Clariant Focuses on The Three
Clariant's new CEO, Hariolf Kottmann, is taking immediate and mid-term actions to improve Clariant's business performance and sustainability
CLARIANT, THE Swiss specialty chemical producer, still has much to do in the way of cost reduction and restructuring, admits new CEO Hariolf Kottmann. Speaking at the company's results conference in Zurich, he declared that Clariant "needs to build a sustainable platform of real performance as a foundation for profitable growth."
The situation has been made more difficult since the sharp downturn in chemical demand in the fourth quarter of 2008. But Kottmann stresses that the Clariant balance sheet is solid and liquidity strong. "We are in no need of refinancing until mid-2011 due to a good debt maturity profile."
However, he is not satisfied with the company's performance compared to its peers, as measured by the key indicator of return on invested capital (ROIC). And, while he believes Clariant has made good progress in improving operational performance, "our cash generation is still not satisfactory, our costs - particularly our sales, general and administrative [SG&A] costs - are too high for a company of our size, and our organization is too complex."
With the current economic slowdown in mind, Kottmann's immediate focus for 2009 and 2010 will be on "cash generation, cost cutting and complexity reduction." Quick wins, he noted, are important, but "even more important is making these quick wins sustainable."
Clariant has already applied strict spending discipline on both capital expenditure (capex) and other costs, and is managing production planning and purchasing processes tightly, says Kottmann. "The effects of these measures can already be noticed in the results of the first six weeks" of 2009.
Capex was cut back from October and will not be considered for increase again until the second quarter of this year, depending on market conditions.
Clariant is also streamlining its supply chain and purchasing processes. On inventory, Kottmann adds that Clariant has assembled a team of 40 to lead a global project on working capital reduction. The effects of these measures are already being noticed in the first six months of operation, he said.
SHAREHOLDERS NOT IMMUNE
In line with the focus on cash generation, Clariant is planning to suspend dividends, grants or payouts to shareholders for 2008.
With regard to cost cutting, explained Kottmann, Clariant is specifically targeting SG&A costs and is reviewing management processes and redefining its corporate center as well as the amount, scope and organization of the business services. At the same time, the SG&A costs of the divisions are under particular scrutiny.
On the issue of complexity, Clariant is further pruning products at the tail end of its portfolio and will transfer business to distributors in countries where Clariant organizations cannot be maintained at reasonable costs. Implementation of these measures will only begin to show effects in the mid-term.
Clariant has already been through several rounds of cost cutting and reduction in net working capital, but in many cases, Kottmann admitted, the achievements have not stuck and competitors have done equally well in improving their performance.
To combat this, he is introducing a new program in March, called Clariant Excellence, which will shift the company into "continuous improvement mode." This will involve using a combination of Six Sigma and other lean management approaches to drive improvement and make its processes more flexible, stable and reliable.
Clariant will train around 100 fully dedicated project leaders to implement Clariant Excellence "fast, efficiently and dedicatedly," starting first in the production and administration areas (operational excellence) and the field of sales and marketing (commercial excellence). It will also focus on selecting, training and empowering the right people to drive the continuous improvement drive (people excellence).
TEXTILE, LEATHER, PAPER
Of Clariant's four divisions, the most problematic is textile, leather and paper chemicals (TLP). This, says Kottmann, will continue to be restructured. However, he stresses that he is not planning to sell the division.
The restructuring will involve a head-count reduction, process optimization and increased strategic flexibility through the creation of separate business units for the three segments. "We are convinced these are different [businesses] and we will put money in, to make all parts profitable. If we face structural limitations or just cannot do it, then we will have to discuss what to do next. But selling them is not the best solution."
The TLP division saw sales decline by 6% in local currency terms in 2008, to Swiss franc (Swfr) 2.02bn ($1.74bn, €1.36bn) and the gross and operating margins also fell significantly. Clariant took a Swfr180m charge in the fourth quarter last year for business impairment in the division as it revised plans for the leather and textile chemical operations due to the uncertain outlook for 2009.
Kottmann also confirmed that Clariant will maintain its four divisions going forward and is not in the market for divestments. But, he indicated, it would analyze whether the divisions would be easier to manage and more profitable if they were split into six to 10 strategic business units. An alternative, he added, would simply be to reduce the complexity with the divisional structure.
