The Ability to Create Value
Arkema’s New Strategy in the Spotlight, CEO Thierry Le Hénaff Presents Profitability Enhancement Plan
Road Map - Outwardly, at least Thierry Le Hénaff is unruffled by the prospect that French chemical producer Arkema --- along with similar sized-players in Germany and The Netherlands -- could be in the crosshairs of a competitor's expansion drive. Speaking at an Investor Day in Paris in September, the chairman and CEO of the company with projected sales of €6.5 billion and earnings close to €1 billion in 2012 brushed aside headline-grabbing rumors. Rather than engaging in speculation, he said, management is focusing firmly on implementing its forward-looking strategy.
Six years after the split from oil and petrochemicals giant Total and its listing on the French Euronext stock exchange in 2006, Arkema, which currently employs 14,000 people in 40 countries, knows where it wants to go. Its detailed vision for the next four years includes a tangible plan for improving profitability while establishing a specialized presence in growing markets and emerging geographies.
"From the beginning, we have had a clear idea of where we want to go," Le Hénaff stressed. "Clearly we believe that our portfolio of businesses is a very strong one, and that we have demonstrated and will continue to demonstrate our ability to create value. Historically," he remarked, "we have been driven by technology, but in future we will be more market driven. It's a change of mindset to think outside the box."
The new "road map" to drive sales to €8 billion and the EBITDA margin to 16% by 2016 (up from 15% in 2012) also projects sales of €10 billion and an EBITDA margin near 17% for 2020. Some €900 million of the 2016 goal is expected to be delivered by organic growth, another €600 million is to come from small and medium-sized bolt-on acquisitions.
Honoring Arkema's potentially firmer grip on profitability, speculation is raging in Paris over whether the company will move up into the CAC, France's blue-chip stock index. Here, too, Le Hénaff is holding his cards close to his chest. If the listing does happen, observers say, it will mark yet another similarity with Lanxess -- the French and the German specialty chemicals are often compared. Both companies, led by determined younger managers, have successfully found their feet since emerging from the long shadows of their multinational corporate parents.
This September, Lanxess, which was spun off from Bayer in a 1-for-10 stock split in 2005, moved from the M-DAX index of medium-sized companies into the German blue-chip DAX index, aside its former parent. Arkema boasts that its own paper, which rose in value from €27.50 in mid-2006 to €72.60 in September, has performed better than shares of Lanxess or even chemical heavyweight BASF.
On Le Hénaff's watch, Arkema, which once sailed under the Elf Atochem and Atofina flags, claims more than €500 million in fixed-cost savings. Its portfolio also has been reshaped, underperforming bulk businesses with sales of €1.6 billion shed. Most recently, the PVC activities were passed to Swiss-owned Klesch Group and the tin stabilizers business to U.S. specialty chemicals and plastics producer PMC Group. The sell-offs have been balanced with bolt-on acquisitions of the same dimension, and "we now have the portfolio that we wanted when we created Arkema," the CEO said.
In 2007, Arkema acquired Coatex, a manufacturer of high-end acrylic polymers from Switzerland's Omya Group and in early 2009 bought the North American acrylics activities of Dow Chemical. This year it added Chinese bio-based specialty polyamides producers HiPro Polymers, making it the only chemical manufacturer to claim the full range of ultra high performance bio-sourced PA 10, 11 and 12.
In product segments representing 90% of sales, Arkema lists itself among the top players. It claims global leadership in the exclusive 200,000 t/y specialty polymers "club," where it competes with Germany's Evonik and Switzerland's Ems, as well as in PVDF, currently experiencing impressive demand from photovoltaics applications. Here, Arkema vies with Solvay. The French player also claims the number one or two slots in thiochemicals and fluorogases, where DuPont and Honeywell are rivals.
In organic peroxides (where Akzo Nobel and United Initators are competitors), Arkema places itself in the number two position, as well as for PMMA (rivals include Evonik and Mitsubishi) and hydrogen peroxide (Solvay and Evonik). In acrylic monomers (where it competes with BASF, Dow and Nippon Shokubai) as well as coatings (BASF), the company sees itself fourth. Here the sights are on expansion to complete full-chain integration.
To better position itself on challenging global playing fields, Arkema's strategic focus has been streamlined into three reporting segments: High Performance Materials (polyamides, fluoropolymers, filtration/adsorption products and organic peroxides); Industrial Specialties (thiochemicals, fluorogases, PMMA and hydrogen peroxide) and Coating Solutions (acrylic monomers, resins and products for UV curing).
At present, the three segments command an almost equal share of revenue, with High Performance Materials, potentially the most profitable, accounting for 33%. Principally through bolt-on acquisitions, its share is planned to stretch to 38% by 2016. Coatings Solutions, now representing 34%, is projected to drop to 32% by 2016. Industrial Specialties' 33% share is seen to slip to 32%. Six years down the road, High Performance can expect EBITDA margin of 18%, Arkema says, with Industrial Specialties weighing in at 17% and Coating Solutions at 15%.
Europe today accounts for 40% of the French chemical producer's geographical trading activity. Here it has 44 production sites, six R&D centers and 8,700 employees. North America with six sites, two R&D centers and 2,800 employees accounts for 34%, Asia with ten sites, two R&D centers and 2,200 employees for 21%. Up to 2016, Europe's share is seen as shrinking to 35% of the then €8 billion in sales, with North America and Asia each having 35%.
Along with smaller acquisitions, as part of its new strategy Arkema wants to grow organically in booming emerging markets such as China and other Asian countries. "Our market-driven approach will be steered through long-tem partnerships and a wider product range," said Le Hénaff. Among the four budgeted "transformational projects" is a new €347m biomethionine and thiochemicals plant at Kerteh, Malaysia, in partnership with South Korea's based bioscience firm CJ CheilJedang
In China, Arkema is investing in the recently acquired HiPro Polymers to strengthen its PA 10 range. At Clear Lake / Bayport, Texas, in the U.S., capacity for acrylic acid and esters is being lifted and the production site optimized. In mid-2012, the company kicked off a major expansion project for its European "Kynar" PVDF business. More than €70m is to be invested at Pierre-Bénite, France, where output is being increased by 50%. At Changshu, China, a 50% capacity hike was completed earlier this year.
In the U.S., where Arkema hopes to become a "major player," Le Hénaff, like many other European managers, is impressed with the potential for fracking -- the ecologically controversial technology for exploiting shale gas reserves giving U.S. producers new competitive drive. In Asia, Latin America and the Middle East, the French company hopes to achieve a better geographical balance. In Europe, it will focus on high-value products.
Other of Le Hénaff's "long-term thoughts" that could become reality between 2016 and 2020 include an acrylic monomer buildup in Asia, biopolymers production leveraging partner U.S.-based Elevance Renewable Science's methathesis technology and further development of Arkema's position in high-end polymers such as the ultra high performance polyether ketone ketone (PEKK) resin.
While honing its profile, Arkema is also spotlighting its innovativeness. Two-thirds of R&D expenditure presently goes toward finding solutions for sustainability as well as the so-called megatrends of population growth, renewable raw materials, new energy efficiency, water treatment and lightweight materials. The new blue-and-red signature logo with the prominent sassy K in the middle is underscored by the subline "Innovative Chemistry". As a sign of Arkema's global approach, this is written in English -- perhaps unthinkable for a French firm 20 years ago.