A Purpose-Led Strategy

Clariant aims to move toward top-quartile results in specialty chemicals in terms of growth, profitability, sustainability, and people. Based on its new purpose, »Greater chemistry – between people and planet,« Clariant unveiled a new purpose-led strategy with four dimensions, accompanied by new financial and non-­financial targets. The strategy reflects Clariant’s ambition to create value with innovative chemistry and a sustainability focus, putting customers, employees, and the planet at the center of all activities.

Strategic dimensions

A strategy to reflect Clariant’s new purpose

The world is changing quickly. In addition to the ongoing chal­lenges of the COVID-19 pandemic and the related economic issues, such as supply chain disruptions, the effects of climate change are becoming more and more tangible. Thus, climate change and carbon footprint are important priorities for Clariant and the entire industry. Clariant’s innovation power, customer proximity, and its uniquely talented and experienced people enable the Group to deliver products with an outstanding technical and sustainability performance. Against this background, Clariant unveiled its new purpose, »Greater chemistry – between people and planet.« This purpose leads Clariant’s new strategy.  Figure 010

010CLARIANT'S NEW PURPOSE-LED STRATEGY

Four strategic dimensions

The new purpose-led strategy replaces Clariant’s five-pillar strat­egy. It establishes four strategic dimensions:

• Customer focus: Customer centricity is an important differentiator to stay ahead of the competition. With a series of divestments since 2019 and the closing of the Pigment business sale on 3 January 2022, Clariant has become more simplified and focused with a true specialty chemical port­folio. This focus allows even more customer centricity in the three business areas. Clariant continues to become more agile, delivering tailor-made solutions to satisfy customers’ evolving expectations mirroring their enthusiasm. To understand customer needs and develop corresponding solutions, Clariant focuses on building strong customer relationships.
• Innovative chemistry: At Clariant, chemistry stands for unique solutions that redefine what conventional wisdom considers to be possible. In line with its focus on ever increasing innovation and specialization, Clariant has an innovation pipeline of high-performance solutions throughout its three business areas. These solutions are strongly linked to customer-­driven sustainability requirements. Continuously investing in Research & Development – even in times of economic uncertainty – is crucial for future success and for business growth above market growth.
• Leading in sustainability: Customers and stakeholders around the globe are demanding sustainable solutions while moving away from products and investments that have a negative sustainability footprint. Legislation around the globe to address sustainability challenges is further driving the transformation of entire value chains. Clariant is in an excellent position to benefit from this ongoing shift. Innovation and sustainability are systematically linked at Clariant. The company continues to promote new solutions that are more sustainable. In addition, sustainability is a key priority for Clariant’s own operations and the entire value chain in terms of raw materials, the use of renewable energy, and climate-neutral production.
• People engagement: AppreciationAppreciationAppreciation is embedded in the company’s culture, defining the expectations for employee behavior and building the company’s reputation and brand. The culture of appreciation commits to corporate values and puts them at the center of everything the company does in each area where it has an influence.View entire glossary for people lies at the core of Clariant’s holistic approach to value creation. A culture of dialogue and mutual respect, dedication to sustainable, innovative technologies, and continuous transparency and integrity are key characteristics of Clariant’s stakeholder engagement. The company values customer relationships and ongoing dialogue with suppliers, shareholders, and public policy platforms. Figure 011 Clariant is particularly committed to engaging with employees on all levels. Through the lens of people centricity and by making the well-being of employees a priority, Clariant fosters a culture where people feel valued. By act­ively promoting diversity, inclusiveness, mutual appreciation, empowerment, and safety at work, Clariant creates an environment where everyone can con­tribute and develop their talents to their fullest potential. The excellent work and commitment of Clariant’s global team is a key competitive factor.

011EXAMPLES OF STAKEHOLDER ENGAGEMENT

Financial and non-financial targets

New medium-term targets to guide Clariant’s value creation

The four dimensions of the new purpose-led strategy are reflected in Clariant’s new medium-term financial and non-financial targets. They reflect Clariant’s ambition to achieve top-quartile results in specialty chemicals in terms of growth, profitability, sustainability, and people.

By 2025, Clariant is targeting to grow its top line with a 4–6 % compound annual growth rate (CAGR) and to increase its EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary margin to 19 – 21 %. In addition, Clariant introduces a cash conversion target for the first time: The company is planning to reach a free cash flow (FCF) conversion ratio of around 40 % by 2025 – a figure that Clariant defines as cash flow from operations minus capex, divided by EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary .

