Interview with the CEO
We are now well into the year 2023, but the world is still dealing with the aftermath of 2022. How do you assess the geopolitical situation?
The past years have seen many events with far-reaching geopolitical effects. The war on Ukraine has been going on for over a year now, and I am still shaken by the suffering it causes. In its wake, Europe has seen tremendous energy price increases, which have eased, but not fully normalized to this day, and have contributed to global inflation of 8.8 %. Moreover, the impact of COVID-19 is still visible in some countries. This includes China, where GDP growth was only 3.0 % compared to global GDP growth of 3.4 %. There will be a rebound in China, but it is too early to assess when we will see it and how big it will be. In the US, GDP growth was also relatively weak at 2.0 %. But let me just say that, while the war and the pandemic are tragic, it was impressive to see how the Clariant community has responded with resilience and solidarity.
These developments also affected the chemical industry. Is the sector in good shape?
Many chemical corporations were hit hard last year. The industry suffered from shortages in the supply of Russian oil and natural gas as well as skyrocketing energy costs, high prices for raw materials, and ongoing supply chain challenges. Especially Europe was hit by the energy crisis. The output of the chemical industry in Europe was lower than the year before. At the moment, the gas storage facilities are above historic levels, thanks to a mild winter, consumer savings, and industry contributions. But still, we expect the challenges in Europe to continue. In the US, chemical producers could rely on cheaper domestic gas, allowing the country to outperform most other regions. China’s chemical production grew despite repeated lockdowns. Across the industry, we saw lower demand and declining margins in the last quarter of 2022. We are pleased that we were able to deliver strong results despite the turbulent environment.
»Becoming climate-neutral reduces operational risks, will make sense financially, and will be the license to operate in the not-too-distant future. Beyond that, it is the right thing to do.«
With fossil energy supply becoming more expensive and unstable, do you think that chemical corporations will now accelerate the shift to climate-neutral energy and products?
In the short term, the emphasis has unfortunately shifted to energy security rather than energy transition. However, the geopolitical crisis will accelerate the medium-term shift to climate-neutral energy and products. Becoming climate-neutral reduces operational risks, will make sense financially, and will be the license to operate in the not-too-distant future. Beyond that, it is the right thing to do. Of course, it requires enhanced effort, for example, with respect to energy efficiency, green electricity, and the use of biomass as feedstock. This decarbonization challenge offers opportunities for innovation-driven companies – such as Clariant.
What kind of opportunities?
We can help our customers reduce their carbon footprint by delivering low-carbon products or by helping them decrease their emissions. For example, in the field of innovative hydrogen technologies, we teamed up with Technip Energies to develop the breakthrough EARTH® technology for steam methane reforming. Producing hydrogen from natural gas is the most common way and demands the reduction of its CO2 footprint. EARTH® combines a new technology and a new catalyst that reduces makeup fuel consumption by up to 50 % and CO2 emissions by up to 10 %. Further, we provide solutions that foster circularity and enable a bio-based economy. These include adsorbent clays that purify biodiesel, bio-based surfactants, and additives derived from crude rice bran wax. These bio-based additives function as highly effective lubricants and dispersion aids for, for example, thermoplastics such as polyamides and bring us one step closer to more sustainable plastics.
In addition to being innovative: What does the chemicals industry need to better fight climate change?
The chemical sector is uniquely placed to actively fight climate change. It is obvious that nobody can manage the challenges that are ahead of us alone. To be successful, we need collaboration along the value chain, as well as a global framework with clear commitment from policymakers and functioning coordination across all jurisdictions. That is an enormous task. We must be united in approaching this – industry, politics, investors, and civil society alike. One example is our membership in the »Together for Sustainability« initiative, an association of chemical companies with total sales of more than EUR 600 billion. Our common goal is to build up sustainable chemical supply chains, align on regulatory requirements, and respond to the needs and expectations of society. Clariant was one of the first companies in the specialty chemicals industry to announce Scope 3 upstream targets, and we are working on numerous projects with clients to improve theirs.
