Clariant's chief financial officer said on Wednesday that the Swiss-based manufacturer is looking to switch to a higher-margin portfolio, with a plan for a high-performance materials joint venture between Clariant and Saudi Basic Industries (SABIC). Will significantly increase its profits.
Clariant's chief financial officer Patrick Jany said that the planned joint venture business will include Clariant's additive business, high-end masterbatch business and Saudi Basic Industries Corporation (SABIC) specialty polymer business, whose turnover is expected to In 2021 it will reach 4 billion Swiss francs (Swfr) ($397 million).
He added that it is expected that the EBITDA pre-exceptionals of the joint venture's regular business will reach 24-25%, while the Group's estimated profit margin for the third quarter of 2018 is 15%.
Jany said: 'We are separating the innovation and high-margin business of the combination of plastics and coatings, combined with the high-performance polymers of Saudi Basic Industries (SABIC) to create a very professional and wide-ranging participant in the field of materials.
The business focuses on industries such as mobile phones and light vehicles, where demand for new lightweight, durable specialty plastics and coatings is likely to increase.
He said: 'We need highly specialized materials to keep up with the pace of our progress. These materials will appear in the next 5 to 6 years.'
According to analysts at Baader Bank, the joint venture may increase the company's annual EBITDA level by two digits, according to estimates before the joint venture announced its establishment.
The bank said that after Saudi Basic Industries Corporation (SABIC) acquired 24.99% of Clariant's shares earlier this year, the alliance was Clariant's 'marriage gift' and could consolidate Clariant's role as The status of one of Europe's key acquisition targets.
The establishment of the joint venture may be a prelude to Saudi Basic Industries Corporation (SABIC), which will use Clariant as a more important tool for acquiring or fully acquiring business.
Saudi Basic Industries Corporation (SABIC) said in September that it has no plans to acquire the remaining 75.01% of the company's shares, and Jany declined to comment further.
Earlier this month, the CEO of Saudi Basic Industries Corporation (SABIC) said that the two companies will announce more synergies in the first quarter of 2019.
He added that Clariant is expected to receive a majority stake in the joint venture, but details are still under discussion and the negotiations are expected to continue until June 2019.
The company is also selling a variety of low-margin businesses, including standard masterbatches, pigments and medical specialty products to improve the overall profitability of the business.
Jany said that the total turnover of these businesses in 2017 was 1.6 billion Swiss francs (Swfr), and the pre-tax profit margin (EBIT pre-exceptionals) of regular business was 12%. There are obvious differences between these businesses, and Sold separately, not as a department, it is expected that the divestiture will be completed in 2020.
Jany said: 'These are very differentiated businesses. In terms of customers, competitors, etc., the situation is really different.'
He added that business selling and high-value collaboration with SABIC may increase Clariant's average profit margin and make it less affected by the economic cycle.
He said: 'The divestment of the group will increase the profit margin of the group, because we will sell the business with lower profit margin, so the average profit margin will rise, and we will also gain more GDP independence, because those businesses that sell are more concerned than us. It is more susceptible to the impact of the overall economic environment. '
Jany said that the rest of its business, chemicals, catalysts and natural resources businesses, is at the heart of its operations and will continue to maintain its core position in 2021.
Clariant CFO says its high-performance materials business with SABIC will significantly increase profitability
The company announced on Wednesday that the third-quarter special project EBITDA increased by 3% year-on-year to 240 million Swiss francs, slightly lower than analysts' expectations, and catalyst revenue fell by 28%.
Jany said that after several quarters of the 'extraordinary period', Asian economic growth slowed, causing the catalyst sector to decline.
He said: 'Our growth level in China is 30%. The growth we achieved in the third quarter is actually our target growth range. Therefore, from this perspective, the growth is actually very stable, but it looks Lower than before. '
However, due to political tensions, central bank interest rate hikes and a non-uniform Western economic recovery, pressure on demand growth, demand growth may become weaker in the final months of the year.
He said: 'Of course we see that many people will see that tariffs (and other factors) increase people's concerns about the economy... After many years of rapid growth in many areas, we now see the demand Weakness, in our view, is a slowdown in growth, not a crisis.
Although expectations for the next few months may be less optimistic, the company expects overall EBITDA to improve this year compared to 2017.
Jany added: 'After the third quarter, our profit margins were flat, and the absolute percentage increased slightly, but the fourth quarter could not reverse the year.'