Company News

March 12, 2021

Vita Opens Innovation Center

Technical Innovation Centre launched by MP


It has been a Budget Week like no other with a big focus on kick-starting the economy and ‘building back better’. At The Vita Group, we continue to invest in the future, ensuring we’re able to sustainably deliver the very best products and solutions for our customers for generations to come. As part of this mission, we are proud to unveil our fourth innovation hub with the launch of Vita’s new Innovation Centre in Accrington, Lancashire.

The Accrington Technical Innovation Centre will work in partnership with employees and customers across our European footprint to lead research, development, and collaboration on highly engineered and customized polyurethane foam, including driving forward sustainable solutions through the use of biopolyols.

Vita’s four state-of-the-art innovation centres in Accrington, Corby, Middleton and Lithuania collectively represent a £1.3m investment for the Group, 80% of which has been allocated to its sites in the North West.

The centre was officially opened by Sara Britcliffe MP for Hyndburn & Haslingden, at a virtual launch event hosted from the site in Accrington. It offered guests a virtual tour of the new facility, as well as an overview of the site from Group CEO Ian Robb and Technical MD Stuart Roby.

Joining via video link, Sara Britcliffe MP said: “The Innovation Centre is a fantastic example of the type of investment needed in our area to help make the vision of a levelling up agenda a reality. As we start to ease restrictions, I am eager to put Hyndburn & Haslingden firmly back on the map, and work with local businesses like The Vita Group to make our area an innovation hub for the entire region, bringing forward more exciting projects like this, driving jobs and growing the next generation of innovative businesses and facilities.”

A huge congratulations to all involved and welcome to our new colleagues who will help to make this new facility a world-class centre of excellence, combining Vita’s technical expertise in foam chemistry with the latest state-of-the-art testing equipment and systems.

March 12, 2021

Vita Opens Innovation Center

Technical Innovation Centre launched by MP


It has been a Budget Week like no other with a big focus on kick-starting the economy and ‘building back better’. At The Vita Group, we continue to invest in the future, ensuring we’re able to sustainably deliver the very best products and solutions for our customers for generations to come. As part of this mission, we are proud to unveil our fourth innovation hub with the launch of Vita’s new Innovation Centre in Accrington, Lancashire.

The Accrington Technical Innovation Centre will work in partnership with employees and customers across our European footprint to lead research, development, and collaboration on highly engineered and customized polyurethane foam, including driving forward sustainable solutions through the use of biopolyols.

Vita’s four state-of-the-art innovation centres in Accrington, Corby, Middleton and Lithuania collectively represent a £1.3m investment for the Group, 80% of which has been allocated to its sites in the North West.

The centre was officially opened by Sara Britcliffe MP for Hyndburn & Haslingden, at a virtual launch event hosted from the site in Accrington. It offered guests a virtual tour of the new facility, as well as an overview of the site from Group CEO Ian Robb and Technical MD Stuart Roby.

Joining via video link, Sara Britcliffe MP said: “The Innovation Centre is a fantastic example of the type of investment needed in our area to help make the vision of a levelling up agenda a reality. As we start to ease restrictions, I am eager to put Hyndburn & Haslingden firmly back on the map, and work with local businesses like The Vita Group to make our area an innovation hub for the entire region, bringing forward more exciting projects like this, driving jobs and growing the next generation of innovative businesses and facilities.”

A huge congratulations to all involved and welcome to our new colleagues who will help to make this new facility a world-class centre of excellence, combining Vita’s technical expertise in foam chemistry with the latest state-of-the-art testing equipment and systems.

March 11, 2021

Hexion Results

Hexion Inc. Announces Fourth Quarter 2020 Results

Fourth Quarter 2020 Highlights

  • Net sales from continuing operations of $655 million, an increase of 4% compared with $630 million in the prior year period
  • Loss from continuing operations, net of taxes of $37 million
  • Net loss of $35 million
  • Segment EBITDA from continuing operations of $74 million compared to $53 million in the fourth quarter 2019. Both periods reflect the treatment of the pending divestiture as discontinued operations.

  • As previously announced, Hexion entered into a definitive agreement to sell our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million including cash consideration of $305 million

March 10, 2021 07:00 AM Eastern Standard Time

COLUMBUS, Ohio–(BUSINESS WIRE)–Hexion Inc. (“Hexion” or the “Company”) today announced results for the fourth quarter ended December 31, 2020.

