Hexpol A.B.'s Hexpol Compounding business has come a long way in the past five years.
The Eupen, Belgium-based business of Sweden's Hexpol A.B. posted compounding revenues in 2009 of about $260 million. But after a series of acquisitions—the largest being Excel Polymers, which brought in more than $300 million in annual revenues—along with organic growth, the compounding business saw sales reach $1.2 billion in 2014, 23 percent higher than 2013.
Compounding accounted for 92 percent of overall Hexpol sales last year, and while the firm is based in Europe, North America clearly is the dominant region for Hexpol. Overall sales in NAFTA jumped 11.7 percent in 2014, reaching $827 million, or 63.6 percent of overall Hexpol revenues. Europe, by comparison, was next at 30.6 percent, with Asia accounting for the rest.
Donald Picard, Hexpol's vice president of sales and marketing for North America, answered questions from Bruce Meyer, Rubber & Plastics News executive editor, to put in perspective Hexpol's position in the market, some recent acquisitions and future plans. The following is an excerpt of that interview.
How did some of your recent acquisitions come about, and what does Hexpol gain from each?
With each acquisition, we get people, legacy brands, technology and product development know-how. Our interest is to be the long-term leader in our field, to be the most innovative and to always be solution-oriented. The goal is a full product offering served by world class, regional manufacturing campuses, supported through small, fast sales service teams.
We have made a commitment to the marketplace to be the low cost provider. To deliver the best, total acquisition cost, we must employ great resources. At Hexpol, we have the very best people and well-invested campuses. Each acquisition has added greatly to these resources: from Thona to Gold Key, Colonial Rubber Works, Burton Rubber Processing, Chase Elastomers to Robbins, Kardoes and now Portage Precision Polymers. We have a complete product offering and the ability to remove risk from the supply chain with the reach of our global sourcing.
Today, we are very global in scope and capability. But our mission is to be very local to all our customers, whether they are large or small.
We maintain a fast decentralized—but coordinated—effort across geographies, and this is the key to our responsiveness and speed.
With Portage Precision Polymers, the silicone part was key. Why is this important to Hexpol, and were there other things this deal brought to Hexpol?
The Portage Precision acquisition broadened and strengthened our presence in rubber compounding in North America, in terms of both capability and resource. The years of experience and seasoned personnel—especially in compound development—has greatly added to our core strength.
Regarding capacity, the silicone rubber mixing unit in Mogadore, Ohio, expands our product portfolio, and our customers have been asking for a silicone solution for quite some time now. This Ohio campus, technology and recipe portfolio provides a launching pad from which we will expand and include silicone mixing at Santa Fe Springs, Calif., and Kennedale, Texas. Like with all other parts of our business, we want to be close to our customers. This gives us the know-how from which to get started. And the market response thus far is very positive.
What drew you to Kardoes Rubber Co.?
The Kardoes acquisition, with its competence and capabilities, fits nicely, especially in the Atlantic Southeast U.S., because it adds certain end-user markets like industrial materials handling, agriculture equipment and off-the-road tires.
Kardoes, like Robbins, significantly added key pieces to our sourcing strategy, which in turn allows us to better serve our customers in a more effective way. Examples here are in SBR, NR and certain other commodities of which we needed better market understanding. Like with Portage Precision Polymers, the market response has been quite good, and we are continuing to build on this momentum.
How about the purchase of the plastics unit of RheTech Inc. Is plastics an area where Hexpol will venture more deeply?
As a leading worldwide provider of polyolefin compounds, engineered resins, multifunctional colorants and additives, RheTech broadens Hexpol Compounding NAFTA's product range within polymer compounding and truly complements our present polymer compounding business. It will serve as a Hexpol “launching pad” for plastics compounding for Hexpol here in North America. This “TP”—or engineered thermoplastic—leg is a strategic fit with our TPE and elastomer businesses.
It's been a couple years since the Robbins L.L.C. acquisition was finalized. How has it worked out, and what changes have been made?
One mixing line at our Muscle Shoals campus has been decommissioned, and the mixing requirements moved to other Hexpol campuses. The fabrication of tire retreading products (curing tubes and envelopes) will continue and is being upgraded with investments in people, equipment and technology. This re-focus is meant to reinforce the Robbins brand as the global market leader in heat-resistant curing tubes and envelopes for passenger, light, medium and heavy truck as well as industrial and OTR applications. We anticipate significant growth in this product line.
