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Lonza spin off creates chemical opportunity
Monthly
business
news
for
the
reinforced
plastics
Algroup’s
Lonza spin off creates chemical
mented, which broad
opportunity
Jane Cilby reports
T
HE ANNOUNCED merger o Swiss aluminium produce Alusuisse with Canada’s Alcai and France’s Pechiney signals furthe consolidation within the chemical am composites industries, leading to the break up of Alusuisse’s parent camp any Algroup. The merger is due to bce completed by the end of October.
chemicals
interest
standalone speculating until this
I
;
Since the collapse of the company’! planned merger with German groul Viag back in March, it seemed unlike ly that further merger activity woulc hold off for long. EMS Chemie chair
J; I
to become
a
entity, analysts are already just how long it will be too becomes absorbed by
another chemicals major. Active in many areas of ciality chemicals market the production of maleic and anhydrides - Lonza should appear attractive to companies ing BASF, Dow Chemical and with analysts estimating its the US$3 billion mark. Dutch
man Christoph Blocher joining the board of Algroup in May also fuellet industry speculation that EMS WBI 3 interested in acquiring Algroup’s spec iality chemicals activities. Though thi! move paves the way for Algroup’!
Lonza,
chemical
company
the speincluding phthalic certainly includClariant, worth at DSM
has
also expressed an interest in Lonza, though it has not stated that it would be making an offer. If DSM were to acquire the Lonza interests it would boost DSM’s presence in the US markets. Speaking held shortly announcement,
at
industry
a press conference after the merger Sergio Marchionne,
Catalysts and . . . . . . . . . . . . . . . technolc+s .. . . .. . .. . . . .. 3%
chief
rienced
in markets
Six
Source:
This journal
1999.
to the Algroup,
current who
opportunity
Lonza Zurich part
will Stock of the
j i
t I s~vl LR conditions 41>\h\.( i 0 Ii < ,lhO, ‘>lli
that apply
to their
will be accomof a rights offering will
to
newly formed SFrlO.OO per
shareholders be offered
buy
Swiss
of the
shares
Lonza share.
in
the
Group AG The shares
then be Exchange
listed and
Market
on will
Index
for of the form
@MI).
Automotive joint venture for OC INDIAN automotive component firm Tata AutoComp Systems Ltd (TACO) and
glass
Corning venture
fibre
producer
(OC) have agreement
; ’
Owens
signed a joint establishing
Systems Pvt Ltd. This will spearhead the develmanufacture of moulded
components
is expected
with commercial for- 2001.
0 1999
and the individual
with
for
automotive
elsewhere. from to total
both around
US$5.6 million. Composites Systems will initially set up two plants, one at Pune and another at Jamshedpur,
Algroup
ISSN 1464-2840/99/US$.20
plagued
customers in India and Financial investment
& Additives market 30 June
still
capacities.” The de-merger plished by means
companies
- Intermediates % sales by months ended
com-
over
composite
Algroup
officer,
fuelled by a clear need and desire to achieve market leadership so as to have the wherewithal to marginalise the weak. And all of this is being expe-
Composites joint venture opment and rides and additives . . . . *. . . . * . . . . . . . . . *.. 40%
executive
“The wave of consolidations we are witnessing across a band of industries is being
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contributions use.
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ltd.
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in it are protected
production
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Ltd. Please see back page for terms and
;
Areas already identified as opportunities for the joint venture include composite components for buses, trucks and agricultural vehicles. OC says that the advantages of composites have led to a 15% growth in the use of composite materials in the automotive industry. In the international automotive industry growth is around 1.5%. ‘Through the joint venture with TACO, Owens Corning is committed to bringing global resources and expertise to provide composites solutions to the Indian automotive industry to help increase the usage of composites in this industry,” says Peter Garforth, OC’s Composites Business vice president of marketing.
Pultruder signs JV with glass maker CANADIAN pultrusion company Inline Fiberglass Ltd, Ontario, is to participate as partner in a joint venture with Yaohua Glass Group Corp, one of China’s largest glass producers. Inline will license its technology and supply the joint venture with glass fibre reinforced plastic windows and doors. Production is scheduled to begin later this month with a start up capacity of nearly 93 000 m2 at a plant in &in Huangdao, 300 km north of Bejing, China. Inline’s international project coordinator, Michael Levine, told Composites Business Analyst that the total investment in this joint venture is expected to be around US$3.6 million. Inline has also selected the former Owens Corning facility in Luzerne County, Pennsylvania, USA, for its US headquarters and manufacturing facility, creating around 200 jobs. The company is investing US$2.6 million in the 29 700 m2 facility which it will lease under a Z-year agreement with an option to purchase the building.
Capacity increase for Johns Manville THE Engineered Products Group of Denver, Johns Manville Cow, Colorado, USA, will upgrade one of its main E-glass furnaces in Etowah, Tcnncsscc, over the coming year.
I
Composites
Business
Analyst
3P Amoco :hemicals . . . . . . . . . . . . . .Insulation ....
% net sales by business 1998 Johns Manville - US$ millions Source: Johns Manville
Scheduled to begin immediately the US$47 million project is expected to bt in operation by mid-2000. According to Johns Manville the E-glass furnace will be rebuilt ant expanded with the most advancec technology and engineering available The furnace is one of two major furn aces in the company’s Etowah plant which produces glass flbre reinforce. ments, glass fibre for roofing sub. strates and E-glass marbles for the defence industry. “This project will expand the capacity for this furnace by 75%,” say: 3 t Harvey Perry, senior vice presideni and general manager of Johns Manville’s Engineered Products Group. “This expansion, combined wit1 eliminating production bottlenecks or our mat lines, will position us to meel market demand well into the future.”
dERGED chemical giant BP Amoco ims”“to slash global annual costs by JS$4 billion, sell assets of $10 billion tnd boostcapital spending to a total of ;26 ,billion by the end of 2001. Chemicals disposals over the three rears are expected to total some i2.5 billion with BP Amoco exiting low nargin, low growth activities with an tim to have an overall chemicals portolio biased toward products such as bolypropylene, areas that are growing rt a faster rate than the avcragc chcmcals sector. In outlining the company’s petrohemicals slrategy, BP executive direcor Bryan Sanderson also indicated hat purified terephthalic acid (PTA) vas a high growth area for the compmy Chemicals production for the comjany was up 7% in the second quarter If fiscal 1999 from the first quarter, martially a result of additional F’TA ,apacity at its site in Geel, Belgium.
Ehemfab continues 3n acquisition path N ANOTHER move to building its letwork within Europe, Chemfab Zorp, New Hampshire, USA, has combleted the acquisition of HCC, a large prench distributor based in Perpignan. rhe acquisition price has not been lisclosed. A
I
Coyote commits restructure
to
COMPOSITE golf shaft produce] Coyote Sports Inc, Colorado, USA, hat sold its 80% majority interest in Sierra Materials LLC, which owns 100% o: the outstanding shares of Capt Composites Inc. “This is our first significant step ir our plan to restructure the cornpan) and its financial obligations,” says Jin Probst, Coyote’s chief executive officei and chairman. ‘We will continue tc review and evaluate each business unit with an aim to bring the cornpanS back to profitability.”
to cut
Chemfab HCC
1.5 years,
distributor has developed
for
over a solid
_:....
Chemfab Corp Net sales & cost of sales (US$ Nine months ended 28 March Source: Chemfab Corp
September
000) 1999
1999
Areas already identified as opportunities for the joint venture include composite components for buses, trucks and agricultural vehicles. OC says that the advantages of composites have led to a 15% growth in the use of composite materials in the automotive industry. In the international automotive industry growth is around 1.5%. ‘Through the joint venture with TACO, Owens Corning is committed to bringing global resources and expertise to provide composites solutions to the Indian automotive industry to help increase the usage of composites in this industry,” says Peter Garforth, OC’s Composites Business vice president of marketing.
Pultruder signs JV with glass maker CANADIAN pultrusion company Inline Fiberglass Ltd, Ontario, is to participate as partner in a joint venture with Yaohua Glass Group Corp, one of China’s largest glass producers. Inline will license its technology and supply the joint venture with glass fibre reinforced plastic windows and doors. Production is scheduled to begin later this month with a start up capacity of nearly 93 000 m2 at a plant in &in Huangdao, 300 km north of Bejing, China. Inline’s international project coordinator, Michael Levine, told Composites Business Analyst that the total investment in this joint venture is expected to be around US$3.6 million. Inline has also selected the former Owens Corning facility in Luzerne County, Pennsylvania, USA, for its US headquarters and manufacturing facility, creating around 200 jobs. The company is investing US$2.6 million in the 29 700 m2 facility which it will lease under a Z-year agreement with an option to purchase the building.
Capacity increase for Johns Manville THE Engineered Products Group of Denver, Johns Manville Cow, Colorado, USA, will upgrade one of its main E-glass furnaces in Etowah, Tcnncsscc, over the coming year.
I
Composites
Business
Analyst
3P Amoco :hemicals . . . . . . . . . . . . . .Insulation ....
