Rhodia SA may make acquisitions to expand in personal-care ingredients and help meet a goal of lifting profit by more than a third in the next to three to five years, the French chemical maker’s chief executive officer said.
Acquisitions will add more than 100 million euros ($130 million) to earnings before interest, tax, depreciation and amortization, CEO Jean-Pierre Clamadieu said in an interview yesterday. The figure includes 50 million euros from the purchase of Feixiang Chemicals of China, completed yesterday.
The maker of materials for sportswear, cars and detergents aims to boost Ebitda to more than 1 billion euros by 2015 at the latest. That would compare to an estimated 750 million euros in profit for this year, excluding carbon credit gains. Clamadieu said expansion in India, where growth in demand is outstripping more mature markets, is a priority.
“It’s time to have a new priority in emerging economies, and that’s clearly India,” Clamadieu said in the interview in Paris, where the company is based. “The personal care, cosmetic and detergent market is growing very strongly.”
The French company rose 5.7 percent at 2:39 p.m. in Paris, taking its gain this year to 70 percent, and valuing the business at 2.2 billion euros. U.K.-based personal-care chemical maker Croda International Plc has added 89 percent.
M&A Hot Spot
Rhodia’s acquisition of Feixiang Chemicals and BASF SE’s purchase of Cognis Holding GmbH highlight increased spending on ingredients for cosmetics and detergents by companies like L’Oreal SA that are targeting consumers in Asia.
Organic growth, fueled by demand from emerging nations and needs for products that are more environmentally-friendly, will add at least 100 million euros to Ebitda within three to five years, the CEO said. The market for high-performance silica, a product used to make fuel-saving tire compounds, may grow by about 10 percent for at least five years, he said.
Rhodia is working on about 15 “breakthrough” products such as a polyamide-based composite that may replace aluminum or steel and has a “very strong potential” in the car or leisure boat industries, the CEO said. It’s also developing biodegradable solvents such as paint strippers. These products may add 50 million euros to Ebitda in the medium term, he said.
“Consumer chemicals will contribute most to growth,” Clamadieu said. “The competition is very fragmented, so there are still a lot of opportunities. We must probably make a mix of small acquisitions and investments on our existing base” to begin with, and “seek other opportunities of slightly more significant sizes,” including to serve the car market, he said.
Rhodia makes 16 percent of sales in Brazil and 10 percent in China, and only has a small presence in India, including a surfactant plant near Mumbai. Emerging markets will represent 55 percent to 60 percent of sales within within five years, from almost 50 percent now, Clamadieu said.
Rhodia’s net debt-to-Ebitda ratio will remain below 1.5 in coming years, compared with less than 1.2 following the Feixiang acquisition, the CEO said. The company’s debt is rated Ba3 by Moody’s Investors Service, and BB by Standard & Poor’s.
Rhodia “will progressively increase the dividend as our net profit increases,” Clamadieu said. “There’s no reason to trim the payout ratio.”
“Since the start of the year, we’ve been in a situation in which growth is weak but steady in Europe and the U.S., and very strong in ex-emerging markets,” Clamadieu said. “We see that scenario continuing in 2011. We’re heading into 2011 with trends that are similar to the second half.”
As possible changes in international regulations may trim or even eliminate Rhodia’s revenue from carbon trading beyond 2013, the company will invest up to 200 million euros with financial partners in biomass cogeneration projects in Brazil and Asia within five years. It announced such a partnership in Brazil today.
The carbon credit business “may face quite a brutal drop in 2013” and there’s a risk that it will fully disappear, Clamadieu said.