TAGS: Sustainability / Natural Cosmetics
Brenntag (ISIN DE000A1DAHH0) details its strategic transformation and growth path including updated mid-term targets until 2027.
The plan presented at a Capital Markets Day in London contains the further operational and legal disentanglement of Brenntag Essentials and Brenntag Specialties leading towards two distinct, high-performing divisions with full business autonomy supported by a lean Corporate Center.
The company also presents additional details on strategic steps and product portfolio shifts to sharpen the profiles of the divisions and enhance their value proposition along market requirements. In addition, Brenntag introduces further cost take-out measures to realize efficiency gains.
Path to Horizon 3: Executing the Long-term Transformation
Brenntag is progressing in executing its “Strategy to Win”, announced in November 2022. With its “Advanced Operating Model”, announced in July 2023 and go-live in January 2024, the company is now focusing on further strengthening the ability of its divisions for differentiated steering and sharpening their profiles. This includes a new governance and steering structure of the divisions via divisional CEOs and executive committees. In addition, specific functions and responsibilities will be shifted from the corporate level to the divisions to empower them for autonomous business steering, to enhance their decision-making and improve their business performance, supported by a lean corporate center. Moreover, the company will create dedicated legal entity structures for both divisions along their new organizational setup, starting at the beginning of 2024.
With these steps, Brenntag is preparing to flexibly take advantage of market opportunities and to create the optionality and to be ready for the next strategic steps by 2026. This paves the path to “Horizon 3”, Brenntag’s vision to be the undisputed market leader across all dimensions.
Christian Kohlpaintner, chief executive officer Brenntag SE, said, “
The advanced operating models of our two divisions are testament to Brenntag’s determination to reflect the true nature of our business environment and our willingness to transform. Our customers and suppliers have already sorted themselves into the Specialties and the Industrial world. Our two autonomous and independent divisions will bring us even closer to market developments and our customer and supplier needs.”
“With this disentanglement, we are creating the optionality and are ready for the next strategic steps by 2026. Building on market trends, Brenntag continues to shape the industry and leverage the growth opportunities that arise for Brenntag Essentials and Brenntag Specialties from these trends and changes. We enhance Brenntag’s value creation and are on our path to be the market leader across all dimensions.”
Further Portfolio Sharpening & Steering to Enhance the Divisions’ Value
In addition, Brenntag executes a decisive Product Portfolio Steering. All Pharma activities will be transferred from Brenntag Essentials to Brenntag Specialties, whilst the Water Treatment and Finished Lubricants business as well as specific semi-specialty products from the Specialties segments will move to Brenntag Essentials. These shifts will sharpen the divisional profiles aligned with specific customer and supplier needs and increase the coherence within the division regarding the business model and the product portfolio.
As a result of the shifts, Brenntag Essentials will account for 70% of the Group’s current gross profits with a conversion ratio of 31 to 33%. Brenntag Specialties will account for 30% of the gross profits but with an increased conversion ratio of 38 to 40%. The changes in the portfolios will be reflected in Brenntag’s reporting structure from the Q1 2024 results onwards. Brenntag Specialties will switch from a regional segment reporting to two global industry segments, Life Science and Material Science. Brenntag Essentials will continue to be reported in regional segments.
Kristin Neumann, chief financial officer Brenntag SE, said, “
Brenntag confirmed the mid-term financial guidance for the Group and updated the financial targets for both global divisions. With executing our strategy, we will strengthen our organic growth and uplift our margins while we continue to execute our focused M&A strategies.”
“Going through this next important phase of our transformation, we maintain our cost discipline, implement further efficiency initiatives and reinforce our continuous improvement culture.”
