'Very turbulent situation' in rubber-customers losing money, says Hexagon ceo

By Liz White, ERJ staff

Stockholm-In its major polymers business, Swedish engineering group Hexagon AB saw organic growth in sales of 10 percent in the second quarter. But, as other major tyre and rubber groups have reported recently, pricing pressure in raw materials is affecting margins in the business.

"Raw materials price increases continue, especially in Nafta and the US," commented Ola Rolén, Hexagon's ceo, in an 11 Aug webcast on the group's Q2 results.

"So far in Jun/July we have been been able to manage these price increases, via rationalisation of recipes avoiding to use oil-based materials and so on," Rolén continued. Hexagon has also been able to pass on price increases to customers, he indicated.

In the rubber sector-in which Hexagon is both a compound supplier and a product manufacturer-"There is a very turbulent situation, where our customers are losing money," Rolén said. Hexagon is trying to balance that situation, but "sometimes demand can be unpredictable," he added.

Despite this situation, Hexagon believes it will improve volumes in this business area during 2005 "albeit with somewhat lower margins," Rolén said.

And he went on to say that the group has, "significant projects that will rationalise this operation in the future," although he did not give further details. As a result of such rationalisation, Hexagon expects to see improved margins in its polymers operation-largely consisting of compounding, heat exchanger gaskets and solid wheels and tyres-in 2006.

In its polymers unit, Hexagon had first-half sales of SKr 1077 million (Euro 116 million) a 10 percent rise over sales for H1 2004, with profit of SKr 140 million, representing a margin of 13 percent. Rolén said he expects this level of margin-a little lower than the 14 percent achieved in 2004-to continue.

Hexagon as a group had net Q2 2005 sales of SKr 4788 million, a 22 percent rise over Q2 2004, with earnings (EBIT) up by 74 percent to SKr 355 million.

Rolén said despite a quarter of poor growth in sales in its domestic market in Sweden, "Europe is gaining momentum, with recovery evident in the major markets in Italy Germany and France." Meanwhile, he said, sales in the Nafta region showed "splendid growth of 22 percent," while in Asia double-digit growth continues.