It was a year of recovery for Specialty Chemicals, driven by our strategic focus on five main chemical platforms. As well as nearing our 2015 return on investment expectation of 15 percent, we also made significant progress with regard to our return on sales expectation of 12 percent in 2015.
There was a certain amount of optimism within the industry as the year began, with some recovery compared to a much weaker 2013. But currency headwinds continued to impact the first half of the year, while the overall macro-economic climate worsened in the second quarter. Despite these challenging conditions, our own financial results improved during the year, mainly due to productivity improvement measures and lower restructuring costs.
This commitment to continuous improvement was constant during the year, together with a focus on operational excellence and organic growth. We also continued to prune our portfolio. This included the intended sale of our global Paper Chemicals business to Kemira (expected to close in 2015), and the €5 million divestment of our 50 percent share in the non-consolidated joint venture Eka Synthomer Oy, to Synthomer.
Although we continued to strengthen our manufacturing footprint in high growth economies, particularly in Brazil and China, our capital expenditure came down compared to previous years. When combined with operating working capital of around 12 percent of sales, this led to a solid cash flow and added further resilience to the business.
A key area of attention was the restructuring of our Functional Chemicals activities. This is in line with our strategy to focus on five main chemical platforms. We have therefore established an Ethylene and Sulfur Derivatives business, based in China, and a Polymer Chemistry business, which is based in the US. Relocating the headquarters of both businesses is designed to bring us closer to the market dynamics currently taking place. With regard to Functional Chemicals in 2014, chelates and micronutrients and sulfur derivatives were strong contributors, while ethylene amines and performance additives endured a more challenging year.
There were several important developments at Pulp and Performance Chemicals, notably the announcement of the divestment of Paper Chemicals. We also brought another Chemical Island, Imperatriz, on stream in Brazil. As well as further improving our geo-spread for bleaching chemicals, this also enabled us to continue growing our colloidal silica and Expancel activities in high added value segments.
In Surface Chemistry, we made good progress in expanding our position in the agricultural segment and posted a strong performance in Europe and the Americas.
At Industrial Chemicals, price pressure on caustic was visible throughout the year and our chlor-alkali business remained somewhat flat, while salt was a strong contributor. In the fourth quarter, Industrial Chemicals was impacted by production and supply chain interruptions, which in turn curtailed olefin supply to our customers and limited their chlorine demand.
Other key highlights included the commissioning of our Frankfurt chlor-alkali plant in Germany – which was converted from mercury to state-of-the-art membrane technology – and the start of a study with Evonik to jointly convert Industrial Chemicals’ last mercury-based plant, located in Ibbenbüren. This is expected to help us improve our carbon footprint performance in the coming years, which increased in 2014. In addition, we advanced our investment program in China to build our global market position in surfactants, while a new organic peroxide plant is being built in Ningbo. The year was also notable for the signing of several partnerships aimed at helping us to identify viable alternatives for increasingly scarce raw materials. This will help drive the development of more eco-premium solutions with customer benefits, which increased to 17 percent during 2014.
Safety remained high on the agenda, although with a TRR of 2.4, Specialty Chemicals fell short of the 2015 company target of 2.0. Measures are therefore ongoing to bring the improvements we want to achieve. We did make significant progress in the area of process safety and are about to put a standardized system in place at company level, which is particularly relevant for Specialty Chemicals.
“We are swiftly responding to changing trends in the chemical industry”
Werner Fuhrmann Member of the Executive Committee responsible for Specialty Chemicals
2015 expected outcomes