3. 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 plants
o Major market presence: USA, Canada, Germany,
Switzerland, Singapore, China
• 4100 employees
4. 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
6. External Analysis
General 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
7. External Analysis
General 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
8. External Analysis
General 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)
9. External Analysis
General 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.
10. External Analysis
General 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
11. 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
12. 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
13. 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
14. 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 Trends
The market for Olefins is still expected to rise
U.S. plastics industry: 876,000 jobs and $341 billion in shipment
15. 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
16. 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
17. 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
18. 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
19. 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
20. 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
22. ORGANIZATIONAL ANALYSIS
CORPORATE 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
25. ORGANIZATIONAL ANALYSIS
LEADERSHIP
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
28. ORGANIZATION ANALYSIS
CURRENT ORGANIZATION STRUCTURE
CURRENT CORPORATE AND BUSINESS STRATEGIES
• Ensuring communities interest - HSE
• High ethical standards
• Increase level of demand
• Current acquisition and/or expansion project
29. Internal Analysis
Resources & 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.
30. Internal Analysis
Resources & 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
31. Internal Analysis
Resources & 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
32. Internal Analysis
Resources & 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
33. Financial Analysis - Valuation
Internal 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)
34. 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
39. 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
40. 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
41. 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
42. 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
44. 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
45. 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
Editor's Notes
WCC operates as a vertically integrated global manufacturer and supplier of petrochemical and plastic. The company operates in 2 principal operating segments, Olefins and Vinyls. The Olefins segment manufactures petrochemical products such as ethylene through Westlake Chemical OpCo LP, polyethylene at its Longview facility, styrene, and various ethylene co-products at its Lake Charles site. The other segment manufactures and markets VCM, EDC, chlorine, caustic soda, and PVC building products including pipe and specialty components.
Since 1986, the company has acquired 23 plants the United States, Canada, Switzerland and Singapore. It is headquartered right in Houston, Tx and employs over 4100 employees.
WC was founded by T. T. Chao with the acquisition of a polyethylene plant in Lake Charles, Louisiana.
Recently, there were 2 significant events. In March 2014, the company formed Westlake Chemical Partners LP to operate, acquire and develop ethylene production facilities and related assets. In July, the company acquired German-based Vinnolit Holdings GmbH and its subsidiary companies, and integrated global leader in specialty PVC resins, VCM and caustic soda, with manufacturing sites in Germany and the UK.
These end use markets are driven by population growth. The more the population grows, the higher the demands of these markets. The U.S. is one of the largest populations amongst industrialized nations in the world after China and India, and it is the only large developed nation experiencing significant population growth.
Higher employment rates lead to a higher income for consumer and can pose an adverse effect in relation to the demand of our end markets.
The U.S petrochemical projects need skilled workers. Fears that lack of skilled professionals might be a problem for the rapidly growing industry.
GDP is the main tool for measuring a country's economy. GDP is calculated to determine co
nsumers’ spending. According to U.S. Bureau of Economic Analysis
The United States economy expands 3.9 percent in second quarter of 2015.
Higher employment rates lead to a higher income for consumer bringing a stable and productive economy. Consumer demand and consumption will increase as well. However, Unemployment rate will affect the consuming rates.
-. The price of crude oil influences the world petrochemicals. Markets are impacted significantly due to price fluctuations, creating an uncertainty in upstream and downstream investments.
-Nearly 90% of petrochemicals are based on crude oil and natural gas (Petroleum Chemistry, 2010). This makes petrochemicals highly depend on the refining industry and the most important issue is the availability of mineral oil and gas in the future. The price of crude oil influences the world petrochemicals. Markets are impacted significantly due to price fluctuations, creating an uncertainty in upstream and downstream investments.
All the chemical corporations and the participants in the petrochemical industry, plastics and synthetic resins industry have to follow some legal compliances such as pollution control, environmental protection, ambition control, safety, explosion in order to limit the unexpected harm to human and environment.
The higher regulation is required, the more compliance cost the company pays.
The average cost of regulations compliance is estimate $1 million per organization. The cost is consist of money, human resources and time. This cost is not really high for a billion-revenue company, but it is too high for small or mid-size companies. However, if there are higher regulated compliances, they can have a positive or mutual long-term impact for the related industry because they move the company forward to do greater for instance or higher technology to control the emissions or even do something better for the community and human kindness.
