Improving Performance by Focusing on Sustainability and Innovation
Mr. Kottmann, how did Clariant perform this past financial year? Are you satisfied?
The fact that we improved profitability and increased sales by 3% in a difficult economic environment clearly demonstrates our company’s ability to perform. We are in a very good position relative to our competition. In my opinion, this is proof that we are on the right track with our long-term strategy. At the same time, we have made significant progress in transforming Clariant in order to continue to increase sales, achieve higher profitability, and a stronger cash flow.
But were there other surprising developments at Clariant in the past financial year?
Absolutely. In the middle of the year, we had to announce Ernesto Occhiello’s departure as CEO and a provision for a possible antitrust fine from the EU Competition Commission. Added to this were the expanded sales plans for the entire Masterbatches business, the separation of continuing and discontinued operations, as well as the suspension of negotiations with SABIC regarding a merger of the businesses.
The failure of the joint venture with SABIC was a surprise to many. How did it happen and how is Clariant doing now?
After the announcement of the planned joint venture with SABIC in 2018, we conducted extensive discussions and carefully reviewed the project once again based on current information. Unfortunately, we were unable to reach an agreement on the value based on this. This was not least due to the fact that, from our point of view, there were far fewer synergies than were originally identified. Pushing the matter through at all costs with the motto »Close your eyes and press forward« would definitely have been the wrong way to go. We have therefore ended these discussions for the benefit of all shareholders. It was simply a business decision.
In response to the second part of your question: We continue to focus even more on the higher-margin specialty chemicals business. We already have this type of portfolio with Care Chemicals, Catalysis, and Natural Resources. And we are separating ourselves from businesses with more standardized products, such as Masterbatches and Pigments. We already announced this intention in 2015/2016. At the same time, we will adjust our cost structures to the new company size. We are working to change the organization accordingly. So we will first get smaller, but much more profitable by doing so. This focus leads to additional value creation for Clariant, its employees, customers, and shareholders.
How is Clariant progressing with the announced divestments? Other competitors also want to sell their businesses.
With the sale of Healthcare Packaging to Arsenal Capital Partners, which was completed in October, we made a successful start to the planned divestments. Shortly before the end of the year, we signed an agreement with the American company PolyOne, who would like to take over our Masterbatches business. We were able to achieve very good sales prices for both transactions, so we expect an inflow of around CHF 1.8 billion. This is in addition to the proceeds for the Pigments business, for which we are currently looking for a buyer. I am very confident that we will be successful with this in 2020.
What will be done with the proceeds from the sales?
We want to continue to invest in the innovative strength of our remaining core Business Areas and continue to deleverage, that is, strengthen our balance sheet. We also want to pass on a large part of the proceeds to our shareholders as an extraordinary distribution of CHF 3.00 per share, provided the Annual General Meeting agrees to this. In addition, we want to share our business success with our shareholders and pay out a distribution of CHF 0.55 per share through capital reduction by way of par value reduction.
What other topics were on the agenda in the past financial year?
The focus of our actions is always on our customers and their needs. And not just in day-to-day business, but also at events and trade shows such as inCosmetics, the European Coatings Show, or the K Show, the leading trade fair for the plastics industry.
The topic of sustainability in particular continues to gain more importance. It was not a matter of chance that »Add value with sustainability« has been an essential element of our strategy since 2014. In the past year, we assessed our business activities against the United Nations’ Sustainable Development Goals (SDGs), which we very much welcome. In doing so, we were able to demonstrate how the implementation of our strategy makes a positive contribution to achieving the SDGs. This includes the provision of innovative and sustainable products or initiatives such as the »Alliance to End Plastic Waste,« of which we are a founding member. We also support the Responsible Care™ Charter, which is important for our industry, and commit to the United Nations Global Compact. In 2019, we also joined the World Business Council for Sustainable Development (WBCSD).
What successes are there to report in terms of sustainability?