% net sales by business 1998 Johns Manville - US$ millions Source: Johns Manville
Scheduled to begin immediately the US$47 million project is expected to bt in operation by mid-2000. According to Johns Manville the E-glass furnace will be rebuilt ant expanded with the most advancec technology and engineering available The furnace is one of two major furn aces in the company’s Etowah plant which produces glass flbre reinforce. ments, glass fibre for roofing sub. strates and E-glass marbles for the defence industry. “This project will expand the capacity for this furnace by 75%,” say: 3 t Harvey Perry, senior vice presideni and general manager of Johns Manville’s Engineered Products Group. “This expansion, combined wit1 eliminating production bottlenecks or our mat lines, will position us to meel market demand well into the future.”
dERGED chemical giant BP Amoco ims”“to slash global annual costs by JS$4 billion, sell assets of $10 billion tnd boostcapital spending to a total of ;26 ,billion by the end of 2001. Chemicals disposals over the three rears are expected to total some i2.5 billion with BP Amoco exiting low nargin, low growth activities with an tim to have an overall chemicals portolio biased toward products such as bolypropylene, areas that are growing rt a faster rate than the avcragc chcmcals sector. In outlining the company’s petrohemicals slrategy, BP executive direcor Bryan Sanderson also indicated hat purified terephthalic acid (PTA) vas a high growth area for the compmy Chemicals production for the comjany was up 7% in the second quarter If fiscal 1999 from the first quarter, martially a result of additional F’TA ,apacity at its site in Geel, Belgium.
Ehemfab continues 3n acquisition path N ANOTHER move to building its letwork within Europe, Chemfab Zorp, New Hampshire, USA, has combleted the acquisition of HCC, a large prench distributor based in Perpignan. rhe acquisition price has not been lisclosed. A
I
Coyote commits restructure
to
COMPOSITE golf shaft produce] Coyote Sports Inc, Colorado, USA, hat sold its 80% majority interest in Sierra Materials LLC, which owns 100% o: the outstanding shares of Capt Composites Inc. “This is our first significant step ir our plan to restructure the cornpan) and its financial obligations,” says Jin Probst, Coyote’s chief executive officei and chairman. ‘We will continue tc review and evaluate each business unit with an aim to bring the cornpanS back to profitability.”
to cut
Chemfab HCC
1.5 years,
distributor has developed
for
over a solid
_:....
Chemfab Corp Net sales & cost of sales (US$ Nine months ended 28 March Source: Chemfab Corp
September
000) 1999
1999
new applications in efforts revenues to US$30 million 2002.
.Advanced sees fall
to increase by fisca
Classfiber in sales
THE JOINT venture between Porche: Industries and Owens Corning Advanced Glassfiber Yarns LLC reports that its net sales in the seconc quarter of fiscal 1999 decrease< US$&l million, or 9%, to $61.6 milliol from $67.7 million in the second quar ter of fiscal 1998. Net sales in the first half of 199! decreased $17 million, or 12.1%, tq $123.6 million from $140.6 million il the first half of 1998. The company says that this is pre dominately a result of decrease< demand for heavy yarns used in rigic printed circuit boards as well al reduced sales in the construction industries. However, the fall in sale: was partially offset by increased sale: in industrial and speciality applica tions. In comparison with the two pre vious quarters, European sales wen also affected by the depreciation of the European currencies since the beginn ing of 1999. Gross profit margins decrease< from 35% for the six months endec 30 June 1998 to 30% for the first sti months in fiscal 1999. This decreasc has been attributed by the company tl pricing pressures on the electrica market and increased fabrication costs as a result of supply agreements wit1
Advanced Glassfiber Yarns LLC Second quarter net sales & cost of goods sold (USS 000) Source: Advanced Glassfiber Yarns LLC
1 I
Composites
Business
Analyst
Owens Corning that the company entered into on its formation. Net income for the company fell to $1.2 million for the second quarter of 1999, down $11.7 million, or 90.7%, on the comparable period of 1998. Up to 30 September 1998, Advanced Glassfiber LLC was the glass yarns and speciality materials business of Owens Corning.
Court
protects
PPG
THE TAIWAN based joint venture of PPG Industries and Nan Ya Plastics Corp - PFG Fiber Glass Corp - has stopped Full Tech, a Taiwanese company planning a glass fibre plant in Yun Lin, from using, disclosing or infringing its proprietary technology. In granting an injunction prohibiting use of proprietary PFG information in plant construction, production and management, the Yun Lin district court said Full Tech sought to misappropriate PFG trade secrets and unduly induce PFG employees to join Full Tech (Composites Business Analyst, July 1999). “We don’t hesitate to pursue appropriate legal remedies to protect our technologies and trade secrets,” comments John K. Williamson, PPG’s intellectual property chief counsel. “PPG and PFG appreciate the Taiwan authorities’ vigorous response to enforce trade secrets law regarding Full Tech’s outrageous conduct. The prosecutor searching Full Tech’s Yun Lin offices in February found substantial proprietary material believed to be owned by PFG and material licensed to PFG by PPG, including computer files,” says Williamson. Suspicions were aroused late last year because of resignations within a few months of 21 PFG employees who had extensive knowledge of their employer’s production processes or business plans. PFG managers then learned that Full Tech had been organised to produce glass fibre, and had hired PFG’s former employees at pay levels.as much as double those for comparable jobs at PFG. The prosecutor’s office then began an investigation under Taiwan’s trade secrets law.
September
1999
Defence Consolidation places strain on defence industry MERGER and acquisition activity in the IJS aerospace and defence industry at the prime contractor level reached US$40 billion in 1998. This consolidation has placed huge pressure on lower tier suppliers and merger activity within Europe is likely to put a similar squeeze on European equipment suppliers. Companies that are able to identify and reduce costs while still producing products inline with what the market requires and can afford have prospered with the increase in business. An increase in product innovation is also emerging as revenue hungry firms compete more aggressively for a smaller number of contracts. The continuous trend towards globalisation is another big drive for merger and acquisition activity This has increased the need for companies to construct global networks to tap into centres of excellence in addition to winning exports. As domestic markets shrink, companies must be willing and able to serve the global marketplace.
Oil & gas Pipeline
deal
for
Africa
OIL FIRMS Chevron and Royal Dutch/Shell are working with Nigeria, Ghana, Benin and Togo to build a natural gas pipeline that could start supplying the region with energy by 2003. The pipeline will carry 5.1 million ma of natural gas per day from Nigeria for sale into other countries. Construction, which began six years ago, is expected to cost up to US$1.5 billion. The project, supplementing unreliable hydropower in the three consuming countries, will initially serve three power plants in Ghana.
Automotive Composites for automakers
part
GENERAL automotive
Motors, the manufacturer,
September
1999
of future worlds largest says that it
will offer composite pick-up beds on its Chevrolet Silverado pick-up truck from late 2000. However, Ford, the number two automotive manufacturer, says it will be first on the market with a plastic bed, offering it as standard on the new Explorer Sport Trac sport utility/pickup truck that is scheduled to go into production in January and on sale soon after. ‘We believe we will be the first in the industry to actually put on sale a composite box,” says Simon Sproule, a spokesperson for Ford. “We certainly see a future for composite materials for pick-up trucks and other product lines.”
Economic Boost
Chemicals Chemical firms consolidation
1998, but will show a booming 3.5% rise in both 2000 and 2001. Key growth areas for the construction industry will be in new office or refurbishment projects, public and private repair maintenance and continued investment in the rail network. Even with the steady increase in construction, the UK industry still lags behind others in Europe. The BMP forecasts UK construction output at around 9% of the country’s gross domestic product (GDP) compared with a European average of approximately 12%.
face
THE PROPOSED US$8.8 billion stock acquisition of Union Carbide Co by Dow Chemical Co could force other major chemical firms worldwide to review their strategic plans and lead to a new wave of consolidation. After the announcement by Dow shares of several big chemical companies moved upwards. NOVA Chemicals Corp’s shares rose CAN$l to close at $31 on the Toronto Exchange, while European chemical giant DSM saw shares rise as much as 5% in Amsterdam. Chemical firms seeking to compete in this consolidating environment will be put under pressure to look for their own deals to establish themselves as market leaders in their segment of the industry.
Construction UK builders forecast industry rise THE UK’s National Council of Building Materials Producers (BMP) expects growth in the UK construction industry to slow in 1999, but gain momentum for stronger rises in public investment in 2000 and 2001. In a forecast, the BMP says that industry output will increase by 1.5% year-onyear in 1999, slowing from 1.6% in
for
Thailand
THAILAND is set to announce an economic incentive package worth up to US$3 billion to make sure it does not slide back into recession. The package includes new funds to help businesses, loans for small and medium-sized enterprises and steps to help the property sector. This is the country’s third major economic programme in a year. In August 1998 Thailand launched a package to help banks recapitalise and in April of this year it launched a $3.5 billion plan relying on extra fiscal spending. This new package is designed to boost investment in the productive sector of industry but it is likely that it will take some time to impact on the economy. The effects should hopefully be realised by January 2000.
Mass
transit
Jordan says privatisation
yes
to rail
JORDAN has approved a 25 year lease agreement with an international consortium to expand and operate the country’s main freight railway line, its first major privatisation scheme. The government has shifted the project to a lease of the state owned rail track after shelving an earlier build, operate and transfer scheme to counter local critics opposed to privatisation. Investment is expected to reach US$130 million.
