Clariant AG (CLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Introduction of Conrad Keijzer Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] and the conference is being is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Maria Ivek, Group Investor Relations. Please go ahead, madam.

Ladies and gentlemen, good afternoon. My name is Maria Ivek, and it's my pleasure to welcome you to this call to introduce Clariant's new CEO, Mr. Conrad Keijzer. Joining me today are Hariolf Kottmann, Clariant's Chairman of the Board; Conrad Keijzer, CEO of Clariant; and Stephan Lynen, CFO of Clariant. As a reminder, this conference call is being recorded. [Operator Instructions]. There will be a Q&A session following later. Let me now hand over to Hariolf to begin the discussion.

Yes. Thank you, Maria. Ladies and gentlemen, it's my pleasure to welcome you to today's call. The announcement of Clariant's new CEO took longer than originally expected due to various reasons, the ongoing pandemic, in particular. That is why I'm especially pleased to present Conrad Keijzer to you today. On the 8 of December 2020, the Board of Directors unanimously appointed Conrad as our new CEO, effective on the 1 of January 2021. Please join me in welcoming here in Switzerland. Conrad, we are very pleased that you have started in your new role as CEO of Clariant. As already mentioned, the CEO search was a bit challenging for all parties involved, and I have, therefore, expressed my gratitude to the Nomination Committee, which has worked very professionally since September 2019, evaluating many candidates. There was a strong interest in this position, and we are convinced that we have finally identified the right person for this important role. Timing couldn't be better after having executed a significant part of our strategic divestment successfully. We will focus now on further enhancing Clariant's performance, based on a strengthened core and the rightsizing of the organization. From our point of view, Clariant and Conrad Keijzer are an excellent match. Conrad is the right choice. Not only because he can build on his more than 2 decades of experience in the chemical industry, but also because of its excellent reputation, his integral personality, his trust worthiness and undisputable track record. After almost 25 years with AkzoNobel, Conrad knows the chemical industry inside out. And has an excellent understanding of the trends driving current development. He is recognized as a top executive who has not only successfully managed challenging transformations, but also for his integrity and sustainable business practices. I'm very satisfied with the fact that we now have such an experienced and successful top manager on board. Conrad, together with our executive committee, will lead Clariant with new momentum. I have assured Conrad my full support, and I will do everything I can do to enable him to lead Clariant successfully. With that, I would like to hand over to Conrad. Please?

Thank you, Hariolf. I would like to thank you for your kind introduction, for your openness and for your trust. I'm very much looking forward to working together with you as well as the entire Clariant management team. Before talking about my professional background, you may also be interested in me as a person. I'm a Dutch citizen. I was born 52 years ago. I have a partner who works as a psychologist, and I have 2 children who are actually not children anymore, but young adults who are currently studying at University. I'm looking forward to living in Switzerland. In the past, I've visited this country many times, both for business and for pleasure, and I've always found it very pleasant to be here. Now I would like to share a little bit of my professional background with you as this information is relevant for the CEO role at Clariant. After receiving my diploma as an industrial engineer, I started my career in the chemical industry and have now accumulated more than 25 years of experience in the chemicals and materials industries. I've led large-scale transformations, both at AkzoNobel and at Imerys. In most of my jobs, I consistently focused on growth, both through acquisitions and also through organic measures, market-driven innovation, operational excellence and through expansion in high-growth markets. My most recent position was that of CEO at Imerys in France. I was hired to drive the transformation of the company at a time when it was struggling with a lack of organic growth and a profitability below that of its industry peers. We successfully set up the company for organic growth by implementing a new customer-centric organization. We also started working on overarching initiatives to improve the profitability of the group. Prior to Imerys, I was with AkzoNobel for 24 years, where I ran many different businesses of increasing size and responsibility. I've spent a total of 60 years outside the Netherlands, working and living in countries like the United States, Germany and Mexico. During my last 5 years at Akzo, I was a member of the Executive Committee and CEO of the Performance Coatings Division. A division with a significant footprint in Asia, sales of roughly EUR 6 billion and approximately 20,000 employees. It is a privilege for me to join Clariant, a leading specialty chemicals company with an impressive leadership team, strongly focused on sustainability as a key driver for innovation. I have been following Clariant for a long time. From an industry perspective, Clariant has seen a fantastic development over the last 10 years. Prior to that, Clariant was a diversified chemicals company with a relatively high portion of commodities and some specialties in their portfolio. Over the years, Clariant has developed successfully into the multi-specialty chemicals company that it is today. I see significant opportunities for further development on the foundation which has been built in the past few years. Clariant is currently in a transformation phase, as you know. Concurrently, the company has a clear future-oriented strategy as well as a focused portfolio with the potential to generate an even better performance than it does today. The company is well equipped to meet some of the key megatrends in our world. Care Chemicals offers an exciting portfolio and formulation capability to its customers, such as in Personal Care, Crop Protection and Coatings. Biotechnology plays an important role in Clariant's present and will continue to do so in Clariant's future. Catalysts enable the smarter use of energy and help to enhance emission reduction. The business units in Natural Resources are also well placed in their markets to drive profitable growth, such as Additives, supporting a digitalizing world. In addition, there is also an increasing demand for more sustainable chemicals, which will drive our business priorities coming from an already strong position. According to the Swiss governance model, I will focus on the operational tasks and improving the group's performance, while the Chairman will focus on further developing the group's strategy. I'm confident that I can build on the experienced management team at Clariant and that I can count on the strong support of the Board of Directors as well as our anchor shareholders. Ladies and gentlemen, today is the first opportunity we've had to speak in person via this call, but it will certainly not be the last. I very much look forward to staying in touch with you and to communicating with you in an open and transparent manner. Thank you for listening. And now back to you, Maria.