Clean Water Act state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into waters
OSHA : Occupational Safety and Health Act
the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) of the Department of Labor. The goals of the agencies are to improve the combined efforts of the agencies to achieve protection of workers, the public, and the environment
Nowadays, a number of consumers are tend to be more environmental friendly consensus in order to get away from fossil fuel by using renewable energy to protect the environment and to prevent climate changes as well as preserve the earth. Most of public’s attitude toward renewable energy addressed concerns for the environment and sustainability. Renewable energy is generated from natural processes that are continuously replenished including sunlight, wind, tides, water, and various forms of biomass. This energy is constantly renewed, and cannot be exhausted.
changing from oil and gas to biomass requires new and efficient technologies. Biotechnological, chemical and engineering solutions are needed for utilization of this change.
However, it is hard to predict the timing of the raw material change from fossil to biomass. It will depend on various factors such as: consumption, public opinion, sustainability, improving efficiency…
when a new product arises, an updated and efficient technology is required for the utilization of the change. This creates an impact on our industry because it will shift in the ratio of coproduct produced, and cost led to an imbalance in supply/demand, particularly for small size petrochemical company.
Chemicals companies have invested billions in automation and information technology. These investments have increased reliability, reduced costs, and created greater operational efficiencies in production and supply chain management
Technology has a great impact on the plastic and packaging industry. Especially on food packaging, researchers have been working hard to discover great innovations and inventions.
Globalization and integration of the world economy have a strong impact on the petrochemical and Vinyl industry. The first impact that globalization bring our focal industry is the competition in the industry. The fastest-growing in petrochemical capacity are the Middle East and Asia ; these nations are starting to invest in the facilities necessary to processing crude oil. This capacity will increase competition in our focal industry and this competition will be acute for the developed countries. As a result, the nation that has abundant of oil and own much of oil production and refining capacity will be less headache when the price increases.
Secondly, the safety and environmental regulations in those countries have not been close control as in the developed ones. This leads to the third result of globalization is the number of joint ventures and other partnerships are increasing which result in many political, social and economic risks.
Lastly, the impact of globalization increases in global trading will provide benefits to air cargo and maritime transport, which can benefit the globalization of petrochemical/plastics resins industry and related industries. but less impact on service industries
For petrochemical manufacturing industry, barriers of entry remain high and steady. For plastic and resin manufacturing industry, barriers of entry are medium and substantial. As a result, both industries face low threat of new entrants for several reasons.
Capital investment is high for both industries. Most capital investment goes to petrochemicals and plastic resins. Capital investment in petrochemicals will expand downstream petrochemical derivatives such as resins. Therefore, 55% of capital investment in petrochemicals manufacturing also includes resins manufacturing because Olefins products are suppliers of Vinyl products. A significant amount of capital investment is required to construct a petrochemical manufacturing or resins manufacturing plant.
Besides manufacturing costs, regulatory and development costs are necessary to operate and maintain a plant and equipment. Government regulations and patents influence the competitive strategies of petrochemical industry. Regulatory costs remain high because the petrochemical manufacturing industry has to strictly follow the Environmental Protection Agency, Clean Air Act, and Hazardous Organics Emission National Standard. The level of regulation varies between states, and compliance with these regulations requires a significant amount of capital. Therefore, it prevent potential entrants into the industry.
(For plastic and resin manufacturing industry, a substancial financial investment is required to construct, operate, and maintain a plant and equipment. Manufacturing equipment requires capital because the manufacturing process is complex due to a wide range of products offered by the industry. Besides tooling, which means softening and melting the resin to put it into desired shape, the manufacturing process undergoes extrusion, molding thermoforming, coating, and recycling. The more processes required in the manufacturing process, the higher the investment and replacement costs for industry equipment. The level of regulation in plastic and resin manufacturing process is heavy because facilities require registration or permit to operate, and regulations increase the price of equipment and cost of production. Also, a company should be committed to investing in research and development in order to again competitive advantage within chemical industry and maximize efficiency in the plastic and resin manufacturing process.)
Another factor is the amount of time and technical knowledge related to the activities performed by chemical companies. New entrants are unlikely to compete because they don’t have access to oil refineries.
The bargaining power or buyer in chemical industry is moderate. Buyers of chemical are able to restrict the ability of sellers to increase prices because the products and services offered are similar. Buyer concentration of chemical industry is high because as IBIS World predicts, revenue and demand will continue to increase within the next five years. The Plastic & Resin Manufacturing Report, as of July 2015, clearly states per capita disposable income will grow at an annual rate of 2.4% within the next 5 years.
(As construction activity increases, demand of plastic-based construction will increase, and demand for plastic and resins materials will increase as well. The increase in demand for plastic and resins materials in construction activity will drive demand for petrochemicals. Plastic materials are used in construction parts such as pipes, valves, fittings, flooring, insulation and windows. A major driver of overall construction is residential development, which often leads to subsequent construction projects such as roads, bridges, schools and commercial development. Chief Economist Frank E. Nothaft suggests that housing activity will accelerate by 20%, and home sales will go up by at least 5% from 2015.)
