Brenntag’s holistic transformation

STICK WITH THE PROJECT

RESULTS • BRENNTAG MADE A SOLID START TO 2020 AND, DESPITE THE COVID-19 PANDEMIC, IS CONTINUING WITH ITS PLAN FOR A HOLISTIC TRANSFORMATION

BRENNTAG BEGAN THE new year in a mood of optimism, with a new CEO in the shape of Christian Kohlpaintner, who came with a plan to take the company forward. As he said at the time of the release of Brenntag’s 2019 financial results in March, “Brenntag is a strong brand with a good reputation in its markets. Our company offers great potential for organic profitable growth.”

Kohlpaintner’s leadership brought with it ‘Project Brenntag’, a “holistic analysis” of the company’s internal structures, processes and organisational forms along the value chain. Brenntag saw potential for improvements through harmonisation and standardisation as well as in the stringent internal execution of initiatives and measures. The company also said it intended to further expand its already very customer-centric approach.

“Brenntag’s transformation will be a comprehensive journey. We are now creating the strong basis to drive sustainable organic earnings growth,” Kohlpaintner says. Brenntag says it has made good progress with the project, which it expects to define distinctive initiatives and create an overarching plan for their implementation based on the findings of the analysis.

SOLID START In the meantime, however, Brenntag has been affected by the Covid-19 pandemic, just as all its competitors and supply chain partners have been. Nonetheless, its first quarter financial results showed limited impact up to the end of March 2020. “Despite the exceptionally difficult conditions, we were able to achieve solid results,” Kohlpaintner says. “The Covid-19 pandemic had a limited impact on our business and financial performance in the first quarter – due also to the dedication and flexibility of our employees. We were able to maintain business operations at our sites worldwide.”

Group sales for the first quarter amounted to €3.2bn, virtually unchanged from a year earlier, though operating EBITDA increased by 10.1 per cent to €263.0m. CFO Georg Müller says: “We can be pleased with the performance of our key financial indicators in the first quarter of 2020. In addition to the positive trend in operating EBITDA, we again generated a high cash flow. Especially at the present time, this is an important component and a source of stability in the face of the uncertainty over the further course of the year.”

Brenntag will have been particularly happy to see a return to growth in its Europe, Middle East and Africa (EMEA) division, where sales were up by 3.3 per cent at €1.39bn and operating EBITDA rose by 20.9 per cent to €123.1m. “Most of our customers were able to largely maintain business operations during the crisis. Some of our customer industries, such as in the food sector for example, performed excellently,” the company says.

ALL AROUND THE WORLD Brenntag’s Asia Pacific division was the first to feel the impact of Covid-19 and this is reflected in its figures, with sales down 2.2 per cent at €349.7m. Nevertheless, in what the company describes as a “solid first quarter”, operating EBITDA was up 22.3 per cent on the previous year at €26.3m, largely as a result of the acquisition last year of Tee Hai Chem.

Brenntag’s Latin America division is still operating under what the company terms “a continued difficult and volatile macroeconomic environment”. However, it achieved a 3.1 per cent year-on-year increase in sales to €217.1m and a 20.0 per cent rise in operating EBITDA to €13.8m.

Brenntag’s North America division was also impacted by a clear decline in business with the oil and gas industry that was not fully offset by the positive trend in demand from other

CHRISTIAN KOHLPAINTNER, BRENNTAG CEO (ABOVE): “WE ARE NOW CREATING THE STRONG

BASIS TO DRIVE SUSTAINABLE ORGANIC

EARNINGS GROWTH” industry segments. As a result, sales were down 2.5 per cent year-on-year at €1.15bn and operating EBITDA was off by 1.7 per cent at €110.1m.

The full effects of the Covid-19 pandemic and the associated lockdowns and business restrictions will not be felt until the second quarter and it will be instructive to see how those fi nancial results look. At the start of the second quarter, Brenntag suspended its forecasts for the full year due to the considerable uncertainty caused by the outbreak and said it would update those forecasts “once the effects on Brenntag’s further business performance in 2020 can be reliably determined”. However, unlike some other companies in the sector, it says it will pay the 2019 dividend in full, subject to approval by shareholders in early June.

UNCERTAIN FUTURE Regardless of the Covid-19 outbreak, Brenntag says it will continue to expand its initiatives related to customer and supplier relationship management and improving warehouse logistics. These initiatives were launched in the second half of 2019 and are designed to improve working capital turnover.

Current planned investment in existing infrastructure remains in line with previous years. However, Brenntag says, these plans may be adapted to respond appropriately to market changes resulting from the Covid-19 pandemic.

“In 2020, we must prove ourselves in a very challenging environment and under conditions incomparable with any situation in the past,” Kohlpaintner says. “We expect increased levels of uncertainty over the further course of the year, which will affect our business performance. Our top priority remains the protection and health of our employees. We also do our utmost to ensure that our customers are supplied with products.” www.brenntag.com

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