Thank you, Conrad, for providing us with this insight into your vast industry experience as well as your high-level view on Clariant's outlook. We will now open the line for questions.

[Operator Instructions] The first question comes from the line of Andreas Heine with Stifel.

Maybe 2 questions to ask. Well, it's a very short time span you could look in more detail in Clariant. Is there something you would stress as specific strengths, you would say, and where you would focus your work in the first year on? That's my first question. And then second, SABIC came up with statement what they would like to ask for in the AGM. Is there any comment from the Board, the Supervisory Board on this, you might share with us? These were my 2 questions, please.

Sure. So the second question, I will refer to -- having to answer. On your first question, any particular strengths that I saw, capabilities of the company in the brief time that I've joined, I'd very much like to answer that question. So first of all, I obviously have known Clariant for quite a few years already. If you ask me to highlight the core strengths, I think Clariant has been actually 1 of the few companies in the chemical industry that have successfully repositioned itself to become a pure specialty chemicals company. So if you look at the current businesses, whether it is in Care Chemicals, whether it is in Catalysis or whether it is in Natural Resources, these businesses each individually are specialty chemical businesses. And the company has successfully spun off the more, let's say, commodity type of businesses. Now apart from, let's say, the portfolio change that Clariant made in the last -- well, I would even say a decade or so. What the company, I think, in my view, has been doing very successfully is actually building up the capabilities that are required to successfully compete in specialty chemicals. I'm talking about it, obviously, here about operational excellence, I'm talking about customer excellence. I'm talking about innovation. And finally, people excellence in a more -- from a more general perspective. Your sort of second point about focus in the coming year. For me, it is very much to continue to execute on this strategy to continue to position Clariant as a true specialty chemical company. Capabilities obviously always can continue to improve even further. And yes, so that is, let's say, the sort of the priority in the coming year. And next to that, there is the restructuring that has recently been announced to basically downsize some of the corporate support functions in line with the company that has become a bit smaller. Perhaps, Hariolf, you can answer the second question.

Yes. Andreas, before I comment on your second part of the question, I forgot to say that I wish all of you a successful, healthy and happy new year. And now let's turn to SABIC. For sure, we have taken note of the requests of SABIC. And as you may imagine, the Board of Directors will consider everything in the next meeting. And therefore, I kindly ask you for your understanding that we cannot further comment on the content of this letter today.

The next question comes from the line of Nicola Tang with Exane BNP Paribas.

