Brenntag’s strategy pays off

ORGANIC CHEMISTRY

RESULTS • BRENNTAG’S RESTRUCTURING PROCESS, COMBINED WITH EXTERNAL FACTORS AND FURTHER ACQUISITIONS, BOOSTED PERFORMANCE IN THE FIRST HALF

BRENNTAG HAS REPORTED second quarter gross profit of €838.7m, up 21.1 per cent on the same period last year, with operating EBITDA up 34.3 per cent at €355.1m, in what the company calls “an exceptional market environment”. Sales were ahead by 23 per cent year-on-year at €3.47bn.

Christian Kohlpaintner, CEO, says: “We achieved excellent results in the second quarter and are highly satisfied with the performance of our two global divisions Brenntag Essentials and Brenntag Specialties. Brenntag Specialties performed particularly well in the second quarter.”

CFO Georg Müller adds: “The overall exceptional business dynamics and market environment of the first months of 2021 continued into the second quarter. We again benefited from good margin management and were able to generate high gross profit per unit. Additionally, we saw volumes sequentially improving throughout the quarter.”

Brenntag Essentials, which markets a broad portfolio of process chemicals across a wide range of industries, posted an operating gross profit of €523.1m, up 16.3 per cent on the second quarter 2020, with operating EBITDA of €230.1m, 29.1 per cent up; North American operations in particular made a significant contribution, the company notes.

Brenntag Specialties posted even better figures, with operating gross profit up 30.1 per cent at €308.9m and operating EBITDA ahead by nearly 50 per cent at €144.5m. “These remarkable results are due to a broad-based positive performance across all segments and were driven almost entirely by organic growth,” Brenntag says.

CHANGE IN HAND This year’s second quarter figures partly reflect the change since the same period last year, which was the first to be impacted by the

global Covid-19 pandemic and the sudden changes to supply chains that it caused. On the other hand, a lot of the growth over the past year can be attributed to internal measures, with the Project Brenntag initiative already generating savings; Brenntag says that the restructuring of the group into two operating divisions, which took effect at the start of 2021, helped generate more than €40m in operating EBITDA in the first half of the year and it now expects this to ramp up to an annual figure of €220m by 2023, as part of a new phase that will focus on improving EBITDA yet further.

Project Brenntag is seen as a broad transformation programme under which the group will aim to adopt “a more focused approach to our market activities, build stronger partnerships with our customers and suppliers, and reduce complexity”. One element of that includes a rationalisation of its operations, with some 100 sites identified as candidates for closure; of these, 58 had been closed by August this year, with the loss of some 480 jobs. Brenntag says it has another 800 or so positions to be eliminated over the coming two years, which will be done in a socially responsible manner; the company is already in close dialogue with works councils in different countries.

Since the strong performance posted in the second quarter, Brenntag has raised its forecast of its full-year results, now expecting EBITDA to be in the range of €1.16bn to €1.26bn. Kohlpaintner (right) is not complacent, however, saying: “We expect the currently exceptional market conditions to remain with us. The Covid-19 pandemic will also continue to bring a certain degree of uncertainty. Overall, we are very pleased with our business performance so far in 2021, and Brenntag is superbly positioned to adapt to the conditions and continue this good business performance in the further course of the year.”

RESTRUCTURING BRENNTAG ALONG BUSINESS LINES,

TOGETHER WITH ACQUISITIONS IN CHINA AND THE

US, SHOULD HELP TO CONTINUE TO IMPROVE SALES BUYING THE MARKET Another important aspect of Brenntag’s recent growth has been its expansion through acquisition. At the end of July, the group closed the acquisition of the first tranche of shares, equivalent to 67 per cent, in Zhongbai Xingye, a specialty distributor of food ingredients in China, for €64.6m. Brenntag is aiming to acquire the remaining shares by the end of 2024.

“The acquisition of the leading player in mainland China is an important step towards Brenntag becoming a full-line distributor of food ingredients in the Asian market,” Brenntag says. The company also bought out its joint venture partner’s 49 per cent holding in Hong Kong-based Wellstar Group, which specialises in the distribution of pigments and additives in China, in late June.

Speaking at the time of these transactions, Henri Najade, COO of Brenntag Specialties, said: “Strengthening our Brenntag Specialties division, particularly in China, as well as in the Asia Pacific region in general, is a central pillar of our company’s M&A strategy. I am particularly delighted that we stuck exactly to our timing in both cases and were able to successfully close the important acquisition steps in the dynamic and growing Asian markets as planned.”

At the beginning of August this year, Brenntag also closed the €255m acquisition of US-based Storm Chaser Holding which, under the ‘JM Swank’ brand, is a leading distributor of food ingredients in North America. “This strategic acquisition doubles Brenntag’s size in the nutrition business in the region and thus creates the leading food ingredients and food process chemicals distributor in North America,” Brenntag says.

AHEAD IN AMERICA Another major move came in early August when Brenntag acquired all the operating assets and business of Matrix Chemical, a leading distributor of solvents and acetone in North America, for €48.5m; Matrix’s year-to-date sales in 2021 amount to some $200m. Matrix operates storage tanks at bulk terminals in Houston, Chicago, Vanport, PA and Wilmington, NC.

“With the acquisition of Matrix we create a highly reliable and competitive logistics network for acetone and solvents in North America that allows us to take advantage of market opportunities and to deliver a variety of core products to our customers more efficiently, economically and in a more sustainable manner,” says Steven Terwindt, COO of Brenntag Essentials. “Overall, we expect significant operating synergies by leveraging Matrix’s supplier relationships, logistics network and bulk storage capacity in combination with Brenntag’s existing North American infrastructure and outbound logistics.”

Anthony Gerace, managing director of M&A at Brenntag, adds: “Matrix and its terminals in the US perfectly complement our existing network in the region. The acquisition is strategically aligned with our growth strategy in North America as it creates substantial additional acetone capacity in key geographic areas at advantaged barge economics. The combined network will improve our geographic coverage and operating efficiency and allow us to better serve our customer and supply partners alike.” www.brenntag.com