bba conference
TRANSCRIPT
Presented by:Emmy NgoHiep Tran Linh Le
Presentation Structure
External Analysis• General Environment Analysis• Industry Analysis• Competition Analysis
Internal Analysis• Organizational Analysis• Firm Resources and Capabilities• Financial Analysis
SWOT Analysis
Recommendations
Westlake Chemical Background
• Corporate Office: Houston, TX
• Industry: o Petrochemical Manufacturing (Olefins)o Plastic & Resin Manufacturing (Vinyls)
• Product capacity: Approximately 19 billions lbs/year
• 23 plantso Major market presence: USA, Canada, Germany,
Switzerland, Singapore, China
• 4100 employees
Timeline
Founded by T.T Chao.
Started up PVC calendar plant in Suzhou, China in
joint venture with Nork Hydro.
Began first PVC fence production in
Booneville, MS.
1986 1995 1996
Acquired PVC and VCM plants in Geismar, LA.Started up Chlorine
expansion in Calvert City
IPO and listing of WLK on the
NYSE.
Singapore office opened.
2000-2002 2004 2012
Acquired CertainTeed’s PVC business
Started up Geismar, La Chlor- Alkali Plant.
Acquired Vinnolit Holdings GmbH.
Calvert City expansion completed.
Acquired additional interest in Suzhou Huasu Plastic Company.
2013 2014 2015
External Analysis
General Environmental Analysis
Industry Analysis
Competition Analysis
External AnalysisGeneral Environmental Analysis – Demographic
Populations Growth• Higher demand• Expected to reach 400 million by 2043
Employment rates • Higher income for consumer • Demand of our end markets
Human Resources• More investments• Need skilled workers
External AnalysisGeneral Environmental Analysis - Economic
Gross Domestic Product (GDP)• Consumer spending habits• U.S GDP expands by 3.9% in second
quarter, 2015
Unemployment Rates• Household and disposable incomes,
interrelated• Consumer demand and consumption
Price Fluctuations • Crude oil price change• Uncertainty in upstream and downstream
investments
External AnalysisGeneral Environmental Analysis - Political/Legal Legal compliances• Pollution control, environmental protection: Clean Water Act,
EPA, OSHA• Cost of regulation compliances
A large fire burns at the Williams Olefins chemical plant in Geismar, Louisiana (June 13, 2013)
External AnalysisGeneral Environmental Analysis - Socio-Cultural Segment
Freedom of Choice• Consumer values • Increase and decrease in demand
Environmentally Consensus• Activists forced industry changes • Environment protection
Change from oil and gas to biomass • Need more time• New and efficient technologies.
External AnalysisGeneral Environmental Analysis - Technological Segment
Technology development
• New products and services• Imbalance in supply/demand
Consumption
• New methods, innovations and inventions• Operational efficiencies • Impact on plastic and packaging industry
External Analysis
General Environmental Analysis - Global Segment
Competition Becomes Competitive
• Unrestricted company sectors• Political, social and economic risks
Transition From Private To Generation Sector• Reduced government control • Restructuring of companies
Benefits:• Air cargo and maritime transport• Less impact on service industries
External Analysis
Petrochemical Manufacturing• Olefins
Ethylene Polyethylene Polymers Styrene
Plastic & Resin Manufacturing
• Vinyls PVC resins Chlorine Caustic Soda Ethylene Building products
Description of the industry
Industry Dominant Economic Features
External Analysis
• Market Size:1. Olefins
• Demand grow along with population
• North America accounted for 45.5% of total market
Majority of Polyethylene goes toward packaging, followed by Automobile.
2. Vinyls PVC: used in construction,
packaging, automotive and electrical China and India consumed more
than 75.0% In 2000, 10.9 million metric tons
of synthetic rubber were produced In 2014, 16.7 million metric tons
Industry Dominant Economic Features
External Analysis
1.Market growth rate Olefins demand was 3824 kilo tons in 2013 Olefins reach 5161 kilos tons by 2020 Polyethylene: highest growth rate of 5.0% from 2014 to 2020
2.Industry TrendsThe market for Olefins is still expected to rise U.S. plastics industry: 876,000 jobs and $341 billion in shipment
EXTERNAL ANALYSIS
Industry Analysis: Five Forces
Source: American Chemical Council
THREAT OF NEW ENTRANTS- LOW
1. Petrochemical Industry:• Barrier of entry:high • Capital investment in petrochemicals
will expand downstream petrochemical derivatives.
