Haldor Topsoe is successfully navigating through a period of transition implementing the company’s ambitious growth strategy. Executing this strategy is the single most important task for Topsoe in the years to come, and I am happy to report that we have made important progress in 2014 that reinforces my strong belief in our ability to succeed.
Before I elaborate on this, I will review our ﬁnancial performance in 2014 and take a look at the company’s overall business climate.
Compared to 2013, our 2014 revenue increased by 6% to DKK 5,685 million. This is the highest yearly revenue ever in the history of the company. On its own terms this is a good result. However, considering our strategic goals, it is not entirely satisfactory.
In this regard, there are two key points I would like to highlight. Firstly, our technology revenue – which is largely made up of engineering services, equipment and licensing – decreased by 10% compared to 2013. One reason is the geopolitical and ﬁnancial instability in certain areas of the world. This has weakened demand and also led to some delays in our order in-ﬂow, especially due to the postponement of large-scale engineering projects. Secondly, however, our catalyst revenue increased signiﬁcantly by 13% compared to 2013. This was driven by a strong demand for our reﬁning catalysts, which are used by oil reﬁners to produce cleaner fuels. The same goes for other areas of our business, for example the catalysts we offer to manage emissions, which are used by heavy industry and power plants to remove harmful compounds from off-gasses.
Towards the end of 2014, oil prices dropped to levels not seen since 2008. For some of the world’s main producers of oil – Nigeria, Russia and Venezuela for example – this is negative, because economic growth is linked to the price of oil. Lower oil prices could also slow down the shale oil boom in the US, as this is only economically feasible at oil prices above the present one.
For Topsoe the low price of oil is both good and bad news. Bad because it may create less incentive to invest in alternative energy projects, such as gas-to-liquid projects and may lower the general willingness to invest in oil-exporting countries. Good because growth may increase in oil-importing countries in Europe as well as in China and India, and thus supports Topsoe’s growth in these markets.
In spite of these risk factors, I still believe there are a number of strong global trends that will work in our favor in the years to come.
As the world’s population grows and wealth increases, so will the demand for the products our customers supply. This translates into growth opportunities for Topsoe, because we deliver effective solutions to our customers’ production challenges. As non-renewable resources become increasingly scarce, we can help our customers maximize output using as few resources as possible. And as environmental regulations tighten, we can provide our customers with the best available technologies to ensure compliance.
Getting back to our ﬁnancial performance, it is important for me to point out that Topsoe maintains a strong ﬁnancial position. We realized a full-year EBIT result of DKK 563 million, with a net proﬁt of DKK 440 million. Our net proﬁt represents a decrease of 20% compared to 2013, the primary reason for this is an incurred loss related to the closure of our subsidiary Topsoe Fuel Cell A/S. If we adjust for special items in 2013 and 2014, the year-on-year growth in our EBIT was 20%. Moreover, the closure will increase the free cash ﬂow from 2015 onwards, freeing capital for use in other investments and projects.
Viewed in this context, our 2014 EBIT result is satisfactory. In fact it marks another year with healthy earnings reﬂecting our continued strong market position in our main business areas that remain characterized by high entry barriers and good proﬁtability.
The EBIT result is also noteworthy because it has been achieved at a time when we are investing heavily in preparing for growth. In 2014 we completed two large expansions of our production sites at Frederikssund, Denmark and Houston, Texas. In Tianjin, China, we also made good progress on the construction of a production plant for automotive catalysts. We expect to complete the ﬁrst phase of this project by mid-2015. We also launched construction of a new automotive catalyst production plant in Brazil; we expect this plant to become operational by mid-2015. In addition to expanding our production capacity, we maintained a high level of activity in business development and a steep ramp-up of our manpower and competence base. Meanwhile, our total spend on R&D amounted to 11% of our revenue – signiﬁcantly higher than our industry peers. In 2014 we increased our average number of employees by 11%, and one fourth of our staff is now employed outside Denmark.
Topsoe continues to develop new technologies with a view to enter new business areas. In 2014, our New Business Unit made notable progress on a number of exciting projects. For example in our work to develop new, advanced battery materials, we successfully produced and tested new types of materials both on our own and in collaboration with our partner Faradion, a UK based battery company in which we took co-ownership in 2014. In addition, our TIGAS TM technology for creating synthetic gasoline took a big step forward in 2014 as we concluded negotiations for the construction of the ﬁrst large-scale plant based on this technology in Turkmenistan. This project is important because it showcases how our technology can help a nation with huge natural gas reserves monetize these by diversifying from conventional gas markets into transportation fuels.
Another noteworthy event was the establishment of a new partnership with FLSmidth, a supplier of equipment and services to the global cement and minerals industries. This marks the beginning of a joint global effort to commercialize a newly co-developed generation of catalytic ﬁlter bags to remove harmful substances from industrial off-gasses. I believe the product we have created together will become a game-changer, and I look forward to seeing how this will develop in the years to come.
Yet another important and very visible event in 2014 was the launch of Topsoe’s new corporate brand. As you can read in this report, the new brand is more than a new visual identity. It marks a shift to a far more customer centric approach and communicates our strong commitment to deliver optimal performance solutions in partnership with our customers. Looking ahead, we hope this will differentiate us more clearly in the market and allow us to gain traction in industries where we are not well-known, but have substantial value to offer. At the same time, we believe it will enhance the way we present our portfolio of solutions to our existing customer base.
In 2014 the Topsoe Group Code of Conduct was implemented throughout the entire organization and it has been well received. The Code of Conduct contains policies covering anti-corruption, competition law as well as other compliance issues and some Corporate Social Responsibility elements. Together with our underlying policies and procedures, it provides guidance for our behavior and a foundation for further development of the area in 2015. Our policy for the gender composition of management can be found on http://www.topsoe.com/investor/corporate-social-responsibility.
In conclusion, 2014 has been an exciting year with solid progress in many key areas of our business. I would like to thank all employees in Topsoe for the hard work that has created our results, our customers for their conﬁdence in us and our partners and other stakeholders for their collaboration and continued support.
Bjerne S. Clausen
President & Chief Executive Officer