ADDED REGIONAL FOCUS
Since taking over as CEO last October, Kottmann has reorganized the executive management structure and added regional responsibilities to executives' divisional and functional roles. This, he said, was lacking in the company in the past but would now lead to more effective strategy covering geographic growth and investment over the midterm.
He expects Clariant to develop comprehensive regional strategies over the next three to four years and see positive results within five years. Kottmann views Latin America and Asia as key priorities, with India and China high priorities. Clariant will also evaluate Eastern Europe and especially Russia for further development.
Clariant already has a good position in Japan. Over the past five years, Clariant's regional split of sales has remained constant - a result, admitted Kottmann, of not enough attention on geographic opportunities.
"We will do everything possible to strengthen our position in Latin America, where we are already strong across all our four divisions," he added.
But for 2009, the emphasis is very firmly on cash generation, reiterated Kottmann. The passing of the 2008 dividend will save some Swfr57m and send a clear signal to the market - including shareholders and employees - that times are difficult.
Reducing head count and at the same time paying a dividend do not sit together well at such times, he noted.
By the end of 2009, employment will be reduced to 19,000 from a level of 20,100 at the end 2008. Kottmann adds that Clariant is ready to take further steps in head-count reduction, should the economic environment not improve, "which in my personal opinion is very likely."
Indeed, the first six weeks of 2009 have seen demand volumes continue at the same depressed level as in the fourth quarter of 2008, with no signs of improvement. However, fourth-quarter prices for Clariant's products increased at a greater rate than those for raw materials and the company believes that raw material prices peaked in the third quarter of 2008. Clariant now expects margins to improve in the first quarter as it focuses on maintaining price levels while benefiting from falling raw material costs.
Kottmann is confident Clariant can still hit its key target of achieving a ROIC above industry average by 2010. The 2009 figure was 9%, up from 2007's 7.8% but still below the industry average level of 10.3% (measured in 2007). The company measures itself and currently trails the likes of France's Rhodia, Germany's BASF and LANXESS, Dutch group AkzoNobel and US-based Dow Chemical in this respect.
After four months with Clariant, Kottmann says he is convinced that it has a sustainable future. "We have the substance to achieve our mid-term vision by decisively implementing the measure [above] we will navigate our way through the crisis and emerge stronger than we are today."
CLARIANT, THE Swiss specialty chemical producer, still has much to do in the way of cost reduction and restructuring, admits new CEO Hariolf Kottmann. Speaking at the company's results conference in Zurich, he declared that Clariant "needs to build a sustainable platform of real performance as a foundation for profitable growth."
The situation has been made more difficult since the sharp downturn in chemical demand in the fourth quarter of 2008. But Kottmann stresses that the Clariant balance sheet is solid and liquidity strong. "We are in no need of refinancing until mid-2011 due to a good debt maturity profile."
However, he is not satisfied with the company's performance compared to its peers, as measured by the key indicator of return on invested capital (ROIC). And, while he believes Clariant has made good progress in improving operational performance, "our cash generation is still not satisfactory, our costs - particularly our sales, general and administrative [SG&A] costs - are too high for a company of our size, and our organization is too complex."
With the current economic slowdown in mind, Kottmann's immediate focus for 2009 and 2010 will be on "cash generation, cost cutting and complexity reduction." Quick wins, he noted, are important, but "even more important is making these quick wins sustainable."
Clariant has already applied strict spending discipline on both capital expenditure (capex) and other costs, and is managing production planning and purchasing processes tightly, says Kottmann. "The effects of these measures can already be noticed in the results of the first six weeks" of 2009.
Capex was cut back from October and will not be considered for increase again until the second quarter of this year, depending on market conditions.
Clariant is also streamlining its supply chain and purchasing processes. On inventory, Kottmann adds that Clariant has assembled a team of 40 to lead a global project on working capital reduction. The effects of these measures are already being noticed in the first six months of operation, he said.
SHAREHOLDERS NOT IMMUNE
In line with the focus on cash generation, Clariant is planning to suspend dividends, grants or payouts to shareholders for 2008.
With regard to cost cutting, explained Kottmann, Clariant is specifically targeting SG&A costs and is reviewing management processes and redefining its corporate center as well as the amount, scope and organization of the business services. At the same time, the SG&A costs of the divisions are under particular scrutiny.