The bargaining power of suppliers in both industries are moderate for the following reasons: many suppliers, raw materials can be obtained from more than one source, switching costs will affect long-term contract agreements, suppliers are selected according to location of the company, and the industry requires knowledgeable staff. The key success factor for the plastic and resin manufacturing industry is having access to a consistent supply of competitively priced raw material inputs, including feedstocks.
In addition, labor and technological advancement affect the chemical industry, especially in petrochemical. Companies face shortage of qualified staffs because petroleum businesses are in recession. University graduates no longer have motivation to work within the industry, so they have bargaining power to petrochemical companies. Even though more engineers are needed to deal with future challenges, the steep decline of the industry caused current labor shortages across the United States, especially Houston, Texas. As you can see from the right figure, new job ads decreased dramatically from March 2015 due to the impact of oil prices
The availability of substitutes for chemical industry is low. First, buyers know what specific chemicals they need to purchase as inputs. Second, price levels do not change significantly. On the other hand, substitutes for petrochemical vary because oil is dominant in many sectors. [G] Petroleum still dominate world industry, but alternative energy resources will lead to threat in the long run. As biofuels prices tend to be less expensive, biofuels are competitive substitutes of crude oil, which threatens crude oil products.
However, the plastic and resin manufacturing industry competes against substitute materials such as rubber, wood, and tile on price, product performance, technological innovation, quality and service. Rubber is the main substitute for plastic. Plastic toys and containers can be substituted with rubber products. In addition, unstable crude oil prices will cause manufacturers to find new plastic alternatives. Moreover, the increasing shift in consumer preference toward environmentally friendly products will eventually lead to development of nonoil- based plastics.
First, the resin manufacturing has moderate level of technological change. High volume resins are produced in large-scale to supply the demand of buyers. Technological development is required to maximize the efficiency of the manufacturing process. IBISWorld states that resin manufacturers spend approximately $0.37 on technology. High volume resins, such as polypropylene and polyethylene, which together account for more than half of all plastics manufactured in the industry, are manufactured in large-scale, highly capital-intensive facilities that are often integrated with oil refineries, and which generally operate on a continuous basis. In addition, some manufacturing plants have been exploring the use of bioplastic, a form of plastic that is derived from vegetable oil, cornstarch and other biomass sources. However, bioplastic is significantly more expensive to produce than petroleum-based plastic, and production costs can average upwards of 20.0% or more than their traditional counterparts. The high costs associated with bioplastic have slowed associated research and development investments, as many plastic and resin manufacturers opt to focus their attention on more affordable, petroleum-based products. Second, intensity of rivalry is high because major petrochemical companies are similar in size and capabilities. They all compete for the same market share.
Next, exit barriers in the downstream segment of the industry are lower than in the upstream segment of the industry. Other leading to rivalry among competitors in petrochemical industry include: the high fixed costs, storage costs, and the lack of product differentiation of commodity products. Major companies compete to replace their drying oil resources. However, this is challenging because new oil fields become more difficult to exploit and need expensive technologies to operate.
Price and product performance attributes are the key basis for competition in the Plastic and Resin Manufacturing industry. prices are largely determined by those of global chemicals like ethylene, which is a key input for polyethylene and other thermoplastics. Price is also dependent upon other variables like the prices of raw materials such as crude oil and natural gas, as well as the degree or integration and scale of production. A larger plastic and resin manufacturer may own its own supplier and distributor; therefore, the firm can reduce costs and price its products more competitively than other operators. Product performance attributes include strength-to-weight ratios, waterproof ability, malleability, safety, installation costs and the ability to be recycled.
As a pioneer in the chemicals and plastics industries with a career spanning more than 50 years, T. T. Chao founded and built many successful first-of-its-kind businesses in a number of countries around the world.
Westlake Chemical has a participative leadership style across the organization. This makes the employees feel involved in most decision making within the organization. Moreover, the company experiences good relationship between the junior staff and the management thus leading to low levels of disconnect and the willingness of employees to give their all in the duties assigned to them.
The company has a strategy that is aimed at ensuring the communities interest is observed before launching a project. Ethics is also key in the organization’s strategy to undertake any project.
The company also works closely with LP in a bid to meet all the increased level of demand within the market they operate. The partnership helps them not strain much of their resources the markets they operate in a bid to break-even in the markets they operate in
Confidential
BBB rating depends on strong earnings and cash flow, steady supply/demand fundamentals for Olefins and Vinyls
We seek opportunities to maximize efficiency and create stockholder value through various transactions.
