Interview with the CEO
Clariant’s Integrated Report was published later than planned due to an investigation into accounting issues. What can you tell us about the result of this investigation?
The investigation was related to provisions and accruals, and it was conducted by independent advisors and external counsel. As a result of the investigation, we had to restate our 2020 financial statements and we had to make corrections to the quarterly reporting of key financial data for 2020 and 2021. Our 2020 continuing operations EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. is higher than previously but there has not been any impact on our sales, cash, and cash equivalents for 2020 and 2021.
What does this mean for the company and its stakeholders?
I am grateful that our own colleagues spoke up. This shows that we have an open climate built on trust where our employees feel encouraged to speak up. We will continue to build a culture based on the highest ethical standards, and we will further strengthen our controls and processes. The operational performance of Clariant, and our ability to serve our clients, was not impacted by what happened internally. We have been and will continue to be a reliable partner.
Why has Clariant’s Chief Financial Officer Stephan Lynen stepped down?
With the investigation now completed, Stephan Lynen‘s decision to step down allows for a fresh start for our finance function. I thank him for his dedicated collaboration and for his contributions in various leadership positions. I am very pleased to welcome his successor Bill Collins, who most recently served as the North American CEO and CFO for ENGIE. Bill is a highly regarded finance leader, with a successful track record in our industry.
The last months have brought about so many changes all around the world. How would you describe the current situation in the chemicals industry?
Obviously, the geopolitical situation has changed dramatically. By attacking Ukraine, the Russian state inflicted horrific suffering on its neighboring country, but also brought dramatic consequences for its own country and the world. The world may be facing the worst food crisis in decades, driven by the compounded effects of COVID-19, climate change and the war in Ukraine, exacerbating already skyrocketing food and energy prices and severe hunger. The war in Ukraine also has a substantial significance for our sector and for the European economy. The chemicals industry, especially in Europe, now has to deal with potential shortages in the supply of Russian oil and natural gas and some metals like palladium and nickel. Moreover, problems like increasing raw material prices, higher energy costs, labor shortages, and supply disruptions remain on the agenda of many companies with significant efforts required to manage operations and margins.
Nevertheless, chemicals industry output recovered with growth of 6.8 % in 2021 and is expected to deliver further growth of 2.9 % in 2022. We also saw a more active merger and acquisitions environment in 2021. Transaction values were up 125 % versus 2020 and have been comparable to the 2007 record.
How does Clariant deal with these challenges?
We are continuously expanding activities which enable us to move away from natural gas and towards CO2 neutrality. Since we are a specialty chemicals company, our production is less energy-intensive compared to large-scale commodity chemical companies. However, we are currently still depending on natural gas, and we are preparing as best as we can for potential supply changes. Generally speaking, our now more focused specialty chemicals portfolio has proven to be more resilient and crisis-proof than before. It is addressing key growth trends like bio-based products, decarbonization, and circularity.
How does this show in the numbers?
In the financial year 2021, we experienced a broad demand recovery across all businesses and across all regions. Our revenues increased by 15 % in local currencies and 13 % in Swiss francs. Volume growth had a positive impact on the Group of 7 %. Core organic sales growth, excluding the consolidation of our joint ventures with India Glycols and Beraca, our natural ingredients acquisition in Brazil, was 13 % in local currencies. This was the result of true teamwork, customer focus and disciplined cost management, and we can all be proud of these results. Our specialty chemicals portfolio allowed us to increase prices by 8 % and recover around two thirds of the raw material price increases.
Our EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin has improved from the – restated – 15.5 % in 2020 to 16.2 % in 2021, which is well above the 2019 pre-Covid level at 15.7 %, excluding the European Commission provision. This result has been positively influenced by strong volume expansion, pricing measures, contributions from M&A, and great cost discipline. Our performance improvement programs have delivered CHF 50 million in savings until the end of 2021. Starting in 2021, the rightsizing of the service units, regional organization, and Corporate Center as well as the elimination of remnant cost are also on track leading to additional savings of approximately CHF 100 million until 2025.
Which other developments have contributed to Clariant’s performance?
In 2021, we established a joint ventureJoint ventureJoint ventures are all activities in which Clariant is involved with another partner. The accounting method applied for joint ventures depends on the speciﬁc conditions of the participation. with India Glycols, which has made us the world leader in green ethylene oxide derivatives. These products are used to make surfactants based on bioethanol, which allow personal care companies to move their product offerings away from fossil-based to renewable feedstocks. We further acquired the remaining 70 % of the shares in the Beraca joint ventureJoint ventureJoint ventures are all activities in which Clariant is involved with another partner. The accounting method applied for joint ventures depends on the speciﬁc conditions of the participation., our naturals and botanicals business in Brazil. The Beraca products allow cosmetics companies to source 100 % natural ingredients, with a demonstrable performance. These two strategic transactions contributed CHF 73 million to our sales in 2021.
During the year 2021, we stepped up our commitment to deliver organic growth. We celebrated the opening of the »One Clariant Campus« in Shanghai, including the inauguration of our local Clariant Innovation Center. This will include 50 scientists working on the development of products tailored for the local market – in China, for China. We are planning to expand this group to 120 scientists, working on local product development, by 2025. We invested CHF 80 million in a new plant for Catofin® catalysts in Jiaxing, Zhejiang, China, which recently started production. We further invested CHF 60 million in a plant in Daya Bay, Guangdong, China, for sustainable, halogen-free flame retardants, which we expect to deliver in the first half of 2023. In October 2021, we announced the completion of the first-of-its kind second-generation bioethanol plant in Podari, Romania. Production is currently ramping up.