Financial targets by 2025

Clariant has also set itself science-based climate targets: By 2030, the company plans to reduce its Scope 1 and 2 emissions by 40 % and its Scope 3 (cat. 1) emissions by 14 %. Finally, Clariant aims to be in the top quartile in employee engagement in its industry.

Non-financial targets by 2030

Levers for sales growth

Clariant’s plan to reach an annual midpoint sales growth of 5 % on average by 2025 is based on four types of growth levers Figure 012:

• 2.5 % market growth of current market segments with actual geographic footprint;
• 1 % growth above the market from sustainability-driven innovation, especially from products that are bio-based, that enable decarbonization, or that enable circularity;
• 1 % growth from regional expansion through increased local production, with a focus on China; and
• 0.75 % growth from M&A activities, in particular the acqui­sition of Beraca in Brazil and CICS, the joint venture with India Glycols.

012ATTRACTIVE SALES GROWTH TRAJECTORY SUPPORTED BY MULTIPLE LEVERS IN CHF M

Clariant’s high-quality core portfolio operates across diverse, growing end markets. That is why it is more resilient – and less volatile – than Clariant’s pretransformation portfolio. On this basis, Clariant is well set to grow its business in excess of the ex­pected annual market growth of approximately 2.5 % and to increase its operating leverage. Differentiated steering and focused allocation of capital and resources will further amplify Clariant’s growth.

Sustainability-driven innovation raises the average annual growth by approximately 1 %. Clariant focuses on bio-based products and solutions that enable decarbonization and circularity, including the EcoTain® product range.

Regional expansion is another important growth driver for Clariant – with China as the main growth region. By allocating approximately 35 % of its growth capital expenditure (CAPEX) to China, the company expects its sales share to grow to around 14 % by 2025 versus the current 10 % contribution. In total, Clariant anticipates regional expansion to contribute around 1 % additional average annual sales growth.

Clariant is also well prepared for bolt-on M&A transactions to close product, market, and technology gaps. The recent transactions in Care Chemicals – CICS, the joint venture with India Glycols, and Beraca in Brazil – reflect Clariant’s successful adherence to these criteria. These transactions will positively impact the top line with a combined sales contribution of 0.75 % to average annual growth.

Improving efficiency for an increased EBITDA margin

In terms of profitability, Clariant’s ambition is to take the EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary Group margin corridor to a range of 19 to 21 % by 2025. This margin improvement will be leveraged by around two-thirds from sales growth while efficiency improvements will contribute by approximately one-third.  Figure 013

013MEASURES TO DRIVE EBITDA MARGIN RANGE TO 19-21 %

Clariant is currently executing one of the largest and most comprehensive performance programs in its history. Through the extended rightsizing program, Clariant reduces complexity, drives automation, and leverages shared service centers. The performance program also encompasses reducing and transferring positions and reducing indirect spend. In total, Clariant is targeting cost eliminations of approximately CHF 240 million: Around CHF 100 million are focused on remnant cost elimination; around CHF 30 million affect discontinued operations; and CHF 110 million accrete to the core.

Q&A

Richard Haldimann

Chief Technology & Sustainability Officer

In February 2022, you became the new head of Group Innovation & Sustainability (GIS) at Clariant. How do you plan to accelerate sustainability-driven innovation?

The key is to develop solutions that make our customers successful including helping them to achieve their own sustainability targets. Concretely this means the products need to have both outstanding technical as well as sustainability performance. With the new operating model in place at GIS, we bring all the key corporate units together that support the businesses which bring sustainable innovations into the market. By doing this, we create meaningful impact reflected in the increasing sustainability of our product portfolio as well as in increased profitable growth.

What will be the focus areas of Group Innovation & Sustainability going forward?

We will concentrate on three core agendas: First, we want to achieve climate-neutral and sustainable operations here at Clariant. Second, the ongoing sustainability-driven portfolio transformation is vitally important for profitable growth. And third, we want to foster our sustainability-based engagement as a Corporate citizen.

Could you describe Clariant’s sustainability journey?

