Fire at Czech Unipetrol the latest test for CEO Vleugels

By bne IntelliNews November 8, 2007

Beth Potter in Prague -

The clock is ticking. Workers at Czech petrochemical company Unipetrol are scrambling to get production going again at its Litvinov plant after a fire on October 17 put a new hydrogen unit out of commission. What started off as a routine, if pricey at €74m, six-week maintenance upgrade to become a bigger player in the consumer plastics market, has now turned into a potential time bomb for chief executive Francois Vleugels.

Since he started a little over 18 months ago, the Belgian Vleugels has been working methodically to restructure the company. He has worked quickly to sell off parts of the business he feels are nonessential and tried to focus on core companies and products in petrochemicals, fuel refining and distribution. So far, he has received strong marks from analysts for his decisive turnaround strategies and western business thinking.

The fire is the latest in a string of recent crises, however. Officials say they will have to delaying a restart at the plant until November 8, a measure that could cost up to €11m, according to the brokerage Wood and Co. in Prague. Atlantik FT, a brokerage owned by KKCG, a rival oil and gas conglomerate owned by tycoon Karel Komárek, estimated the delay would cost the company about €2.6m.

While those estimates might sound small compared to the massive restructuring going on, Vleugels has been under the gun since this spring with his bosses at PKN Orlen, Poland's state-controlled oil and petrochemical group that took control of Unipetrol following a contentious privatization process in 2004. That's when Chemical Solutions, a company owned by Vleugels' wife Marta, won a tender to supply restructuring services to Unipetrol Trade, a sales subsidiary. At the time, PKN Orlen's chief executive Piotr Kownacki said the tender clashed with the company's code of ethics. An internal audit was ordered. Vleugels said in August that the company had instituted a new corporate responsibility package, but dodged reporters' questions about whether it was related to the controversy with Chemical Solutions.

Fire damage

Vleugels says through a spokeswoman that he can't talk now about costs associated with the fire and subsequent re-start delay because of a quiet period before third-quarter earnings are announced November 13. Unipetrol recorded a net profit in 2006 of €59.4m on revenues of €3.6bn.

Despite the recent turmoil, analysts say the stock prices won't be affected much in the third quarter. "They were able to generate nice stocks ahead of time, so very nice petchem margins should point to a decent quarter, all things considered," an analyst at Wood & Co said. "It is a hassle, but it's not an insurmountable problem."

Moving forward now while trying to stay out of crisis mode may be more important. Vleugels promises to explain his growth plans following the quiet period. He has said that the plastics market in Central Europe is growing at 8-10% per year, a huge potential market. Materials like polyethylene and polypropelene are expected to drive that growth. And when the current problems are fixed, output capacity is expected to grow by at least 20%. That will give Unipetrol a much bigger role on the regional stage for petrochemicals.

In the meantime, Unipetrol is looking to its sister refinery in Kralupy for the hydrogen it needs in Litvinov, says Michaela Lagronova, a company spokeswoman. Partner company Ceská rafinérská, the Czech Refining company, has managed to restart a terminal in Litvinov refinery on November 2 that produces gasoline and diesel oil.

That can only mean good things to jittery investors as Unipetrol sells off and consolidates its remaining businesses. For one, it will sell stakes in two Czech conglomerates to chemical firm Deza in an out-of-court settlement announced October 31. Deza is part of Agrofert group, a vast food, agricultural and chemical conglomerate in the Czech Republic.

The company also recently fended off an apparent behind-the-scenes takeover bid by shareholders led by rival Komárek.

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Fire at Czech Unipetrol the latest test for CEO Vleugels

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