InterviewBrenntag cuts staff in Europe to prepare for weaker economy

06 July 2012 13:21  [Source: ICIS news]

By Will Beacham

Brenntag CFO Georg MullerLONDON (ICIS)--German chemical distributor Brenntag has cut 4% of its European staff in an attempt to prepare the company for challenging macro-economic conditions in the region, its CFO said on Friday.

The staff reduction of more than 200 people by the world’s largest chemical distributor, began in the first quarter (Q1) of 2012, is now almost finished, and targets savings of €12m/year ($15m/year) from the second half of the year, according to Georg Muller.

“We have undertaken [these] measures to prepare ourselves for a weaker macro-economic situation. It is more or less complete and is across all of the functions including warehouses, logistics and sales.” he said.

Europe is still the company’s largest market, with 48% of its first quarter 2012 sales of €2.35bn generated in the region. But those results showed the company’s poorest level of profit growth compared with its other regions, with operating earnings before interest, tax, depreciation and amortisation (EBITDA) increasing by only 1.5% to €79.6m, despite the acquisition of the UK’s Multisol Group in September 2011. 

“From a pan-Europe perspective, the economy is not falling off a cliff and we’re not seeing a significant movement in that way. A significant share of our customer base is relatively immune to the macro economy, such as food, personal care, water treatment and pharmaceuticals,” Muller, who took over as CFO this year, told ICIS.

“Q1 is a mixed bag. Southern Europe was clearly below average and other parts like Benelux, the Nordics and parts of central and eastern Europe have been particularly strong.”

Asked about the potential impact of Greece pulling out of the euro, Muller said: “We withdrew from Greece during Q1 but we only had a tiny business of two or three people there beforehand.

“We are used to dealing with many different currencies. We have people in our business with strong experience of the pre-euro times. If something happened, it would be a challenge to deal with, but we are perfectly equipped.”

There are no plans for similar moves in other regions, Muller said.

“North and Latin America are in much better macroeconomic shape and, in chemical distribution, customer service is paramount. You don’t want to go into savings measures that reduce service levels, especially when demand is good.”

The availability of cheap energy and chemical feedstocks from shale gas is having a big and positive impact on Brenntag in the US. First quarter 2012 operating EBITDA there rose by 12.3% to €73.9m on sales of €759.3m.

“US energy prices are so low that industrial production has benefitted tremendously so it’s been very beneficial,” Muller said. “Directly, part of our business includes serving shale-gas drilling platforms and we started to see this business pick up during 2011.

“Our oil and gas business had a very strong foothold in the Gulf coast but now shale gas is spreading the business across the country. We already had storage facilities across the US, so we can pick up that business pretty quickly.”

Brenntag’s Asia Pacific results in the first quarter saw operating EBITDA grow by 5%, although it was helped by the acquisition of Zhong Yung (International) Chemical in August 2011.

“Thailand had floods towards the end of 2011 and industrial production dropped significantly, severely impacting customer demand by around 20%,” Muller said. “We do see the business coming back so we are pretty sure it is temporary.”

Muller is bullish about future performance. “The global market is expected to grow and we’ll benefit from that,” he said.

“Europe might be more difficult but emerging markets and the US are expected to grow more strongly. We expect all our key performance indicators such as gross profit and EBITDA to continue to grow over previous years, and also for the remainder of this year.”

($1 = €0.81)

By: Will Beacham
+44 20 8652 3214

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