Issue Date: June 20, 2011
Clariant Tells Its Story
Clariant’s executives are feeling optimistic these days. The company announced that it expects 2011 to be an excellent year, with sales growth approaching 10%, and it has set ambitious profit targets for 2015. Their buoyant spirits came through during a media day they held in London earlier this month.
The Swiss specialty chemical company had not hosted an event like this since 2006, and it was the first for Chief Executive Officer Hariolf Kottmann, who took the helm in 2008. Investment analysts were invited for similar presentations the day before, and the company was surprised and delighted that nearly 100 showed up. Such events demand a good story and an interesting future opportunity to dangle before the audience. Kottmann delivered on both counts.
Restructuring has been the focus for much of his tenure with the company, and he seemed eager to put it behind him. Clariant laid off 20% of its workforce and is closing 20 production sites in an effort to boost financial performance. These intense activities have paid off, reported Chief Financial Officer Patrick Jany: The company met its 2010 target for return on invested capital, achieving 18.1% versus 13.9% for its peer group of specialty chemical companies.
Much of the restructuring is over, but the impact on employees continues to cascade as Clariant completes the remaining site closures over the next 18 months; although all 20 have been identified, only five plants have been shut down thus far. Local journalists were reminded at the London event that when the company shuts its Pontypridd facility in Wales next year, Clariant will no longer manufacture in the U.K.
Clariant executives insisted that the better part of their story is the new chapter on growth. The company completed four acquisitions in the first half of this year. Three deals were small “bolt-on” purchases that boosted existing businesses. The fourth deal is the $2.1 billion purchase of Süd-Chemie, a specialties player based in Munich. Kottmann calls the purchase a “strategic transformation project.”
Kottmann was particularly eager to expound on the opportunities presented by this acquisition, since the financial markets have not responded as he had hoped. The company shocked analysts when it announced the deal at its annual results conference in February (C&EN, Feb. 21, page 10), and it continues to work to get the message out about the value and fit of the firm.
“Clariant did not communicate that they were looking for acquisitions,” Markus Mayer, research analyst at investment group UniCredit, told C&EN, “and 90% of investors criticized management for this poor communication. But after that first shock, investors have realized that this is a good deal.”
The company’s stock price reflected the surprise, dropping 18% soon after the deal was announced and only slowly recovering through the spring to return to the healthy levels seen at the end of 2010.
The Süd-Chemie acquisition adds two new business units to Clariant’s portfolio—one in catalysts and energy and one in functional materials—and boosts company revenues by 14% over 2010 results. Kottmann highlighted that both of these units have higher growth rates and earnings margins than the company’s existing businesses.
The catalysts and energy unit includes catalysts for petrochemical, chemical, and polyolefin production and for refinery, air purification, and fuel-cell operations. Additionally, Süd-Chemie’s emerging business in battery materials is a part of this group. The unit’s sales totaled $730 million in 2010.
The functional materials unit combines Süd-Chemie’s businesses in adsorbents, packaging, and water treatment. Last year’s sales for these businesses were $745 million. A foundry products division is in a separate joint venture with Ashland.
The overlap with the existing 10 businesses at Clariant is minimal, which should ease the integration process, noted Clariant executive committee member Mathias Lütgendorf. The integration of Süd-Chemie started last month, and he expects that it will be complete by year-end.
Integration may well be smooth because the two companies are similar, with mostly German managers who were previously employed with the historic top three companies from Germany: Hoechst, BASF, and Bayer. Clariant seems to have a more casual working environment with informal greetings and fewer titles used than at Süd-Chemie, but such differences are small and should be easily managed. The real challenge will be retaining the technical expertise that has been critical to the strength of Süd-Chemie.
Süd-Chemie will not be subject to the plant restructuring activities done at Clariant, but CFO Jany is counting on cost synergies from the overlap of support services. He estimated savings of $36 million from combining headquarters and eliminating duplicate regional offices, and an additional $70 million to $100 million in annual cost reductions resulting from efficiencies gained by adopting Clariant business practices.
But Kottmann emphasized that the deal is not only about cost savings. “It is a unique opportunity to shift the portfolio” to new technologies, he said, noting particularly lithium batteries, clean air products, and biocatalysis. He was especially excited that Süd-Chemie has expertise in producing renewable raw materials, since Clariant customers have been requesting these products. Süd-Chemie is building a cellulosic ethanol unit using its enzyme-based Sunliquid process. The plant will start up in Germany later this year.
Clariant has set ambitious targets for the next few years, forecasting sales of $11.6 billion and an earnings margin above 17% by 2015, compared with its 2011 estimate of near 14%.
Hans-Joachim Müller, a Süd-Chemie managing board member, was the only representative of the acquired firm at the event, suggesting that he will have an active role at the combined company. As Kottmann discussed future financial targets and growth opportunities, he often looked in the direction of Müller, seated in the front row. Clariant plans to announce its new management structure later this summer.
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