On the issue of complexity, Clariant is further pruning products at the tail end of its portfolio and will transfer business to distributors in countries where Clariant organizations cannot be maintained at reasonable costs. Implementation of these measures will only begin to show effects in the mid-term.
Clariant has already been through several rounds of cost cutting and reduction in net working capital, but in many cases, Kottmann admitted, the achievements have not stuck and competitors have done equally well in improving their performance.
To combat this, he is introducing a new program in March, called Clariant Excellence, which will shift the company into "continuous improvement mode." This will involve using a combination of Six Sigma and other lean management approaches to drive improvement and make its processes more flexible, stable and reliable.
Clariant will train around 100 fully dedicated project leaders to implement Clariant Excellence "fast, efficiently and dedicatedly," starting first in the production and administration areas (operational excellence) and the field of sales and marketing (commercial excellence). It will also focus on selecting, training and empowering the right people to drive the continuous improvement drive (people excellence).
TEXTILE, LEATHER, PAPER
Of Clariant's four divisions, the most problematic is textile, leather and paper chemicals (TLP). This, says Kottmann, will continue to be restructured. However, he stresses that he is not planning to sell the division.
The restructuring will involve a head-count reduction, process optimization and increased strategic flexibility through the creation of separate business units for the three segments. "We are convinced these are different [businesses] and we will put money in, to make all parts profitable. If we face structural limitations or just cannot do it, then we will have to discuss what to do next. But selling them is not the best solution."
The TLP division saw sales decline by 6% in local currency terms in 2008, to Swiss franc (Swfr) 2.02bn ($1.74bn, €1.36bn) and the gross and operating margins also fell significantly. Clariant took a Swfr180m charge in the fourth quarter last year for business impairment in the division as it revised plans for the leather and textile chemical operations due to the uncertain outlook for 2009.
Kottmann also confirmed that Clariant will maintain its four divisions going forward and is not in the market for divestments. But, he indicated, it would analyze whether the divisions would be easier to manage and more profitable if they were split into six to 10 strategic business units. An alternative, he added, would simply be to reduce the complexity with the divisional structure.
ADDED REGIONAL FOCUS
Since taking over as CEO last October, Kottmann has reorganized the executive management structure and added regional responsibilities to executives' divisional and functional roles. This, he said, was lacking in the company in the past but would now lead to more effective strategy covering geographic growth and investment over the midterm.
He expects Clariant to develop comprehensive regional strategies over the next three to four years and see positive results within five years. Kottmann views Latin America and Asia as key priorities, with India and China high priorities. Clariant will also evaluate Eastern Europe and especially Russia for further development.
Clariant already has a good position in Japan. Over the past five years, Clariant's regional split of sales has remained constant - a result, admitted Kottmann, of not enough attention on geographic opportunities.
"We will do everything possible to strengthen our position in Latin America, where we are already strong across all our four divisions," he added.
But for 2009, the emphasis is very firmly on cash generation, reiterated Kottmann. The passing of the 2008 dividend will save some Swfr57m and send a clear signal to the market - including shareholders and employees - that times are difficult.
Reducing head count and at the same time paying a dividend do not sit together well at such times, he noted.
By the end of 2009, employment will be reduced to 19,000 from a level of 20,100 at the end 2008. Kottmann adds that Clariant is ready to take further steps in head-count reduction, should the economic environment not improve, "which in my personal opinion is very likely."
Indeed, the first six weeks of 2009 have seen demand volumes continue at the same depressed level as in the fourth quarter of 2008, with no signs of improvement. However, fourth-quarter prices for Clariant's products increased at a greater rate than those for raw materials and the company believes that raw material prices peaked in the third quarter of 2008. Clariant now expects margins to improve in the first quarter as it focuses on maintaining price levels while benefiting from falling raw material costs.
Kottmann is confident Clariant can still hit its key target of achieving a ROIC above industry average by 2010. The 2009 figure was 9%, up from 2007's 7.8% but still below the industry average level of 10.3% (measured in 2007). The company measures itself and currently trails the likes of France's Rhodia, Germany's BASF and LANXESS, Dutch group AkzoNobel and US-based Dow Chemical in this respect.
After four months with Clariant, Kottmann says he is convinced that it has a sustainable future. "We have the substance to achieve our mid-term vision by decisively implementing the measure [above] we will navigate our way through the crisis and emerge stronger than we are today."
quoted from : www.ICIS.com
