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Catalyst For Change

Eyeing the end of the recession, Süd-Chemie looks to advanced technologies for growth

by Marc S. Reisch
May 25, 2009 | A version of this story appeared in Volume 87, Issue 21

Credit: Süd-Chemie
Süd-Chemie undertakes new product R&D at four sites in Germany.
Credit: Süd-Chemie
Süd-Chemie undertakes new product R&D at four sites in Germany.

LAST YEAR was a stellar year for the German catalyst and adsorbent maker Süd-Chemie. Capping off five years of growth, sales reached $1.8 billion and operating earnings hit $172 million. Those results helped finance research into new markets such as biocatalysts and syngas catalysts.

But as 2009 began, Süd-Chemie finally fell victim to the economic downturn. In the first quarter, the firm's revenue dropped 3% compared with the year-ago quarter and operating earnings plummeted by 55%. Still, the 152-year-old company predicts 2009 won't be so bad overall, and it expects business will continue to grow once the recession is over.

To cope with reduced expectations this year, Süd-Chemie plans to cut capital spending by 40% from the $183 million it spent in 2008. The firm also has instituted a temporary short-time work program for about 400 German employees at seven sites. However, R&D expenditures, largely devoted to advanced catalysts, will be the same or slightly less in 2009 than in 2008, according to Günter von Au, 58, chairman of Süd-Chemie's management board.

Süd-Chemie's Private Equity Investor

Although Süd-Chemie is a public company, its shares rarely trade. More than 40% of the firm's stock is owned by a long-term shareholder base that includes many members of the company's founding families. Another 50.4% is held by private equity firm One Equity Partners, an affiliate of U.S. bank JPMorgan Chase.

In July 2005, One Equity acquired a 39% stake in Süd-Chemie and then made a takeover bid for the catalysts and adsorbents firm. By 2007, One Equity had succeeded in securing 50.4% of Süd-Chemie's shares but only on the condition that it would not try to take total control of the firm.

As part of the deal, One Equity also agreed to sell its shares through a stock market offering whenever it decided to cash out its position. The timing of any such sale is unclear. Earlier this year, Utz-Helmuth Felcht, former chief executive of Degussa, a partner in One Equity, and now also Süd-Chemie's supervisory board chairman, told Discover Süd-Chemie, the firm's in-house publication, that "One Equity Partners will not pull out until it is satisfied with the appreciation in the company's value."

With the expectation of seeing that value rise, One Equity now says it supports the growth strategy advocated by Managing Board Chairman Günter von Au.

Signs of a slowdown were apparent in late 2008, von Au says. In October, its businesses in polyvinyl chloride additives and metal casting materials for auto industry foundries had begun to falter. By early 2009, catalyst profits slipped because of lower capacity utilization rates at chemical plants around the world.

Despite these setbacks, von Au, who has headed the management board since 2004 and spent 21 years at the German chemical firm Wacker Chemie before joining Süd-Chemie in 2001, says he is optimistic about his company's overall prospects. He predicts that sales in 2009 will match or be just slightly below 2008's $1.8 billion. However, he forecasts a 20% drop in operating earnings compared with the $172 million earned in 2008.

"We largely expect to alleviate the impact of lower sales in cyclical markets by focusing on business activity in our growth segments and in areas relatively resistant to the economic slowdown," von Au says. He maintains that when the recession is over, "Süd-Chemie will quickly revert to its course of strong, profitable growth and will emerge from the crisis in a stronger position."

Von Au, who has a Ph.D. in chemistry from Eberhard Karls University, in Tübingen, Germany, says Süd-Chemie will benefit from strong sales in still growing countries such as India and China. As an example of opportunities to come in such places, he points to an emergent middle class in both countries there that is turning away from the use of animal cooking oils and toward vegetable oils, which are often clarified by Süd-Chemie's activated bentonite clay adsorbents. "We are a clear number one there. It's not a cyclical thing," von Au says.

Some other markets are defying the current business cycle, he points out. Although slow auto demand has hurt the firm's foundry supply business, the sale of foundry materials to makers of generators for windmills is up. "We have a good portfolio of products for windmills, and that helps compensate for the slowdown in automotive demand," von Au explains.

In the catalyst business, von Au acknowledges, the collapse of the housing market has affected demand for Ziegler-Natta and other polymerization catalysts. But new petrochemical projects expected to start in the Middle East and China will bump up catalyst sales. "There may be delays because of the economic situation, but overall we are in line for growth" in those geographies, von Au says. Within the next five years, he predicts, Asia and the Middle East will account for more than a third of Süd-Chemie's overall sales, up from 28% in 2008.

