HALCYON AGRI: Seeks Rubber Reboot as Prices Seesaw

Halycon Agri has 33 facilities in Malaysia, Thailand, Indonesia, China, and Africa for processing rubber. (Photo: Company)

Rubber - the stretchy, durable material made from milky-white latex and found in everything from condoms to car tyres - holds a particular magic for Robert Meyer.

The Chief Executive Officer of SGX-listed Halcyon Agri Corporation Ltd grew up with rubber factories as his playground.

"My father was a rubber trader, and introduced me to the business when I was very young. For most of my childhood, rubber was always at the dinner table," recalled German-born Meyer, whose family moved to Singapore just before he turned one.

"I remember sitting in the back of Dad's car every second Saturday of the month, driving up and down the highways in Malaysia to visit rubber factories."

After graduating with a Bachelor of Arts degree from the European Business School in Oestrich-Winkel, Germany in 1999, Meyer returned to Singapore, and five years later, started Halcyon Group - a holding company with investments in several businesses.

"By 2010, I was looking to get involved in rubber, as I've always been attracted to the industry," he said.

That year, Meyer acquired Hevea Global, which eventually became the Group's tyre major merchandising arm.

This was followed by the purchase of rubber factories in Indonesia between late 2010 and early 2011, all of which culminated in the founding of Halcyon Agri Corporation.

In 2013, Halcyon listed on SGX's Catalist board and continued its aggressive acquisition spree. Assets purchased over the next two years included 12 rubber factories in Malaysia and Indonesia, plantations in Malaysia, as well as two distribution businesses. The Group was upgraded to the Mainboard in 2015.

Last year, Meyer stitched together his most complex deal yet - a three-way merger of Halcyon, all the natural rubber assets of Chinese state-owned chemicals company Sinochem International Corp, and Singapore-listed peer GMG Global - to create the world's largest natural rubber supply chain manager.

Now, Halcyon - 55%-owned by Sinochem International - has 33 natural rubber processing factories spanning Thailand, Indonesia, Malaysia, China and Africa, with an annual distribution capacity of about 2 million metric tonnes. It also owns 122,000 hectares of plantations in West Africa and Malaysia.

The Group has a market capitalisation of over S$920 million. Its shares have registered a price decline of 4.9% in the 2017 year-to-date, compared with a gain of 16.1% and 16.0% respectively for the benchmark Straits Times Index (STI) and FTSE ST All-Share Index.

Our aim is to integrate these assets in a sustainable manner, while at the same time, keeping a close eye on balance sheet strength and P&L results, so as not to give investors the impression that we're biting off more than we can chew.

- Robert Meyer
CEO

Halcyon Agri Corporation

(Photo: Company)

In 2017, Halcyon aims to contribute 10% to 11% of global supply, with this figure rising to 15% next year. "Our ambition is to account for 20% of world supply by the early 2020s," he added.

And Meyer sees no reason why this target cannot be achieved. "If our ambition was purely to develop scale, we could get there tomorrow. But our aim is to integrate these assets in a sustainable manner, while at the same time, keeping a close eye on balance sheet strength and P&L results, so as not to give investors the impression that we're biting off more than we can chew."

Halcyon has reorganised its businesses into a customer-centric structure comprising three market segments - global tyre makers, global non-tyre makers, and China. This in turn is sub-divided into three key divisions - upstream, midstream and downstream.

"China is the Wild West of the rubber market - it's grown so quickly in a relatively short span of time, and accounts for more than a third of global demand," he noted.

The Group is focused on the differentiated allocation of capital across the entire supply chain and end-markets for rubber. Within this nine-segment matrix, the emphasis remains on driving returns on capital and investment.

And it is this diversification that sets Halcyon apart. "There's no other rubber company as globally diversified as we are, or with a business model that's as customer-centric as ours."

Another advantage of having an expanded footprint is the ability to monitor the cost of production globally.