Let’s talk about Clariant’s results in the past year. How did the company perform in 2022?
We reported sales growth of 24 % in local currency, with strong double-digit growth in all business areas. This is an impressive achievement because it demonstrates our ability to pass on rising costs to our customers but also to outgrow our markets with sales volumes growing by 7 %. The fact that we also improved our continuing operations EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. by 14 % to CHF 810 million is a significant success, considering the challenging environment. The EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin declined slightly to 15.6 % due to restructuring costs and the negative impact from sunliquid®. Our net operating cash flow also improved significantly to CHF 502 million, an increase of CHF 139 million versus 2021. This was the result of strong underlying earnings and net working capital management. Our portfolio has proven to be resilient as it addresses key growth trends like bio-based products, decarbonization, and circularity. Additionally, as a specialty chemicals company, we have less energy-intensive production than large-scale commodity chemical companies, meaning we were less affected by the energy crisis.
How did the individual business areas perform in 2022?
Care Chemicals grew sales by 28 % in local currency in full year 2022 with double-digit sales growth in all key businesses. The full integration of the bolt-on acquisition Beraca, in Brazil, contributed approximately 1 % of this sales growth. The sales growth in Consumer Care and Industrial Applications rose more than 20 % on the back of strong market demand, especially during the first nine months of the year. In the fourth quarter, volumes declined due to customer destocking and significantly lower demand. The Aviation business contributed positively to the Industrial Applications development due to supportive weather and increased air traffic activities. Our EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin increased to 22.3 % from 20.7 % due to higher volumes and active price management, which compensated for raw material cost headwinds. In Catalysis, the top line was up by 14 % in local currency. This growth was mainly volume-driven in all three business lines. The EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin decreased to 9.4 % from 16.8 % in the previous year. The main factors impacting this development included project cost and higher operational cost related to sunliquid®, a less favorable product mix during the first nine months of 2022, including the suspension of all business with Russia, and a temporary margin squeeze, which continued into September due to raw material, energy, and logistics cost pressure. Due to the long lead times, we were only able to adjust the pricing of our products with a certain delay. In Natural Resources, Oil and Mining Services, Functional Minerals, and Additives all contributed to the 25 % local currency sales growth. Oil and Mining Services reported a continued recovery in oil services, ongoing growth in mining, and a strong refinery business. Functional Minerals delivered positive developments in all business lines, especially Purification and Cargo & Device Protection. The acquisition of BASF’s US Attapulgite business, which we concluded in October 2022, started to contribute to the Functional Minerals sales growth and strengthens our market position in the highly attractive North American market. Additives reported strong growth based on increased volumes and pricing, in particular in the first nine months. A key growth driver in the last year was our flame retardants business, which benefits from the trend toward sustainable solutions in e-mobility combined with leading product performance. The halogen-free flame retardant is used in key end markets such as electric vehicles and electronic applications like 5G devices. The business area’s EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin increased to 18.0 % from 17.0 % due to revenue growth in all business units, which was propelled by both pricing and higher volumes which resulted in improved operating leverage.
What were some of the highlights in the different regions?
In the Americas, we completed the acquisition of BASF’s US Attapulgite business assets, strengthening our leading technology position in the growing markets for the purification of edible oils and renewable fuels. This is a perfect example of our disciplined approach to bolt-on acquisitions, as it provides tangible synergies, strengthens one of our core segments, and brings us closer to our 2025 targets. In APAC, we still see significant potential in the Chinese markets. We therefore invested a total of CHF 180 million in new and existing facilities in Daya Bay. This will increase our production capacity for existing products such as ethylene oxide derivatives and flame retardants. In EMEA, we developed and implemented a plan making us less dependent on reduced gas availability from Russia. Here, Germany is particularly affected. The mitigation measures in Germany include switching the fuel from gas to oil or switching from gas-generated power to external electricity.