• Government regulations and patents• New entrants don’t have access to oil
refineries.
2.Plastic and Resin Industry: • Barrier of entry: medium • Manufacturing process is complex.• Registration and permit increase cost.• Research and development costs
EXTERNAL ANALYSIS
Industry Analysis: Five Forces
POWER OF BUYERS- MODERATE• Similar products and services• Disposable income per capital will grow
at 2.4%.year.• Construction activity increases.
Housing activity: 20%, home sales: 5%
Source: 2015: The Purchase Market Strengthens
POWER OF SUPPLIERS MODERATE• Multiple suppliers• Switching costs affects long-term contracts
agreements• Location of suppliers and company• Shortage of qualified staffs.
Source: The Conference Board Help Wanted OnLine dataset
EXTERNAL ANALYSIS
Industry Analysis: Five Forces
1. Petrochemical Industry: LOW• Petroleum dominate world industry.• Alternative energy resources =>
Thread in the long run• Biofuels are competitive substitutes.
2. Plastic and Resin Industry: MEDIUM• Main substitute: Rubber• Unstable crude oil prices =>
Manufacturers find alternatives• Environmentally friendly product
development.
POWER OF SUBSTITUTES
Source: ‘International Energy Outlook 2008’ (EIA),pg.1
EXTERNAL ANALYSIS
Industry Analysis: Five Forces
1. Petrochemical Industry: HIGH• Major companies are similar in size
and capabilities.• Technologies are widely available.• Top 4 multinational corporations:
40% revenue
INTENSITY OF RIVALRY
2. Plastic and Resin Industry: MEDIUM• Key basis for competition: Price and
product performance• Large scale production• Technological advancement
Source: IBISWorld
EXTERNAL ANALYSIS
1. Olefin:• Exxon Mobile Chemical Company• The Dow Company• LyondellBasel • Saudi Baisic Insdustry Corporation• NOVA Chemicals• Chevron Phillips Chemical
2. Vinyl:• Formosa Plastic Corporation• OxyChem• MexiChem
Competition Analysis
EXTERNAL ANALYSIS
Rivals anticipated strategy moves
• Formosa: Point Comfort expansion 2012 - billion pounds• Oxichem & Mexichem: formed Ingleside Ethylene LLC
Industry Key Success Factors
• Low manufacturing cost• Health, Safety, and Environment• DIFFERENTIATION• Ongoing financial strength and flexibility
INTERNAL ANALYSIS
Organizational Analysis
Resources & Capabilities
Financial Analysis
ORGANIZATIONAL ANALYSISCORPORATE VISION AND MISSION
A quality manufacturer
and dependable
global supplier
Provide quality
products and
services
Establish the wellbeing of
global customers
and suppliers
Establish a low cost
manufacturing operation
Return value above
capital investment
ORGANIZATIONAL ANALYSISPRODUCTS AND SERVICES
ORGANIZATIONAL ANALYSISPRODUCTS AND SERVICES
ORGANIZATIONAL ANALYSISLEADERSHIP
PARTICIPATIVE LEADERSHIP STYLE
• Employees feel involved in most decision making
• High reputation and expertise leadership expectation
• Ethical standards and corporate integrity pursuance
• Talented and high skills team members requirements
• Experience good relationship between the junior staff and the management
ORGANIZATIONAL ANALYSISORGANIZATION CULTURE
Organization Culture ‘s
Values
Health and safety of
employees and communities
Dignity and respect
Innovative products and
excellent customer service
Continuous improvement
ORGANIZATION ANALYSISCURRENT ORGANIZATION STRUCTURE
FUNCTIONAL ORGANIZATION STRUCTURE
ORGANIZATION ANALYSISCURRENT ORGANIZATION STRUCTURE
CURRENT CORPORATE AND BUSINESS STRATEGIES
• Ensuring communities interest - HSE
• High ethical standards
• Increase level of demand
• Current acquisition and/or expansion project
Internal AnalysisResources & Capabilities - Tangible Resources
Physical Resources: Strong• Operation in the US, Canada, England, Germany and China • Regional offices located over 10 U.S States
Financial Resources: Strong• Credit rating of BBB• 4,415 million in revenues and net income of $679 million, 2014
Technological assets: Strong• Own a patent portfolio of intellectual property developed by a focused
research and process technology development group• New specialty product lines and supporting technology
Organizational resources: Strong• Great partnership• Most recognized shipping department in the country.