Composites
Business
Analyst I
Kafus
Industries
Ltd
Kafus is actively pursuing opportunities for natural fibre as an alternative to glass Elizabeth Marsh looks at the development of the company and how its operations through many subsidiaries focus on exponential growth.
K
afus was originally formed by the current chairman Kenneth F. Swaisland as Kafus Capital Corp, becoming Kafus Environmental Industries Ltd, and finally, in June 1999, Kafus Industries Ltd. Kafus currently has US$l billion in capital projects in development. Major projects include a medium density fibreboard (MDF) plant using 100% recovered urban wood waste, the use of kenaf frbre for newsprint, production of natural tibre composites, based on kenaf as a replacement for glass fibre, and the manufacture of a fibre cement alternative to wood and metal siding. Swaisland was previously managing director of Rafel Industrial Group Ltd, based in Bermuda, and engaged in international merchant banking. Michael McCabe, Kafus’ chief executive officer is also from a financial background but the company has acquired senior staff from a range of technical backgrounds. Kafus is divided into six operating divisions: CanFibre, which operates the Riverside, California, MDF plant; Kenaf Industries; Kafus Biocomposites; Fortra Fiber Cement Co; Hyaton; and Kafus International Development Group. In 1998 Kafus incorporated Kafus Environmental Offset Ltd to access billions of dollars of unfulfilled offset obligations on the part of major global defence contractors to fund Kafus projects in emerging economies. The new company has involved Kafus in discussions with the United Nations. The offset process is used by governments who place contracts with overseas companies to see benefits return to the country in the form of contracts with domestic manufacturers or in work creation. Estimates of the value of obligated offset are around $9 billion. Although the company manufactures a range of environmentally friendly products and has received the
I
Composites
Business
Analyst
lainforest Alliance Green Fores rward and the Sequoia award it doef tot consider that it should rely on itr Teen credentials to penetrate mar :ets. Kafus insists that all its productr nust be considered as equal, or superi lr, to competing products made fron onventional raw materials. Once leveloped, projects must be able to be eplicated on a global basis and tht ompany goal is exponential not incre nental growth. The company originally developec vhen Swaisland and his associate: required an exclusive license fron porintek, the consortium of Canadiar government and forest products corn banies which led to the manufacture o vlDF from waste wood. It has beer ompany policy to develop by strategic )artnerships and the acquisition o jatent rights and expertise as appro niate. An example of this was the acquisition of Kenaf Industries whose u-iginator, Dr Chuck Taylor, hat mdertaken extensive work for the Ut ;ovemment on using kenaf fibre as 2 ,eplacement for woodpulp. Funding for the company is by z nix of non-recourse loans, guaranteec )erformance contracts, supply con racts and purchase agreements. Thi: Las left the company with a 955 debt equity ratio which it claims does no
220
000 -
190000 160 000
1?Awo-
=\.I=
2cc.3
Revenues
Kafus Industries Ltd 1997 - 2000 (estimated) Source: Strategic Lookout
(US$
000)
fibre.
jeopardise the equity shareholder as projects are funded on a project finance basis. Long term debt, had grown from CAN$406 303 in 1997 to $290.3 million in 1998. However, assets have grown from $21.9 million in 1997 to $359.4 million in 1998. Strategic partners include Enron Capital, Stone and Webster, the Visteon division of Ford Motor Co, Hartford Steam Boiler and Insurance Co and Timber Products Co. Enron owns 25% of the fully diluted equity of Kafus. Samarac Corp Ltd, which is 100% owned by Swaisland, owns nearly 36% of the fully diluted equity The basis of the Kafus financial structure, which the company considers to be ‘risk averse’, is that each project should be financially self-supporting. Contractors have guaranteed performance contracts for facilities they build and products they produce for Kafus. Long term, low cost material supply contracts are in place for both raw materials and energy which Kafus maintains improves the accurate forecasting of expenses. Long term purchasing agreements are in place for the products and the capacity of most Kafus operations has been pre-sold for the next decade. CanFibre is 86.5% owned by Kafus and manufactures AllgreenTM MDF from 100% urban wood waste without the use of urea formaldehyde which breaks down and emits formaldehyde gas. It is intended that the Riverside plant will convert 155 000 tonnes of old pallets and demolition waste into MDF. The Riverside plant should have been operating in the first quarter of 1999 but was dclaycd and made its first shipments in the third week in July. The financing of a second plant was completed in December 1998 and is now under construction in Lackawanna, New York. The European market will initially be supplied from the Lackawanna plant, accounting for 10-X% of its sales by 2003. A third
September
1999
plant in Amsterdam, intended to supply the European market, is in the planning stages for a site beside the city’s waste recycling facility. This plant will be constructed by Stone and Webster Engineering Corp, with Stork Engineering, Amsterdam, responsible for the planning applications. Part of the financial strategy of Kafus is that long term purchase arrangements are in place for the output and lhe arrangement in Amsterdam is with Timber Products of Oregon and its European affiliates that 100% of the output will be purchased under a 20 year agreement. Kenaf Industries, which is 90% owned by Kafus, is financing a US$170 million newsprint mill in Texas to convert kenaf into 145 000 tonnes of high quality newsprint. Kenaf is a fast growing relative of the hibiscus plant, producing two-three times the annual fibre yield per acre of Southern Pine which is commonly used in US pulp and paper mills. The plant requires little in the way of such chemical controls as pesticides and is drought tolerant. The company, which has the world’s largest seed bank for kenaf, is currently planting over 32.3 million m2 of kenaf and this will be increased to over 100 million mz. Kafus considers that, although wood waste will remain an important element for the company over the next three years, kenaf will become the largest part of the business with added inputs for different types of packaging. One product that is being considered is panels for low cost housing in Third World countries or in disaster relief The formation of Kafus Offset is related to these potential developments. In the production of natural fibre composites the kenaf plant is harvested, dried and bundled. The outer cover - rather like the strings on celery sticks - is known as bast fibre and surrounds a white pithy core which is ground to a flour during the production process. The flour is being investigated as a replacement for talc filler in extrusion moulding. The bast fibre is mixed with polypropylene (PP) to form a nonwoven, felt-like mat 6.3 mm thick of which one side is brown from the kenaf and the other white from the PP.
September
1999
1 Except
per share
data
The material can be formed as panels or can be cut and moulded, using heat and pressure, into three-dimensional shapes. Kafus Biocomposites signed a strategic collaborative agreement with Visteon Automotive Systems, a subsidiary of Ford Motor Co, in December 1998 to develop and produce the material with the trademark Flexform’” under an original equipment manufacturer (OEM) contract. The material will be supplied from a new plant being constructed at Elkhart, Indiana, with a design capacity of 5.1 million m2 which is due for completion in September 1999. Kafus Biocomposites is also supplying Findlay Industries, which in turn supplies Saturn, Chevrolet and Chrysler, with Loprofin’” to replace natural libres currently imported from Europe. A further contract is with Johnson Controls. Work on the Kafus’ Elkhart plant started two years ago with the plant layout finalised in May 1998, approval was given in December 1998 and construction began in May 1999. The first shipments will begin by the end of September. The bast fibre is prepared at the Texas plant of Kenaf Industries and shipped to Elkhart for composite manufacture. Production in the first year of operation after commissioning is projected at 5.5 million m2, doubling in 2001. The PP will be totally recycled and Kafus is working with Ford on a zero trim waste policy. The main product sectors will be recreational vehicles such as mobile homes, interior trim for automobiles and the building industry, with an even split between the three sectors. This allows for movements in the face of industrial downturns.
The kenaf material has high tensile and impact strength and meets the Society of Automotive Engineers’ standards for side force and impact. Kafus claims that the material, which they see as a replacement for many glass fibre applications, has lower weight than alternative materials making it more fuel efficient and giving lower shipping costs. The material is durable with no problems of rust or corrosion and shows low warp and creep under extreme temperature conditions whilst also demonstrating good acoustic properties. Rapid part times lead to increases in throughput and improved cost competition factors. In keeping with the environmental approach of the company further benefits are seen to be low volatile organic compound 0’00 emissions, with no benzene, styrene or formaldehyde emissions offgassing. A factor of considerable interest is the ability to recycle the product which avoids some of the problems which are faced by the use of glass fibre reinforced composites. A new joint venture has also been proposed with SCAC Holdings Corp of Ireland to develop and produce SCAC’s proprietary Solplax range of biodegradable polymers. The new venture would be owned 75% by Kafus and 25% by SCAC.