»We are pleased that we were able to deliver strong results despite the turbulent environment.«
There have been a number of changes in Clariant’s organization and leadership. What is the idea behind these changes?
They are all part of our new operating model for stronger customer focus, better and faster decision-making, greater empowerment, more accountability, and transparency. Our organizational setup was too complex for a company of our size. To give you one example: In some parts of Clariant, we had eleven layers of management between a plant operator and the CEO. We now have fewer hierarchical layers and less complexity in our organization, which will speed up and improve our decision-making. We now have a maximum of six management layers between the operative staff and the CEO. At the same time, we reduced the number of our internal meetings and empowered front line employees to take more responsibility for decisions in their respective area.
In the context of this new operating model, Clariant reduced the number of business units from five to three. What does this mean for customers?
It means that we will be closer to them than before. And I mean that quite literally. It’s not only that we have reduced the number of business units. Each business unit is now organized into business lines reflecting market segments, rather than product lines as before. This means our organization is now fully focused on markets and customers. We have also appointed presidents for the three business units, who are located in the regions with the largest customer base and the highest growth potential for the respective business. As they are also presidents for the respective regions, these managers have a very strong focus on their customers.
In addition to making organizational changes, Clariant also announced new values: »win with our customers,« »act with integrity,« »perform with agility,« »innovate for sustainability,« and »empower and include.« How are these two developments related?
Both developments result from our purpose-led strategy, which we launched in 2021. With this strategy, we set up Clariant for growth. Our new, more complete set of values reflects our purpose statement and our stronger growth mindset, and it will be the basis for an even stronger entrepreneurial culture. I see our values more as an evolution of an already strong value-based culture, rather than as a revolution. They describe what we stand for and make sure that we all show a consistent behavior when dealing with each other or with external stakeholders.
In June 2022, Clariant also launched its DE&I roadmap. What is the intention behind this?
Our DE&I roadmap is an essential part of Clariant’s purpose-led strategy, aimed at building a more diverse, equitable, and inclusive future by focusing on gender equality, an inclusive culture, and cultural identity. For each of these areas, Clariant has set ambitious targets for 2030, which are accompanied by a variety of concrete actions. I am optimistic about this topic since we already have a well-filled talent pool, including a high number of high potentials, both male and female, from all key regions.
In terms of gender equality, we strive to provide equal opportunities for all genders, with a special focus on strengthening the gender balance at the Management level which aims to increase the current female representation to at least 30 % by 2030. With regard to cultural identity, we want to provide equal access to career development for all ethnicities and ensure that our global business footprint is reflected in Clariant’s leadership teams. Therefore, we strive to increase the share of leaders of national origin outside Europe to more than 40 % by 2030.
Do you anticipate Clariant’s healthy performance to continue into 2023, and how would your business be affected by a dip in customer demand and the projected economic slowdown?
We already began being affected by the slowdown in volumes, which started in Europe in Q3. However, we are confident that we will continue to outperform our overall markets due to continued strong demand for sustainability-driven solutions. For example, our flame retardants, which are used in plastic parts for electrical vehicles, remain in very high demand as this segment in the automobile industry continues to experience robust growth. In the US, we see growth for our adsorbents, which are used in the purification of renewable diesel – a market that is experiencing strong tailwinds from the Inflation Reduction Act – as well as from bio-based and biodegradable coatings. Beyond the sustainability-driven areas, we see a recovery supported by strong demand for propane to propylene catalysts, which supports our catalyst business.
What are the most important achievements Clariant must accomplish in the next years?
We are confident that we are on the right trajectory to achieve our 2025 financial and non-financial targets. Most important to me is that our customers acknowledge us as a leader in sustainability and as their preferred supplier. And finally, we want to achieve top-quartile engagement levels and wish that our employees see – and recommend – us as a highly attractive employer.