One of the many positive results of our commitment is that we have been a member of the Dow Jones Sustainability Index, an equity index for sustainable investment, for the seventh time in a row. We are proud to be among the top 5% in the industry worldwide. We recently received a Bronze Class award in the SAM Sustainability Yearbook 2020 for this.
For me personally, when it comes to sustainability, it is particularly important that we do not take our leading role for granted. We have to strive every day to defend and maintain this position. Being able to offer products that not only perform well, but also stand out in the three sustainability dimensions of social responsibility, environmental protection, and profitability is a competitive edge. And the competition doesn’t sleep.
Another important issue is compliance. What role does that play for a company like Clariant?
The company’s and its employees’ adherence to laws and voluntary obligations, which is what compliance is, is a matter of course. It is based on strict compliance management, meaning a structured framework of internal rules and guidelines, and is the basis for risk minimization as well as the preservation of our reputation. Compliance ultimately ensures our license to operate. Just like with the topic of sustainability, you cannot let go of the reins here. The threat of a cartel fine shows how the misconduct of a single employee can cause significant damage to the company. This only serves to justify the high level of importance that is placed on compliance in the company. We launched an internal campaign in 2019 because we do not tolerate any violation of our compliance rules. We also want to introduce a new, updated Code of Conduct this year. We will therefore continue to deal with the issues of sustainability and compliance intensively in 2020.
How do you assess the general conditions for 2020?
The business and economic environment will remain difficult in 2020. The geopolitical risks in the Middle East, for example, the ongoing trade conflicts, and the UK’s exit from the European Union continue to create uncertain conditions for specialty chemicals companies like Clariant. We also have to expect that the spread of the coronavirus will have a negative impact on global economic growth. Our industry is therefore facing the growing challenges of climate protection and sustainability in a difficult economic environment.
What are the challenges specific to Clariant in 2020?
For Clariant, I see 2020 as a year of transition on the way to significantly improved profitability. Our main tasks are to successfully complete the divestments, to achieve the expected very good results in our core Business Areas, and to consistently implement our efficiency program with regard to the cost structures in order to prepare for the new company size. In addition, the search for a suitable CEO will take priority. We have clear goals for 2020 and 2021. In order to achieve these goals, we will focus on the proven corporate strategy. That means we continue to concentrate on innovation and sustainability, on portfolio management, as well as on growth in existing businesses and on further increasing our profitability.
Clariant celebrates its 25th anniversary with the motto »Change: on.« Why this motto?
Our world is characterized by constant change. Just think of digitalization, the energy sector, or what is happening in the field of mobility. Of course, this also has an impact on companies. For Clariant, change has always been a normal part of our work. Change also means progress. New solutions and new products for our customers’ problems. A company that is not actively and continuously changing and transforming will sooner or later become irrelevant.
I would therefore like to take this opportunity to thank our customers, employees, and shareholders for their commitment and trust, especially against the backdrop of our diverse history of the past 25 years. At Clariant, things will never get boring. Change will always be part of us.
What will Clariant 2021 look like?
Based on the current objectives, in 2021, Clariant will be a company with around CHF 1.5 billion less in sales than in 2019. However, the portfolio will contain a significantly higher proportion of businesses focused on specialty chemicals. This will make this new company stronger in terms of growth and profitability. This is the basis of our considerations and plans today.
However, we should never forget that Clariant – like most other companies – still has all the basic strategic options available, even in the current phase – be it a transformative acquisition or a merger. As I said: the change continues!
Economic indicator representing the operational net inﬂow of cash and cash equivalents during a given period. View entire glossary
These are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic. View entire glossary
Pigments are substances used for coloring; they are used in a technical manner, for example in the manufacture of dyes, varnishes, and plastics. View entire glossary
For the financial reporting, Clariant grouped its businesses in three core Business Areas: Care Chemicals, Catalysis, and Natural Resources. View entire glossary
Compliance is a key element of Corporate Governance. It refers to compliance with the law and directives as well as with voluntary codes within the company. View entire glossary