AFTER YEARS OF restructuring, streamlining and operational improvement, Perstorp is well on the way to becoming the highly focused specialty chemicals group Industri Kapital and Perstorp management originally set out to create. Sales and margins are rising, and the product portfolio is focused on segments with great growth prospects. Perstorp is getting ready to fly. In the second quarter this year, Perstorp’s two business units, Specialty Chemicals and Materials Technology, both showed stable development. The group is poised to meet its long-term financial targets, 8 to 10 per cent sales growth and 20 percent operating margin (EBITDA).

”Years of restructuring, streamlining and operational improvements are starting to pay off. Today we are the world leader in the segments we have chosen to focus on”, says Lennart Holm, CEO.

The Perstorp of today is a very different creature from the listed widespread chemicals conglomerate of the late 1990s. Then, Perstorp had eight business units and was involved in everything from plastic containers to advanced biochemistry. The transformation has been profound. Today, two business units remain: Specialty Chemicals and Materials Technology.

The group, which is head-quartered in Perstorp, Sweden, has some 2,000 employees, manufacturing facilities in eight countries in Europe, North America and Asia, and a sales organisation that spans countries all over the world. Sales in 2003 totalled approximately €630 million (SEK 5.7 bn).

The Specialty Chemicals division manufactures and markets polyols, carboxylic acids, plasticizers and alcohols. It also sells formalin manufacturing facilities and catalysts.

The Materials Technology division focuses on composite materials for advanced applications particularly in the automotive, aerospace, and construction industries.

An emerging specialty chemicals group
Perstorp’s transformation was initiated in the mid-1990s. In 2000 the group was midway through the overhaul, but had lost tempo. Conflicting ideas among the main shareholders hampered the speed of change.

Recognising the potential in Perstorp’s core businesses, Industri Kapital made a public-toprivate offer for the company on the Stockholm Exchange. After some controversy, mainly regarding the floor-manufacturing subsidiary Pergo, a second offer was accepted by a majority of the shareholders in the spring of 2001. 

Industri Kapital’s first step after the buyout was to appoint Lennart Holm as CEO. Lennart holds a degree in Chemical Engineering from Chalmers University of Technology and has a managerial background from the chemicals and paper industries.

The second step was to integrate the Dynea subsidiary Neste Oxo into Perstorp. A sizeable specialty chemicals group emerged, with pro forma sales of SEK 7.1 billion. But profitability was far from acceptable. The operating margin (EBIT) in 2001 was 3.1 percent.

“Right after the takeover Industri Kapital was deeply involved. A steering committee was set up with Industri Kapital and Perstorp people, where we defined targets, allocated resources and initiated a change process. Some 200 change projects were initiated. We held meetings every other week and were in contact almost every day. As we picked up speed, Industri Kapital’s role became more traditional”, Holm recalls.

Three main challenges
The year after, in 2002, a series of structural changes followed. The business areas Industrial Resins and Construction Chemicals were divested, as were the holdings in Perstorp Clariant. On the investment side, Perstorp Moldable Composites acquired the corresponding activities from the Rodgers Corporation in USA.

With a viable structure in place, Lennart Holm and his team have spent most of their energy ensuring that Perstorp meets its three challenges; developing the product portfolio in concert with customers, achieving operational excellence and making the Perstorp corporate culture truly competitive.

As a consequence of a major cost-cutting project during the first half of 2004 the total number of employees was reduced by approximately 8 per cent. In parallel, a simplification of the legal structure was initiated, combined with a new and functionoriented organisation.

“The new organisation is well under way of becoming a success. It allows us to focus and utilize our resources in a much more efficient and flexible way, increasing time spent on value creation for our customers”, says Holm.

Last year was sluggish for the chemicals industry. The combination of rising raw material prices, rising energy prices, negative currency effects and weak demand hurt growth and margins.

This year Perstorp has picked up speed. Operating margins (EBITDA) in the first half rose sharply to 17.2 percent. Sales were up 8 percent to SEK 3.3 bn. The cash flow from continuous operations was up 28 percent during the first half. This excluding nonrecurring costs connected to downsizing of the organisation.

Sales in Specialty Chemicals amounted to SEK 2.7 bn in the first half, a top-line growth of 11 percent. The operating margin (EBITDA) of 20 percent was up by almost two percentage points from the first half last year. The business unit was able to compensate for rising oil prices through price increases.

In Materials Technology sales totalled SEK 547 m in the first half, down 4 percent from 2003. The operating margin (EBITDA) was 12 percent. The more traditional products still show weak margins. However, the market
acceptance of several advanced high-margin products is increasing. The management expects a strong growth in sales and margins as the general business climate improves.

“The financial goal for the group set by the board is to achieve organic growth of 8–10 percent annually over a business cycle. The target for the operating margin (EBITDA) is 20 percent or better. These are challenging but realistic targets, but they can only be achieved if Perstorp continues to expand its marketing network and, to a certain extent, its manufacturing capabilities outside Western Europe and North America. Our presence in China, Japan and South Korea is strategically very important,” says Holm.

After three years of continuous and focused change, Perstorp is in great shape for flying.

 

Source: IK News, Issue 11 Winter 2004 - Newsletter from Industri Kapital