“We were pleased to drive strong results in the fourth quarter of 2020 as Segment EBITDA from continuing operations improved by 40 percent compared to the prior year reflecting our diversified portfolio and rebounding demand in many key end markets,” said Craig Rogerson, Chairman, President and Chief Executive Officer. “It was also our highest fourth quarter Segment EBITDA from continuing operations in the last seven years reflecting our multi-year efforts to streamline our cost structure, while still strategically investing in the specialty portions of our business. In the fourth quarter of 2020, our Adhesives segment reflected continued strength in North America residential construction and gains in our global formaldehyde business. Segment EBITDA in our Coatings and Composites segment increased more than 100 percent year-over-year due to strong results in specialty epoxy from wind energy demand and Versatic Acids™ and Derivatives due to increasing demand in architectural coatings, as well as improved results in our base epoxy resins.”

Mr. Rogerson added: “Despite softer overall earnings in 2020, we generated solid cash flow from operations. In the second half of the year, we generated $92 million of free cash flow1 and positive free cash flow for full year 2020 despite the pandemic and a weaker second quarter of 2020. As we conclude the year, I’d like to acknowledge the dedication and resiliency of our global associates as they focused on safely operating our plants without interruption and serving our valued customers in the face of the global pandemic. Last September, we were also pleased to announce the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses during a time when potential transactions within the industry were often paused because of the pandemic. When completed, this transaction will streamline our portfolio and specialty product mix, while improving the Company’s financial flexibility and liquidity profile.”

“Looking ahead, we are cautiously optimistic about the global economic conditions considering the potential ongoing impact of the pandemic. Several key end markets – housing and wind energy in particular – were strong through year-end and those trends have continued in early 2021. We expect to further strengthen our balance sheet and continue to deliver significant free cash flow in the coming year. Looking ahead, we also expect to pursue potential bolt-on and/or more transformational transactions. With solid momentum heading into 2021, we remain focused on driving year-over-year earnings growth and generating stakeholder value through opportunistic share repurchases and debt reduction.”

Hexion Announces Strategic Divestiture

On September 27, 2020, the Company entered into a Purchase Agreement for the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) for approximately $425 million to Black Diamond and Investindustrial. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the Held for Sale business. The final purchase price is subject to customary post-closing adjustments.

Hexion expects to use the net proceeds to invest in its business and reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. The transaction is intended to close in the first quarter of 2021, subject to regulatory approvals and other customary closing conditions, including Works Council consultation.

Fresh Start Accounting

Upon emerging from Chapter 11 on July 1, 2019 (“Effective Date”) and qualifying for the application of fresh-start accounting, Hexion’s assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company’s financial statements prior to the Effective Date. Accordingly, Hexion’s financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.

Fourth Quarter 2020 Results

In January 2020, Hexion updated its reportable segments to align around two growth platforms: Adhesives; and Coatings and Composites. The Adhesives Segment is organized around Construction Adhesives, Industrial Adhesives, and Intermediates and Derivatives, while the Coatings and Composites Segment is organized around Composites, Performance Coatings, and Base Chemicals. Corporate and Other continues to be a reportable segment.

As of December 31, 2020, the Company reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of its operations for the three months and year ended December 31, 2020 as “(Loss) income from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. See Schedules 9 and 10 for additional financial information for our Held for Sale Business.

Total net sales for the quarter ended December 31, 2020 were $655 million, an increase of 4% compared with $630 million in the prior year period. Volumes positively impacted net sales by $63 million due to volume increases in Hexion’s global formaldehyde, specialty epoxy and base epoxy resins, and Versatic Acids™ and Derivatives businesses. Pricing negatively impacted sales by $31 million due primarily to raw material price decreases contractually passed through to customers across many businesses. Foreign currency translation negatively impacted net sales by $7 million due to the weakening of various foreign currencies against the U.S. dollar in the fourth quarter of 2020 compared to the fourth quarter of 2019.

Net loss for the Successor three months ended December 31, 2020 was $35 million compared to a net loss of $46 million in the Successor period through December 31, 2019. Total Segment EBITDA from continuing operations for the quarter ended December 31, 2020 was $74 million, an increase of $21 million compared with the prior year period, or 40 percent, primarily reflecting improved results in our adhesives and coatings and composites businesses.

Fiscal Year 2020 Results

Total net sales for the year ended December 31, 2020 were $2.5 billion, a decrease of 10% compared with $2.8 billion in the prior year period. Pricing negatively impacted sales by $182 million due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume decreases negatively impacted net sales by $70 million, which was primarily due to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign currency translation negatively impacted net sales by $42 million.

