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CORRECTED-UPDATE 2-Solvay cuts profit outlook after guar gum bubble pops
July 31, 2013 / 6:08 AM / 4 years ago

CORRECTED-UPDATE 2-Solvay cuts profit outlook after guar gum bubble pops

(Removes reference to CFO being a native of Brazil)

* Previous guidance for core profit to grow

* CFO Bernard de Laguiche to step down

* Solvay shares fall as much as 3 percent

By Ben Deighton

BRUSSELS, July 31 (Reuters) - Brussels-based chemicals firm Solvay cut its profit forecast for 2013 on Wednesday to reflect a drop in demand from oil and gas companies for guar gum, which is used in shale gas extraction, the process known as fracking.

Solvay said it expected its core profit to be broadly the same as the amount it made in 2012, whereas it had said in May it hoped to improve on last year’s performance.

Overall, the guar gum problems had an about 60 million euros ($79.51 million) impact on the results of Solvay’s Consumer Chemicals business, one of its key growth divisions.

“This is the consequence of the guar bubble, where pricing went to extremely high levels a year ago, they are now back to normal,” Chief Executive Jean-Pierre Clamadieu told reporters on a conference call.

“On top of that we have the phenomena of destocking, which is now finished.”

Guar gum prices rose last year due to increasing demand from oil and gas companies as well as lower production in India. But then they fell in 2013 as the high cost of gum led companies to seek out cheaper alternatives.

Guar gum is used as a gelling agent to help keep cracks in the earth open while high pressure water is pumped in to release gas from shale. The gum, made from guar beans, is also used as a thickener in various foods including ice cream, cheese and sauces and salad dressings.

The cut in outlook pushed Solvay’s shares down as much as 3 percent in Brussels.

“I think it is likely that the shares are down because they’ve lowered their guidance,” said Mutlu Gundogan, an analyst at ABN Amro in Amsterdam.

Overall, Solvay’s second-quarter core profit fell 14 percent to 487 million euros, not quite as much as a 17 percent decline to 471 million euros expected on average by seven banks and brokerages polled by Reuters.

The company separately announced that Chief Financial Officer Bernard de Laguiche would step down after 26 years at the company to pursue personal interests in Brazil.

Former Imperial Tobacco finance director Karim Hajjar will take over on October 1. ($1 = 0.7547 euros) (Reporting By Ben Deighton. Editing by Jane Merriman)

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