Brenntag Essentials: Unleashing the True Potential of Its Platform
Brenntag Essentials is one of the global leaders in chemical distribution with a unique, resilient, and best in market platform. The division pursues a “triple” business model and strategy to leverage its unrivalled local, regional, and global capabilities. The three pillars are:
-
Last Mile Service Operations
-
Regional sourcing and supply chain services
-
Global sourcing and interregional optimization
With the “triple” business model, Brenntag Essentials will drive accelerated growth in the highly attractive, globally growing market of chemical distribution. The division will invest in its continued performance enhancement and will execute a disciplined and targeted M&A strategy to drive further growth and margin upside.
Brenntag Essentials’ medium term targets by 2027 (base year: 2023) are to reach an annual organic operating gross profit growth of 4 to 6%, 5 to 7% of organic operating EBITA growth, and an operating EBITA conversion ratio of 32 to 34% by 2027.
Ewout van Jarwaarde, chief executive officer, Brenntag Essentials, said,
“We are growing Brenntag Essentials’ performance with our triple business strategy of local, regional, and global capabilities, combined in one resilient and unrivalled platform, our cost-efficient network of last mile service operations, our regional sourcing and supply chain services, as well as global sourcing and interregional optimization give us a truly global and unique business model.”
“We operate in a highly attractive, globally growing market. Unleashing the true potential of our platform while leveraging network optionalities support us on our mission to become the easiest to do business with for our supply partners and customers worldwide.”
Brenntag Specialties: Power to Perform
Brenntag Specialties is becoming one of the global leaders for innovative specialty and ingredients distribution in Life Science and Material Science markets geared towards sustainable solutions. With its advanced operating model, a streamlined portfolio and a clear alignment to its supplier and customer industries of Nutrition, Beauty & Care, Pharma and Material Science, the division is laying the groundwork to become an even better partner for suppliers and customers.
Brenntag Specialties executes a clear, underpinned improvement plan to uplift its conversion ratio and profitability with five performance levers:
- Price and margin management
-
Cost-out and efficiency improvements
-
Portfolio Management and strategic portfolio choices
-
Value-added Services
-
M&A
With the global industry segment setup, Brenntag Specialties will execute dedicated industry strategies, focuses on very attractive market segments, and aims to further grow the share of Life Science in its portfolio.
With its strategic initiatives, Brenntag Specialties will gain the power to perform and close the performance gap to its pure Specialties peers. The Brenntag Specialties’ mid-term financial targets by 2027 (base year: 2023) are an annual organic operating gross profit growth of 5 to 7% and 7 to 9% in organic operating EBITA growth and an operating EBITA conversion ratio of 43 to 45% by 2027.
Michael Friede, chief executive officer, Brenntag Specialties, said, “
Our clear focus on Life Science and Material Science brings us even closer to our suppliers and customers and will make us the preferred Specialties partner.”
“With our sharpened profile and industry-focused product and service portfolio, we will capture the potential of the attractive Specialties growth markets, enhance our performance and significantly improve our profitability.”
Financial Framework
With the ambitious financial targets for both divisions, reflecting their increased focus, the Brenntag Group expects to grow its organic gross profits by 4 to 7% annually, its organic EBITA by 7 to 9% annually, and to achieve a conversion ratio of 35 to 37% by 2027.
Brenntag will continue the initiatives outlined in its “Strategy to Win” including the DiDEX program and will implement additional cost take-out measures to achieve efficiency gains. In summary, Brenntag expects its cost measures which also include some of the bottom line DiDEX benefits to reach around EUR 300 million annually by 2027.
Brenntag expects one-off costs of EUR 250 million for the DiDEX program and also for the implementation of a harmonized, lean ERP system. One-time expenses to achieve the cost take-outs and the operational and legal entity disentanglement are expected to amount to EUR 450 to 650 million until 2027.
The company’s annual capex will amount to EUR 300 to 400 million, including the DiDEX investments. The company’s M&A strategy as well as target spent remain unchanged. Brenntag will continue to invest EUR 400 to 500 million annually on M&A, implying a growth contribution of 3% annually.
Source: Brenntag Specialties