Adding value with sustainability has long been a key element of our business strategy. And the way to create that value is by eliminating waste and emissions in our operations as well as through constant innovation and R&D. Sustainability challenges provide opportunities for better operations and products. This has resulted in setting new environmental targets and breaking down our SBTiSBTiThe Science Based Targets Initiative is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). The SBTi is the lead partner of the Business Ambition for 1.5°C campaign - an urgent call to action from a global coalition of UN agencies, business and industry leaders, mobilizing companies to set net-zero science-based targets in line with a 1.5°C future. More information: https://sciencebasedtargets.orgView entire glossary climate targets bonus relevant. By 2030, we want to reduce Scope 1 and 2 emissions by 40 % and Scope 3 (cat. 1) emissions by 14 %.

How do customers profit from these efforts?

Our customers will very directly benefit from our efforts by getting products with a lower carbon footprint and an overall better sustainability profile. Let me give you two illustrative examples: We developed Safebreak® life, the first high-performing brake fluid without hazardous borate esters. This product increases user safety when changing the fluid. In addition, it is fully biodegradable, and has a low carbon footprint. It sets break fluid producers on the path to more sustainability without compro­mising on performance. Or take the issue of microplastics connected with polymer-­based materials: We provide the industry with a biobased alternative called Licocare® RBW Vita, which is highly performant and biodegradable, thus preventing the formation of micro­plastics. It can potentially replace polymer alternatives in various appli­cations such as coatings, consumer products, and agriculture.

Improving FCF conversion with capital and cost discipline

Clariant is strongly committed to capital and cost discipline and expects free cash flow conversion – defined as cash generated from operating activities minus capex, divided by EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary – of around 40 % toward 2025.

Capital expenditure (CAPEX) in the upcoming year is likely to remain high as Clariant phases existing projects and captures new growth opportunities from higher customer demand. More than half of this CAPEX will be used for growth: Clariant will continue to invest in attractive businesses such as Care Chemicals, Catalysts, and Additives, and in growth regions like China. Clariant will also step up investments in sustainability measures, especially to reduce greenhouse gas emissions. Toward 2025, CAPEX is expected to normalize in the range of CHF 280 million to CHF 320 million per year. Together with Clariant’s profitable growth, the reduction in CAPEX will result in a significant improvement in FCF conversion and a continued improvement in ROIC.

Non-financial targets to reflect emission reductions and employee engagement

Clariant is a leader in sustainability, so setting ambitious non-­financial targets for itself is only a logical next step. The 2030 non-financial targets reflect Clariant’s purpose-driven strategy and its commitment to people and planet. Clariant plans to reduce Scope 1 and 2 emissions by 40 % and Scope 3 (cat. 1) emissions by 14 %. Based on latest climate science, the Science-Based Targets initiative (SBTiSBTiThe Science Based Targets Initiative is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). The SBTi is the lead partner of the Business Ambition for 1.5°C campaign - an urgent call to action from a global coalition of UN agencies, business and industry leaders, mobilizing companies to set net-zero science-based targets in line with a 1.5°C future. More information: https://sciencebasedtargets.orgView entire glossary ) considers these goals to be in line with the necessary steps to meet the targets of the Paris Agreement. In addition, Clariant aims to become a top-quartile company in terms of employee engagement, using this target as a benchmark for measuring its ambition to become the employer of choice in its industry.

Strategic implications at the business area and regional level

All three business areas have strong market positions and the ability to deliver growth. Clariant focuses on bringing all core businesses to their full potential. The company will follow a differ­entiated growth strategy and invest in its most attractive businesses and market segments.

The regrouped regional structure, which is based on the four regions APAC (Asia-Pacific), EMEA (Europe, Middle East, and Africa), LATAM (Latin America), and NORAM (North America), is aligned with Clariant’s strategic plans. Clariant plans to further develop its footprint and sales in NORAM and APAC, in particular in China.

Strategic Management Process

Clariant’s Strategic Management ProcessStrategic Management ProcessClariant’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 businessunit-level strategy development is an iterative process that addresses the relevant megatrends observed by Clariant.View entire glossary (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. In the 2021 cycle, in addition to refreshing business unit strategies, further strategic topics covered were innovation, sustainability, and global growth drivers, specifically China and differentiated steering of CAPEX.

Despite the current COVID-19 situation, Clariant refreshed its SMP for all business units in 2021 and affirmed its must-win battles. Typically, the full strategic management process is conducted every three years, and must-win battles are reviewed either as the battles are won or as new critical battles are identified.

Implementation of the strategy is now underway with initiatives to maximize total value, together with those supporting growth, innovation, and sustainability.