As one of the world’s leading specialty chemical companies, Clariant creates value with innovative and sustainable solutions for customers in many industries. In times of extraordinary change, Clariant’s strategic focus on developing differentiated, customer-specific products with the potential for attractive growth and above-average value has supported its continued success.

1. Holding to the course with its five-pillar strategy in a year of disruptive change

Managing the COVID-19 pandemic has been a key challenge for Clariant. This crisis came on top of significant global economic issues, including US-China trade disputes and Russia-Saudi Arabian oil price conflicts. The development of regulatory initiatives, particularly in Europe, was also highly relevant, although developing more slowly. Read more in Trends

This disruptive environment slightly delayed but did not prevent Clariant from making good progress on its key goal of increased focus on specialty chemicals. Clariant successfully completed the sale of its Masterbatches business in 2020 and launched the divestment process of Business Unit Pigments. With these moves, Clariant’s portfolio shifts to higher-value specialty chemicals, representing a significant step in fulfilling the strategic pillar Reposition the Portfolio, a central element of Clariant’s long-established five-pillar strategy. SEE FIGURE 001

2. Becoming nimble while enhancing innovation and sustainability

Clariant is adapting and refocusing its organization post divestments to allow its high-value specialty businesses to operate in an even more focused and agile manner. At the same time, it will maintain a competitive cost structure by rightsizing Service Units and regional organizations. These changes will help the company deliver above-market growth, higher profitability, and stronger cash generation, in line with its strategic pillars Intensify Growth and Increase Profitability. This reorganization will entail a reduction of approximately 1 000 positions over a period of three years, including departures due to natural fluctuation, and help to avoid remnant cost. About one-third of these reductions are due to divestment transfers.

Clariant’s new organization will increase the company’s focus on innovation, sustainability, and operational excellence. While parts of some Service Units will be discontinued, others will be transferred to newly created units, including two transformational Service Units: Group Innovation & Sustainability (GIS) and Group Operational Excellence (GOE). Read more in Overview on Corporate Governance

3. Innovation and sustainability to be driven together

GIS will comprise Sustainability Transformation, Global Product Stewardship, Emerging Technologies, Biotechnology, and Global IP Management, and will be complemented by a new lean Program Management Office & Innovation Center Management function. This combination will allow GIS to drive Clariant’s transformation roadmap in terms of both innovation and sustainability, enhancing synergies between the first two pillars of corporate strategy. That Clariant can build on a strong foundation in this regard is illustrated by the company being listed in the 2020 Dow Jones Sustainability Index (DJSI) for the eighth consecutive year, thanks to its outstanding innovation score and strong performance across the board.

001 THE FIVE-PILLAR STRATEGY

4. Excellence programs evolve

Clariant’s focus on functional excellence and continuous improvement will persist. The Clariant Excellence program that has delivered significant benefits over the last several years will no longer exist in its current composition. SEE FIGURE 002 In the new organization Operational Excellence will move to the new GOE unit and further evolve from a Lean Six Sigma to a data-science-driven approach. Commercial Excellence will be integrated with Corporate Planning & Strategy.

002 NET BENEFIT BY CLARIANT EXCELLENCE in CHF m

5. Regional structure becomes less complex

Regional and country services will be regrouped into four (rather than seven) regions: APAC (Asia-Pacific), EMEA (Europe, Middle East, and Africa), LATAM (Latin America), and NORAM (North America). This new structure will make the company less complex, more efficient, and more focused.

Q&A

Can you explain the rational behind the rightsizing of the company that was announced in 2020?

The objective was to design a »fit for purpose« organization. Clariant becomes a smaller company, resulting in reduced demand for internal services. This means we had to adjust the service levels performed by our Regional and Country Services. Otherwise, remnant cost of up to CHF 80 million would occur if no cost reduction happened after completing the divestments. As a consequence, we regrouped our seven regional and country service organizations into four under the leadership of Group Finance or Group Human Resources Services. This new structure makes us less complex, more efficient, and more focused. Our Region APAC will be led out of Greater China with Greater China keeping a prominent role in our Innovation and Business Development activities.

