< Previous East Midlands Business Link www.eastmidlandsbusinesslink.co.uk PETROCHEMICAL SPOTLIGHT petrochemicals Decarbonising With a key role in producing most of the everyday items we come into contact with, the petrochemicals sector also has a large environmental footprint. Now under intense scrutiny, with public, government, investor and customer pressure pushing for change, the industry must focus on decarbonisation. www.eastmidlandsbusinesslink.co.uk East Midlands Business Link PETROCHEMICAL SPOTLIGHT © stock.adobe.com/bannafarsai P etrochemicals are found throughout our everyday lives across a wide range of products, from clothing to packaging, fertilisers, digital devices, solar panels, wind turbine blades and batteries. Demand for petrochemical products is therefore strong and unlikely to abate any time soon. Despite its major contribution to the global and local economy, the petrochemical sector is facing increasing scrutiny due to its significant environmental impact as we enter a world focused on the importance of sustainability, with the production and use of petrochemical products, primarily derived from fossil fuels, leading to resource depletion, air pollution, greenhouse gas emissions, and mountains of plastic waste. There is thus growing pressure to decarbonise the industry, including from the end of the value chain, with companies that use petrochemicals for products like packaging becoming more eco-conscious. With a more intense exploration of decarbonisation called for, there are a number of pathways those in the petrochemical sector can take to reduce its environmental impact. One of these is by replacing fossil fuel feedstocks utilised in petrochemical production with more sustainable bio- based feedstocks. First-generation feedstocks from food crops like sugarcane and corn are commonly used options, but with competing demand from the food industry and other companies, looking to second (energy crops or agricultural residues including animal fats, bio waste, waste vegetable oil) and third-generation feedstocks (algae) is suggested. An example of this in action would see food crops or lignocellulose derived from agricultural residues converted into bioethanol, to be used as an input into the production of bio-polyethylene plastics in a petrochemical facility. Worth bearing in mind however are environmental concerns regarding large-scale use of biomass in petrochemical production, due to emissions caused by planting, fertilising, transporting, and processing, as well as the impacts of land use changes. Green hydrogen can also act as an alternative to fossil fuels as a feedstock in synthetic petrochemical production, generated through renewable-powered electrolysis of water, where renewable electricity is employed to separate hydrogen and oxygen atoms in water in a carbon-free process. Hydrogen is already used as an input to produce methanol and ammonia, however as most of the current hydrogen produced is grey (generating significant carbon emissions), green hydrogen offers a chance for decarbonisation. Synthetic methanol, for instance, could be an appealing low-carbon alternative, produced by combining green hydrogen with carbon dioxide captured from emissions elsewhere. Green hydrogen does however face a cost challenge, though this is expected to decrease this decade. Another pathway is electrification of equipment in petrochemical factories and increasing use of renewable power. One key process receiving particular attention in this regard is steam cracking; where saturated hydrocarbons are broken down into smaller, often unsaturated, hydrocarbons. This could involve replacing natural gas that is typically used for heating in a cracking furnace with renewable electricity, though there are challenges here in 22 Á East Midlands Business Link www.eastmidlandsbusinesslink.co.uk PETROCHEMICAL SPOTLIGHT achieving the high temperature needed in a furnace. New technologies are thus being explored to facilitate electrification, with Coolbrook and Linde Engineering last year signing a strategic partnership to collaborate on the development and deployment of Coolbrook’s RotoDynamic Reactor (RDR) technology to replace burning fossil fuels with clean electricity in ethylene plants. With steam cracking in ethylene plants one of the most energy-intensive and CO2-emitting industrial processes globally, the collaboration aims to reduce global CO2 emissions by approximately 200 million tons annually. In addition the RDR technology, which allows feedstock to enter a high-speed rotor and use generated kinetic energy to heat up a furnace, improves energy efficiency and targets to increase ethylene yield compared to traditional cracker technologies. Implementing carbon capture, utilisation, and storage (CCUS) technologies is a further option gaining pace, to reduce emissions released from petrochemical production. CCUS captures CO2 emissions from industrial processes, uses the captured CO2 in a commercial process to generate value, and stores the remaining emissions to stop their release into the atmosphere. Positively, CCUS can be integrated with the industry’s existing technologies and infrastructure, and would not require substantial overhauls of manufacturing processes, however developing CCUS facilities involves significant capital investment and operational expenses. Alongside technology for capturing carbon dioxide from the air, companies may need to invest in other physical infrastructure, including transport pipelines and geological storage facilities for captured emissions, where capacity for CO2 storage may be limited, with competition for these storage sites from other industries. Improving end-of-life management of petrochemical products is also crucial to mitigating the environmental impacts of the industry. Recycling and reusing plastic products is a vital element of this, developing a circular economy for plastics to keep materials in use for as long as possible rather than disposing of them. This means products must be designed with end of life in mind, in order to be easily disassembled and recycled. With a circular economy for plastics, raw material inputs, waste, and life cycle carbon emissions associated with petrochemicals can be reduced. Chemical recycling is an important area of focus in this for many companies, and contrasts to traditional mechanical recycling that simply remoulds or reshapes the same polymers into new uses by instead breaking down plastic waste to its building blocks to be reconstituted back to