By Tom Pfeiffer
LONDON (Reuters) – European industry is signalling a more sustained recovery this year thanks to lower energy prices, a weak euro and monetary stimulus, the head of Europe’s biggest chemicals distributor Brenntag AG (BNRGn.DE) said.
Central bankers have pushed interest rates to record lows to kick-start consumer demand and get companies investing again after the financial crisis. But much of the growth in corporate earnings has come instead from cost cutting and exports to faster-growing economies in Asia and the Americas.
Brenntag sources, sorts and delivers consignments of chemicals to tens of thousands of businesses, making it a useful indicator of industrial demand.
After successive false dawns in recent years, the pace of activity is picking up at many of the larger businesses with which the German company works, said Chief Executive Steve Holland.
“We see an underlying momentum for these larger accounts to do more business. It would suggest a high level of confidence and we see that continuing,” Holland, a Briton, said in an interview.
He said that in Belgium, the Nordic countries, Germany and Britain, Brenntag was seeing solid repeat-order business, while Italy and Spain were also improving.
Brenntag, tipped as a possible entrant to Germany’s blue-chip index DAX (.GDAXI), competes with U.S. distributors Univar Inc (UNVR.N) and Nexeo Solutions [NEXSON.UL] as well as Europe-focused Azelis Group.
After a relatively flat performance in 2014, Holland said, Brenntag was likely to resume its historic growth rate of around 6-9 percent for earnings before interest, tax, depreciation and amortisation (EBITDA) excluding the impact of acquisitions.
ACQUISITIONS IN ASIA
Holland said the unexpected shift in oil prices and the euro has put Europe in a much better competitive position than a year ago. North America is the second pillar of Brenntag’s business, with emerging markets in third place.
The fall in crude prices was having a “broadly neutral effect” on Brenntag’s business serving the North American oil and gas industry, he said. In areas with high extraction costs, producers appeared to be idling more rigs, while some areas were still seeing increased activity.
“So there is a balancing of the economics of shale gas in North America and that will take four to six months to play out at the new oil price levels that we are seeing,” Holland said. “The fundamentals of the North American market are still 2 percent to 2.5 percent GDP growth on a consistent basis. If we had that in Europe, we would be very happy.”
Brenntag has grown steadily since it went public in 2010, thanks to a string of smaller takeovers and as large chemical producers seek to farm out the delivery and mixture of small product quantities.
Holland said he now aimed to build Brenntag’s position in Asia, which remains a relatively small part of the business, after strengthening its management there.
“We aim to see our Asia-Pacific presence grow now in a more aggressive fashion. I would expect to see more acquisitions there,” said Holland.
“We’ve seen a good performance in China. We also see a very positive development in Vietnam but whether we can acquire companies in those countries that meet out selection criteria quickly is the question.”
(Additional reporting by Lugwig Burger; Editing by Keith Weir)
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