09.19.18
Clariant announced an updated strategy and financial outlook – as well as the signing of a Memorandum of Understanding with SABIC on a significant collaboration opportunity between the two companies in the area of high-performance materials. The group intends to expand more strongly by focusing on customer-specific products and solution offerings with attractive growth prospects and above average value potential.
By 2021, following the creation of High-Performance Materials and the divestment of the remaining Plastics & Coatings Business Area, Clariant expects to deliver significantly higher sales of around CHF 9 billion and an EBITDA margin of approximately 20% with an operating cash flow of more than CHF 1.2 billion.
“The portfolio upgrade together with the continuation of Clariant’s strategy enables the group to realize a significant step change into higher value specialties, which will allow the group to considerably augment value creation for all our stakeholders,” Clariant CEO Hariolf Kottmann said.
The intended combination of Clariant’s Additives and high-value Masterbatches (color, high-temperature resins and health care) and parts of SABIC’s Specialties business will create a provider of highly customer-specific high-performance materials and solutions under the name High-Performance Materials.
This new business area will offer a customer-specific, application know-how driven and competitively advantaged product range of high-performance thermoplastics for demanding thermo-electro-optical and mechanical environments, specialty additives and masterbatches in tandem with an outstanding global compounding platform. Major applications include smart electronics, healthcare, aerospace, automotive, robotics, additive manufacturing, renewable energy, and e-mobility.
This foundation in tandem with cost synergies and enhanced operating efficiencies will fuel substantial profitability progression and unlock greater value creation. By 2021, sales of High-Performance Materials are expected to grow to approximately CHF 4 billion from pro-forma 2017 sales of CHF 3 billion and the EBITDA margin, including synergies, to 24-25% from 19.4% in pro-forma 2017.
The combination of Clariant’s and SABIC’s offerings within Clariant is expected to result in significant synergies with an anticipated annual run-rate of CHF 100 million, realized over three years from closing. Implementation costs are estimated at CHF 80 million over the same time. The combination will be significantly EPS accretive in the first year.
Clariant will have the majority stake in the intended business combination. Depending on the definitive valuation which is to be determined by both parties in the coming months, an equalization consideration will be made by Clariant to SABIC. This, however, should not lead to Clariant’s pro forma 2019E net debt (including pensions) / EBITDA leverage ratio exceeding 2.4 x (including SABIC’s Specialties business but based on Clariant’s current portfolio set-up before disposals) and should leave the current investment grade rating unaffected. In the coming months, Clariant and SABIC will execute the carve-out of their respective businesses, conduct reciprocal due diligence and continue negotiating the transaction with the target to sign the definitive agreement by the end of the first half of 2019. Completion of the transaction is expected to take place towards the end of 2019, effective as of Jan. 1, 2020, subject to regulatory clearances.
In addition, Clariant announced that by 2020 it intends to divest the Pigments, standard Masterbatches and Medical Specialties businesses, which will not be included in the newly formed Business Area High-Performance Materials. Despite being well positioned and having significantly increased their profitability over the past years, the businesses to be divested do not match the group’s criteria to differentiate through innovation in higher growth and higher profitability areas.
Following a strategic review, Clariant also announced new targets for 2021 in each Business Area. Profitable growth will be driven by sustainable innovations and specialized customer solutions which meet the demand for convenience, safety, sustainability, and energy efficiency. With the strategic update and the resulting higher earnings quality, Clariant also changes its EBITDA margin target from previously “before exceptional items” to “after exceptional items” going forward. As a consequence, Clariant’s financial reporting will be changed accordingly beginning in 2019.
The Business Area Care Chemicals expects to continue to grow above the market, at a more accelerated pace. This additional step up in growth will result from offering more innovative sustainable solutions which meet the market’s increasing demand for convenience, renewable and natural products. The entry into new market segments will also support this above-average growth. Consumer Care, which is comprised of Personal Care, Home Care, Crop Solutions as well as Health Care, will be the main driver of this Business Area’s expansion strategy. The higher degree of specialties in Care Chemicals and the offering of more highly specified solutions will drive not only growth but also increase profitability to new heights.
For the Business Area Catalysis, Clariant targets continued above market growth rates by maintaining and capitalizing on its innovation leadership and strong licensing partnerships. Within Catalysts, the introduction of highly innovative and customer-specific catalysts is the key driver for future growth. Sustainable solutions such as the reduction of hazardous materials, thereby providing a much-improved toxicological profile also add to the growth. The Business Line Biofuels & Derivatives will contribute to the growth acceleration which is mainly driven by the global search for more climate-friendly energy sources and the legal frameworks set out in Europe, the US and China. Clariant expects to generate sales of at least CHF 100 million from licenses for the sunliquid technology and bioethanol sales from the production plant in Romania. The contribution from both, Biofuels & Derivatives and new customer-specific catalysts will significantly expand the profitability of the Business Area Catalysis by 2021.
Within the Natural Resources Business Area, the Oil & Mining Services activities are expected to build up momentum as general demand and a rebound of the oil market improves the industry outlook. Differentiated business steering according to the changing business landscapes combined with technology and innovation will result in sustainable strong growth. Functional Minerals growth will be driven by entering new regional markets and moving into new applications through innovations such as smart and active packaging within feed and agro.
The remaining Plastics & Coatings Business Area, including Pigments, standard Masterbatches and Medical Specialties, will continue to be managed using differentiated business steering. Pigments and standard Masterbatches are anticipated to grow in line with GDP while Medical Specialties are expected to grow more quickly in accordance with their underlying end market in healthcare packaging. The profitability of Pigments and standard Masterbatches is expected to sizably improve via stringent cost management, while Medical Specialties will benefit from innovations resulting in profitable growth.