Net loss for the year ended December 31, 2020 was $230 million compared to a net income of $2,805 million for the year ended December 31, 2019. Total Segment EBITDA from continuing operations for the year ended December 31, 2020 was $294 million, a decrease of 14 percent compared with $340 million in 2019, driven primarily by the impact of the global pandemic, weaker margins in the Company’s base epoxy resins business, and temporary manufacturing outages at our Pernis site which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by improved earnings in the specialty epoxy and Versatic™ Acids and Derivatives business, as well as continued cost reduction and productivity initiatives. Fiscal Year 2020 was also negatively impacted by the absence of $18 million of Segment EBITDA in the prior year related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start Accounting.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the Successor three and twelve months ended December 31, 2020 and Successor three and twelve months ended December 31, 2019.

 Successor Non-GAAP Combined
 Three Months Ended December 31, 2020 Three Months Ended December 31, 2019 Twelve Months Ended December 31, 2020 Twelve Months Ended December 31, 2019
Net Sales (1):       
Adhesives$314  $332  $1,188  $1,454 
Coatings and Composites341  298  1,322  1,350 
Total$655  $630  $2,510  $2,804 
        
Segment EBITDA:       
Adhesives$58  $57  $214  $251 
Coatings and Composites36  16  151  156 
Corporate and Other(20)  (20)  (71)  (67) 
Total$74  $53  $294  $340 

(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.

Hexion Announces Site Expansion Plans

As part of its broader investment plan to drive innovation and growth in its specialty product lines, Hexion announced that it intends to expand its Portland, Oregon, manufacturing site. The Company is beginning the permitting stages of a second automated manufacturing line in Portland to support its recently-launched ArmorBuilt fire resistant wrap, a new product which greatly improves fire protection when applied to a substrate, such as wood utility poles. The first automated production line will come online at the end of the first quarter of 2021 and the second automated line is expected to start up around year-end 2021.

ArmorBuilt wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance. ArmorBuilt wrap has passed an industry approved wildfire simulation burn test for fire resistance.

Efficiency and Cost Savings Initiatives

In the fourth quarter of 2020, Hexion continued to implement the creation of a business services group with Capgemini to provide certain administrative functions to further improve the Company’s organizational efficiency and reduce its costs in future years. In fiscal year 2020, the Company also achieved $23 million of cost savings related to all its cost savings initiatives. At December 31, 2020, Hexion had approximately $6 million of total in-process savings that it expects to realize over the next 12 months.

https://www.businesswire.com/news/home/20210310005460/en/Hexion-Inc.-Announces-Fourth-Quarter-2020-Results

March 11, 2021

Hexion Results

Hexion Inc. Announces Fourth Quarter 2020 Results

Fourth Quarter 2020 Highlights

  • Net sales from continuing operations of $655 million, an increase of 4% compared with $630 million in the prior year period
  • Loss from continuing operations, net of taxes of $37 million
  • Net loss of $35 million
  • Segment EBITDA from continuing operations of $74 million compared to $53 million in the fourth quarter 2019. Both periods reflect the treatment of the pending divestiture as discontinued operations.

  • As previously announced, Hexion entered into a definitive agreement to sell our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million including cash consideration of $305 million

March 10, 2021 07:00 AM Eastern Standard Time

COLUMBUS, Ohio–(BUSINESS WIRE)–Hexion Inc. (“Hexion” or the “Company”) today announced results for the fourth quarter ended December 31, 2020.

“We were pleased to drive strong results in the fourth quarter of 2020 as Segment EBITDA from continuing operations improved by 40 percent compared to the prior year reflecting our diversified portfolio and rebounding demand in many key end markets,” said Craig Rogerson, Chairman, President and Chief Executive Officer. “It was also our highest fourth quarter Segment EBITDA from continuing operations in the last seven years reflecting our multi-year efforts to streamline our cost structure, while still strategically investing in the specialty portions of our business. In the fourth quarter of 2020, our Adhesives segment reflected continued strength in North America residential construction and gains in our global formaldehyde business. Segment EBITDA in our Coatings and Composites segment increased more than 100 percent year-over-year due to strong results in specialty epoxy from wind energy demand and Versatic Acids™ and Derivatives due to increasing demand in architectural coatings, as well as improved results in our base epoxy resins.”

Mr. Rogerson added: “Despite softer overall earnings in 2020, we generated solid cash flow from operations. In the second half of the year, we generated $92 million of free cash flow1 and positive free cash flow for full year 2020 despite the pandemic and a weaker second quarter of 2020. As we conclude the year, I’d like to acknowledge the dedication and resiliency of our global associates as they focused on safely operating our plants without interruption and serving our valued customers in the face of the global pandemic. Last September, we were also pleased to announce the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses during a time when potential transactions within the industry were often paused because of the pandemic. When completed, this transaction will streamline our portfolio and specialty product mix, while improving the Company’s financial flexibility and liquidity profile.”