"With our factory footprint, we're able to see the cost of raw materials across geographies, and this price discovery process allows us to allocate new investments into areas where we're most cost-competitive," he said.

In particular, the higher cost of production in Thailand - relative to Indonesia and Africa - could spark a re-routing of upstream investments. "You could see a shift possibly away from Thailand, certainly into Indonesia, and 100% into Africa," he added.

"The future of upstream field development - which refers to additional capacity that needs to be built in order for supply to keep up with demand - will be in Africa."

With our factory footprint, we're able to see the cost of raw materials across geographies, and this price discovery process allows us to allocate new investments into areas where we're most cost-competitive.

- Robert Meyer
CEO

Halcyon Agri Corporation

"How many start-ups do you know have accomplished as much as we have? We were able to acquire businesses so much larger than ourselves, we've done almost every corporate transaction possible, and sailed as close to the wind as we wanted," he said.

"There's a manifest destiny in this business, and a certain wind beneath our wings."

The Group's 15,000 employees, its strong management bench, and superior assets also give him much comfort. "If there are challenges out there, and there will be, we're going to figure it out together."

An irrepressible optimist, Meyer believes today will be better than yesterday, and tomorrow will be an improvement over today. "That's why I have no trouble waking up in the morning," he quipped.

And in line with a love for rubber, Meyer is fascinated with cars. "I am a chip off the old block - my father infected me with an enthusiasm for automobiles, which cost way too much time and money," he admitted with a wry grimace.

I like people to challenge the status quo, to question why, what and how we are doing what we are doing. - Robert Meyer CEO Halcyon Agri Corporation

"I love driving, and I love cars - whether fast or slow, new or old - and it is this lifelong passion that has helped me understand and identify with rubber as a product," said Meyer, who drives a Porsche 911, and recently purchased a 1979 Volkswagen Beetle convertible.

"It's an affliction! I'm sad to say that the last thing I usually do before going to bed every night is surf car websites," he added, tongue firmly in cheek.

The father of a daughter, nine, and a son, 11, is a huge believer in the values of trust, loyalty, and integrity. "All of that, for me, is a no U-turn street."

He also prefers the company of the curious and inquisitive. "I like people to challenge the status quo, to question why, what and how we are doing what we are doing - I guess that's the rebellious streak in me," he grinned.

Similarly, he wants each of his children to chart their own course in life - according to their personalities and talents - and be true to themselves.

"I don't necessarily expect my kids to go into this industry, but I do think they might gain some insight from the history and values of this business, which could make them want to reach a little higher, and a little further, for the stars than they would otherwise."

• Following the completion of its recent merger, Halcyon Agri has implemented new management, marketing and reporting platforms, both geographically and strategically, to manage the significant increase in the scale, scope and market share levels of the enlarged group. The Group continues to realise the positive impact of cost and revenue synergies, which together with improvement in operating leverage, has benefited the Group's performance, as seen in its 1H 2017 financials.
• As part of Halcyon Agri's ongoing strategic review, and capital and asset optimisation, the Group announced on 2 October 2017 that it had entered into an agreement with Fimave SA/NV to sell its stake in SIAT SA, owned by GMG Global Ltd. The disposal of 9,348 ordinary shares, which represents 35% of the issued and paid-up capital in SIAT SA, was executed on Sept 29, 2017. The proposed disposal of shares will be made at an aggregate consideration of 192.56 million euros (S$308.23 million). The aggregate call option price of 5.5 million euros will be paid first, with the balance of 187.06 million euros paid upon completion of the deal.
• The natural rubber market continues to be affected by significant price volatility. While market prices are presumed to maintain levels which support the sustainable development of the industry, continued price volatility is also expected over the remainder of 2017. The Group continues to tighten operational cost controls and to optimise its capital and asset base in anticipation of a tightening in supply of natural rubber, as well as ongoing market volatility. Halcyon Agri is convinced that the natural rubber products it produces and distributes remain irreplaceable to global mobility, and health and safety needs.