Clariant eyes grim Q3 but keeps focus on cash flow to pull through pandemic – CEO

LONDON (ICIS)–Although Clariant managed to maintain profitability in the first half of 2020, the company is bracing for the economic damage from the pandemic to hit in the third quarter, its CEO said to ICIS.

“We do not believe in V-shaped model of recovery following the coronavirus. Full guidance would be unprofessional, but we think that the third quarter will be weaker than the second quarter,” said Hariolf Kottmann.

The Swiss-headquartered specialty chemicals producer has already recorded a softening in its order books for this quarter, suggesting that the bottom of the curve is still yet to be reached.

The care chemicals business unit managed to offset some losses, with increased demand in consumer products with the paints and coatings markets.

The so-called “consumer facing part of the portfolio” has proved resilient so far this year, even with gains of 3% – albeit in local currency – over the second quarter.

Despite this, sector sales were down 5% in the first half compared to the previous year, which was attributed to the downturn experienced by the aviation industry.

A mild winter has been compounded by the pandemic halting air traffic and eroding sales numbers in Clariant’s care chemicals business segment.

Without this portfolio, sales would have been down 2.5% on a group level.

Clariant reiterated that weak economic sentiment may bleed into next year, an opinion that has been popular with executives so far in this results season.

One thing that will offset some of the weak demand is the continuation of the efficiency programme the producer had outlined in February of this year, which was suspended during lockdown.

The initiative is targeting savings of Swiss francs (Swfr) 50m ($54.5m) over the next two years, with the majority of this expected by the year end as Clariant shields from exposed end markets which have suffered weak demand.

This will result in 600 jobs being cut from both office and operational functions dealing with the automotive sector, refineries, mineral, oil and gas sector.

The specialty producer is also targeting strong cash flow in the mid-term as another tactic to survive the pandemic.

Although in the first half of 2020 this declined to Swfr89m, from Swfr113m a year prior, gains were made in the second quarter, and this is expected to continue throughout the year.

In order to endure the economic downturn, Clariant are not merely making introspective changes, but is thinking about its presence on a global basis.

“We are convinced that the future of the company will be decided in Asia especially in China,” said Kottmann.

“The future markets for our industry are without any doubt in Asia; if you would like to have a future with your business you have to be in that market and have to be over-represented in that market compared to the middle European market.

“At the same time, we recognise the political developments. It is a concern, and each company has to come to its own conclusion, how future investment policy should be in a country like China.”

On an international scale, Clariant aim to benefit from its relationship with Saudi Arabia’s petrochemicals major, and 31.5% stakeholder, SABIC, which could put market talk of a takeover from LANXESS to bed.

“According to SABIC CEO, Yousef Al-Benyan, he made the decision to buy from White Tail as he sees Clariant as an strategic, and not financial, investment,” said Kottmann.

“He would like to use it to increase the participation and size of the company, to grow Clariant [together] with SABIC in the area of specialty chemicals – therefore, I don’t understand why he would be interested in a takeover of X or Y,” said Kottmann.

This also means means that Clariant continues its search for the next CEO; an announcement is expected before the end of the year.

With new CFO Stephan Lynen taking the role in April and adapting any ambitions to cope with the challenges thrown up by the pandemic, Clariant continues to plan for the future while dealing with the present.

(Swfr1 = $1.09)

Front page picture source: Siggi Bucher/EPA/Shutterstock 

Interview article by Morgan Condon