How do you evaluate Clariant’s performance in 2016?
Hariolf Kottmann In 2016, Clariant continued to grow in both sales and profitability. With sales growth in local currencies of 2% and a further expansion of the EBITDA margin before exceptional items to 15.2%, we achieved our goals. This good performance reflects the excellent execution of our strategy in all businesses to foster growth and improve returns. The advancement stems from our focus on innovation by delivering more added value to our customers, as well as volume increases and continued cost discipline. Throughout 2016 we also made great efforts to improve our operating cash flow and were able to increase it by CHF 144 million to CHF 646 million. Thus, not only can we give our shareholders an appropriate share in the company’s success, we are even better equipped to grow both organically and by means of acquisitions.
Part of our global strategy is to seize business opportunities in key markets with excellent prospects through innovations and bolt-on acquisitions. In 2016, for example, the acquisition of Kel-Tech and X-Chem allowed us to strengthen our position in one of the world’s largest specialty chemicals markets and benefit from the strong, innovation-driven growth perspective of the North American oil services industry. We complemented our product portfolio and technologies to add value for our customers in optimizing their oil and gas production operations. In addition, we gained access to major oil basins where we had a lower market presence before. It was just the right moment to invest in a countercyclical manner and take advantage of the current crisis in the industry while future outlooks are promising.
Rudolf Wehrli With its resilient and diverse portfolio, Clariant was able to grow despite the increasingly challenging economic environment. This is not just a simple matter but a result of exceptional collective efforts. Although global macroeconomic developments are challenging, we have been successful in seizing opportunities at the regional level. In Asia/Pacific, for example, we could increase sales by 4% in local currencies which is mainly driven by India, China and Indonesia. We were able to »turn the tide« in China, with sales picking up by 7%. In Latin America we increased our sales by 1% in local currencies and outperformed our competitors. Although we faced lower demand in North America, especially in the Care Chemicals and Natural Resources business, North America remains a strategically important market for us. Last but not least, Europe shows solid positive growth, mainly driven by volume increases.
Over the last few years, your reports have included perspectives from different regional markets. This year’s report includes a spotlight on Europe. Is the European market not losing importance?
Hariolf Kottmann While opportunities for growth clearly lie in Asia and the Americas, Europe as a mature market remains very important to us. For example, when it comes to cosmetics, Europe stands as a global reference point. With the recovery of the European automotive industry, we also see growing demand in casting products from our Functional Minerals unit. With CHF 2 billion in sales, we earn our largest share in this region. 44% of our employees are located in Europe. It is important to us to stay close to our European customers. Europe is a stable region and our business here is considered Clariant’s backbone.
Rudolf Wehrli Europe is a frontrunner, especially when it comes to sustainability and innovation. Here we find highly trained employees, excellent infrastructure, and valuable partnerships. Our current innovation activities in Europe are promising, especially regarding bio-based raw materials. For example, in the personal and home care markets, our European customers choose EcoTain® products more often and we experience higher margins from these sales compared to the global average. In addition to being a fertile ground for new sustainable innovations, Europe is also the most active region in phasing out outdated products from a sustainability standpoint. The increasingly demanding regulatory landscape also represents business opportunities that we are well equipped to seize given our firm commitment to sustainability as a focus topic across the organization. In fact, it is one of the five pillars of our overall corporate strategy, and Clariant was recognized as one of the most sustainable chemical companies by the world-renowned Dow Jones Sustainability Index (DJSI) for the fourth consecutive year in 2016.
Recently, Hariolf Kottman was appointed President of Cefic, the European Chemical Industry Council. What does that mean for Clariant, Mr. Wehrli?
Rudolf Wehrli As the voice of the European chemical industry, Cefic promotes strengthening the region for the chemical business. After all, the companies it represents directly provide 1.2 million jobs in Europe. Of course, a favorable business environment in Europe also benefits Clariant. As a partner to EU policymakers, Cefic contributes to the already progressive and commendable regulatory environment regarding industrial safety and environmental protection. However, Cefic also strongly advocates product stewardship and business sustainability. This focus fits well with Clariant’s corporate strategy. On a final note, we are also proud that our CEO acts as president of Cefic, even though Switzerland, where Clariant is headquartered, is not part of the EU.
Sustainability is one of the five pillars of Clariant’s corporate strategy. How does that pay off?
Hariolf Kottmann Sustainability is not only one of our five strategic pillars, it is also embedded in our brand values of Performance, People, and Planet. The chemical industry is central to solutions for global challenges such as climate change and resource scarcity. By leading this change process we gain competitive advantage. Sustainability is actually a prerequisite to entrepreneurial thinking: By taking an outside-in perspective and appreciating the needs of all our stakeholders, societal and environmental challenges become opportunities for innovative solutions that create added value. With our EcoTain® label and our Portfolio Value Program, for example, we systematically integrate sustainability into our offerings. To date, we offer more than 140 EcoTain® products that often outperform conventional products, not only in terms of profitability but also with respect to performance and sustainability.
This year for the first time, Clariant publishes the Annual Report in the form of an Integrated Report. This highlights how Clariant creates value through a holistic approach that includes all of its brand values – Performance, People, and Planet. Why did you decide to broaden the reporting perspective?
Rudolf Wehrli Corporate reporting is never an end in itself. Instead, it should clearly reflect how a company is managed and how it creates value over time. At Clariant, we create value in more than one dimension. Our new, integrated reporting explicitly highlights how we are working with the financial, intellectual, human, relationship, manufactured and natural dimensions of capital. This integrated approach ultimately supports our long-term success and helps us differentiate ourselves in the marketplace. This gives shareholders and other key stakeholders a more complete picture for making decisions regarding their relationship with Clariant.
Hariolf Kottmann We have a long-term and holistic management approach. While we pay close attention to the financial aspects of business, we also take other aspects of business into account. For the first time, our Integrated Report describes our comprehensive business model that revolves around three key value creation phases: »Idea to Market«, »Market to Customer«, and »Customer to Cash«. Accordingly, we are showing how different resources are incorporated and converted into valuable outcomes for our customers, employees, shareholders, and the environment.
What benefits does this integrated reporting have in your view?
Rudolf Wehrli Quite simply, it increases transparency. Over recent years, demands from the financial community for more transparent information have emerged. As the trend goes into the direction of sustainable investments, showing how we create value in the long run is important. Ultimately, our careful attention to financial as well as non-financial indicators also helps us realize increasing returns in the long run. We are convinced that long-term investors will appreciate our forward-looking approach, as it permits a holistic view on our business.
What can we expect from Clariant in the upcoming year?
Rudolf Wehrli There are various reasons why 2017 will be even more challenging and demanding than 2016. Strategically, to reach our goals we need to grow beyond the market and be present in the markets where growth is taking place. While our mature markets continue to play an important role, we shift our business focus to China and the Americas even further.
Hariolf Kottmann Steering a chemical company to success calls for full dedication to generate cash by managing both costs and growth. In 2017, we will increase our focus on sales and marketing efforts. Our sales teams will be constantly on the lookout for opportunities to make customers aware of innovations that deliver value to them. We will also continue to invest in developing our people, as our sales teams play a key role in fueling sustainable growth.