Hexpol's proprietary process control systems such as Spectrum and Prism, as well as advanced troubleshooting and de-bottlenecking processes, will allow the Robbins campus to continue to produce long-life products with the lowest cost-per-cure.
What market areas are doing well, and which are having difficulties?
It appears the automotive sector is currently strong with sales forecasts of 16.9 million cars and light trucks for 2015, an increase over 2014. We're seeing a slowdown in the energy sector, no doubt driven by lower petroleum prices. Other markets such as building and construction, industrial and appliance are expected to continue to show strength. All in all, we touch all sectors, and despite those common cyclical periods, we continue to see growth in all areas of the business.
How is the business health in some key regions? Does Mexico continue to be an important area of growth?
All areas of our business are important. We have growing customers and are continuing to advance our position in all geographic markets, including those characterized by expansion.
In Mexico, specifically, we now have five mixing lines; in line gear pump straining; off line cold feed straining; and strip, slab and pelletizing capability.
But we are also investing in the U.S., both in terms of capacity and controls. For example, we added a new 20-liter mixing line in Santa Fe Springs. This is due to customer demand in specialty niche applications. We have added straining capacity, new gear pumps and upgraded our process control systems, as well as added advanced troubleshooting and de-bottlenecking processes to many of our campuses.
When trying to win over a potential customer, what do you say when they ask why they should do business with Hexpol?
Hexpol is committed to helping customers improve the products they make. We leverage our product innovation and market knowledge to provide solutions in an array of industries and applications. Our heritage in custom compounding is defined by industry-leading solutions, as well as experienced scientists and technologists who provide products and services to a wide range of industries. Our formulation development, mixing capabilities and consistency mean optimum finished rubber products and ultimately provide superior value to our customers.
Are you able to convince customers that do their own mixing that going with a custom compounder can be a better way to go?
Yes, we have had considerable success in this area. When a company evaluates the value of their mixing assets, they typically look only at raw material cost and assume incremental labor. We help them with the true total cost and remind them of the impacts of working capital; raw material receivables; inventory; yield risk; compound defects; maintenance and repair cost; machine depreciation; spare parts; cost of technical support; and cost of environmental/regulatory compliance.
The experience is typically an eye-opening one for them.
How are materials costs, and what impact is the current price of raw materials having on Hexpol?
Broadly speaking, the market has been very stable. In the fourth quarter, we received announced increases and decreases on some polymers, chemicals and anticipate movement in carbon black, but not of the magnitude or frequency of a few years ago. Most of the market is trained to look only at an evolution of oil price when in fact there largely is not a correlation to feedstocks and market price.
Environmental and health and safety issues have prompted the closure of several Asian chemical companies, for example. We have also experienced increases in costs for associates' health care, cost of compliance to environmental, health and safety and security measures, as have many of our customers.
Hexpol is a global company. How do you go about being a global firm when much of the business is local or regionalized?
True, we are global and coordinated. The organization is structured to facilitate short and prompt decision-making pro-cesses, with clear decentralized responsibility. This offers our customers the advantages of a small, lean, responsive local supplier. The high technology level and production and technology coordination provides cost-effectiveness, high and uniform quality, and the ability to smoothly relocate production among the units as required to best serve our customers, be it from Asia, Europe or North America.
Will you continue looking for more acquisition targets? What do you look at in potential candidates to buy?
Hexpol's vision continues to be that of a market leader, ranking No. 1 or 2 in selected technological or geographic segments in order to generate growth. Strategic acquisitions in current business areas are certainly part of that, but also included are a broadening of application areas, types of materials and geographies. Potential acquisition targets are monitored continuously, but our daily work is to bring value to our customers and focus on mutual growth. Organic growth in all areas of the business is our priority.
What is Hexpol's overall standing in the market now, and where do you see it in five years?
Our key is our culture. A key component is the continuing focus on developing the competencies within the Hexpol Group. Hexpol conducts extensive programs with this aim at local, regional and central levels. The strategy of internal recruitment, for example, continues, and we consistently develop our work force through local company training and the Hexpol Leadership Program. Our goal is to develop in-depth expertise in polymers and applications, combined with advanced commercial and ethical competencies.
Likewise, we are committed to showing responsibility for people and respect for sound business ethics. We measure several factors, benchmark globally to ensure that we limit our impact on the environment, and to offer a secure and stimulating workplace for our employees worldwide.