“Looking ahead, we are cautiously optimistic about the global economic conditions considering the potential ongoing impact of the pandemic. Several key end markets – housing and wind energy in particular – were strong through year-end and those trends have continued in early 2021. We expect to further strengthen our balance sheet and continue to deliver significant free cash flow in the coming year. Looking ahead, we also expect to pursue potential bolt-on and/or more transformational transactions. With solid momentum heading into 2021, we remain focused on driving year-over-year earnings growth and generating stakeholder value through opportunistic share repurchases and debt reduction.”

Hexion Announces Strategic Divestiture

On September 27, 2020, the Company entered into a Purchase Agreement for the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) for approximately $425 million to Black Diamond and Investindustrial. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the Held for Sale business. The final purchase price is subject to customary post-closing adjustments.

Hexion expects to use the net proceeds to invest in its business and reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. The transaction is intended to close in the first quarter of 2021, subject to regulatory approvals and other customary closing conditions, including Works Council consultation.

Fresh Start Accounting

Upon emerging from Chapter 11 on July 1, 2019 (“Effective Date”) and qualifying for the application of fresh-start accounting, Hexion’s assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company’s financial statements prior to the Effective Date. Accordingly, Hexion’s financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.

Fourth Quarter 2020 Results

In January 2020, Hexion updated its reportable segments to align around two growth platforms: Adhesives; and Coatings and Composites. The Adhesives Segment is organized around Construction Adhesives, Industrial Adhesives, and Intermediates and Derivatives, while the Coatings and Composites Segment is organized around Composites, Performance Coatings, and Base Chemicals. Corporate and Other continues to be a reportable segment.

As of December 31, 2020, the Company reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of its operations for the three months and year ended December 31, 2020 as “(Loss) income from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. See Schedules 9 and 10 for additional financial information for our Held for Sale Business.

Total net sales for the quarter ended December 31, 2020 were $655 million, an increase of 4% compared with $630 million in the prior year period. Volumes positively impacted net sales by $63 million due to volume increases in Hexion’s global formaldehyde, specialty epoxy and base epoxy resins, and Versatic Acids™ and Derivatives businesses. Pricing negatively impacted sales by $31 million due primarily to raw material price decreases contractually passed through to customers across many businesses. Foreign currency translation negatively impacted net sales by $7 million due to the weakening of various foreign currencies against the U.S. dollar in the fourth quarter of 2020 compared to the fourth quarter of 2019.

Net loss for the Successor three months ended December 31, 2020 was $35 million compared to a net loss of $46 million in the Successor period through December 31, 2019. Total Segment EBITDA from continuing operations for the quarter ended December 31, 2020 was $74 million, an increase of $21 million compared with the prior year period, or 40 percent, primarily reflecting improved results in our adhesives and coatings and composites businesses.

Fiscal Year 2020 Results

Total net sales for the year ended December 31, 2020 were $2.5 billion, a decrease of 10% compared with $2.8 billion in the prior year period. Pricing negatively impacted sales by $182 million due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume decreases negatively impacted net sales by $70 million, which was primarily due to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign currency translation negatively impacted net sales by $42 million.

Net loss for the year ended December 31, 2020 was $230 million compared to a net income of $2,805 million for the year ended December 31, 2019. Total Segment EBITDA from continuing operations for the year ended December 31, 2020 was $294 million, a decrease of 14 percent compared with $340 million in 2019, driven primarily by the impact of the global pandemic, weaker margins in the Company’s base epoxy resins business, and temporary manufacturing outages at our Pernis site which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by improved earnings in the specialty epoxy and Versatic™ Acids and Derivatives business, as well as continued cost reduction and productivity initiatives. Fiscal Year 2020 was also negatively impacted by the absence of $18 million of Segment EBITDA in the prior year related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start Accounting.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the Successor three and twelve months ended December 31, 2020 and Successor three and twelve months ended December 31, 2019.

 Successor Non-GAAP Combined
 Three Months Ended December 31, 2020 Three Months Ended December 31, 2019 Twelve Months Ended December 31, 2020 Twelve Months Ended December 31, 2019
Net Sales (1):       
Adhesives$314  $332  $1,188  $1,454 
Coatings and Composites341  298  1,322  1,350 
Total$655  $630  $2,510  $2,804 
        
Segment EBITDA:       
Adhesives$58  $57  $214  $251 
Coatings and Composites36  16  151  156 
Corporate and Other(20)  (20)  (71)  (67) 
Total$74  $53  $294  $340 

(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.

