 2014.
Despite considerable economic headwinds the result in Brazilian reals was supported, the company said, by operating performance; healthy resin spreads in international market; a higher volume of exports, good performance in operations in the US and Europe; and the 42% average depreciation of the Brazilian real.
AkzoNobel pushed sales up 4% in 2015 and operating and net profits increased markedly. The operating profits increase was attributed by management to the positive influence of better processes, lower costs, reduced restructuring costs and favourable currency effects.
To find out how to 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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