Chief Financial Officer Patrick Jany on the company’s results of the past financial year and its way forward.

Mr. Jany, in 2019, Clariant performed well despite a relatively difficult economic environment. To what do you attribute this?

That’s correct. With 3% growth in local currency and an EBITDA margin of 15.7% we showed good progress compared to the previous year and in relation to our peers. We have been able to demonstrate the resilience of our innovative and growth-oriented portfolio. Even more impressive is that we managed this despite headwinds from trade conflicts, the general politically tense situation in many regions, and some difficulties in our businesses.

The net result was negatively impacted by a provision for a competition law investigation by the EU Commission. How did this come about?

The investigation itself started in July 2017. In early July last year, we received additional information that allowed us to quantify the risk for the first time. That’s all we can say about the investigation at this moment. The next logical step is that the EU will finalize its investigation and communicate to the involved companies. We cannot guide on a precise moment, but it probably will be this year.

You mention some difficulties. What happened and how satisfied are you with the performance of the businesses?

In general, the performance of the businesses was good. Catalysis and Natural Resources in particular grew continuously throughout the year, with an excellent fourth quarter. In Oil and Mining Services, we were able to continuously catch up after a more difficult phase a couple of years ago. We shrank our less profitable land-based business, where the market is very competitive, and moved into more promising areas, for instance, Offshore. Functional Minerals, while delivering good results in the oil purification business, suffered like Additives from a weakness in the automotive and electric/electronics sectors. Our biggest business, Care Chemicals, had a minor decrease in 2020 as Personal Care and Crop Solutions, which reported good progress, could not absorb the lower demand in the aviation business and the effects of a force majeure in the second quarter, which did have repercussions into the third quarter. This was a very unfortunate event that deteriorated our numbers, but we were able to rebound in the fourth quarter.

And how did the two businesses held for sale perform in the previous year?

In 2019, Pigments and Masterbatches were negatively impacted by the global economic slowdown and a weakness in the automotive sector, especially in China and Europe. But in general, both businesses are doing well. They have established very good market positions and are leading in their respective areas, which allowed them to weather the storm.

The decision to consider divesting both of them dates back as early as to 2015, when we separated Plastics & Coatings from the growth businesses. The purpose was to explicitly focus those businesses on efficiency, harvesting their excellent market positions to reallocate resources into our growth businesses, where we believe that innovation and sustainability will allow us to grow at rates above the market average. Today, we are executing on this plan by focusing on Care Chemicals, Catalysis, and Natural Resources and freeing up resources to be able to grow and concentrate our efforts to succeed in those areas rather than maintaining too broad a portfolio.

Following the divestment of Healthcare Packaging and the signing of an agreement with PolyOne, Clariant intends to propose a special dividend of CHF 3.00 per share to the shareholders at the 2020 Annual General Meeting. Why now? Why not wait until the Pigments business is also successfully sold?

The one-time dividend we are proposing to the Annual General Meeting is actually the one and only capital return to shareholders linked to the whole divestment program of all three businesses: Healthcare Packaging, Masterbatches, and Pigments. We will simply use the proceeds of the divestment of Masterbatches to pay out this extraordinary return while the proceeds of the other divestments will be used to reduce our debt level and allow for organic and external growth. As we are confident that the divestment of Pigments will be done as successfully as Healthcare Packaging and Masterbatches, we can time the payment with the Masterbatches sale and therefore avoid having too much cash on the balance sheet, which is never a good thing with negative interest rates!

Clariant announced job cuts at its full-year press conference, and this was welcomed by the financial markets. Why is this reduction necessary?

We are talking about two different sets of measures. The one we announced at our full-year press conference is a set of very granular measures defined by the businesses to be able to increase profitability in this difficult environment. In 2018, when we defined our 2021 strategy, the economic environment and growth expectations were very different. It is only logical that we need to adapt our cost structure and rethink our resource allocation in order to cope with the lack of growth and still be able to progress towards our targets.

And what is the second program about?

It’s about Clariant 2021, the new Clariant. Through the divestments of Pigments and Masterbatches, we are repositioning the company as a focused specialty chemicals company. But we are also shrinking and need to rethink the way we are structured, both at a corporate and at a regional level. This is not a simple cost-cutting exercise but an opportunity to reinvent ourselves: to remove complexity, avoid remnant costs, and increase efficiency. As a next step, we will determine what this will look like in concrete terms.

Since 2018, Clariant has had a new anchor shareholder on board. How would you describe the relationship to SABIC?

It’s a very steady and stable relationship. SABIC has owned 24.99% of the company since January 2018 and nominates four board members to be elected to our Board of Directors by all shareholders. On the business side, we continue to have good cooperation as well, with joint research and development efforts. SABIC is one of the world’s leading petrochemical companies, and we are a leader in catalysts, which means that they are one of our largest customers in this area.

With regard to the strategy, was the suspension of the planned joint venture with SABIC not a deviation from your strategic path?

No, definitely not. Our path is to focus and grow the company to be a pure specialty chemicals player in the industry, thereby creating value for all our stakeholders. After exploring the option to grow in the area of High-Performance Materials, we decided to suspend our plans in the best interest of all our shareholders. Additional information showed that the business performance was more volatile than we thought and that there would be less synergies than expected. Taking this into account, we were unable to agree on a reasonable price in a difficult market environment.

From the outside, the strategy implementation is sometimes perceived as a zigzag course...

I believe that focusing on your strength to create value is the right strategy. We need to have the right balance between the focus on performance and allowing the businesses to develop by dedicating resources for the long term. Take, for example, Care Chemicals. We spent a lot of resources since 2008, but we achieved a very nice position now. Personal Care and Crop Solutions are very rewarding to us. We have been outpacing our competitors regularly for the last four to five years.

What is crucial for success here?

Ultimately, it is about combining innovation and proximity to our customers, by bringing our R&D and technology to them. Our new Consumer Care Innovation Center in New Jersey, USA, and our Hair Care Competence Center in São Paulo, Brazil, are good examples. We are also building an innovation center in Shanghai to develop more locally tailor-made products with benefits for Chinese customers.

What concrete goals has Clariant set for itself next?

Through the successful divestments, the resilience of the portfolio, and some important additional efficiency measures, we are becoming one of the best-positioned specialty chemical companies in the world. Together with a deleveraged balance sheet, we are in the best position to grow the company as a next step.

Finally, a personal question. You recently announced that you would be leaving Clariant to take up a new professional challenge. Is now the right time, while the company is in a transformation process?

When is the right moment? I look back on 14 years as CFO – and 29 years in the company – with a great sense of pride and serenity. Clariant has established itself as a core player in the industry and is now on a very interesting course of specializing in businesses where it is strong and where it can grow by innovation and sustainability. We have great momentum, and the people are very motivated. It has been exciting to work in and shape this environment, and I have met tremendous people along the way. After all those years, I made the decision to accept a new challenge but will continue to look at the future success of Clariant.

SWITZERLAND