However, the contribution from catalysts is not likely to come this year, according to John Roberts, an analyst with the investment advisory firm Buckingham Research. "Catalyst sales growth is linked to new plant start-ups," Roberts says, so delays in Middle East projects will slow catalyst sales for Süd-Chemie and competitors such as BASF, Johnson Matthey, Haldor Topsøe, and UOP.

Credit: Süd-Chemie
Credit: Süd-Chemie

Beyond the ups and downs of traditional markets, Süd-Chemie expects the catalyst business to expand significantly in the future. Now on the rise are catalysts that transform natural gas into liquid fuels and biocatalysts that transform cellulosic feedstocks into ethanol. Also in demand are catalysts that transform syngas—a mixture of hydrogen and carbon monoxide produced via gasification of coal, biomass, or natural gas—into a new generation of fuels and chemical feedstocks.

To take advantage of these opportunities, Süd-Chemie nearly doubled its investment in research between 2004 and 2008 to $79 million, of which the lion's share has gone to catalyst development. Last year, the firm hired more than 100 researchers, boosting total R&D employment above 500.

Overall, the firm spent about 4.5% of sales on research, compared with about 2% of sales for most chemical companies. In Süd-Chemie's case, only 1.3% of sales went to adsorbents research, but 7.6% went to catalyst research. Add the firm's $10 million central research investment in biocatalysts, and investment in catalyst research totals about 8.5% of sales, von Au notes.

Süd-Chemie At A Glance

Headquarters: Munich, Germany

Revenues: $1.8 billion

Operating income: $172 million

Capital spending: $183 million

R&D spending: $79 million

Number of employees: 6,500

BUSINESSES (% of total sales):

Adsorbents (59%): Activated bentonite clay to bleach edible oils and enhance detergents, foundry products including resins and metallurgical additives, inorganic desiccants, hydrotalcite plastic additives, industrial and potable water-treatment products

Catalysts (41%): Refinery, chemical, polymerization, syngas, and industrial emissions catalysts; lithium-ion battery materials


NOTE: Figures are for 2008 and were converted by using the average 2008 exchange rate of $1.00 U.S. = 0.68 euro.

AMONG THE CATALYST development projects now under way at Süd-Chemie is an effort started in 2008 with the engineering and construction unit of German industrial gas supplier Linde to develop cellulose-based biofuel plants. Earlier this month, the partners opened a 2-ton-per-year biofuel pilot plant at Süd-Chemie's Munich R&D center. It uses Süd-Chemie enzymes to convert straw into ethanol. The partners plan to start work soon on a demonstration plant and hope to market similar plants in 2011 or soon thereafter.

Many of the 45 researchers devoted to this project are biotechnology experts the firm started hiring four years ago when it decided that it needed to develop biocatalysts to compete with enzyme specialists such as Novozymes. According to von Au, Süd-Chemie realized that the energy and chemical industries were looking at alternatives to traditional petroleum feedstocks. If Süd-Chemie was to continue to be a major force in catalysts, it would have to adapt its expertise to include the newer feedstocks."Now, we are committed to biocatalysts," von Au says.

In traditional catalyst research, Süd-Chemie and Dow Chemical undertook a joint effort earlier this year to develop catalytic means of converting syngas derived from coal or biomass into olefins and other chemicals. For some time now, Dow has been trying to reduce its reliance on traditional oil- and natural-gas-derived feedstocks for olefin-based plastics and materials.

Serious work on the project with Dow just got started in April, von Au says, so he can't provide any progress reports yet. But he is counting on something good coming from the joint effort. "We already make catalysts to produce methanol from coal and propylene from methanol," he says. Süd-Chemie catalysts for both steps are now in use in China based on processes developed by the German engineering firm Lurgi. "But we can envision a number of opportunities to develop and improve our catalysts and our methods," he says.

Aside from the research expansion, Süd-Chemie is building its catalyst manufacturing capabilities. Last year, the firm started up a plant in Qatar to produce catalysts for a number of new Persian Gulf projects that convert natural gas to diesel fuel. And it bought a controlling interest in Alvigo, the largest producer of syngas catalysts in Russia and Ukraine. Süd-Chemie intends to use the venture to expand its catalyst footprint in Eastern Europe and Central Asia.

And despite the economic slowdown, Süd-Chemie agreed in April to purchase BASF's syngas catalyst production site in Nanjing, China. Combined with an existing catalyst plant in Panjin, China, von Au says, the acquired site will make Süd-Chemie the largest maker of syngas catalysts in China.

Along with investments in R&D, these forward-looking moves should position Süd-Chemie to expand when the global economy resumes its growth. "We have good market and technology positions," von Au says. Cultivating those positions, he adds, is a key to Süd-Chemie's long-term success.


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