Sniace SA, a Spanish maker of wood- based products that’s expanding in renewable energy, said 2011 sales and earnings will climb as it provides substitutes for cotton, which has more than doubled in price in the past year.
“2011 looks very good,” Chairman Blas Mezquita said in an interview in Madrid. “The markets where we operate, especially China, have started the year with a very strong demand,” which allowed Sniace to raise prices. “The first semester is going to be a good one, and we are optimistic for the rest of the year as well.”
Further price increases for the Madrid-based company’s cellulose pulp and viscose fiber will “significantly” boost sales as well as earnings before interest, taxes, depreciation and amortization this year, the executive said.
Demand for those products in China has been climbing more than 10 percent annually for the last few years, Mezquita said. Chinese purchases of cotton and Indian export restrictions drove prices for that commodity higher in the past year, further encouraging textile manufacturers to use alternatives. Farmers in the U.S. and Australia have responded to higher cotton prices by planting record amounts of the crop.
Mezquita said it will take time and money for cellulose and viscose suppliers to catch up with demand, forecasting stable growth in sales and gross margins for the next 2 1/2 years. The company also sells chemical by-products of the cellulose and viscose manufacturing processes.
‘Feeling of Scarcity’
“There’s something of a feeling of scarcity in the industry” as Chinese and Indian demand grows, the 52-year-old executive said. “We expect significant increases during the year. All businesses are going to do better than in 2010.”
First-quarter sales and earnings before interest, taxes, depreciation and amortization will be better than a year earlier, he said, declining to provide specific figures as results are scheduled to be published at the end of this month.
Sniace, founded in 1939, expects revenue from renewable energy to account for 80 percent of sales by 2014, compared with about a third last year, Mezquita said.
“Our traditional businesses are very cyclical, with great variations in prices,” he said. “About five years ago we decided to diversify into areas with less cyclical and more recurrent revenue such as renewable energy.”
Sniace raised capital in 2006 to finance expansion in ethanol production and power generation. The company’s revenue surged 78 percent in 2008 after it bought out partners in an energy-production venture.
Compared with Sniace’s other businesses, renewable energy is “more stable and regular, as demand is more inelastic,” Mezquita said in the April 7 interview. “Renewable energy made sense for us as we had synergies.”
“We have held advanced talks with some potential partners in Colombia,” he said. “It’s a country that we like, as it has great growth potential and is very developed in ethanol and biofuels.” The timing and volume of any potential deals in the region “will be determined by access to funding, which is still very limited,” he added.
Bioethanol, made by fermenting crops such as wheat, can be mixed with gasoline for use in cars and planes, helping to curb consumption of oil-based motor fuel.
The company also aims for future growth in wind energy, especially in the U.S. and Latin America.
Sniace expects to secure funding to start building a bioethanol plant in Cantabria, northernSpain, within a month, and aims to start another in Poland before the end of the year, which should help total sales triple to about 500 million euros ($721 million) in 2014 from 128 million euros last year, according to Mezquita.
“Our priority today is to finish all projects we are in, but we are already studying future opportunities in renewable energy, both ethanol and wind energy,” Mezquita said. “We’ll also look at any opportunity in wind energy in Spain.”
The company, which doesn’t plan to pay a dividend while it focuses on growth, may study the sale of some assets in its cellulose and viscose division in the next few years, the chairman said.
“It depends on the price and profitability,” Mezquita said. “We aren’t close to any transaction, as growth will come from energy in the next few years. Sniace will then be more of a renewable-energy company.”