Welcome, Conrad, I look forward to meeting in person one day. I wanted to ask you a few questions. I think in December, when you started, there were some Reuters quotes from, I guess, an interview that you were doing, saying that you were attracted to Clariant for both organic and M&A opportunities. So I was wondering if you could give any initial views on -- in which areas you see the most organic opportunities and in which areas you see the most interesting inorganic opportunities? And then in your remarks, you mentioned that at both Akzo and Imerys, you led large-scale transformation programs on both sort of costs and on growth. I was wondering whether at Clariant, you see more of an opportunity on the growth side or on the cost side? And then maybe as just a final follow-up. Perhaps, Hariolf or Stephan, you could give a comment or an update on -- in terms of the strategic measures that you've been putting in place so far in terms of the headcount reduction? And any progress on the payments divestment.

Sure. So in terms of the focus, organic versus M&A, if you look at the current business of Clariant, if you look at Care Chemicals, Catalysis and Natural Resources, what you see is that there's still on level -- an ongoing level of consolidation going on in the industry. So for Clariant, it is important to grow alongside these 3 growth platforms. Yes, that is very much organic growth. But if and when there is the appropriate bolt-on acquisitions that become available, then obviously, the company has a responsibility to look at those as well. As to your second question on transformation, whether the key focus is growth or cost. I think if you look short term, certainly, the company needs to complete the restructuring programs that have been announced last year. As you are aware, early in the year last year, there was a restructuring program affecting 600 positions announced. And later in the year, there was a restructuring program affecting 1,000 physicians announced. So these programs are well on track right now, but they definitely need to be completed. In terms of growth, yes, the company has actually shown a quite strong organic growth historically in the recent years. Even if you look at last year and the first 3 quarters in local currency, numbers down 6%. If you compare it to peers in the industry, that's actually a very respectable performance in the current COVID conditions. But there's always an opportunity to step up organic growth, and that needs to be pursued through commercial excellence, through innovations, through increased participation in high-growth markets, particularly China. I think, Hariolf, there was a...

No, I think Stephan can respond to the second part of your question, Nicola.

So yes, let me give you an update, where we stand in our efficiency programs, remember, there are 3 dimensions. One is, which Conrad just mentioned, is the 600 positions, which we reduced from the continuing business for an accretion of CHF 50 million savings. We are very well in progress. We have, as you know, suspended that during the first lockdown for various reasons -- known reasons, and we are now in a process of execution. We believe that there will be a big contribution already in this year. Maybe a little bit south of 40% of that range. And then in -- going into the next year, we will -- by end of next year, we will have -- sorry, by end of this year, I've forgotten the new year already. By end of this year, we will have achieved basically almost a little bit less than 100% of the run rate. That's on the efficiency program for the 600 positions. The second part is the -- also, Conrad alluded to the rightsizing of the back office due to the divestitures and the change of size of company, and here, we have announced 1,000 positions to be either transferred or actively reduced. That is something which occurs, of course, post the TSA, post divestment. So once you have closed the divestments like Masterbatches, there is still tens of our service agreements going on. And then we're also executing, but this is going to have stronger impact in this year and next year rather than the last year, obviously. And finally, the third part is that we also have an improvement program in the discontinuing business. We said around 200 positions in the past that's ramping up Pigments to higher-value and bringing me to the second part of your second question, there we are -- now after we restarted the marketing launch of the Pigment divestiture back in autumn, we are now in discussions with a very good range of financial and strategic interest which we will conclude in the next weeks, and we still anticipate that the signing should be feasible in the second quarter of this year. And then depending on the regulatory process for approvals, we would still forecast the closing prior or latest at the end of this year in Q4.

Next question comes from the line of Chaudhry, Mubasher with Citi.

Just your comments, Conrad, around the split of the duties with regards to the strategic and the operational. So does that mean your main focus will be around driving organic and efficiency growth, whereas the more M&A side will not fall under your day-to-day? And then just the second question on your kind of initial impressions of the business when you've had your initial conversations over the past few months, any positive or negative surprises? And kind of how are you thinking about identifying the best efficiency measures to take within the business? And what are some of the kind of KPIs you're likely to focus on when running down these criteria? That would be really helpful.

