Francis Valeri – President, Eurecat – France
The CEO of Eurecat, a leading provider of catalytical processes and services, discusses Europe’s difficult economic context and examines his company’s strategy for further expansion in emerging markets.
You have been working for Eurecat for nearly 23 years. The company today holds a 75 percent market share in Europe and over 40 percent worldwide, which makes you an undisputed market leader in the niche field of catalyst regeneration services. What were Eurecat’s key historical milestones that led to such success?
The creation of Eurecat stems from a new concept discovered in the 1970s, which consisted in optimizing the performance of catalysts used in refineries by regenerating the materials outside of reactors. A few pioneers existed in the United States at the time, which encouraged my predecessor to import this process to Europe. Our market segment has grown in importance since the introduction of new environmental regulations around the world, imposing better quality of gasoline and diesel products, first in the United States, then in Japan and in Europe, and gradually in other parts of the world, which have compelled refiners to employ higher performance catalysts as well as build additional reactors with catalysts. Twenty years ago, we introduced new business lines by applying preconditioning treatments. To provide our audience with an example: instead of having a catalyst in a non-fully active form when it is purchased from the catalyst manufacturer and subsequently activated inside the reactor within the refinery, we decided to provide pre-activation, which makes the catalyst ready to use. Secondly, we initiated a recycling and metal valorization activity.
Recently, we also decided to address field services because our clients were paying more attention to sophisticated catalysts but lacked the expertise to properly install the catalysts into the reactors. As a result, in 1998 we acquired a company named Petroval to extend our expertise in field services. We therefore cover the entire catalyst spectrum. Today sales of new catalysts only represent 50 percent of the total chain value, which has considerable implications for the service business. Our strategy therefore consists in scrutinizing the refinery industry, and offering our services when new facilities are implemented. To support our business lines, we invest significant budgets in research and development to sustain profitable activities in the future.
Eurecat’s Trisur innovative program was featured amongst the winners of the world innovation prize in France (Concours Mondial de l’Innovation). How did this constitute a culminating milestone for the company and how would you define the importance of R&D and innovation to Eurecat’s success?
The attribution of this prize serves to illustrate the synergy which exists between Eurecat and IFP Energies Nouvelle. We hope to be successful with a new catalyst separation technique, to lead to greater customer satisfaction and visibility, and higher sales, as experts in our field have recognized the innovative nature of our solution and its varied applications. Our R&D division is segmented into three sites located in France, the United States and Italy. Our research center in the United States is currently the object of significant attention and should continue to grow on a mid term basis. Certain niche activities in conditioning require up to 7% of turnover in R&D expenses.
You recently completed the acquisition of the American company Tricat. You are planning on capitalizing on its industrial units located in the USA and in Germany. What has resulted from this transaction? What does the future hold for this means of business expansion?
We acquired Tricat to take control over both plants located in Germany and the United States, and incorporate new capabilities in catalyst conditioning and manufacturing. The rationale behind this decision was to integrate our competitors’ strategic technical skills and enlarge the scope of our diversified portfolio.
However we should note that Eurecat’s business strategy is not focused on acquisitions. We are simply examining the acquisition of companies that suffer economically but retain specific skills in business segments where we need to strengthen our position.
You operate under a joint venture, with the American chemical company Albermarle, which partially owns the company. What are the benefits of this partnership and how is Eurecat positioned in the United States? Has this presence across the Atlantic enabled you to conquer additional markets in the Americas?
We are currently deliberating on how to proceed with regards to several projects in the United States. In that regard, Albemarle provides strategic input as to the industry developments, as well as a few limited local services. Our operations in Latin America are monitored from Houston. Internationally our major shortcomings are found in China, where we are devoting considerable efforts to improve our understanding of the market and progressively explore market opportunities. In Brazil, we keep a normal stream of business with Petrobras, but we have postponed more serious local development activities in light of the current slowdown and cancellations of refinery projects.
At the moment, the European refining sector is looking forward to better days. Total recently announced restructuring measures concerning refining activities in France and the UK. As you operate in the downstream sector, how difficult is the market in France?
We have undeniably observed reductions in refining capacities in France, and therefore potential number of clients. This trend is also very true across Europe, in Germany, Italy and the UK notably. However, we are noticing impressive developments in Eastern Europe. When our traditional customers are waning, we must simply invest different geographic locations. We have therefore dispatched sales team in Poland, Bulgaria and even in Russia, where we hope to conduct business in the medium term. We are also considering promising prospects in Turkey. Overall our European activity hasn’t declined but rather sustained similar levels of income thanks to our eastward shift. We remain confident that the European market will not deteriorate more as the economic recovery progressively unfolds. I wasn’t surprised by the extinction of the French refineries you mentioned. It’s interesting to see how refining margins have increased over the past weeks, after these decisions were executed. The trend in Europe and elsewhere is currently for oil companies to reduce costs to protect their profits. Eurecat can potentially suffer from this situation but is deploying considerable efforts to stay out of cost-reduction measures by continuously bringing value for its services and products. We operate in a niche market with limited players, with high customer service and technological requirements, and don’t see strong incentives to reduce our margins. Moreover, our business consists in making overall projects more cost effective for refineries.
Eurecat is aspiring to further integrate emerging markets, which is illustrated by the establishment of an Indian office. How are you capitalizing on this affiliate to penetrate new emerging markets?
There are no administrative barriers in India but rather complications related to the rigid nature of their market. We decided to introduce our activity in India from scratch, which may have seemed risky at the time but the main risk actually lies in our customers’ attitudes towards innovation change. The public sector still dominates in India, with implications in regards to purchasing procedures and tenders. We are struggling with public officials to fully develop our business but are confident in the booming private sector in India and entrepreneurial spirit of Reliance or Essar Oil. We are encouraged by the current initial market response.
China is despite all its constraints our largest potential market at a global level. A few players such as Petrochina, Sinopec and several refineries that are independent or cooperative entities, dominate the Chinese market. Large Chinese groups are fully integrated, meaning they have their own engineering but also integrated catalyst services. Teapot refineries are unfortunately usually smaller sized and very dispersed. The service industry is very cheap and of very poor quality which contrasts with our standard business model. However, Chinese corporations are now focused on purchasing the most advanced technologies and are progressively becoming more interested in our products.
Eurecat has a registered office in Singapore where the downstream sector represents USD 2.6 trillion. What is Eurecat’s strategy and positioning in such a significant market?
In Singapore, our strategy is very selective due to the historical presence of an important competitor. We are therefore primarily offering conditioning services and recycling activities. We limit our business to ensure high value for our customers and good margins for us. But, let’s not forget that Singapore can also serve as an entry point for China.
Eurecat can be considered as “La PME qui ne connait pas la crise?” (a French SME that is not affected by the crisis). Eurecat grew 10 percent in five years, which represents quite a remarkable feat. What are your ambitions for the future?
My objective is to achieve a 50 percent compound growth rate within the next five years. Most of our activities are growing at a robust pace, and we are therefore very optimistic and are looking forward to penetrate and consolidate our presence in foreign markets. We are confident in the niche activities that we conduct because they provide tremendous value to refineries in regards to cost-saving and reducing environmental impacts.