Composites
Business
Analyst I
i PPC Industries
i
* Except
per
share
Inc
Cytec
Inc
data
Glass fibre producer PPG Industries Inc, Pittsburgh, USA, witnessed a fall in net sales for its second quarter of financial year 1999. Sales fell 3% to US$1.95 billion from sales of $2 billion in the comparable period of 1998. Net income for the second quarter was also down on the previous year to $184 million - a fall of 7.5%. However, the cost of sales for the company was also reduced to $1.16 billion, from $1.18 billion in the same quarter of last year. The company cites a charge for the disposition of equity interests in Asian glass operations and strike related shutdowns at General Motors’ plants for the reduction in per share earnings. “The worst of the economic turmoil in Asia and Brazil appears to be behind us, although the effect on some of our businesses remains significant,” says PPG’s chairman and chief executive Raymond W. LeBoeuf. “Most North American consumer markets continue to perform well, and the European basic manufacturing sector is not as weak as earlier in the year.” In PPG’s glass segment, sales were lower predominately as a result of the third quarter 1998 divestiture of its European glass operations and price falls in glass fibre and automotive glass. However, it is within the company’s coatings business that most activity is being seen. Having made 13 acquisitions since 1997, the majority in its coatings business, four further acquisitions are pending which together are expected to generate annual sales of more than $1.6 billion.
Composites
Industries
Business
Analyst
* Except
per
share
data
Speciality materials company Cytec Industries Inc, New Jersey, USA, reports that its net earnings for the second quarter of 1999 were US$28 million compared with $35 million for the second quarter of 1998 - a fall of 20%. Cytec’s net sales were also below those for the 1998 comparable period at $359.1 million, a drop of $6.7 million. The company’s composites interest lies in its Speciality Materials business which in the second quarter of 1999 accounted for 20% of Cytec’s tntal sales and 19% of the firm’s earnings from operations. In this segment sales were $115 million in the second quarter of fiscal 1999, a decrease of 11% compared with the same period of 1998, although operating earnings for the business increased 8% to $23 million as a result of manufacturing rationalisation implemented by Cytec over the past year. Cytec says that around $9 million of the sales decrease was a result of the divestiture of the moulding compounds product line (Composites Business Analyst, December 1998) while the acquisition of The American Materials & Technologies Corp in the fourth quarter of fiscal 1998 added approximately $7 million to sales. Leaving acquisitions and divestitures aside Cytec reports that selling volumes were down 5% as a result of expected reductions in demand in the commercial aerospace market.
“The Speciality Chemical and Material segments continued the positive trends seen in the first quarter of 1999,” says David Lilley, Cytec’s chairman, president and chief executive officer. “Demand for our new products and new applications in our Speciality Chemical and Material segments remains encouraging and we continue to expand our geographical coverage particularly in Asia.” Lilley continues, “The Speciality Materials segment has performed well in spite of lower US demand and we expect the decline in commercial aerospace build rates to bring this segment’s second half results about 5-10% below first half results.” Net earnings for Cytec’s first six months of 1999 were $56 million on net sales of $714 million. This compares to net earnings of $66 million on net sales of $734 million for the first six months of fiscal 1998.
Ashland
I Except
per
Inc
share
data
Ashland Inc’s recent move to maximise profits by splitting its chemicals unit appears to have worked (Composites Business Analyst, April 1999). Reporting its third quarter results, the first since the split, the company, based in Covington, Kentucky, USA, says that its sales and operating revenues reached US$l.S billion, up 6% on the $1.7 billion recorded for the same period of fiscal 1998. Ashland Speciality Chemical, incorporating Ashland’s Composite Polymers Division, had an excellent quarter according to Ashland’s chairman and chief executive officer Paul W.
September
1999
Chellgren. “Operating income of $33 million was up 32% from the quarter a year ago,” says Chellgren. “In particular, increased sales volumes of unsaturated polyester resins as well as speciality resins and adhesives more than outpaced a slowdown in our Drew Marine chemicals business.” Operating income from Ashland Distribution was $17 million on par with figures recorded for the third quarter of fiscal 1998. “The traditional distribution businesses - particularly industrial chemicals, fibre reinforced plastics and North American thermoplastics - are performing quite well as sales volumes continue to strengthen,” says Chellgren. “These improvements however were offset by declines in the Fine Ingredients and European thermoplastics distribution businesses.” Net income for the company as a whole was $85 million, a fall of $37 million or 30.3%, compared with results a year ago. For the nine months to date of the 1999 fiscal year net income stands at $137 million, down $57 million or 29.4% on the same period of 1998.
Zoltek
1 Except
Companies
per
share
Inc
data
Carbon fibre producer Zoltek Co, Missouri, USA, reports that for the its third quarter of fiscal 1999 ended 30 June total sales were US$15.6 million, compared with $18.9 million in the previous year’s third quarter. Zoltek also reports a net loss of $0.9 million for the quarter, compared with net income of $1.7 million in fiscal 1998s third quarter. For the nine month period up to 30 June 1999 total sales for Zoltek reached $50.5 million, down $13.2 mil-
September
1999
lion or 21% for the same period a year ago. Net income for the company has also been hit, recording a net loss of $1.9 million for the nine month period, compared with net income of $8.4 million for the first nine months of 1998 - a fall of 123%. ‘We are making steady yet not spectacular progress in our plan for commercialising low cost carbon fibres,” says Zsolt Rumy, Zoltek’s chairman and chief executive officer. “This progress is reflected by a 7.5% increase in carbon libre sales compared to the third quarter of fiscal 1998, even though selling prices have dropped significantly as we execute our long term pricing strategy.” Sales of carbon fibres - Zoltek’s core business - were up in comparison with both the previous year’s third quarter and the second quarter of fiscal 1999, as a result of initial small volume sales for new markets and applications, specifically within Europe. According to Rumy though the carbon fibres business remains strongly profitable it is at a reduced margin compared to the third quarter of fiscal 1998. This is a direct result of costs incurred in maintaining the company’s available manufacturing capacity and increased expenditures on both product and market development. “The cost growth in our carbon libres business is in no sense alarming,” says Rumy. “It represents a critical and strategic investment in the future.” Within the company’s non-core acrylic fibre and speciality chemicals business declining sales more than offset the sales gain in carbon flbres. Likewise, a loss in the non-core business more than offset the continued income from the core carbon fibre business. In spite of the losses recorded during fiscal 1999 to date Rumy says that he is strongly encouraged by the opening of potentially large markets, including the automotive industry Rumy also says that he expects a recovery in the electronics market, helping to boost sales of chopped and milled carbon fibres beginning in the second half of calendar 1999.
Saint-Cobain
’ Except
per
share
data
Consolidated net income for French company Saint-Gobain, including the group’s glass fibrc activity through Vetrotex is estimated at e882 million for the first half of fiscal 1999, a 67.7% increase relative to the comparable period of 1998. Excluding capital gains from disposals net income amounts to 8468 million, up 10.6% compared with the same period a year ago. The company says that this performance is in line with its 1999 objectives stemming from an improved profitability strategy implemented in the group’s three operating sectors Glass, High Performance Materials and Housing Products. Sales within Saint-Gobain’s Glass sector’s Insulation and Reinforcements business have been estimated at cl347 million an increase of 11.4% on the previous year’s comparable result of e1209 million. Operating income for the business is also expected to increase to El59 million, up 37.1% on the first six months of 1998 when operating income stood at El16 million. The breakdown of sales by region for the company shows that SaintGobain’s main market is its home territory of France which accounts for 40.6% of sales. The rest of Europe accounts for 31.4% while the Americas and Asia account for the remaining 28%.
Composites
Business
Analyst
* u
Return
on capital
employed
I - Incorporating
T
he true meaning of income and profit figures from financial statements only emerge when compared with investment. When comparing changes in such business ratios from period to period, it is possible to identify improvements in performance or developing problem areas. By comparing ratios from one company to those of its competitors, one can see possibilities for improvement in key areas. The return on sales (ROS) ratio, calculated by the division of a company’s fiscal year end profit before tax (PBT) by its total sales, attempts to show the average margin of profit as a percentage of sales that, each sale makes. An upward trend would indicate that the company was enjoying more profit from each $1 of sale, a downward trend would indicate the reverse. It is difflcull to make a fair comparison between ROS ratios for different entities. Individual operating and
8 I
Composites
Business
Analyst
Return
(ROCE)
Reichhold
2 - Incorporating
Nate
on sales (ROS)
3 - Incorporating
financing arrangements vary a great deal, but for individual companies over a period of time a trend may emerge. If the ROS ratio is varied then this can be attributed to changes in the expenses of the company. Expense changes could be down to any of the company’s overhead items from rent through to an increase in oil prices. The return on capital employed (ROCE) ratio can be easily calculated by dividing a company’s fiscal year end PBT by its fiscal year end total assets. As a general rule, the higher the figure, expressed in percentage terms, the better the company is performing. When looking at the ROCE ratio over a period of three years is should be possible to identify whether or not tlie company is becoming more efficienl by ils ROCE percentage growth. In the case of the examples detailed in the table above it is possi-
Vetrotex
ble to see that both the ROCE and ROS for glass fibre manufacturer Owens Corning during the past three fiscal years has shown neither consistency nor improvement. In both 1996 and 1998 the company recorded a negative ROCE. It is of course important to understand a company’s specific financial and business environment, in this case Owens Corning’s asbestos national settlement programme and its restructuring programme dramatically increased its costs for the 1998 period. However, a general understanding of the industry the company operates in can also be indicative of a company’s performance. Again in the cast of Owens Corning, the financial downturns of the Tiger economies and those in South America coupled with the continuance of pricing instability in the glass fibre industry have contributed to the company’s overall financial picture.
