EUR 850.00 For Business Accounts Only

Morningstar | Clariant Company Report

Clariant has been trudging a long road of portfolio restructuring as it strives to become a leading speciality chemicals company. Over the past decade, restructuring costs and impairments have become endemic as more commoditised businesses are sold, higher-growth speciality businesses are acquired, and legacy operations are rationalised to deal with an increasingly competitive environment. Difficult as it is, we think the company is on the right path. There is limited space for European companies to compete in commodity chemicals, given feedstock disadvantages and high labour costs. We believe the company is in the latter stages of its transition; however, restructuring costs are expected to continue in the medium term. Clariant is now focused on more specialised offerings such as chemicals for personal- and home-care products, additives for agricultural crop care, oilfield production chemicals, and process catalysts for chemical plants. These products, which form the core segments of care chemicals (28% of EBIT), catalysis (16% of EBIT), and natural resources (18% of EBIT), have good margins and solid growth outlooks. However, Clariant’s most cyclical segment, plastics and coatings (37% of EBIT), is still the largest segment and contains the more commoditised, mature business such as organic pigments and masterbatches. Growth opportunities in these businesses are somewhat limited, and competition from low-cost producers in China and India continues to increase.The company's long-term goal is to reach a sustainable EBITDA margin of 16%-19%, which would be commensurate with peer-leading speciality chemical companies. We don’t expect this to be achieved in the medium term, at least sustainably, as the lower-margin plastics and coatings segment will continue to generate a substantial proportion of profits. Ultimately, we expect Clariant to sell the plastics and coatings segment, which has already been carved out as a separate subsidiary. However, this will likely not take place in the near term, given its sizeable cash flow contribution to the group.