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Reshaped Clariant raises profit, hires Greenhill to sell assets

4:15 PM MST | March 1, 2013 | —Natasha Alperowicz in Zurich

Kottmann: Seeking a top-quartile rank.
Jany: Share of noncyclical portfolio is rising.

Clariant reported an increase in fourth-quarter profits and pledged to improve its margins further, to become one of the most profitable specialty chemical companies. Announcing the company’s fourth-quarter and full-year 2012 results in Zurich recently, CEO Hariolf Kottmann said that Clariant achieved solid results in a demanding year, with the majority of businesses performing well. Fourth-quarter net profit from continuing operations rose to 87 million Swiss francs ($94.3 million) from SF11 million in the last quarter of 2011. Fourth-quarter sales from continuing operations increased to SF1.51 billion from SF1.49 billion in the year-earlier period. Ebitda before exceptional items rose from SF213 million to SF225 million in the fourth quarter of 2012. The Ebitda margin was also higher in the quarter, rising from 14.3% to 14.9%.

Kottmann, addressing the media in Zurich, said that Clariant is evaluating options for detergent intermediates and leather services, the two remaining businesses the company plans to divest. These businesses, combined, employ 1,500 people and reported total sales of about SF550 million in 2012, said Patrick Jany, CFO. Clariant is in the process of carving out these operations from the rest of the group and hopes to begin the M&A process in the third or fourth quarter of this year, Kottmann said. The company has appointed Greenhill & Co. (London), an independent boutique bank, to advise on the transaction, Jany told CW. The assets of the detergent intermediates business are in Germany and France, and leather has a much-more-global footprint with assets in Latin America, Italy, and Asia, Jany said.

Kottmann also provided an update on the previously announced divestment of the textile chemicals, paper specialties, and emulsion businesses to SK Capital for SF502 million. Clariant hopes to finalize the sale in June this year, Kottmann said. Those 3 businesses employ 3,000 people and generated combined sales of SF1.2 billion in 2012.

Asked by CW about Clariant’s planned amines joint venture with Wilmar International (Singapore), Kottmann said the new company would be named The Global Amine Co. (Singapore). It will be the second-largest global player in primary amines and the third largest in tertiary amines. The deal should be finalized in the middle of this year.

Clariant’s full-year 2012 sales from continuing operations were SF6.04 billion compared with SF5.57 billion in 2011. The 8% gain was driven by Süd-Chemie, which Clariant acquired in 2011. Organic growth was flat, with 2% higher prices offsetting a 2% drop in volumes. Full-year net profit from continuing operations was slightly down, at SF211 million compared with SF220 million in 2011.

The company said it has clearly defined the businesses that will form the future portfolio of Clariant. These operations have competitive positions and strong pricing power, Kottmann said. The future portfolio is grouped under four business areas: natural resources, plastics and coatings, catalysis and energy, and care chemicals. The natural resources unit includes oil services, mining solutions, refinery services, water treatment, and functional materials. Plastics and coatings includes additives, pigments, and masterbatches. Catalysis and energy covers catalysts and energy storage. Care chemicals includes personal care, industrial care, home care, crop care, and enzymes and industrial biotechnology.

Clariant’s transformational acquisition of Süd-Chemie is unlikely to be followed by another major buy, Kottmann said. The company is looking to balance its technology gap and for bolt-on acquisitions. “There are some areas where we have technology gaps and some regional gaps,” he said. Clariant is focused increasingly on emerging markets such as China, India, and Brazil. The company also wants to extend its value chain to be closer to customers.

Clariant expects a moderate economic development in 2013, comparable with 2012. “The level of economic uncertainty remains high despite some positive signs recently,” Kottmann said. Clariant expects further sales growth and increased profitability. The company is aiming to achieve an Ebitda margin on a par with other leading specialty chemical companies, corresponding to 17% before exceptionals and a return on invested capital (ROIC) above the peer-group average by the end of 2015, Kottmann said. There are 8–9 top-quartile specialty chemical companies worldwide and “we are convinced that with the 17% Ebitda margin we will be among them,” he said. Clariant ranked ninth in ROIC in 2011, trailing Croda, Albemarle, Wacker Chemie, Arkema, BASF, Evonik Industries, Lanxess, and Celanese. The company expects to achieve its targets mainly through organic growth, Jany said. “The main driver for us reaching our 2015 targets in ROIC and Ebitda is the growth in our core businesses. This is driven by catalysis, consumer specialties, and oil services and mining solutions, while overall profitability will benefit from the segments of additives and pigments, which have been affected by the downturn in Europe but which we expect to improve their performance as well,” Jany told CW.

The company expects to spend SF300–350 million on capital projects this year, Jany said. That includes a previously announced doubling of Houdry dehydrogenation catalysts at Louisville, KY. The company is spending double-digit million Swiss francs on the project, for completion this September, and it is already planning for the next phase, Jany told CW. The next stage of the project is currently in the definition phase.

Clariant has doubled capacity for Exolit OP nonhalogenated flame retardants at Knapsack, Germany. Exolit OP, one of Clariant’s best-performing products, was also expected to be produced in Asia, but plans to build a plant there have been delayed because of the weakness in the electronics industry. “We have the plans for the next steps, but it will take a few years for them to develop,” Jany said. Clariant is also not proceeding with previously announced plans to establish a jv with LG Chem to produce lithium iron phosphate cathode material for batteries in Korea. Demand for the product, used in electric and hybrid vehicles, is lower than first expected and it will take some time for commercial volumes to pick up, he said. Clariant, meanwhile, has several projects in its masterbatches business in emerging markets.

The repositioning of Clariant’s portfolio will make the company less vulnerable to economic cycles. “Typically, pigments and masterbatches are linked to markets, which are more cyclical, GDP-linked. Additives are also in that category. Following the divestments, 60% of our turnover is noncyclical operations and 40% linked to GDP. Ultimately, in 2015 we will have 70% noncyclical and 30% cyclical businesses,” Jany said.













 
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