September
1999
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September
1999
business
news
for
the
reinforced
plastics
Algroup’s
Lonza spin off creates chemical
mented, which broad
opportunity
Jane Cilby reports
T
HE ANNOUNCED merger o Swiss aluminium produce Alusuisse with Canada’s Alcai and France’s Pechiney signals furthe consolidation within the chemical am composites industries, leading to the break up of Alusuisse’s parent camp any Algroup. The merger is due to bce completed by the end of October.
chemicals
interest
standalone speculating until this
I
;
Since the collapse of the company’! planned merger with German groul Viag back in March, it seemed unlike ly that further merger activity woulc hold off for long. EMS Chemie chair
J; I
to become
a
entity, analysts are already just how long it will be too becomes absorbed by
another chemicals major. Active in many areas of ciality chemicals market the production of maleic and anhydrides - Lonza should appear attractive to companies ing BASF, Dow Chemical and with analysts estimating its the US$3 billion mark. Dutch
man Christoph Blocher joining the board of Algroup in May also fuellet industry speculation that EMS WBI 3 interested in acquiring Algroup’s spec iality chemicals activities. Though thi! move paves the way for Algroup’!
Lonza,
chemical
company
the speincluding phthalic certainly includClariant, worth at DSM
has
also expressed an interest in Lonza, though it has not stated that it would be making an offer. If DSM were to acquire the Lonza interests it would boost DSM’s presence in the US markets. Speaking held shortly announcement,
at
industry
a press conference after the merger Sergio Marchionne,
Catalysts and . . . . . . . . . . . . . . . technolc+s .. . . .. . .. . . . .. 3%
chief
rienced
in markets
Six
Source:
This journal
1999.
to the Algroup,
current who
opportunity
Lonza Zurich part
will Stock of the
j i
t I s~vl LR conditions 41>\h\.( i 0 Ii < ,lhO, ‘>lli
that apply
to their
will be accomof a rights offering will
to
newly formed SFrlO.OO per
shareholders be offered
buy
Swiss
of the
shares
Lonza share.
in
the
Group AG The shares
then be Exchange
listed and
Market
on will
Index
for of the form
@MI).
Automotive joint venture for OC INDIAN automotive component firm Tata AutoComp Systems Ltd (TACO) and
glass
Corning venture
fibre
producer
(OC) have agreement
; ’
Owens
signed a joint establishing
Systems Pvt Ltd. This will spearhead the develmanufacture of moulded
components
is expected
with commercial for- 2001.
0 1999
and the individual
with
for
automotive
elsewhere. from to total
both around
US$5.6 million. Composites Systems will initially set up two plants, one at Pune and another at Jamshedpur,
Algroup
ISSN 1464-2840/99/US$.20
plagued
customers in India and Financial investment
& Additives market 30 June
still
capacities.” The de-merger plished by means
companies
- Intermediates % sales by months ended
com-
over
composite
Algroup
officer,
fuelled by a clear need and desire to achieve market leadership so as to have the wherewithal to marginalise the weak. And all of this is being expe-
Composites joint venture opment and rides and additives . . . . *. . . . * . . . . . . . . . *.. 40%
executive
“The wave of consolidations we are witnessing across a band of industries is being
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contributions use.
Science contained
ltd.
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Ltd. Please see back page for terms and
;
Areas already identified as opportunities for the joint venture include composite components for buses, trucks and agricultural vehicles. OC says that the advantages of composites have led to a 15% growth in the use of composite materials in the automotive industry. In the international automotive industry growth is around 1.5%. ‘Through the joint venture with TACO, Owens Corning is committed to bringing global resources and expertise to provide composites solutions to the Indian automotive industry to help increase the usage of composites in this industry,” says Peter Garforth, OC’s Composites Business vice president of marketing.
Pultruder signs JV with glass maker CANADIAN pultrusion company Inline Fiberglass Ltd, Ontario, is to participate as partner in a joint venture with Yaohua Glass Group Corp, one of China’s largest glass producers. Inline will license its technology and supply the joint venture with glass fibre reinforced plastic windows and doors. Production is scheduled to begin later this month with a start up capacity of nearly 93 000 m2 at a plant in &in Huangdao, 300 km north of Bejing, China. Inline’s international project coordinator, Michael Levine, told Composites Business Analyst that the total investment in this joint venture is expected to be around US$3.6 million. Inline has also selected the former Owens Corning facility in Luzerne County, Pennsylvania, USA, for its US headquarters and manufacturing facility, creating around 200 jobs. The company is investing US$2.6 million in the 29 700 m2 facility which it will lease under a Z-year agreement with an option to purchase the building.
Capacity increase for Johns Manville THE Engineered Products Group of Denver, Johns Manville Cow, Colorado, USA, will upgrade one of its main E-glass furnaces in Etowah, Tcnncsscc, over the coming year.
I
Composites
Business
Analyst
3P Amoco :hemicals . . . . . . . . . . . . . .Insulation ....
% net sales by business 1998 Johns Manville - US$ millions Source: Johns Manville
Scheduled to begin immediately the US$47 million project is expected to bt in operation by mid-2000. According to Johns Manville the E-glass furnace will be rebuilt ant expanded with the most advancec technology and engineering available The furnace is one of two major furn aces in the company’s Etowah plant which produces glass flbre reinforce. ments, glass fibre for roofing sub. strates and E-glass marbles for the defence industry. “This project will expand the capacity for this furnace by 75%,” say: 3 t Harvey Perry, senior vice presideni and general manager of Johns Manville’s Engineered Products Group. “This expansion, combined wit1 eliminating production bottlenecks or our mat lines, will position us to meel market demand well into the future.”
dERGED chemical giant BP Amoco ims”“to slash global annual costs by JS$4 billion, sell assets of $10 billion tnd boostcapital spending to a total of ;26 ,billion by the end of 2001. Chemicals disposals over the three rears are expected to total some i2.5 billion with BP Amoco exiting low nargin, low growth activities with an tim to have an overall chemicals portolio biased toward products such as bolypropylene, areas that are growing rt a faster rate than the avcragc chcmcals sector. In outlining the company’s petrohemicals slrategy, BP executive direcor Bryan Sanderson also indicated hat purified terephthalic acid (PTA) vas a high growth area for the compmy Chemicals production for the comjany was up 7% in the second quarter If fiscal 1999 from the first quarter, martially a result of additional F’TA ,apacity at its site in Geel, Belgium.
Ehemfab continues 3n acquisition path N ANOTHER move to building its letwork within Europe, Chemfab Zorp, New Hampshire, USA, has combleted the acquisition of HCC, a large prench distributor based in Perpignan. rhe acquisition price has not been lisclosed. A
I
Coyote commits restructure
to
COMPOSITE golf shaft produce] Coyote Sports Inc, Colorado, USA, hat sold its 80% majority interest in Sierra Materials LLC, which owns 100% o: the outstanding shares of Capt Composites Inc. “This is our first significant step ir our plan to restructure the cornpan) and its financial obligations,” says Jin Probst, Coyote’s chief executive officei and chairman. ‘We will continue tc review and evaluate each business unit with an aim to bring the cornpanS back to profitability.”
to cut
Chemfab HCC
1.5 years,
distributor has developed
for
over a solid
_:....
Chemfab Corp Net sales & cost of sales (US$ Nine months ended 28 March Source: Chemfab Corp
September
000) 1999
1999
Areas already identified as opportunities for the joint venture include composite components for buses, trucks and agricultural vehicles. OC says that the advantages of composites have led to a 15% growth in the use of composite materials in the automotive industry. In the international automotive industry growth is around 1.5%. ‘Through the joint venture with TACO, Owens Corning is committed to bringing global resources and expertise to provide composites solutions to the Indian automotive industry to help increase the usage of composites in this industry,” says Peter Garforth, OC’s Composites Business vice president of marketing.
Pultruder signs JV with glass maker CANADIAN pultrusion company Inline Fiberglass Ltd, Ontario, is to participate as partner in a joint venture with Yaohua Glass Group Corp, one of China’s largest glass producers. Inline will license its technology and supply the joint venture with glass fibre reinforced plastic windows and doors. Production is scheduled to begin later this month with a start up capacity of nearly 93 000 m2 at a plant in &in Huangdao, 300 km north of Bejing, China. Inline’s international project coordinator, Michael Levine, told Composites Business Analyst that the total investment in this joint venture is expected to be around US$3.6 million. Inline has also selected the former Owens Corning facility in Luzerne County, Pennsylvania, USA, for its US headquarters and manufacturing facility, creating around 200 jobs. The company is investing US$2.6 million in the 29 700 m2 facility which it will lease under a Z-year agreement with an option to purchase the building.
Capacity increase for Johns Manville THE Engineered Products Group of Denver, Johns Manville Cow, Colorado, USA, will upgrade one of its main E-glass furnaces in Etowah, Tcnncsscc, over the coming year.
I
Composites
Business
Analyst
3P Amoco :hemicals . . . . . . . . . . . . . .Insulation ....
