Kraton announces improved Q2 results

2010 Q2 highlights
  • Sales volume increased 21% year-on-year to 86 kt

  • Sales revenues increased 42% year-on-year to USD 332 million

  • Earnings per diluted share were USD 1.24 compared to a loss of USD 0.22 per diluted share in the second quarter 2009

  • Delivered record adjusted EBITDA of USD 63 million, reflecting a margin of 19% of revenues

  • Isoprene rubber and isoprene rubber latex expansion projects on schedule and on budget

Revenues in the second quarter 2010 were USD 332 million, an increase of approximately 42% compared to second quarter 2009 and 22% compared to the first quarter 2010. The increase in revenues compared to the Q2 2009 and Q1 2010 was primarily the result of the combined impact of increased price and sales volume.  Sales volume in the second quarter 2010 was 86 kilotons, an increase of 21% compared to Q2 2009 and 18% compared to Q1 2010. Second quarter 2010 net income was USD 39 million compared with Q2 2009 net loss of USD 4 million and net income of USD 20 million in Q1 2010.
Kevin M. Fogarty, President and CEO comments: "In our second full quarter as a public company, Kraton delivered strong financial and operational results. The record profitability in the quarter was primarily driven by higher sales volume, and the impact of several price increases ... While our sales volume in the quarter includes the impact of a seasonal increase attributable to our global Paving and Roofing business, it also reflects improvement in demand across all of our end use markets as the worldwide economy continued to recover from 2009 lows, continuing the year-on-year growth trend we have now experienced for the past three quarters," added Fogarty. "In addition, we are equally pleased with the continued success of our innovation-led market development activities, particularly in China, which contributed as well to the 21% growth in quarterly volume.  We therefore see the need, and have begun the review process, for additional HSBC capacity in Asia, to meet the future growth needs of our global customers."
Revenue in the Adhesives, Sealants and Coatings end use market increased USD 32 million or approximately 44% to USD 104 million in Q2 2010 compared to Q2 2009.
"In North America, revenue growth in our Adhesives, Sealants and Coatings end use market was the result of higher sales in personal care, and specialty tape applications, as well as increased demand for clear sealant applications, driven by increased do-it-yourself home improvement activity," said Fogarty.  "In Europe, increased sales reflected a recovery in non-woven adhesives used in personal care products such as diapers, and an increased demand for automotive sealants."
Revenue in the Advanced Materials end use market increased USD 30 million or approximately 44% to USD 98 million in Q2 2010 compared to Q2 2009. 
"Volume growth for Advanced Materials was broad-based, with increases across all regions," added Fogarty.  "Revenue increases were driven by our core business in automotive, consumer electronics, personal care, and medical applications, all of which benefitted from an improving economic climate.  We continue to see positive innovation momentum, especially in applications for personal care products and PVC alternatives for wire and cable and medical applications."  
Revenue in the Paving and Roofing end use market increased USD 37 million or approximately 53% to USD 107 million in Q2 2010 compared to Q2 2009.
"As expected, revenue from our Paving and Roofing end use market showed the largest increase both year-on-year and sequentially as we entered into the peak season for paving and roofing projects," said Fogarty.  "The growth reflects stronger sales in roofing applications, primarily in Europe.  In North America, a combination of poor weather conditions and constrained state and local infrastructure spending resulted in essentially flat demand compared to the second quarter of 2009."  
Revenue in the Emerging Businesses end use market increased USD 5 million or approximately 34% to USD 19 million in Q2 2010 compared to Q2 2009.
"The revenue increase in our Emerging Business end use market reflects the continued volume growth of our isoprene rubber latex products in applications such as surgical gloves and condoms," said Fogarty.  "During the quarter, the expansion projects we announced for increased isoprene rubber capacity at our Belpre, Ohio, facility and for debottlenecking of isoprene rubber latex capacity at our Paulinia, Brazil, site continued to progress on plan, and on budget. The incremental capacity will help us meet growing demand which is being driven by our innovation projects."
Fogarty summarised devlopments in Q2: "During the second quarter, we initiated a project assessment work plan which includes site selection activities for additional HSBC capacity in the Asia Pacific region. As a result of growth in Kraton's differentiated grades of HSBC's globally, we see the need for additional manufacturing capacity. We are continuing to expand and strengthen our presence in Asia, and thus we believe Kraton's regional, and global, business would benefit from such increased capacity.  The anticipated 30 kiloton HSBC manufacturing facility would employ Kraton's latest state-of-the-art technology for producing HSBC's, and we believe would set a new global standard for manufacturing cost and product quality, demonstrating further our commitment to our business and the region. Our site-selection team is expected to make its recommendation to management by December 2010 at which time we will be in a better position to render a final project decision.  While it is too early to estimate the expected cost of the new facility, we anticipate that construction could commence in the first half of 2012 with start-up occurring as early as the second half of 2013."
"We have relocated our Shanghai, China, office to a facility that is double the size of the previous location to better accommodate our on-going increase in staff and in-house capabilities. Our Shanghai staff has nearly doubled since 2006. The new facility also offers a multi-functional customer service center and also includes a dedicated training facility."
"During the quarter, we announced a number of price increases in response to rising raw material costs and other factors."
Fogarty said he remains positive on the near-term outlook for Kraton's business and expects Q3 sales volumes to be generally in line with Q2.