its original raw materials to be reconverted into a petrochemical feedstock. Technical and logistical challenges arise here though, for gaining access to waste plastics, with boosting collection, sorting, and public buy-in essential to enhancing recycling rates. There are endless opportunities to www.eastmidlandsbusinesslink.co.uk East Midlands Business Link PETROCHEMICAL SPOTLIGHT improve the environmental impact of petrochemicals, but it is in integrating multiple of these pathways that the best results will be found. This could involve switching to biomass feedstocks while utilising complementary CCUS technologies to capture and sequester carbon dioxide released during the combustion of these, also known as bioenergy with carbon capture and storage (BECCS). While major investment will be critical to scale-up, with demand for decarbonisation growing from the public, governments, investors and end users, and carbon neutral and net zero goals ramping up, it may be essential to the future of the industry and business competitiveness. Indeed petrochemicals could be made with almost no carbon emissions, according to a report from research firm BloombergNEF (BNEF), if the industry invests an extra $759bn by 2050, with electrification and carbon capture and storage highlighted as playing a central role in reducing emissions. “Large-scale capex spending must start before the end of the decade if the petrochemical industry has any hope of reaching net-zero,” said Ilhan Savut, sustainable materials analyst at BNEF and lead author of the report. “Deploying these technologies will be expensive in the short term, but it could set the sector on a lower-cost decarbonization path. Given their long asset lifetimes, chemicals players must move quickly and fund net-zero projects as soon as possible, or risk getting locked out of key technologies. Investments today will be key to managing longer-term costs and pay dividends post-2035.” © stock.adobe.com/littlewolf1989 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FINANCE D espite a thriving digital sector, funding any venture remains a challenge, especially for entrepreneurs seeking to stake their claim in amongst so much variety and a sheer glut of established and new businesses. It may seem that everyone else can fund a start-up these days, as the crowdfunding market continues to flourish as an alternative for bypassing traditional lenders. The sheer unpredictability of this approach of pitching directly to end users, however, means that it’s not a reliable means of generating cash. The allure is understandable, with the number of high- profile success stories behind its perpetual rise in status. But the fact these instances become such keenly shared stories is evidence of their scarcity. For every success, there are dozens of failures, and turning to crowdfunding channels isn’t suited to every sector either. When ideas and innovation alone aren’t crowdfund-friendly or reliable sources for investment, one prevalent strategy for accessing capital is through management buyouts (MBOs), a transaction where a company’s management purchases the assets and operations from the business owners. From a manager’s point of view, an MBO is an attractive option, because it allows them to enjoy the greater control of owning the business rather than serving as an employee. It’s equally advantageous from the seller’s perspective, as this kind of transaction allows corporations to shed divisions that are not part of their core business. For privately-owned businesses, an MBO offers a way out for owners wishing to retire or to take a less hands-on position in the company. A typical MBO will see a management team pooling resources to acquire all or part of the business they manage. Of course, this can’t be accomplished without capital. But solutions such as private equity or calling on angel investors can be used to finance MBOs, or to provide equity capital to support growth plans. As well as wealth, angels can also provide their experience, Diversifying financial avenues Diversifying financial avenues 26 Á In a world seemingly dominated by crowdfunding success stories, the reality for entrepreneurs is more nuanced. We explore a spectrum of funding alternatives, from management buyouts and private equity to venture capital and government grants. www.eastmidlandsbusinesslink.co.uk East Midlands Business Link FINANCE © stock.adobe.com/ipopba East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FINANCE knowledge, and contacts. Angels are one of the most significant investors in start- ups and early-stage businesses, but that shouldn’t deter more established firms. However, it’s important to bear in mind that securing an angel can be a difficult and protracted experience. They’re harder to research and contact – certainly compared to private equity firms – and so they can seem less transparent. Private equity instead employs a variety of investment strategies, including leveraged buyouts (LBOs), venture capital investments, growth capital, distressed debt investments, and mezzanine financing. Each strategy has its own risk and return potential. In an LBO, for example, a private equity firm acquires a company using a significant amount of debt, which is often secured by the company’s assets or cash flows. It’ll then provide strategic guidance, operational expertise, and access to their network of industry contacts in a bid to improve the company’s operations, increase its profitability, and eventually sell it for a higher price, generating a return for the firm and its investors. A management buy-in (MBI), as opposed to an MBO, requires an external management team securing a company and replacing the existing management team. This can come with several disadvantages when compared to an MBO. In the latter, a pre-established management team takes over the business, meaning they have a much better understanding of that business so there is no learning curve involved, they www.eastmidlandsbusinesslink.co.uk East Midlands Business Link FINANCE also already have relationships with that company’s other employees and its customers. An outside management term will need to become acquainted with a company’s operations, as well as build up relationships with clients and staff, all of which takes time. Invoice finance is often the simplest way for businesses to unlock cash tied up in their outstanding invoices. Selling to a third party secures access to funds within a short period, covering some risks associated with late or missing