% net sales by business 1998 Johns Manville - US$ millions Source: Johns Manville
Scheduled to begin immediately the US$47 million project is expected to bt in operation by mid-2000. According to Johns Manville the E-glass furnace will be rebuilt ant expanded with the most advancec technology and engineering available The furnace is one of two major furn aces in the company’s Etowah plant which produces glass flbre reinforce. ments, glass fibre for roofing sub. strates and E-glass marbles for the defence industry. “This project will expand the capacity for this furnace by 75%,” say: 3 t Harvey Perry, senior vice presideni and general manager of Johns Manville’s Engineered Products Group. “This expansion, combined wit1 eliminating production bottlenecks or our mat lines, will position us to meel market demand well into the future.”
dERGED chemical giant BP Amoco ims”“to slash global annual costs by JS$4 billion, sell assets of $10 billion tnd boostcapital spending to a total of ;26 ,billion by the end of 2001. Chemicals disposals over the three rears are expected to total some i2.5 billion with BP Amoco exiting low nargin, low growth activities with an tim to have an overall chemicals portolio biased toward products such as bolypropylene, areas that are growing rt a faster rate than the avcragc chcmcals sector. In outlining the company’s petrohemicals slrategy, BP executive direcor Bryan Sanderson also indicated hat purified terephthalic acid (PTA) vas a high growth area for the compmy Chemicals production for the comjany was up 7% in the second quarter If fiscal 1999 from the first quarter, martially a result of additional F’TA ,apacity at its site in Geel, Belgium.
Ehemfab continues 3n acquisition path N ANOTHER move to building its letwork within Europe, Chemfab Zorp, New Hampshire, USA, has combleted the acquisition of HCC, a large prench distributor based in Perpignan. rhe acquisition price has not been lisclosed. A
I
Coyote commits restructure
to
COMPOSITE golf shaft produce] Coyote Sports Inc, Colorado, USA, hat sold its 80% majority interest in Sierra Materials LLC, which owns 100% o: the outstanding shares of Capt Composites Inc. “This is our first significant step ir our plan to restructure the cornpan) and its financial obligations,” says Jin Probst, Coyote’s chief executive officei and chairman. ‘We will continue tc review and evaluate each business unit with an aim to bring the cornpanS back to profitability.”
to cut
Chemfab HCC
1.5 years,
distributor has developed
for
over a solid
_:....
Chemfab Corp Net sales & cost of sales (US$ Nine months ended 28 March Source: Chemfab Corp
September
000) 1999
1999
new applications in efforts revenues to US$30 million 2002.
.Advanced sees fall
to increase by fisca
Classfiber in sales
THE JOINT venture between Porche: Industries and Owens Corning Advanced Glassfiber Yarns LLC reports that its net sales in the seconc quarter of fiscal 1999 decrease< US$&l million, or 9%, to $61.6 milliol from $67.7 million in the second quar ter of fiscal 1998. Net sales in the first half of 199! decreased $17 million, or 12.1%, tq $123.6 million from $140.6 million il the first half of 1998. The company says that this is pre dominately a result of decrease< demand for heavy yarns used in rigic printed circuit boards as well al reduced sales in the construction industries. However, the fall in sale: was partially offset by increased sale: in industrial and speciality applica tions. In comparison with the two pre vious quarters, European sales wen also affected by the depreciation of the European currencies since the beginn ing of 1999. Gross profit margins decrease< from 35% for the six months endec 30 June 1998 to 30% for the first sti months in fiscal 1999. This decreasc has been attributed by the company tl pricing pressures on the electrica market and increased fabrication costs as a result of supply agreements wit1
Advanced Glassfiber Yarns LLC Second quarter net sales & cost of goods sold (USS 000) Source: Advanced Glassfiber Yarns LLC
1 I
Composites
Business
Analyst
Owens Corning that the company entered into on its formation. Net income for the company fell to $1.2 million for the second quarter of 1999, down $11.7 million, or 90.7%, on the comparable period of 1998. Up to 30 September 1998, Advanced Glassfiber LLC was the glass yarns and speciality materials business of Owens Corning.
Court
protects
PPG
THE TAIWAN based joint venture of PPG Industries and Nan Ya Plastics Corp - PFG Fiber Glass Corp - has stopped Full Tech, a Taiwanese company planning a glass fibre plant in Yun Lin, from using, disclosing or infringing its proprietary technology. In granting an injunction prohibiting use of proprietary PFG information in plant construction, production and management, the Yun Lin district court said Full Tech sought to misappropriate PFG trade secrets and unduly induce PFG employees to join Full Tech (Composites Business Analyst, July 1999). “We don’t hesitate to pursue appropriate legal remedies to protect our technologies and trade secrets,” comments John K. Williamson, PPG’s intellectual property chief counsel. “PPG and PFG appreciate the Taiwan authorities’ vigorous response to enforce trade secrets law regarding Full Tech’s outrageous conduct. The prosecutor searching Full Tech’s Yun Lin offices in February found substantial proprietary material believed to be owned by PFG and material licensed to PFG by PPG, including computer files,” says Williamson. Suspicions were aroused late last year because of resignations within a few months of 21 PFG employees who had extensive knowledge of their employer’s production processes or business plans. PFG managers then learned that Full Tech had been organised to produce glass fibre, and had hired PFG’s former employees at pay levels.as much as double those for comparable jobs at PFG. The prosecutor’s office then began an investigation under Taiwan’s trade secrets law.
September
1999
Defence Consolidation places strain on defence industry MERGER and acquisition activity in the IJS aerospace and defence industry at the prime contractor level reached US$40 billion in 1998. This consolidation has placed huge pressure on lower tier suppliers and merger activity within Europe is likely to put a similar squeeze on European equipment suppliers. Companies that are able to identify and reduce costs while still producing products inline with what the market requires and can afford have prospered with the increase in business. An increase in product innovation is also emerging as revenue hungry firms compete more aggressively for a smaller number of contracts. The continuous trend towards globalisation is another big drive for merger and acquisition activity This has increased the need for companies to construct global networks to tap into centres of excellence in addition to winning exports. As domestic markets shrink, companies must be willing and able to serve the global marketplace.
Oil & gas Pipeline
deal
for
Africa
OIL FIRMS Chevron and Royal Dutch/Shell are working with Nigeria, Ghana, Benin and Togo to build a natural gas pipeline that could start supplying the region with energy by 2003. The pipeline will carry 5.1 million ma of natural gas per day from Nigeria for sale into other countries. Construction, which began six years ago, is expected to cost up to US$1.5 billion. The project, supplementing unreliable hydropower in the three consuming countries, will initially serve three power plants in Ghana.
Automotive Composites for automakers
part
GENERAL automotive
Motors, the manufacturer,
September
1999
of future worlds largest says that it
will offer composite pick-up beds on its Chevrolet Silverado pick-up truck from late 2000. However, Ford, the number two automotive manufacturer, says it will be first on the market with a plastic bed, offering it as standard on the new Explorer Sport Trac sport utility/pickup truck that is scheduled to go into production in January and on sale soon after. ‘We believe we will be the first in the industry to actually put on sale a composite box,” says Simon Sproule, a spokesperson for Ford. “We certainly see a future for composite materials for pick-up trucks and other product lines.”
Economic Boost
Chemicals Chemical firms consolidation
1998, but will show a booming 3.5% rise in both 2000 and 2001. Key growth areas for the construction industry will be in new office or refurbishment projects, public and private repair maintenance and continued investment in the rail network. Even with the steady increase in construction, the UK industry still lags behind others in Europe. The BMP forecasts UK construction output at around 9% of the country’s gross domestic product (GDP) compared with a European average of approximately 12%.
face
THE PROPOSED US$8.8 billion stock acquisition of Union Carbide Co by Dow Chemical Co could force other major chemical firms worldwide to review their strategic plans and lead to a new wave of consolidation. After the announcement by Dow shares of several big chemical companies moved upwards. NOVA Chemicals Corp’s shares rose CAN$l to close at $31 on the Toronto Exchange, while European chemical giant DSM saw shares rise as much as 5% in Amsterdam. Chemical firms seeking to compete in this consolidating environment will be put under pressure to look for their own deals to establish themselves as market leaders in their segment of the industry.
Construction UK builders forecast industry rise THE UK’s National Council of Building Materials Producers (BMP) expects growth in the UK construction industry to slow in 1999, but gain momentum for stronger rises in public investment in 2000 and 2001. In a forecast, the BMP says that industry output will increase by 1.5% year-onyear in 1999, slowing from 1.6% in
for
Thailand
THAILAND is set to announce an economic incentive package worth up to US$3 billion to make sure it does not slide back into recession. The package includes new funds to help businesses, loans for small and medium-sized enterprises and steps to help the property sector. This is the country’s third major economic programme in a year. In August 1998 Thailand launched a package to help banks recapitalise and in April of this year it launched a $3.5 billion plan relying on extra fiscal spending. This new package is designed to boost investment in the productive sector of industry but it is likely that it will take some time to impact on the economy. The effects should hopefully be realised by January 2000.
Mass
transit
Jordan says privatisation
yes
to rail
JORDAN has approved a 25 year lease agreement with an international consortium to expand and operate the country’s main freight railway line, its first major privatisation scheme. The government has shifted the project to a lease of the state owned rail track after shelving an earlier build, operate and transfer scheme to counter local critics opposed to privatisation. Investment is expected to reach US$130 million.
