Morningstar | Arkema Company Report
France-based Arkema was spun out of Total in 2006 as a low-margin commodity chemical company focused on acrylics and vinyls. Over the past decade, Arkema has made significant progress towards becoming a speciality chemical company through portfolio adjustments, with the divestment of the vinyls business in 2012 a key turning point. We think Arkema has strong competitive positions in its current more specialised chemicals portfolio with reduced cyclicality. However, we don’t see a durable structural advantage over peers that would generate a moat. Arkema is focused on expanding its high-performance materials segment (43% of EBIT), with a target of 50% of group sales by 2020. We think this is a noble pursuit, given that the segment includes the most moatworthy businesses, such as technical polymers (plastics) and Bostik (adhesives). The target should be achieved, given Arkema's intention to grow via acquisitions in the adhesives and sealants industry. Acquired businesses thus far include Bostik, Den Braven, and XL Brands. These acquisitions further reduce group cyclicality and capital intensity, which we think will be value-accretive for the group.The industrial specialities segment (44% of EBIT) primarily holds mature, low-growth chemical businesses that produce PMMA (acrylic glass), hydrogen peroxide, and fluorogases (for refrigeration and air conditioning). However, we think the thiochemicals business (used in animal feed) has a brighter outlook, given increasing poultry consumption, particularly in emerging economies. Arkema’s thiochemicals plant in Malaysia has performed particularly well due to strong demand from animal feed markets in Asia. Consequently, Arkema is now in the process of doubling the plant's capacity. The coatings solutions segment (13% of EBIT) houses Arkema’s commoditised upstream acrylics operation, in addition to the integrated downstream business of coating resins and additives. Key end markets for the acrylics chain are paints, coatings, and superabsorbents (for example, baby diapers). The acrylics market is on the mend after several years of oversupply conditions.Arkema is engaged in the global chemical industry which is a processing industry based on the transformation in one or several stages of raw materials (oil derivatives, gas, minerals, natural products) into more or less complex chemical products, or into plastics obtained by polymerization. In addition, Co. manufactures a wide range of products for other major industries: construction, packaging, chemicals, automotive, electronics, food manufacturing, pharmaceuticals, etc. Co. operates in this industrial context with a business portfolio focused on three segments: High Performance Materials, Industrial Specialties, and Coating Solutions.
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