payments up-front in exchange for a cut of the invoice, and providing a lifeline for maintaining healthy cash flow. However, businesses must consider the various types of invoice finance available and choose providers carefully to avoid potential drawbacks such as customer alienation. Asset-based finance is a specialised method of providing companies with working capital and term loans, using accounts receivable, inventory, machinery, equipment, and real estate as capital. This kind of financing is often used to pay for expenses when there are gaps in a company’s cash flows. But it’s also frequently used for start-up company financing, refinancing existing loans, financing growth, mergers and acquisitions, as well as MBOs and MBIs. This financing option won’t be right for every business’s needs, but can be invaluable for bridging cash flow gaps, financing growth, and facilitating mergers and acquisitions, especially for companies that have exhausted traditional lending options. Venture capital investments can be revolutionary to early-stage or high- growth companies, providing critical early funding in exchange for equity stakes. These investments are typically made in startups with the potential for rapid growth and significant returns, and therefore come with high demand for specific criteria and expectations, potentially triggering a major stress load. Peer-to-peer lending platforms take some of the pressure off by connecting borrowers directly with individual investors willing to lend money, though interest rates can still be high depending on when the loan is repaid. Government grants and subsidies provide further financial support to businesses accessing capital without the need for traditional banks or financial institution. These grants can help offset costs associated with innovation and expansion, reducing these areas’ financial burden. They often come particularly invested in initiatives engaged either in research and development, or operating in specific industries targeted for growth, providing a welcoming foot in the door for businesses offering these particular boons. Raising capital is all part of the game in business – knowing the rules and tools at your disposal is what sets you up to win. Whether embracing the new or taking a more traditional route through banking investment, just about any business is bound to find their best fit for long-term sustainability and success. A few smart service picks will not only give security to fall back on, but provide the foundation to focus on growing your ideas, and opportunities to share your worth with loyal, paying customers. © stock.adobe.com/aLListar/peopleimages.com East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX How do you avoid financial forecasting that ends up with rain instead of sunshine? James Pinchbeck, partner at Streets Chartered Accountants, shares 10 tips for mastering financial forecasting for founders and entrepreneurs. F inancial forecasting can often feel like the weather forecast, financial predictions not always being as rosy as planned, or in many cases, as hoped. A bit like the weather, whilst sunshine is predicted, rain all too often can be the outcome. Whilst many businesses will look to use financial forecasting as part of their day- to-day management, there are also many who only produce financial forecasts based on need, say for external finance or investment. Certainly, those routinely producing forecasts can and do tend to benefit from having validity and accuracy with greater assurance around the numbers and the assumption used to produce them. They are also likely to be subjected to more review, check and challenge helping to improve their rigour over time. The challenge in terms of effective financial forecasting it seems is more so with those looking to produce ad hoc forecasts. Often this can be the early start-up or scale up businesses looking for capital or investment to take it to the next stage. Few founders or entrepreneurs looking for funding are likely to be a qualified accountant or have the prerequisite skills or experience to produce financial forecasts. Therefore, when preparing financial forecasts to seek or obtain financing, 6. Not Adequately Addressing Risk Failing to acknowledge potential risks and uncertainties in your business plan can erode investor or lender confidence. 7. Neglecting Working Capital Needs Overlooking the working capital requirements necessary to support growth can lead to cash flow shortages. 8. Not Demonstrating Financial Expertise Lenders and investors want to see that you understand your financials. Failing to demonstrate financial literacy can undermine confidence. 9. Overlooking Debt Serviceability When taking on debt, entrepreneurs may not account for the interest and principal payments in their forecasts. 10. Ignoring Feedback Entrepreneurs sometimes resist feedback from financial professionals, investors, or lenders, leading to missed opportunities for improvement. By avoiding these common mistakes and presenting well-researched, realistic financial forecasts, entrepreneurs can enhance their credibility and increase their chances of successfully obtaining financing. As you might expect, the support of an accountant is often a real asset, not least that it provides increased assurance to potential lenders or investors. entrepreneurs and business owners often make several common mistakes. These can undermine their credibility with lenders or investors and reduce the chances of securing the needed funds. Here are some of the most common mistakes to avoid: 1. Overly Optimistic Revenue Projections One of the most common mistakes is projecting unrealistically high sales or revenue figures. Entrepreneurs may be overly optimistic about their growth potential, leading to inflated forecasts. 2. Underestimating Expenses Underestimating operational costs, including operating expenses, cost of goods sold, and unexpected expenses can result in cash flow problems. 3. Ignoring Seasonality and Cyclicality Failing to account for seasonality or cyclicality in your business can lead to inaccuracies in your forecasts. 4. Lack of Detail Some entrepreneurs provide vague or incomplete financial forecasts, omitting crucial details that would help lenders or investors understand their assumptions. 5. Inconsistent Projections Inconsistencies between different parts of your financial forecast, such as a mismatch between revenue growth and expense growth, can raise doubts about the accuracy of your projections. Next >