By 2021, following the creation of High-Performance Materials and the divestment of the remaining Plastics & Coatings Business Area, Clariant expects to deliver significantly higher sales of around CHF 9 billion and an EBITDA margin of approximately 20% with an operating cash flow of more than CHF 1.2 billion.
“The portfolio upgrade together with the continuation of Clariant’s strategy enables the group to realize a significant step change into higher value specialties, which will allow the group to considerably augment value creation for all our stakeholders,” Clariant CEO Hariolf Kottmann said.
The intended combination of Clariant’s Additives and high-value Masterbatches (color, high-temperature resins and health care) and parts of SABIC’s Specialties business will create a provider of highly customer-specific high-performance materials and solutions under the name High-Performance Materials.
This new business area will offer a customer-specific, application know-how driven and competitively advantaged product range of high-performance thermoplastics for demanding thermo-electro-optical and mechanical environments, specialty additives and masterbatches in tandem with an outstanding global compounding platform. Major applications include smart electronics, healthcare, aerospace, automotive, robotics, additive manufacturing, renewable energy, and e-mobility.
This foundation in tandem with cost synergies and enhanced operating efficiencies will fuel substantial profitability progression and unlock greater value creation. By 2021, sales of High-Performance Materials are expected to grow to approximately CHF 4 billion from pro-forma 2017 sales of CHF 3 billion and the EBITDA margin, including synergies, to 24-25% from 19.4% in pro-forma 2017.
The combination of Clariant’s and SABIC’s offerings within Clariant is expected to result in significant synergies with an anticipated annual run-rate of CHF 100 million, realized over three years from closing. Implementation costs are estimated at CHF 80 million over the same time. The combination will be significantly EPS accretive in the first year.
Clariant will have the majority stake in the intended business combination. Depending on the definitive valuation which is to be determined by both parties in the coming months, an equalization consideration will be made by Clariant to SABIC. This, however, should not lead to Clariant’s pro forma 2019E net debt (including pensions) / EBITDA leverage ratio exceeding 2.4 x (including SABIC’s Specialties business but based on Clariant’s current portfolio set-up before disposals) and should leave the current investment grade rating unaffected. In the coming months, Clariant and SABIC will execute the carve-out of their respective businesses, conduct reciprocal due diligence and continue negotiating the transaction with the target to sign the definitive agreement by the end of the first half of 2019. Completion of the transaction is expected to take place towards the end of 2019, effective as of Jan. 1, 2020, subject to regulatory clearances.
In addition, Clariant announced that by 2020 it intends to divest the Pigments, standard Masterbatches and Medical Specialties businesses, which will not be included in the newly formed Business Area High-Performance Materials. Despite being well positioned and having significantly increased their profitability over the past years, the businesses to be divested do not match the group’s criteria to differentiate through innovation in higher growth and higher profitability areas.
Following a strategic review, Clariant also announced new targets for 2021 in each Business Area. Profitable growth will be driven by sustainable innovations and specialized customer solutions which meet the demand for convenience, safety, sustainability, and energy efficiency. With the strategic update and the resulting higher earnings quality, Clariant also changes its EBITDA margin target from previously “before exceptional items” to “after exceptional items” going forward. As a consequence, Clariant’s financial reporting will be changed accordingly beginning in 2019.
The Business Area Care Chemicals expects to continue to grow above the market, at a more accelerated pace. This additional step up in growth will result from offering more innovative sustainable solutions which meet the market’s increasing demand for convenience, renewable and natural products. The entry into new market segments will also support this above-average growth. Consumer Care, which is comprised of Personal Care, Home Care, Crop Solutions as well as Health Care, will be the main driver of this Business Area’s expansion strategy. The higher degree of specialties in Care Chemicals and the offering of more highly specified solutions will drive not only growth but also increase profitability to new heights.
For the Business Area Catalysis, Clariant targets continued above market growth rates by maintaining and capitalizing on its innovation leadership and strong licensing partnerships. Within Catalysts, the introduction of highly innovative and customer-specific catalysts is the key driver for future growth. Sustainable solutions such as the reduction of hazardous materials, thereby providing a much-improved toxicological profile also add to the growth. The Business Line Biofuels & Derivatives will contribute to the growth acceleration which is mainly driven by the global search for more climate-friendly energy sources and the legal frameworks set out in Europe, the US and China. Clariant expects to generate sales of at least CHF 100 million from licenses for the sunliquid technology and bioethanol sales from the production plant in Romania. The contribution from both, Biofuels & Derivatives and new customer-specific catalysts will significantly expand the profitability of the Business Area Catalysis by 2021.
Within the Natural Resources Business Area, the Oil & Mining Services activities are expected to build up momentum as general demand and a rebound of the oil market improves the industry outlook. Differentiated business steering according to the changing business landscapes combined with technology and innovation will result in sustainable strong growth. Functional Minerals growth will be driven by entering new regional markets and moving into new applications through innovations such as smart and active packaging within feed and agro.
The remaining Plastics & Coatings Business Area, including Pigments, standard Masterbatches and Medical Specialties, will continue to be managed using differentiated business steering. Pigments and standard Masterbatches are anticipated to grow in line with GDP while Medical Specialties are expected to grow more quickly in accordance with their underlying end market in healthcare packaging. The profitability of Pigments and standard Masterbatches is expected to sizably improve via stringent cost management, while Medical Specialties will benefit from innovations resulting in profitable growth.