Internal AnalysisResources & Capabilities - Intangible Resources
Human Assets and Intellectual Capital: Strong• Strong and diverse team of 4100 employees• Developmental programs and specialized training
Brand, Image, and Reputational Assets: Strong• Pioneer in the chemicals and plastics industries • One of the top 10 best managed chemical company in the U.S• ISO 9001:2000 certification.• Excellent Community Relations & Safety Awards and Recognitions
Relationships: Strong• Operates from 16 locations in North America, 4 in China, 7 in Europe• The company has acquired 23 plants since 1986• Customers in U.S. and over the world
Company Culture: Strong• Code of Conduct• Promoting a culture in which all Westlake employees share commitment.• Complying with all regulations
Internal AnalysisResources & Capabilities - Capabilities
Research and Development: Excellent• Bring new products and services to the market• Important role in innovation process which is
increasingly vital to current and future profits
Management: Excellent• Excellent and experienced Board of Management• Preparing and prosing new developments
Marketing: Excellent • Advanced strategies enable customers to access the
company’s products more easily throughout the world. • Delievering original and resourceful marketing
programs in the global environment
Internal AnalysisResources & Capabilities - Value Chain
• The ability of Westlake Chemicals to employ a human resource approach
• Stabilize its operation in both the domestic and global markets
• Strive to be a low cost manufacturer
• Processes cheap raw materials into higher valued chemicals, and building products
• Significant product integration - Captures full value chain
• Westlake Chemical Partners positions Westlake for growth -Low cost of capital provides structure for future growth
Financial Analysis - ValuationInternal Analysis
• Market Cap at $9.8 Billion – May 2015• Profit margin of 15.86% - Sep 2015• Estimated increase 10% in quarterly dividends• $59.75 per share (NYSE, November 20)
Financial Analysis – Growth Internal Analysis
• Westlake is the largest North America producer of LDPE – 1.5 billion pounds• North American Pipe Corporation – second largest PVC producer in North
America• Acquiring Vinnolit in 2014 – leader in PVC producer globally• Sales 2014 $4415 million vs $3759 in 2013
Financial Analysis - GrowthInternal Analysis
Financial Analysis - Profitability
Internal Analysis
• Shale gas boom market -> massive cost advantage• Return of Asset : 14.8%• Return on Capital: 16.21%• Return of Equity: 23.97%
Financial Analysis - Strength
Internal Analysis
• Balance Sheet Flexibility: net cash$50 million• Current Ratio = 4.20 • Robust Free Cash Flow• Master Limited Partnership - WLKP
Financial Analysis - Management Efficiency Internal Analysis
• Timely investment decisions• Teamwork• Top leaders
SWOT Analysis
Strength
Research and Development• Vinnolit’s technical center acquisition.• Applications laboratory acquisition in Burghausen,
2014
A variety production of chemicals• Cater diverse needs of customer base
Vertical integration• Process raw materials into high value-added
chemicals and building products
SWOT Analysis
Weakness
High reliance on the US => dependency risk• U.S market revenue: over 80%
Cyclicality• Petrochemical industry: cyclical and volatile nature• Limited supply => higher prices and profit margins• Oversupply => lower prices and profit margin
SWOT Analysis
Opportunities
Acquisition of Vinnolit expand Westlake globally.• Vinnolit is a integrated global leader of PVC.
Promising and prospective global market• Expansion in Asia and Middle East: diversification
SWOT Analysis
Threats
High competition in the US• Increasing competition adversely affect financial results
Significant variations in costs and availability of raw materials• Rise in operating expenses
High regulation• Exposure to extensive environmental, health and safety
laws
Strategy RecommendationsMajor Strategic Issues
• Intense competition
• Geographic concentration
• Regulations
• Volatility and Cyclicality
Strategy Recommendation 1
• WHAT? Expansion in Vietnam– Petrochemical manufacturing factory– Current projects: 5 factories by 2020
• WHY?– Convenient location for export– Global market => Competitive– Multitude of incentives
• HOW?– Strategic cooperation with state-
owned PetroVietnam
Strategy Recommendation 2
• WHAT? Acquisition in Mexico– Existing petrochemical plant
• WHY?– Supply shortage– Financial gain, time- efficient– No new production capability– Volatile feedstock prices and strengthening US
Dollar limit exports– Increase market share
• HOW?– Veracruz region– Etileno XXI