Value chain analysis involves the ability of Westlake Chemicals to employ a human resource approach while dealing with internal affairs of the company. In doing so, the company will be in a position to stabilize its operation in both the domestic and global markets. The Olefin segment is the core of WLK, driving the majority of EBITDA and is where WLK generates the highest returns due to its significant cost advantages vs. global peers.
R&D plays an important role in the innovation process which is increasingly vital to current and future profits for Westlake Chemical Corp. It results in the technology that brings new products and services to the market place. The company acquired Vinnolit's technical centers, including a research and development facility in Gendorf and an applications laboratory in Burghausen in 2014.
2. Westlake Chemical Corp. is a manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated building products. Its products include some of the most widely used chemicals in the world, which are fundamental to many diverse consumer and industrial markets, including flexible and rigid packaging, automotive products, coatings, residential and com-mercial construction as well as other durable and non-durable goods. A broad product portfolio helps the company efficiently cater to the diverse needs of its customer base.
3. Westlake Chemical Corp. is a vertically integrated company. The company, through OpCo, produces majority of the ethylene required to produce its polyethylene, VCM and styrene as well as majority of the North American ethylene required by its Calvert City and Geismar fa-cilities (through OpCo), and majority of the VCM and all of the chlorine used in its Vinyls business. The company benefits from highly integrated production facilities that allow it to process raw materials into higher value-added chemicals and building products.
Westlake is highly dependent on its domestic market, the US, for major portion of its revenues. In
FY2013, the company generated 90.6% of its total revenues from the US. Such geographic
concentration increases the risk that, should any adverse economic, regulatory, environmental or
other developments occur in the US, the company's business and financial condition will be affected.
Westlake may also be substantially affected by the political or cultural changes that occur due to
the concentration of revenues in only one region. Geographic concentration. 81% of revenues were derived from the US whiles lacks presence in other countries which have stronger market potential for company’s products.
2. Westlake has a high level indebtedness. In FY2013, the company reported a total outstanding debt
of $763.9 million. A significant level of indebtedness could affect the company's ability to obtain
additional financing for working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. Due to the continuing effects of the
worldwide financial crisis, capital markets have been more volatile in recent times. Such volatility
may affect the company's ability to obtain financing on favorable terms, which could constrain its
growth and development plans.
Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. For example, on July 31, 2014 Westlake Chemical Corp. acquired all the equity interests in German-based Vinnolit Holdings GmbH and its subsidiary companies.
2. The company already operates in the US, Canada, Germany, and Switzerland markets. There are a number of promising and prospective global markets – like Asia and Middle East. They are not only the source of new work capital and expansion field, but also a way to cope with world economy volatility through diversification of markets and services.
The chemical market in which the company operates is highly competitive, which may affect its business operations. It faces stiff competition from several larger as well as smaller players both in the US and international markets. Such competitive environment could adversely af-fect the financial results of the company. In other words, increasing competition has a direct impact on Westlake’s growth.
2. Significant variations in the costs and availability of raw materials and energy may negatively affect Westlake Chemical Corp. results of operations. These costs have risen significantly in the past due primarily to oil and natural gas cost increases. Westlake Chemical Corp. pur-chases significant amounts of ethane feedstock, natural gas, ethylene and salt to produce several basic chemicals. It also purchases significant amounts of electricity to supply the en-ergy required in its production processes. The cost of these raw materials and energy, in the aggregate, represents a substantial portion of company’s operating expenses.
3. Westlake Chemical Corp. uses large quantities of hazardous substances and generates large quantities of hazardous wastes and emissions in manufacturing operations. Due to the large quantities of hazardous substances and wastes, the industry is highly regulated and monitored by various environmental regulatory authorities. Therefore, Westlake Chemical Corp. is a subject to extensive international, national, state and local laws, regulations and directives pertaining to pollution and protection of the environment, health and safety, which govern, among other things, emissions to the air, discharges onto land or waters, the maintenance of safe conditions in the workplace, the remediation of contaminated sites, and the generation, handling, storage, transportation, treatment and disposal of waste materials. Some of these laws, regulations and directives are subject to varying and conflicting interpretations. Many of these laws, regulations and directives provide for substantial fines and potential criminal sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions or reduce the likelihood or impact of hazardous substance releases, whether permitted or not. For example, all of Westlake Chemical Corp. petrochemical facilities in the United States and Europe may require improvements to comply with certain changes in process safety management requirements.