Sure. Yes. So let me start with your first question about the split of responsibilities between the CEO and the Chairman. So as you are aware, we're a Swiss listed company, and we operate according to the Swiss governance model. Here, clearly, the strategy is the prerogative of the Board. Now obviously, I will provide my inputs there. So -- but that is clearly the prerogative of the board. And as a CEO, that does mean, on the one hand, you execute the strategy. On the other hand, you provide your inputs for that strategy. More specifically to your question, how does it then relate to organic growth versus M&A? Management will obviously scan the market as it always should do for potential targets for potential opportunities. But yes, these are then subject to approval by the Board. Perhaps, Hariolf, you could add here, if that's needed.

No, I would like to come back to the first part of what you just said. And Conrad is a very polite gentleman. You can also refer to, let me say, the Swiss governance theory and the reality. In reality, the EC and the CEO has responsibility for setting objectives and defining the way how to achieve these objectives called strategy. And this happened in the past, and this will happen in the future in the same way, the EC decides about the direction of the company, makes decisions in strategic cases as well in operational measures. And present it to the Board of Directors. It could well be that the Chairman or the Vice Chairman or some other people are a bit more closer to the development of these strategic concepts. But at the end, the CEO and his EC colleagues will run the show.

Yes, I think that was also a second question on efficiency measures and sort of my views on these and even what KPIs I was going to sort of introduce to Clariant. Well, first of all, I'm not going to introduce a whole bunch of new KPIs to this company. I was actually very impressed when we reviewed the business, how well the company actually runs its various processes, including the associated KPIs. But in terms of efficiency measures, what actually is happening as we speak is the execution of what Stephan alluded to, the efficiency improvement programs, which, on the one hand, relate to the individual BUs. They have their own targets. And on the other hand, there are corporate overarching targets and initiatives that also have their own targets and KPIs. I'm not sure, Stephan, if you wanted to comment further KPIs specifically that you feel are of relevance overall.

Yes, of course. And Conrad, it's, of course, a chapter which could extend this call, but literally, as you know, we have been guiding on a target set in growth profile and EBITDA margins. But we manage the company by improving our ROIC and ROIC as improvement of -- in combination with growth is that then shareholder value. So those few -- and in ROIC, it, of course, matters the cash conversion and the cash delivery, so those are the most important KPIs to Clariant today, and we're going to continue to improve those.

Next question comes from the line of Markus Mayer with Baader-Helvea.

Yes. Welcome, Conrad. I'm also looking forward to meet in person. I have another 2 questions. The 1 is add-on question to Andreas' on the reversal basically what are the -- usually the biggest challenges you see at Clariant, and this is on also the biggest upside. And secondly, again, coming broadly to this M&A question, how is your view on the size of Clariant? Do you see Clariant's size sufficient? Or is it lagging critical mass?

Sure. Well, I think on the first point, Markus, your question around business challenges, I think these are not isolated to Clariant alone. I think collectively, we still have a significant challenge to actually recover from the pandemic. And this is still not played out yet. So I think that it's definitely a challenge. It's obviously one that we're well aware of, and it's obviously one that we're dealing with. At this point, I actually don't see any sort of expected or legacy or hidden sort of challenges. So this is very much what I see as the core challenge. Obviously, from a more company-specific point of view, as we discussed in the call, and as Stephan also alluded to, we have the programs to actually bring down the support cost levels in line with the smaller company. That's still a significant job. So that is still in transformation in and by itself that needs to be executed and needs to be delivered. To your second point on M&A and on critical sites, what actually, I think, is a very interesting observation, if you look at the company is that if you see the individual businesses and in specialty chemicals, it is very much about relative share to your competitors, what you see is the company has strong positions in the different segments in Care Chemicals, in surfactants. The company has actually -- in Catalysts, if you look at the subsegments, very strong positions in the various segments. And the same actually accounts for the Natural Resources business. So to answer your question, is there sort of a sustainability challenge if you look at size, scale in the individual businesses? No, I don't see that. I don't see businesses right now where we lack scale within the company. So yes, I think the company is well positioned for growth, organic growth as well as value creative bolt-on M&A, if that is available in the market.

The next question comes from the line of Andrew Stott with UBS. Sorry, we lost connection with the questioner. [Operator Instructions] The next question comes from the line of Peter Clark with Societe Generale.

