Stephan Lynen, CFO of Swiss specialty chemicals giant Clariant, spoke to Acuris Capital Intelligence in mid-December 2020 about ensuring business continuity and performance optimisation in light of COVID-19.
Interview by Ryan Gould
Q: What has been the pandemic’s impact on business performance?
It can be hard to foresee the impact of something like a pandemic so we were very hands on and supported the businesses to make stronger adjustments in case the effects weren’t fully reflected in the order pipeline. Elsewhere on the working capital side, such as receivables, we have been managing tight credit and collection management, performing even better than in previous years.
Q: How did you monitor liquidity?
We engaged in a capex review programme. We said that whatever is necessary from an environmental or safety perspective, we will not touch. Unlike some other companies, we also said that whatever is strategically relevant for us to achieve our mid-term targets would go unchanged. The capex that we did reduce was associated with mid-sized projects that were flexible on timing or had seen their rationale change due to the "new normal".
Q: How does the financial performance of the business look now?
After nine months, we reported a sales decline of 6% in local currency while defending the same EBITDA margin as 2019, which is defined as resilience. If you look at our peer universe of 50 companies, we outperformed most of them in that regard.
Q: Has Clariant’s approach to the capital markets changed?
We haven’t had a desire or a need to think about equity financing at any point. On the debt side, we always base our decisions on our rolling estimates and scenarios. In April 2020, €150 million in debt was due and we chose to refinance it through Certificates of Deposit (CDs), which went smoothly, obtaining c.€200 million and c.CHF65 million. Our investment-grade rating from Standard & Poor’s and the performance of Q1 2020 showed that you could believe in Clariant’s resilience in 2020 and so the access to debt and good pricing was no problem. In October, more debt came due and we chose not to refinance it as liquidity was running very well. We also have a revolving credit facility that we never drew, but it was always there as a backup.
Q: What types of capital look most attractive in the current market environment?
In the first place, we focused on defending a solid balance sheet and liquidity by operational performance improvements, which were underpinned by the special programmes to defend against COVID-19. With regards to financing levels, you need to assure on the one hand that you are sufficiently financed at all times; on the other hand, you need to avoid long and high cash surpluses as with euros and Swiss francs, for example, you might face negative interest. Regarding debt instruments, we still focus on CDs and bonds in Swiss francs, euros and US dollars, possibly within a green framework.
Q: Has capital been set aside for potential acquisitions?
With the closing of the Masterbatch divestment and in anticipation of the divestment of the Pigment business, we distributed an extraordinary dividend of almost CHF1 billion in July 2020. Of course, we are observing the market—we have the appetite to grow inorganically. If we see a value-creating case for Clariant and our shareholders, we will step up and communicate that. M&A is on the agenda, but there is no capital set aside.
Q: How have advisory conversations and pitches changed since March 2020?
The M&A market has returned in recent months after being pretty silent at the beginning of the pandemic. The belief in an economic recovery through the availability of vaccines is rising and, as share prices are rebounding, M&A markets are looking at possibly the last opportunity for cheap deals. So, advisers and banks are very active in pitching M&A ideas and new financing vehicles. We did our own survey on green financing as well, as we are planning for an upgrade of our sustainability policy and offerings.
A bit of background: Clariant is a focused, sustainable and innovative specialty chemical company based in Muttenz, near Basel/Switzerland. For the 2019 financial year, Clariant recorded sales of CHF4.399 billion for its continuing businesses. Continuing operations EBITDA after exceptional items was booked at CHF461 million. Stephan Lynen was appointed CFO at Clariant on 1 April 2020. He is responsible for corporate accounting and controlling, M&A, corporate tax and treasury, global business services, group investor relations, group information technology and the EMEA region.
This interview has been edited for clarity and length.