How did Clariant deal with the ongoing COVID-19 pandemic in 2021?
I am proud that our people managed to keep our factories up and running in the face of this pandemic. In order to protect our staff, we enforced strict hygiene protocols, provided personal protective equipment and supported vaccinations. We further supported our employees on topics such as working from home, staying healthy, and staying in touch with their teams.
These steps are part of the bigger program to ensure the health and safety of our employees. We aim to achieve zero accidents worldwide, and in 2021, we managed to keep our lost-time accident rate at a low value of 0.16 days lost per 200 000 hours of work. Our lost workday rate has decreased, indicating that job-related injuries were less severe than in the previous year.
Can you give us a rough idea of the business outlook in 2022?
For the full year 2022 we expect to generate strong local currency sales growth on a year-on-year comparison, driven by a strong first quarter of 2022. We aim to improve our year-on-year EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin level through operating leverage from growth, pricing actions to mitigate raw material inflation, and continued cost savings and cost discipline. We expect the high inflationary environment with regard to raw material, energy, and logistic cost as well as supply chain challenges to continue into the second half of 2022.
Both innovation and sustainability are strategic pillars of Clariant. How do you assess the strategy execution in these fields?
Due to global population growth and a growing middle class, demand for materials is expected to at least double by 2050 while at the same time the transition to a net zero economy is required. Sustainability is an important priority for our society, and it requires innovation to make this transition happen. To strengthen the link between innovation and sustainability, we have re-organized our innovation and sustainability functions in a new combined Innovation & Sustainability unit under the leadership of Richard Haldimann, who now serves as our Chief Technology & Sustainability Officer.
We are building an attractive, well-filled innovation pipeline, which is strongly linked to customer-driven sustainability priorities. As part of our new strategy 2025, we have a target that one fifth of our 4-6 % annual growth will be generated by innovations that are strongly linked to customer-driven sustainability developments, like our bio-based cosmetics and our renewables-based surfactants.
Sustainability is not only driven by Clariant and its customers, but by all stakeholderStakeholderStakeholders are people or groups whose interests are linked in various ways with those of a company. They include shareholders, business partners, employees, neighbors, and the community. groups. What does Clariant have to offer to them?
We ensure a broad stakeholderStakeholderStakeholders are people or groups whose interests are linked in various ways with those of a company. They include shareholders, business partners, employees, neighbors, and the community. view with a clear focus on the long-term perspective. Our Integrated Report 2021 features information on climate risks in line with the Task Force on Climate-related Financial Disclosures (TCFDTCFDThe Task Force on Climate-related Financial Disclosures (TCFD) was created by the Financial Stablity Board to improve and increase reporting of climate-related financial information. The Task Force developed recommendations for more effective climate-related disclosures that promote more informed investment, credit, and insurance underwriting decisions and, in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system´s exposures to climate-related risks. More information: www.fsb-tcfd.org). We now also report in accordance with the guidelines of the Sustainability Accounting Standards Board (SASBSASBThe Sustainability Accounting Standards Board (SASB) Standards guide the disclosure of financially material sustainability information by companies to their investors. Available for 77 industries, the Standards identify the subset of environmental, social, and governance (ESG) issues most relevant to financial performance in each industry. SASB Standards are maintained under the auspices of the Value Reporting Foundation. More information: www.sasb.org). We remain committed to the United Nations Global Compact and its Ten Principles, and we contribute to the United Nations’ Sustainable Development Goals (SDGs).
In 2021, Clariant introduced a new purpose: »Greater chemistry – between people and planet«. How does this statement relate to this new strategy?
Our purpose is the guiding star of our new turning back to growth strategy. The statement provides inspiration: It captures who we are and our important role in helping to transform our industry. »Greater chemistry« stands for innovation and for the important mission to help our industry achieving its sustainability targets. »Chemistry« also refers to the intangible positive interactions between people. Greater chemistry between us and our customers provides the basis to collaborate for meaningful impact and to shape the future together. »Greater chemistry between people« also describes our company culture which promotes diversity, equity, inclusion, mutual 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. and empowerment. Finally, »Greater chemistry – between people and planet« – means sustainability. It is the greater chemistry that serves a greater purpose. It expresses our ambition to enable the transition towards a more sustainable world.
But is the purpose more than just words?
Yes, it is. These words that were developed by our own colleagues, describe both our heritage and future direction.
The purpose statement is reflected in our strategy and in our target setting. We defined new financial targets for 2025, and – for the first time – non-financial targets. This reflects our ambition to achieve top quartile results in specialty chemicals in terms of growth, profitability, sustainability, and people.
What are these commitments exactly?
By 2025, we are targeting to grow our topline by 4-6 % on average per year, to increase our EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margins to 19-21 %, and to reach a free cashflow conversion of around 40 %. Also, we have set ourselves science-based carbon reduction targets: By 2030, we want to reduce our scope 1&2 emissions by 40 %, and our scope 3 emissions by 14 %. And finally, we want to position Clariant in the top quartile of employee engagement, measured by the Employee Net Promoter Score (eNPS).
Why have you introduced non-financial targets?
Climate change is the biggest environmental challenge for humanity. At the COP26 in Glasgow in November 2021, 153 countries put forward new 2030 emission targets as part of their nationally determined contribution (NDC). These initiatives are backed by a USD 100 billion climate finance goal which will trigger significant investments and further promote sustainable developments. Clariant’s sustainability targets are aligned with the ambition to achieve climate neutrality by 2050 at the latest and reflect our aspiration to be industry leaders through sustainability and innovation.