Welcome back, Conrad, to the sector. I've got 2 questions. The first one is really thinking about what you're saying about room for improvement, I think, organically on the business itself. I'm just wondering how long you're prepared to give some businesses if they don't respond the way you think because obviously, when I look back at the Coatings time, Performance Coatings was a business that tended to hit their targets and exceed targets in many ways and if I think of the targets at Clariant, some of them have been pretty ambitious and missed. Just wondering what you feel about hitting targets within that context. And then secondly, big year for sunliquid and you've come into this business looking at the portfolio. And obviously, the biotech side looks very interesting in the sunliquid, in particular, which is this year, the big ramp-up for the plant. I'm just wondering your thoughts on that as you come from outside looking in.

Sure. Thanks very much, Peter. And in fact, it does feel great to come back to the industry. So thank you for mentioning that. Yes, so in terms of timing related to the growth targets, the company has actually well-defined growth targets for each of the businesses. As you might be aware, Clariant has defined midterm targets for the 3 businesses in terms of their growth. And these are, in fact, organic growth targets. So Care Chemicals, Catalysis, Natural Resources. They each have their growth target. And frankly, the growth target is very much to grow in line or actually even faster than their individual markets. So the growth targets are set at a relatively ambitious level, the company should outgrow its competitors in these segments, which I think is actually the right level of target setting. In terms of patience as to when are these is going to be achieved. The midterm targets, I believe, Stephan, were 2021, that time frame.

Initially, yes. And now they are, of course, with COVID-19, the FX turmoil and the oil crisis more translated into normal year, whatever that be, '22, '23.

Yes. So basically, target's not changed, but in terms of the timing and the phasing due to the pandemic, there's obviously a bit of a delay in the delivery of these growth targets. But no intention to change the targets. I think they're setting -- they're set at the right level of ambition. There needs to be a consideration of the current trading environment. And -- but then actually, there needs to be also, in the end, accountability. We're committed to these targets, and we're not going to let that go. In terms of your second question, the biotech, sunliquids and biocatalysts yes, these are critical investments for the company. One of the core things that attracted me into the company is its commitment to sustainability. I very much in the past, saw the same thing at AkzoNobel. It was actually, every year, a close contest between AkzoNobel, Clariant, DSM and BASF was also out there. So this is a core thing to the company. I think companies that have been the early adopters of topic sustainability will, in the end, come out as winners in the sector. So also from my side, a strong commitment to these investments driven by sustainability that the company has already made and is committed to.

Okay. Can I just add? I was really sort of angling at if the business isn't responding the way you think it should in terms of driving the performance up, more in terms of margin as much as growth, your patience for that sort of thing. If I take some of the businesses maybe in Natural Resources that just do not respond, market very difficult, blah, blah, blah.

Sure. Sure, Peter. Well, I think in terms of the businesses and the delivery versus the targets, there are the growth targets, there are also well-defined EBITDA margin targets already in place for each of the businesses. So Clariant actually in the midterm targets has defined EBITDA margin targets for Care Chemicals, Catalysis and Natural Resources. These, again, were set at the best-in-class peer level if you compare at a subsegment level. So the right level of target setting. Now to your point, if they don't achieve the targets, it's not that we say these are unattractive businesses and they need to be divested, I mean, by and large, this is a portfolio with core businesses for the company now. So then it is very much about how can we achieve the targets because given the market size that the company has had, the relative market size, the company should actually be able to achieve leading performance not just in gross, but also in margins for each of these segments. And that is the ambition, and it's much more a matter of how are we going to achieve it than that you need all kinds of portfolio changes because the market leading positions are strong enough for Clariant. They should actually support also leading performance from a margin point of view, as to your question.

Next question comes from Mr. Andrew Stott with UBS.

Sorry, I was -- I failed at the first attempt. The -- 2 questions really. And first of all, welcome to Conrad, and hello to everybody else. The first thing is China. Conrad, you mentioned that China is a sort of -- you didn't quite say this, I'm reading between the lines, but you suggested that you need to increase your exposure to China. Hariolf, I know in the past, you've said that from an M&A standpoint, finding scalable specialty chemical assets, genuinely specialty chemicals is difficult in China. I'm wondering if there's anything, Conrad, you learned at AkzoNobel, you thought you can transfer across to Clariant that can really accelerate the exposure and the experience in China. So that's the first question. Second question is much more straightforward around your compensation, if it's not too rude a question. Can you communicate at this stage how you leverage to the Clariant share price personally? Or should we just wait for the report and accounts?