Composites
Business
Analyst I
Kafus
Industries
Ltd
Kafus is actively pursuing opportunities for natural fibre as an alternative to glass Elizabeth Marsh looks at the development of the company and how its operations through many subsidiaries focus on exponential growth.
K
afus was originally formed by the current chairman Kenneth F. Swaisland as Kafus Capital Corp, becoming Kafus Environmental Industries Ltd, and finally, in June 1999, Kafus Industries Ltd. Kafus currently has US$l billion in capital projects in development. Major projects include a medium density fibreboard (MDF) plant using 100% recovered urban wood waste, the use of kenaf frbre for newsprint, production of natural tibre composites, based on kenaf as a replacement for glass fibre, and the manufacture of a fibre cement alternative to wood and metal siding. Swaisland was previously managing director of Rafel Industrial Group Ltd, based in Bermuda, and engaged in international merchant banking. Michael McCabe, Kafus’ chief executive officer is also from a financial background but the company has acquired senior staff from a range of technical backgrounds. Kafus is divided into six operating divisions: CanFibre, which operates the Riverside, California, MDF plant; Kenaf Industries; Kafus Biocomposites; Fortra Fiber Cement Co; Hyaton; and Kafus International Development Group. In 1998 Kafus incorporated Kafus Environmental Offset Ltd to access billions of dollars of unfulfilled offset obligations on the part of major global defence contractors to fund Kafus projects in emerging economies. The new company has involved Kafus in discussions with the United Nations. The offset process is used by governments who place contracts with overseas companies to see benefits return to the country in the form of contracts with domestic manufacturers or in work creation. Estimates of the value of obligated offset are around $9 billion. Although the company manufactures a range of environmentally friendly products and has received the
I
Composites
Business
Analyst
lainforest Alliance Green Fores rward and the Sequoia award it doef tot consider that it should rely on itr Teen credentials to penetrate mar :ets. Kafus insists that all its productr nust be considered as equal, or superi lr, to competing products made fron onventional raw materials. Once leveloped, projects must be able to be eplicated on a global basis and tht ompany goal is exponential not incre nental growth. The company originally developec vhen Swaisland and his associate: required an exclusive license fron porintek, the consortium of Canadiar government and forest products corn banies which led to the manufacture o vlDF from waste wood. It has beer ompany policy to develop by strategic )artnerships and the acquisition o jatent rights and expertise as appro niate. An example of this was the acquisition of Kenaf Industries whose u-iginator, Dr Chuck Taylor, hat mdertaken extensive work for the Ut ;ovemment on using kenaf fibre as 2 ,eplacement for woodpulp. Funding for the company is by z nix of non-recourse loans, guaranteec )erformance contracts, supply con racts and purchase agreements. Thi: Las left the company with a 955 debt equity ratio which it claims does no
220
000 -
190000 160 000
1?Awo-
=\.I=
2cc.3
Revenues
Kafus Industries Ltd 1997 - 2000 (estimated) Source: Strategic Lookout
(US$
000)
fibre.
jeopardise the equity shareholder as projects are funded on a project finance basis. Long term debt, had grown from CAN$406 303 in 1997 to $290.3 million in 1998. However, assets have grown from $21.9 million in 1997 to $359.4 million in 1998. Strategic partners include Enron Capital, Stone and Webster, the Visteon division of Ford Motor Co, Hartford Steam Boiler and Insurance Co and Timber Products Co. Enron owns 25% of the fully diluted equity of Kafus. Samarac Corp Ltd, which is 100% owned by Swaisland, owns nearly 36% of the fully diluted equity The basis of the Kafus financial structure, which the company considers to be ‘risk averse’, is that each project should be financially self-supporting. Contractors have guaranteed performance contracts for facilities they build and products they produce for Kafus. Long term, low cost material supply contracts are in place for both raw materials and energy which Kafus maintains improves the accurate forecasting of expenses. Long term purchasing agreements are in place for the products and the capacity of most Kafus operations has been pre-sold for the next decade. CanFibre is 86.5% owned by Kafus and manufactures AllgreenTM MDF from 100% urban wood waste without the use of urea formaldehyde which breaks down and emits formaldehyde gas. It is intended that the Riverside plant will convert 155 000 tonnes of old pallets and demolition waste into MDF. The Riverside plant should have been operating in the first quarter of 1999 but was dclaycd and made its first shipments in the third week in July. The financing of a second plant was completed in December 1998 and is now under construction in Lackawanna, New York. The European market will initially be supplied from the Lackawanna plant, accounting for 10-X% of its sales by 2003. A third
September
1999
plant in Amsterdam, intended to supply the European market, is in the planning stages for a site beside the city’s waste recycling facility. This plant will be constructed by Stone and Webster Engineering Corp, with Stork Engineering, Amsterdam, responsible for the planning applications. Part of the financial strategy of Kafus is that long term purchase arrangements are in place for the output and lhe arrangement in Amsterdam is with Timber Products of Oregon and its European affiliates that 100% of the output will be purchased under a 20 year agreement. Kenaf Industries, which is 90% owned by Kafus, is financing a US$170 million newsprint mill in Texas to convert kenaf into 145 000 tonnes of high quality newsprint. Kenaf is a fast growing relative of the hibiscus plant, producing two-three times the annual fibre yield per acre of Southern Pine which is commonly used in US pulp and paper mills. The plant requires little in the way of such chemical controls as pesticides and is drought tolerant. The company, which has the world’s largest seed bank for kenaf, is currently planting over 32.3 million m2 of kenaf and this will be increased to over 100 million mz. Kafus considers that, although wood waste will remain an important element for the company over the next three years, kenaf will become the largest part of the business with added inputs for different types of packaging. One product that is being considered is panels for low cost housing in Third World countries or in disaster relief The formation of Kafus Offset is related to these potential developments. In the production of natural fibre composites the kenaf plant is harvested, dried and bundled. The outer cover - rather like the strings on celery sticks - is known as bast fibre and surrounds a white pithy core which is ground to a flour during the production process. The flour is being investigated as a replacement for talc filler in extrusion moulding. The bast fibre is mixed with polypropylene (PP) to form a nonwoven, felt-like mat 6.3 mm thick of which one side is brown from the kenaf and the other white from the PP.
September
1999
1 Except
per share
data
The material can be formed as panels or can be cut and moulded, using heat and pressure, into three-dimensional shapes. Kafus Biocomposites signed a strategic collaborative agreement with Visteon Automotive Systems, a subsidiary of Ford Motor Co, in December 1998 to develop and produce the material with the trademark Flexform’” under an original equipment manufacturer (OEM) contract. The material will be supplied from a new plant being constructed at Elkhart, Indiana, with a design capacity of 5.1 million m2 which is due for completion in September 1999. Kafus Biocomposites is also supplying Findlay Industries, which in turn supplies Saturn, Chevrolet and Chrysler, with Loprofin’” to replace natural libres currently imported from Europe. A further contract is with Johnson Controls. Work on the Kafus’ Elkhart plant started two years ago with the plant layout finalised in May 1998, approval was given in December 1998 and construction began in May 1999. The first shipments will begin by the end of September. The bast fibre is prepared at the Texas plant of Kenaf Industries and shipped to Elkhart for composite manufacture. Production in the first year of operation after commissioning is projected at 5.5 million m2, doubling in 2001. The PP will be totally recycled and Kafus is working with Ford on a zero trim waste policy. The main product sectors will be recreational vehicles such as mobile homes, interior trim for automobiles and the building industry, with an even split between the three sectors. This allows for movements in the face of industrial downturns.
The kenaf material has high tensile and impact strength and meets the Society of Automotive Engineers’ standards for side force and impact. Kafus claims that the material, which they see as a replacement for many glass fibre applications, has lower weight than alternative materials making it more fuel efficient and giving lower shipping costs. The material is durable with no problems of rust or corrosion and shows low warp and creep under extreme temperature conditions whilst also demonstrating good acoustic properties. Rapid part times lead to increases in throughput and improved cost competition factors. In keeping with the environmental approach of the company further benefits are seen to be low volatile organic compound 0’00 emissions, with no benzene, styrene or formaldehyde emissions offgassing. A factor of considerable interest is the ability to recycle the product which avoids some of the problems which are faced by the use of glass fibre reinforced composites. A new joint venture has also been proposed with SCAC Holdings Corp of Ireland to develop and produce SCAC’s proprietary Solplax range of biodegradable polymers. The new venture would be owned 75% by Kafus and 25% by SCAC.
