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 purpose, »Greater chemistry – between people and planet,« Clariant unveiled a 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.

Additionally, in October 2022, the former company claim and brand motto »what is precious to you?« was changed. For 10 years, this question had represented the Clariant brand. The new claim is »Greater chemistry,« a short version of the purpose statement and an answer to the former claim. With this change, the purpose has also moved to the center of the Clariant brand and, moreover, will be embedded in all communications, thus significantly raising the level of clarity. However, the motto »what is precious to you?« was not simply replaced. Rather, the new claim is considered a logical consequence, a next step in the purpose journey, as it summarizes the answers that stakeholders and Clariant have found in response to this question. Clariant is clear about what it stands for and what customers, partners, employees, and the public can expect. The benchmark is always the same: Greater chemistry.

In short, the new claim was developed to

• build a strong tie between the purpose and the Clariant brand
• make the change visible across all touchpoints
• make the purpose easy to use while safeguarding the strength and meaning of the purpose statement

The purpose and the new claim completely replace the previous brand positioning comprising Clariant´s former mission, vision, former brand values, and the concept of appreciation. Appreciation has become part of Clariant’s DNA and therefore no longer needs to be explicitly addressed as a brand core.

Strategic dimensions

A strategy to reflect Clariant’s 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 purpose, »Greater chemistry – between people and planet.« This purpose leads Clariant’s new strategy, which Figure 008 depicts.

008CLARIANT'S NEW PURPOSE-LED STRATEGY

Four strategic dimensions

The 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 PigmentsPigmentsPigments are substances used for coloring; they are used in a technical manner, for example in the manufacture of dyes, varnishes, and plastics. In 2020, Clariant launched the divestment process of its Pigments business, which was completed on 3 January 2022.View entire glossary business sale on 3 January 2022, Clariant has become more simplified and focused with a true specialty chemicals 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, which mirror 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: Appreciation 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, as Figure 009 shows. Clariant is particularly committed to engaging with employees at 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.

009EXAMPLES OF STAKEHOLDER ENGAGEMENT

Financial and non-financial targets

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

The four dimensions of the 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 aiming 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 has introduced a cash conversion target: 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 & 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, as Figure 010 depicts:

• 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, CISC (the joint venture with India Glycols), and US Attapulgite.

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 average annual market growth of approximately 2.5 % and to increase its operating leverage. The 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 11 % 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 – CISC, the joint venture with India Glycols, Beraca in Brazil, and the acquisition of BASF’s US Attapulgite business assets in Functional Minerals – 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.

010ATTRACTIVE SALES GROWTH TRAJECTORY SUPPORTED BY MULTIPLE LEVERS IN CHF M

Improving efficiency for an increased EBITDA margin

In terms of profitability, Clariant’s ambition is to take the Group EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary 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, as Figure 011 shows.

011MEASURES TO DRIVE EBITDA MARGIN RANGE TO 19-21 %

Q&A

Judith Bischof

General Counsel

Member of the Executive Leadership TeamExecutive Leadership TeamThe Executive Leadership Team (ELT) consists of the Executive Steering Committee (ESC) along with the Chief Human Resources Officer, the Chief Technology & Sustainability Officer, the Chief Corporate Development Officer, and the General Counsel. By bringing all key functions together, Clariant ensures fast decision-making while incorporating all internal stakeholders’ needs. The ELT supports the ESC by promoting dialogue among its members, exchange of information and enabling awareness of the Group’s environment.View entire glossary

As General Counsel, you are part of the newly formed ELT. How have the first few months in the ELT been, and what specific perspective do you bring to the table in ELT discussions?

The Board of Directors and our CEO ensured that the composition of our newly formed ELT is well balanced in terms of background and experience. We have therefore been able to work together constructively and efficiently right from the beginning. My specific perspective lies in establishing functional compliance organizations and improving effective and business-oriented legal teams. Furthermore, my experience as part of executive committees in two different industries and as board member of a publicly listed company gives me the opportunity to analyze issues from different angles. That also helps tremendously in developing suitable solutions for Clariant.

In 2022, the ELT – together with the GMT and a group of employees from different regions – defined a set of new values. As General Counsel, the value »act with integrity« is probably close to your heart. What is required to bring this value to life?

First of all, we need to make sure that the ELT and the entire management team lead by example. The tone at the top is one of the most important factors to ensure that everyone acts with integrity. Secondly, we will continue to encourage our employees to speak up when they see something that violates our code of ethics or breaks the law. And thirdly, we will not tolerate any violations of our code of ethics, and we will respond to them with appropriate measures. These three key elements will support our growth strategy, as our employees will feel more empowered. Integrity is the foundation of everything we do.

What are the most important topics you will drive within Clariant in the upcoming months?

Clariant is on a clear growth path. And many of these growth initiatives require legal assistance, for instance, in the fields of intellectual property, projects with customers and suppliers, and M&A activities. We are currently implementing a new regional setup of our legal teams so that we support the growth initiatives in the best way possible. In the legal, IP, and compliance organization, we will further improve and digitalize internal processes to become even more efficient and business-oriented than we are already now.

Clariant has increased the original core cost savings target of CHF 110 million by 2025 to CHF 160 million due to the implementation of the new operating model. Thus far, savings of CHF 85 million have been realized from the efficiency and rightsizing measures as well as initial savings related to the new operating model. The implementation of the new operating model is expected to contribute additional savings of CHF 50 million by 2025 as the result of the simplified organizational and leadership structure as well as non-full time equivalent savings.

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 should be approximately CHF 280 million due to the postponement of projects into 2023 and continued growth investments. More than half of this CAPEX will be used for growth: Clariant will continue to invest in attractive businesses such as Care Chemicals 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 & 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 (SBTi) is a partnership between CDP, the United Nations Global Compact (UNGC), 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: www.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 Stategic Management Process (SMP) is conducted by the business units in collaboration with Corporate Planning & Strategy. The SMP ensures Group level and business unit strategies are connected and are updated together. Clariant refreshed its SMP in 2021.

The progress of the 2021 SMP was reviewed in 2022. Where necessary, adjustments were made to reflect the changing business environment. In particular, the strategy implementation was adapted to the new business unit and organization structure to enhance implementation and adjust accountability.

In some cases, target achievement was faster than originally forecast due to the strong post-COVID-19 recovery and sharply higher revenues due to a stronger pricing environment. Some targets were adjusted to reflect this good performance.