‘Managing What We Can Control’
Chemtura Improved Its Performance in 2015 Despite Numerous Challenges
Chemtura Corporation is a global specialty chemicals company with leading positions in diversified markets and net sales of $1.75 billion in 2015. Formed in 2005 through the merger of Great Lakes Chemical and Crompton, the Philadelphia, Pennsylvania-based company looks back on a history of almost 180 years. After the divestiture of its AgroSolutions business in 2014, Chemtura now focuses its business on two segments: Industrial Performance Products (IPP) and Industrial Engineered Products (IEP). Ralf Kempf and Michael Reubold asked Craig A. Rogerson, who has served as Chemtura's Chairman, President and CEO since December 2008, about recent developments and his further growth strategy.
CHEManager International: After the divestiture of the AgroSolutions business in 2014, what is your focus to grow Chemtura’s core businesses?
C. Rogerson: Our focus is on profitably growing those businesses in our portfolio through organic means driven by innovation and capital investment, as well as through bolt-on M&A that leverages our technology and/or market access. We have concentrated our capital expenditures over the past three to four years on our four core businesses by expanding our capacities in higher growth markets, as well as extending our capabilities to produce our latest innovations. Examples of investments to serve higher growth markets are the capacity expansions we made for the production of our synthetic lubricant products in The Netherlands and our grease, finished fluids and urethanes products in China. Examples of innovative product lines for which we’ve expanded production capabilities are our Emerald Innovation 3000 greener flame retardant capability in Eldorado, Arkansas and our high-purity metal organics in Korea.
How has Chemtura developed in 2015 in terms of sales and earnings?
C. Rogerson: 2015 was a difficult year as far as revenue growth, due to the slowdown in China and the strong US dollar overseas. In addition, we experienced some specific supply constraints that posed challenges to our topline growth. That being said, a number of our newer product offerings performed well and are positioned for solid growth in 2016. Bottom line, we saw an approximate 40% increase in year-over-year EBITDA as margins improved due to a combination of lower raw material costs, centered around lower oil prices, and a focus on value pricing. EPS grew at an even higher rate due to effective tax planning, lower interest expense and a successful share buyback program.
Looking back at 2015, what were the challenges affecting your business?
C. Rogerson: As mentioned, the slowdown in China affected the sales, and utilization rates, of our new manufacturing facility in Nantong, China. We were also affected by the shortage of a key raw material constraining the utilization of our new facility in The Netherlands. While a positive on the raw material front, low oil prices did have a negative effect on our key oil company customers, leading to inventory adjustments at year-end and, overall, a more difficult selling environment.
Your theme in 2015 was ‘managing what we can control.’ Which initiatives did you implement to improve Chemtura’s performance?
C. Rogerson: After a difficult 2014 due to the overall macroeconomic conditions and no real indication that 2015 would show any improvement, we focused our efforts on improving our performance by "managing what we can control.” We announced a program in which we would reduce our manufacturing costs by $50 million, achieving that run rate by mid-year and realizing $40 million of that reduction in our 2015 results. Concurrently, we set a target of reducing our SG&A expenses by an additional $12 million over that same period. All of this was on top of the $15 million of corporate costs we committed to reducing as a result of the late 2014 divestiture of our Chemtura AgroSolutions business. I am proud to say we achieved, and even exceeded, the reduction targets in all cases and, even more importantly, we did it while improving our overall business processes effectiveness.
What is your strategy to generate future growth? Will you look for acquisitions to add products or technologies to your portfolio?
C. Rogerson: I have made it clear that now, with our more focused portfolio of businesses, growth is key. Organic growth driven by innovation and the utilization of the increased capacity we have invested in will be a core component of our growth. Bolt-on acquisitions that extend our product lines or add to our capability could be another driver of growth. I have also stated publicly my view that Chemtura would be advantaged by being a part of something bigger via a transformational purchase, sale or merger transaction. Scale is important from the perspective of trading multiples and corporate cost efficiency and also from the perspective of consistent investment in core R&D. We continue to actively identify and evaluate all opportunities.
What is your business outlook for the company and where do you see above-average market growth in terms of regions or application areas?
C. Rogerson: We are confident that we will deliver significant bottom line growth again in 2016. While we do not project or assume an improvement in the overall global economic environment, we will again grow our profitability by managing what we can control. We have alleviated the raw material constraints that affected us in 2015. We will have the full year effect of our cost reductions and our value pricing. We will benefit from the improved operating rates established on some key products as we ended 2015, and we will ramp up the commercialization of key new products in 2016. Key regions or applications for our growth are in our organometallics product lines in Asia, our synthetic lubricants in Europe, applications for bromine in mercury removal at coal-powered utilities in the US and continued growth for flame retardants in insulation foam applications in Europe.