Composites
Business
Analyst I
i PPC Industries
i
* Except
per
share
Inc
Cytec
Inc
data
Glass fibre producer PPG Industries Inc, Pittsburgh, USA, witnessed a fall in net sales for its second quarter of financial year 1999. Sales fell 3% to US$1.95 billion from sales of $2 billion in the comparable period of 1998. Net income for the second quarter was also down on the previous year to $184 million - a fall of 7.5%. However, the cost of sales for the company was also reduced to $1.16 billion, from $1.18 billion in the same quarter of last year. The company cites a charge for the disposition of equity interests in Asian glass operations and strike related shutdowns at General Motors’ plants for the reduction in per share earnings. “The worst of the economic turmoil in Asia and Brazil appears to be behind us, although the effect on some of our businesses remains significant,” says PPG’s chairman and chief executive Raymond W. LeBoeuf. “Most North American consumer markets continue to perform well, and the European basic manufacturing sector is not as weak as earlier in the year.” In PPG’s glass segment, sales were lower predominately as a result of the third quarter 1998 divestiture of its European glass operations and price falls in glass fibre and automotive glass. However, it is within the company’s coatings business that most activity is being seen. Having made 13 acquisitions since 1997, the majority in its coatings business, four further acquisitions are pending which together are expected to generate annual sales of more than $1.6 billion.
Composites
Industries
Business
Analyst
* Except
per
share
data
Speciality materials company Cytec Industries Inc, New Jersey, USA, reports that its net earnings for the second quarter of 1999 were US$28 million compared with $35 million for the second quarter of 1998 - a fall of 20%. Cytec’s net sales were also below those for the 1998 comparable period at $359.1 million, a drop of $6.7 million. The company’s composites interest lies in its Speciality Materials business which in the second quarter of 1999 accounted for 20% of Cytec’s tntal sales and 19% of the firm’s earnings from operations. In this segment sales were $115 million in the second quarter of fiscal 1999, a decrease of 11% compared with the same period of 1998, although operating earnings for the business increased 8% to $23 million as a result of manufacturing rationalisation implemented by Cytec over the past year. Cytec says that around $9 million of the sales decrease was a result of the divestiture of the moulding compounds product line (Composites Business Analyst, December 1998) while the acquisition of The American Materials & Technologies Corp in the fourth quarter of fiscal 1998 added approximately $7 million to sales. Leaving acquisitions and divestitures aside Cytec reports that selling volumes were down 5% as a result of expected reductions in demand in the commercial aerospace market.
“The Speciality Chemical and Material segments continued the positive trends seen in the first quarter of 1999,” says David Lilley, Cytec’s chairman, president and chief executive officer. “Demand for our new products and new applications in our Speciality Chemical and Material segments remains encouraging and we continue to expand our geographical coverage particularly in Asia.” Lilley continues, “The Speciality Materials segment has performed well in spite of lower US demand and we expect the decline in commercial aerospace build rates to bring this segment’s second half results about 5-10% below first half results.” Net earnings for Cytec’s first six months of 1999 were $56 million on net sales of $714 million. This compares to net earnings of $66 million on net sales of $734 million for the first six months of fiscal 1998.
Ashland
I Except
per
Inc
share
data
Ashland Inc’s recent move to maximise profits by splitting its chemicals unit appears to have worked (Composites Business Analyst, April 1999). Reporting its third quarter results, the first since the split, the company, based in Covington, Kentucky, USA, says that its sales and operating revenues reached US$l.S billion, up 6% on the $1.7 billion recorded for the same period of fiscal 1998. Ashland Speciality Chemical, incorporating Ashland’s Composite Polymers Division, had an excellent quarter according to Ashland’s chairman and chief executive officer Paul W.
September
1999
Chellgren. “Operating income of $33 million was up 32% from the quarter a year ago,” says Chellgren. “In particular, increased sales volumes of unsaturated polyester resins as well as speciality resins and adhesives more than outpaced a slowdown in our Drew Marine chemicals business.” Operating income from Ashland Distribution was $17 million on par with figures recorded for the third quarter of fiscal 1998. “The traditional distribution businesses - particularly industrial chemicals, fibre reinforced plastics and North American thermoplastics - are performing quite well as sales volumes continue to strengthen,” says Chellgren. “These improvements however were offset by declines in the Fine Ingredients and European thermoplastics distribution businesses.” Net income for the company as a whole was $85 million, a fall of $37 million or 30.3%, compared with results a year ago. For the nine months to date of the 1999 fiscal year net income stands at $137 million, down $57 million or 29.4% on the same period of 1998.
Zoltek
1 Except
Companies
per
share
Inc
data
Carbon fibre producer Zoltek Co, Missouri, USA, reports that for the its third quarter of fiscal 1999 ended 30 June total sales were US$15.6 million, compared with $18.9 million in the previous year’s third quarter. Zoltek also reports a net loss of $0.9 million for the quarter, compared with net income of $1.7 million in fiscal 1998s third quarter. For the nine month period up to 30 June 1999 total sales for Zoltek reached $50.5 million, down $13.2 mil-
September
1999
lion or 21% for the same period a year ago. Net income for the company has also been hit, recording a net loss of $1.9 million for the nine month period, compared with net income of $8.4 million for the first nine months of 1998 - a fall of 123%. ‘We are making steady yet not spectacular progress in our plan for commercialising low cost carbon fibres,” says Zsolt Rumy, Zoltek’s chairman and chief executive officer. “This progress is reflected by a 7.5% increase in carbon libre sales compared to the third quarter of fiscal 1998, even though selling prices have dropped significantly as we execute our long term pricing strategy.” Sales of carbon fibres - Zoltek’s core business - were up in comparison with both the previous year’s third quarter and the second quarter of fiscal 1999, as a result of initial small volume sales for new markets and applications, specifically within Europe. According to Rumy though the carbon fibres business remains strongly profitable it is at a reduced margin compared to the third quarter of fiscal 1998. This is a direct result of costs incurred in maintaining the company’s available manufacturing capacity and increased expenditures on both product and market development. “The cost growth in our carbon libres business is in no sense alarming,” says Rumy. “It represents a critical and strategic investment in the future.” Within the company’s non-core acrylic fibre and speciality chemicals business declining sales more than offset the sales gain in carbon flbres. Likewise, a loss in the non-core business more than offset the continued income from the core carbon fibre business. In spite of the losses recorded during fiscal 1999 to date Rumy says that he is strongly encouraged by the opening of potentially large markets, including the automotive industry Rumy also says that he expects a recovery in the electronics market, helping to boost sales of chopped and milled carbon fibres beginning in the second half of calendar 1999.
Saint-Cobain
’ Except
per
share
data
Consolidated net income for French company Saint-Gobain, including the group’s glass fibrc activity through Vetrotex is estimated at e882 million for the first half of fiscal 1999, a 67.7% increase relative to the comparable period of 1998. Excluding capital gains from disposals net income amounts to 8468 million, up 10.6% compared with the same period a year ago. The company says that this performance is in line with its 1999 objectives stemming from an improved profitability strategy implemented in the group’s three operating sectors Glass, High Performance Materials and Housing Products. Sales within Saint-Gobain’s Glass sector’s Insulation and Reinforcements business have been estimated at cl347 million an increase of 11.4% on the previous year’s comparable result of e1209 million. Operating income for the business is also expected to increase to El59 million, up 37.1% on the first six months of 1998 when operating income stood at El16 million. The breakdown of sales by region for the company shows that SaintGobain’s main market is its home territory of France which accounts for 40.6% of sales. The rest of Europe accounts for 31.4% while the Americas and Asia account for the remaining 28%.
Composites
Business
Analyst
* u
Return
on capital
employed
I - Incorporating
T
he true meaning of income and profit figures from financial statements only emerge when compared with investment. When comparing changes in such business ratios from period to period, it is possible to identify improvements in performance or developing problem areas. By comparing ratios from one company to those of its competitors, one can see possibilities for improvement in key areas. The return on sales (ROS) ratio, calculated by the division of a company’s fiscal year end profit before tax (PBT) by its total sales, attempts to show the average margin of profit as a percentage of sales that, each sale makes. An upward trend would indicate that the company was enjoying more profit from each $1 of sale, a downward trend would indicate the reverse. It is difflcull to make a fair comparison between ROS ratios for different entities. Individual operating and
8 I
Composites
Business
Analyst
Return
(ROCE)
Reichhold
2 - Incorporating
Nate
on sales (ROS)
3 - Incorporating
financing arrangements vary a great deal, but for individual companies over a period of time a trend may emerge. If the ROS ratio is varied then this can be attributed to changes in the expenses of the company. Expense changes could be down to any of the company’s overhead items from rent through to an increase in oil prices. The return on capital employed (ROCE) ratio can be easily calculated by dividing a company’s fiscal year end PBT by its fiscal year end total assets. As a general rule, the higher the figure, expressed in percentage terms, the better the company is performing. When looking at the ROCE ratio over a period of three years is should be possible to identify whether or not tlie company is becoming more efficienl by ils ROCE percentage growth. In the case of the examples detailed in the table above it is possi-
Vetrotex
ble to see that both the ROCE and ROS for glass fibre manufacturer Owens Corning during the past three fiscal years has shown neither consistency nor improvement. In both 1996 and 1998 the company recorded a negative ROCE. It is of course important to understand a company’s specific financial and business environment, in this case Owens Corning’s asbestos national settlement programme and its restructuring programme dramatically increased its costs for the 1998 period. However, a general understanding of the industry the company operates in can also be indicative of a company’s performance. Again in the cast of Owens Corning, the financial downturns of the Tiger economies and those in South America coupled with the continuance of pricing instability in the glass fibre industry have contributed to the company’s overall financial picture.
September
1999
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