19 March 2012 00:00 [Source: ICB]
In today's volatile and challenging economic and financial environment, companies have to draw on all their resources to remain profitable and sustainable. They are having to adapt, and, in a word, they have to prove they are resilient.
For leading chemical distributor Brenntag, this resilience derives from a number of factors, which the company refers to as its five strategic pillars for resilience. In a nutshell, these are: its global coverage, its wide product portfolio and the high diversity it enjoys across its supplier base, its customer base and the industrial segments it serves.
Brenntag has put its faith in diversity, so a downturn in one region, industry or product segment will not impact overall performance
A few statistics will illustrate the strength of these pillars. Brenntag has distribution operations in nearly 70 countries; it offers more than 10,000 products at more than 400 sites; and it has 160,000 customers worldwide, with the largest single one accounting for less than 1% of sales.
In 2010, the total gross profit from Brenntag's top product accounted for less than 6% of the total, while the revenue for its top 10 products accounted for less than 22% of total gross profit.
In terms of markets, Brenntag serves customers in, for example, adhesives, coatings, elastomers, sealants, agriculture, chemicals processing, cleaning and detergents, food, metal finishing, mining, oil and gas, personal care, pharmaceuticals, pulp and paper, textiles and water treatment.
This diversity across geographic, product and markets, says Brenntag CEO Steven Holland, builds-in business resilience and financial strength. It is highly unlikely, he points out, that a downturn or problem in one particular sector would be a body blow to the company. The diversity also provides ongoing growth opportunities for the company as a whole, notes Holland.
"We have been in this resilient position for some time - maybe four to six years - so it is not so new. But we first really encapsulated the idea as a strategic strength when we were preparing for our initial public offering, to explain the company to potential investors." Holland believes the way Brenntag rode out the market turmoil in late 2008 and early 2009 is clear proof of his resiliency argument.
Brenntag's operations in both North and South America reflect this overall business model based on the five pillars of resilience.
As Markus Klähn, chief operating officer and executive vice president of Brenntag North America, says: "We move more than 30,000 stock-keeping units safely through our 130 stocking locations in North America. And our strong strategic supplier relationships ensure reliable product supply to more than 35,000 customers in all industries."
By being involved in so many industrial segments, he says, the company is able to keep abreast of driving trends, and can then identify and focus on attractive growth opportunities.
The opportunities presented are constantly prioritized, says Klähn. "The opportunities can result, for example, from small-customer management for our supply partners or from the discovery of new applications for existing products as a result of market intelligence transfer between Brenntag and its customers and suppliers," he says.
"We also benefit from new market trends such as the increased use of sustainable surfactants in a variety of applications and industries, or from new technologies such as the new shale gas exploration," adds Klähn.
Once opportunities have been identified, he says: "We align our focus with our strategic suppliers' priorities in order to support their growth strategies."
EXTENSIVE PRODUCT PORTFOLIO
By offering a comprehensive service option and an extensive product portfolio throughout North America, Brenntag maintains its competitive edge in the region. "In order to grow faster than the market as a whole, we focus on market segments that provide above-average growth rates, such as specialty chemicals and specific growth industries," Klähn notes.
To realize the full growth potential in these areas, the company employs dedicated specialists and provides focused investments. "One of the growing market segments are Global Accounts," notes Klähn, adding that many of Brenntag North America's National Accounts are either already part of the company's growing Global Account program or potential prospects for it.
But high-quality face-to-face interaction with its customers remains "extremely important" to the company. "Our proximity to our customers and the quality of our sales force is a prerequisite to understand our customers' requirements, identify growth trends early and to ensure superior service quality," says Klähn. "Our suppliers appreciate and value the quality of our commercial team as our sales professionals represent their product lines in the market."
In addition to investment in infrastructure and equipment to support its growth strategies, and in rewarding outstanding employees and upgrading its commercial team, Brenntag North America is also continuously investing in safety. "'Safety first' is one of our key principles of doing business," notes Klähn.
GROWING PRESENCE IN LATIN AMERICA
In Latin America, Brenntag is present in 19 countries, with over 18,000 customers. "That covers 95% of where someone would want to be. We are present in every major market," says Peter Staartjes, president of Brenntag Latin America.
Being present in major markets is just one of the company's five pillars of resilience, all of which "apply quite well in Latin America," says Staartjes. Top industries for the distributor in Latin America include oil and gas, mining, agriculture, personal care and food.
Brenntag had sales of around €725m ($950m) in Latin America in 2010, with the average invoice being for an amount of around $4,000 ($3,000m). "We make close to 300,000 invoices a year in Latin America," points out Staartjes.
"We are growing faster than the market as a whole. Our goal is double-digit growth, which we have succeeded in doing in the past five to six years," says Staartjes, pointing out that over the same time span, the GDP growth rate for the Latin America region as a whole has been around 3.5-4.5%/year.
"We are outpacing GDP growth in the countries we are in - and one of the main reasons is an aggressive approach to market share and towards serving the needs of both supplier and customer. When you really understand what they want, they call you first," says Staartjes.
Over the past nine months, the company has made three important investments in the region, the largest being the June acquisition of Mexico-based flavors and fragrances distributor Amco Internacional for $18.5m.
Amco has good market share throughout Latin America, points out Staartjes, and "this acquisition puts Brenntag in a market in which it hasn't had a major presence."
Other Brenntag investments in Latin America include the development of a marketing team to promote specialty chemicals in the region; and expansions at the company's facilities in Bogota, Colombia, and in Sao Paulo, Brazil.
The respective expansions were "each a multi-million dollar investment," says Staartjes. "We have grown significantly in Brazil over the past five years, and the expansion was very much needed."
Regarding specialty chemicals, Staartjes adds: "We have also created some internal innovative products that are making logistics for specialties much more efficient; we are improving the supply chain."
In 2000, Brenntag acquired Netherlands-based chemical distributor Holland Chemical International (HCI) for €228m, and with that purchase became the largest chemical distributor in Latin America.
Because HCI had already been a presence in Latin America for 40 years, "Brenntag has essentially been operating there since the 1960s," points out Staartjes. "Latin America is a lot about relationships, [and] this continues it."
He adds that Brenntag's reliability is a very important issue for customers, which is why, even "in times of turmoil, with political volatility, Brenntag has stayed in regions like Venezuela or Argentina."
BRENNTAG: ADDING VALUE SINCE 1912
Since entering the chemical distribution business in 1912, Brenntag has successfully expanded to become the world market leader in full-line chemical distribution based on sales (2008 data).
From the first expansion beyond Germany in 1966, through the entry into the US market in the early 1970s, to its accelerated growth worldwide throughout the past two decades, much of the growth has been enabled by selective acquisitions in key growth areas around the world.
One of the milestone acquisitions in the past couple of years was the purchase in late 2008 of the distribution business of Rhodia, giving Brenntag its first distribution presence in the Asia-Pacific region. In 2010 and 2011 Brenntag further expanded its market presence in the region significantly by acquiring EAC Industrial Ingredients and Zhong Yung (International) Chemical.
In 2012 Brenntag looks back at a successful history in the chemical distribution industry for 100 years.
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