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A. Schulman strengthens its foothold in Europe, Asia with Perrite

By: David Eldridge
EUROPEAN PLASTICS NEWS

May 14, 2014

A. Schulman Inc.’s takeover of United Kingdom-based compounding company Perrite Group has given the U.S. group a stronger position in engineering thermoplastics in Asia and Europe.

Executives discussed the positive impact on the European compounding business in an interview with European Plastics News at Perrite’s facility in Warrington, England.

Schulman bought Perrite for approximately $52 million from its previous owner Vita Group in September last year. Perrite employs around 220 people at three operations in Malaysia, the U.K. and France.

“We are very glad we have these new sites joining the Schulman group, because it strengthens our presence here [in Europe],” said Heinrich Lingnau, vice president and general manager for Europe, the Middle East and Asia region at Schulman. “We are now No. 1 in the U.K., and it’s because we believe in this market.”

The Perrite acquisition is part of Schulman’s strategy to be a local partner for its customers, and has boosted the group’s capacity in engineering thermoplastics compound production. Schulman’s major European plant is located in Kerpen, Germany, and this has 70,000 metric tons per year of capacity. Perrite’s European capacities are 20,000 metric tons per years in Warrington and 6,000 metric tons annually in L’Arbresle, France, through the Jackdaw Polymers facility, which was integrated into Perrite Europe in 2011.

David Hall, commercial director at Perrite Europe, said: “The U.K. compounds market is difficult to penetrate, it’s very competitive. We made it difficult for Schulman in the past, but now the group has become established because of the acquisition.”

In a few short months, Perrite has gone from competitor to collaborator, as the U.K., French and German operations share knowledge and forge a common approach to the market.

“We’ve learned a lot of things from each other, on how we do business, on opportunities and different applications,” said Hall. “To some extent, where our ETP products and capabilities stopped, very often Kerpen’s capabilities continued.”

Lingnau said there are good R&D operations in both Schulman and Perrite, but each has built up certain strengths; for example Schulman has a strong footprint in polyester compounds, which Perrite can now benefit from.

The amount of compounds on Perrite’s books is already large. It has 144 grades of ABS and its other compounds include grades based on polycarbonate, nylon, acrylic styrene acrylonitrile, PMMA and SAN, formulated with properties such as heat resistance, impact resistance, reinforcement, UV resistance, flame retardancy and chemical resistance.

In the key market of automotive compounds, Schulman has a large number of formulations approved by the major car makers, said Lingnau. The Kerpen facility supplies the German automakers, among others. Perrite’s customer base includes the car makers with U.K. manufacturing, such as Jaguar Land Rover, Toyota, Honda and Nissan.

A specialized market in which Perrite has been successful is offshore energy. At the Warrington plant, the company has an extrusion line that produces a reinforced polypropylene foam product used to insulate sub-sea flexible oil pipes made by French company Technip.

Perrite’s operation includes extensive color capabilities, and it also distributes polymers in the UK for various producers. But the strength of Schulman will clearly benefit Perrite in its home country. Schulman’s UK manufacturing facilities are a masterbatch plant in Crumlin and the Ico thermoplastic powders business in Gainsborough, which Schulman acquired in 2010.

Schulman has been quick to invest in Perrite. By the end of August — the end of Schulman’s current financial year — the group have invested in 17 projects in safety, quality, cost and productivity. One project involves upgrading dust extraction technology at the Warrington plant, said Brendan Devlin, operations manager at the facility.

“We would like to become a benchmark site in the Schulman group,” said Devlin. “My vision is more far-reaching now than it was under Vita. We had a consistently good performance under Vita, but we can now make a step change.”

Lingnau said: “We believe we need to be local. We think the U.K. market has further growth potential. That’s why we will continue to invest here.”

That “need to be local” has emerged as customers have demanded suppliers become more responsive and flexible. This is not easy for the high-volume compound producers, such as BASF and Lanxess, said Hall, as they cannot compete with niche players when it comes to bespoke compounds. “Bespoke for them is a problem, bespoke for us is our business,” he said.

Lingnau said: “The time element has become increasingly important since 2008 [when there was the sharp economic downturn]. Customers have uncertainty about ordering this week or next. So we need to supply very fast.”

Customers use the phrase “limited visibility” about the markets they are in, because they cannot look beyond a month or two to predict order volumes with certainty.

“Delivery sizes are becoming smaller and more frequent,” said Devlin. “We don’t see the market becoming easier from the supply chain point of view. Everyone is focused on not carrying stocks, and using their suppliers to manage the supply chain. Companies are moving to more like an automotive model. If you’re prepared for it, you can deliver that sort of service without incurring extra cost or carrying extra stock.”

Just-in-time delivery has long been a feature of the automotive market and now other sectors are placing similar demands on polymer suppliers. One such market, said Hall and Devlin, is electrical and electronics, which uses a lot of flame retardant compounds.

Lingnau adds that another trend placing time pressure on suppliers is that colors have become a key differentiating element in consumer products. Some consumer goods companies are producing limited run products, such as promotional editions that are sold by selected retail groups.

For nimble companies which are willing to supply small lots on a short turnaround, these customer pressures are a business opportunity. “The supply chain has emptied, and for us that’s been great,” said Hall.

Since 2010, Schulman has made a series of acquisitions and entered strategic joint ventures. Deals which added European facilities were Ico in 2010 and French masterbatch company Elian in 2012, as well as Perrite.

Lingnau explained Schulman’s strategy is one of “horizontal growth,” in which it is acquiring companies in market sectors analogous to its core of thermoplastic compounding and masterbatch.

A large acquisition – if it had been completed – would have been Ferro, the U.S. specialty chemicals company for which Schulman made an unsolicited offer in March 2013. The Ferro offer was withdrawn in July 2013, but Lingnau said the acquisition attempt was a “strong sign” of Schulman’s growth strategy because Ferro is not just in plastics.

“Ico is a good example,” he said. “It is in the same market, but it’s a horizontal extension of the business model. Instead of granules, it makes powder. It produces for rotomolding, coatings and so on. So it’s horizontal growth.”

Schulman’s acquisition policy of targeting companies in the materials business with synergistic links is in preference to an expansion either downstream or upstream.

“The danger of moving downstream — and we don’t want to do that — is that you may compete with your customers,” said Lingnau. “If we move upstream there are other difficulties. We would not buy a polyethylene producer. That would not make sense for us. There are other things: we use a lot of pigments, a lot of glass fibers, flame retardants, stabilizers.

“Would it make sense for us to buy a pigment producer? It could be. We use a lot of pigments. But there is nothing decided,” said Lingnau.