Sure. I think on the second question, I can't answer that question because I think that will all be published. And it is already, I think, published, right, it is already out there, in terms of renumeration. But it will be, with the AGM that will be published.

Yes, it will be part of -- it's, Hariolf, and it will be part of usual, as part of the annual report. We have a similar system in place as we had in the last years. We changed only the long-term incentive plan. And I think that it was already described in last year's annual report for the very first time. And it's more related to KPIs related to the share price, the value, enterprise value and so on than it was in the past.

Okay. So if I take last year, that would be a good format to take. Yes?

Yes, I think so.

Okay. On China, I'm actually very pleased you're raising that -- you're asking that question because indeed, it is a key priority. If you look at chemicals, 40% of the global sales in -- are actually in China. So the Chinese market for chemicals represents 40% of the global market. So if you look at the next 5 years or so, half of the growth in chemicals will come from China alone. So it is absolutely critical. If you want to globally outgrow your markets, you have to actually also grow significantly in China. Lessons learned from AkzoNobel. First of all, AkzoNobel, at the time, we still had chemicals. We have close to CHF 2 billion in revenue in China. We also had 7,800 PRC Chinese people on the ground. So 1 of the core lessons about growth in China is, first of all, if you talk about organic growth, you need to have a local footprint, a strong local footprint. And that is not just factories. It's also laboratories. So you need to develop tailored, customized products that basically are based on local raw materials and with local technology that is able to compete at local price points. If I reflect on Clariant for a second here, Clariant does have an established footprint in China. It's even going to be strengthened by the further announcements about the Catalyst -- new factory in China. I was very pleased to see the groundbreaking schedule I believe, Stephan, for this year for the new lab, right, for the technology center. So that is all actually, I think, very much lined up to support the further buildup of local capabilities in China, which is critical for the delivery of growth. Companies that fail to deliver organic growth in China are the ones that treat China as an export market, where you basically bring in products from the West without local factories, without local lab support. Your question on M&A, fully aligned with the comments also made by Hariolf in the past, M&A in China is something you need to be very careful with, need to be very careful with things like what are you buying and due diligence is a very high priority. That said, certainly at Akzo, over the years, we've done M&A in China, and it can actually help you to bring in certain capabilities, and it certainly would help you to outgrow your markets. So -- but with a cautious statement there that you need to be very careful what you actually acquire.

The next question comes from the line of Alex Stewart with Barclays.

Happy New Year, and welcome, Conrad. This is a question really for Hariolf. You've been CEO of Clariant on and off since 2008 and have a clear, clear vision of the way that the company should be managed and the direction that the company is going in. If Conrad after 6 months in the job came to you and proposed or pitched a radically different direction or strategy, how open would you be to adjusting your long-held views about the best outcome for the company? How much flexibility do you have? And to what extent was that possibility discussed during the recruitment process? I'd be very interested to hear your views on that.

Yes. Thank you for this interesting question. I'm very easy going when it comes to that. We have established now in Clariant, a total new executive team. With Conrad as an external, very experienced chemical executive. We have within, I think, 15 months now changed the entire executive committee with, from my point of view, young colleagues, Stephan Lynen, Bernd Hoegemann and Hans Bohnen. Colleagues who are 20 years, 10 years, 12 years and more with the company, who were prepared internally to sooner or later come into this responsibility. And I think we have now really an excellent team of new executives. And for sure, they have the right, and from my point of view, they have the obligation to question everything we do have currently in place. And as you already can see in the last 1.5 years, after Mr. Occhiello left the company, we already started questioning the organizational structure of the company, the processes of the company, everything, which was established 10, 12 years ago. Therefore, very clearly said, I am extremely easy going. If things have to be changed, will be changed and are being changed, which are built up, let me say, when I started 10, 12 years ago. That's absolutely not a problem. Again, the new executive team has the obligation and the right to question everything.

[Operator Instructions] Ladies and gentlemen, there are no more questions at this time.

Ladies and gentlemen, this concludes today's conference call. Once again, thank you for joining us today, and goodbye.

Bye-bye.

Bye-bye.

Bye-bye.

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