What are the advantages of this setup?

The new organizational setup will increase our focus on innovation, sustainability, and operational excellence via our newly created Service Units »Group Innovation and Sustainability« and »Group Operational Excellence«. By forming agile Service Units and regional and country services, we are responding to the changing needs of our core business and to the requipment to significantly adjust our cost structures after the divestment of the Business Units Masterbatches and Pigments. We will maintain all the capacities required for smooth business operations and market development, but consistently avoid inefficiencies and redundancies within the functions.

What is the impact of the rightsizing measures on Clariant’s workforce?

The divestment of Business Unit Masterbatches and Business Unit Pigments along with the rightsizing of the organization leads to a reduction or transfer of approximately 1 000 positions over a period of three years until the end of 2022. It is important to explain here that about one-third of these positions have left or will leave the company with the divestment of the two Business Units. To reduce our workforce beyond the divestments was of course a difficult decision, as we will lose valued team members. But rest assured that we are handling the reduction of positions, as always, in a socially responsible manner.

6. Execution of the five pillars creates, deploys, and impacts different capital types

Clariant’s execution on each of its strategic pillars utilizes and impacts all types of capital relevant for the company. Read more in Business Model and Multicapital Review

The different pillars are particularly closely linked to certain kinds of capital, especially with respect to outcomes achieved:

• Focus on Innovation and R&D creates intellectual capital.
• Add Value with Sustainability impacts natural capital while enhancing social impact.
• Reposition the Portfolio creates manufactured capital – that is, the products and solutions Clariant provides to its customers.
• Intensify Growth and Increase Profitability deploys and creates financial capital.
• Executing on all five pillars creates relationship capital, particularly with customers and suppliers.
• People Excellence – the foundational layer of Clariant’s five-pillar strategy creates and deploys human capital.

7. Guiding objectives for value creation for all stakeholders

Clariant’s objectives underpin its vision and mission and continue to guide corporate management in executing the corporate strategy in a fast-changing environment. These objectives, which are key to value creation for all stakeholders, also outline the company’s aspiration to:

• be known as a powerhouse for R&D and innovation;
• increase value by applying a forward-looking sustainability lens to operations and market offerings;
• serve markets with future perspectives and strong growth rates;
• focus on businesses with good competitive positions;
• be a publicly listed company with a broad shareholder base and reliable long-term anchor shareholders;
• cultivate a strong reputation for above-industry-average sales growth, profitability (EBITDA margin), and Return on invested capital (ROIC); and
• be a preferred employer.

8. Flexibility in financial targets to respond to current high market volatility

In the current highly volatile environment, year-on-year growth targets are difficult to specify in a meaningful way, as the external market is not expected to fully recover until the end of 2021 or even 2022. Instead, Clariant is working on a five-year rolling financial plan. This includes maintaining stringent cost and cash management measures in addition to resuming Clariant’s efficiency program to reduce cost base in excess of CHF 50 million in continuing operations. This has supported resilience in 2020 and underpins Clariant’s progress toward its mid-term targets.

9. The must-win battles of the Strategic Management Process

Clariant’s Strategic Management Process (SMP) is conducted by the Business Units in collaboration with Corporate Planning & Strategy. The SMP ensures that Group-level as well as Business Unit-level strategy development is an iterative process that addresses the relevant megatrends observed by Clariant: Digitalization, Future of Oil, Future of Plastics, Future of Transportation, and Circular Economy. This strategic management process includes identifying must-win battles and their alignment with strategic investment activities.

Typically, the full strategic management process is conducted every three years, and must-win battles are reviewed as the battles are won, or new critical battles are identified. Despite the current COVID situation, Clariant has held to this timeline and has adapted the execution on the must-win battles to the volatile environment and the related need for efficiency and cost management. SEE FIGURE 003

003 EXAMPLES OF MUST-WIN BATTLES OF ONE OR SEVERAL BUSINESS UNITS