RAINY WINTER BOOSTED EARNINGS
Feralco manufactures and sells water treatment products, primarily inorganic chemicals. After almost 20 years in Mellby Gård’s portfolio, the company achieved its strongest earnings to date in 2017/2018. Feralco targets being number one or two in European markets characterized by a high level of maturity. The strategy for continued growth involves acquisitions.
About 70 percent of Feralco’s sales are made to municipal water treatment plants around Europe. The company is present in all major European countries and also conducts sales in a number of African countries. Besides sales for water treatment, some sales are also made to the paper and pulp industry and other sectors.
Feralco is profitable and has been so for a long time. Given the character of the market, with stable but barely increasing demand, the number of parameters that could affect earnings is limited in the short-term. However, weather and seasons can have a significant impact. The reason why the past year generated record results was a very rainy winter in much of Europe, meaning that more pollutants were introduced into the watercourses from which drinking water is collected. The need for water purification chemicals increased accordingly.
“We operate in a mature market with limited organic growth. At the same time, we are careful about entering growth markets. There is clearly a great need for water treatment in many parts of the world, although many other players have also observed this. Competition is therefore fierce in emerging markets and limits opportunities for profitable investments,” says Stephen Childs, one of the company’s two MDs.
His associate is Ludovic Huitorel and together they have run Feralco for more than ten years. They explain that Europe is Feralco’s principal market, in which it benefits from a marketleading position in many countries.
“There is room to grow in Europe, albeit through market consolidation. We have made many successful acquisitions over the years and we have a pipeline of companies we are considering,” says Ludovic Huitorel.
The latest acquisition was made in June 2018 when Feralco acquired Italian company Braia srl, the Italian leader in inorganic coagulants, which are used in water purification and paper manufacture.
“In Italy, the market for water purification chemicals is extremely competitive. This transaction brought us closer to customers throughout the Italian market. This also meant that we were able to broaden our product portfolio,” says Ludovic Huitorel.
“Besides consolidation of the water purification market, we are also considering opportunities to grow in complementary areas of industry where our solutions may be relevant. But, for reasons of competition, we do not want to go into this in greater detail,” says Stephen Childs.
He also points out that the company invested in its core business during the year. Among other things, production capacity for ferrous salts was increased in both the UK and France. During the year, Feralco sold its 50-percent ownership in the joint venture company Akferal in Turkey. The company was sold to the joint venture partner Akkim Chemicals. The reason for the sale was that the market in the Middle East is highly competitive and that the political situation is expected to remain unstable for some time.