Hexion Announces Site Expansion Plans

As part of its broader investment plan to drive innovation and growth in its specialty product lines, Hexion announced that it intends to expand its Portland, Oregon, manufacturing site. The Company is beginning the permitting stages of a second automated manufacturing line in Portland to support its recently-launched ArmorBuilt fire resistant wrap, a new product which greatly improves fire protection when applied to a substrate, such as wood utility poles. The first automated production line will come online at the end of the first quarter of 2021 and the second automated line is expected to start up around year-end 2021.

ArmorBuilt wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance. ArmorBuilt wrap has passed an industry approved wildfire simulation burn test for fire resistance.

Efficiency and Cost Savings Initiatives

In the fourth quarter of 2020, Hexion continued to implement the creation of a business services group with Capgemini to provide certain administrative functions to further improve the Company’s organizational efficiency and reduce its costs in future years. In fiscal year 2020, the Company also achieved $23 million of cost savings related to all its cost savings initiatives. At December 31, 2020, Hexion had approximately $6 million of total in-process savings that it expects to realize over the next 12 months.

https://www.businesswire.com/news/home/20210310005460/en/Hexion-Inc.-Announces-Fourth-Quarter-2020-Results

March 11, 2021

Brenntag Views on the Global Market

Logistics crisis to persist into Q3 as availability trumps pricing – Brenntag CEO

Author: Will Beacham

2021/03/11

BARCELONA (ICIS)–The global logistics crisis is expected to last at least until the third quarter of 2021, and is making availability of product more important than price, according to the CEO of Brenntag, the world’s largest distributor.

Global chemical supply chains are under intense pressure thanks to the US Gulf polar storm, which knocked out a significant proportion of production capacity there, and ongoing problems with shortages of shipping containers plus road transport delays.

The supply crunch has led to record-breaking prices and panic buying by some consumer industries which are desperate to maintain security of supply. Apart from the US storm damage, planned and unplanned outages elsewhere are adding to the problems.

In an interview with ICIS, Brenntag CEO Christian Kohlpaintner, said he expects the shipping logistics disruption to last at least until the third quarter of the year, though Brenntag itself has been able to maintain supplies to customers.

“Logistics costs and container prices are sky-rocketing by three to four times and we don’t see any relief over the next one or two  quarters. It’s the China to Europe route but it’s the same everywhere – colleagues in Asia have been talking to shipping companies which indicated this will last well into Q3.”

Across many customer industries, maintaining security of supply has become most important. ICIS has reported that some downstream users may have to close production facilities because of a lack of feedstocks.

The problem is particularly acute for the US auto supply chain, which is running short of polyurethane (PU) feedstocks.

According to Kohlpaintner: “Today it is not product price which is decisive, it is product availability which is decisive. We have to behave very responsibly in times of shortages and maintain supply to the market, to fulfil contractual obligations.”

ICIS analysis shows that around 20% of US chemical capacity is still offline following February’s Gulf polar storm. Although plants are gradually restarting the disruption is expected to last for weeks or even months.

Kohlpaintner said Brenntag has been hit in the US by the storm with some of its facilities not operational for four to five days. “We could not ship to customers because of the polar storm. Now there are shortages in the market clearly visible which we are trying to navigate.”

US supply chains are constrained right now, he added, and it will take time to get product lines restarted and replenished.

Despite the ongoing logistics problems, Kohlpaintner said Brenntag’s size and reach means it has been able to maintain supplies to customers.

“Fortunately, for the time being we have not interrupted supplies to our customers. This is the strength of Brenntag with multiple supply chains and the ability to operate independently.”

He pointed out that strong competition to get reservations for space on containers is driving pricing up. The company is also experiencing short notice cancellations from shippers which means it has had to increase the use of air freight for critical products.

He said a key learning from the pandemic was the importance of maintaining these relationships. “The industry behaves very rationally and logically – it values long term relationships and that is the way it should be.”

He pointed out that the supply shortages have been made more challenging because underlying demand is good in almost all industries.

M&A UPDATE
In 2020 Brenntag only announced three acquisitions with a total enterprise value of €46m, yet the company sets aside €200m-250m/year for mergers & acquisitions (M&A) activity.

Kohlpaintner said the company is maintaining that €200m-250m guidance, but pointed out it is an average figure.

He added: “Last year was a challenge for M&A with Covid. The sector was very quiet for four to five months starting in March until September, then it quickly picked up again.”

Since the CEO took over at the start of 2020 he has sharpened its M&A focus on emerging markets, especially Asia and China in particular. He also targeting larger acquisitions, which give a meaningful boost to operating earnings.

The acquisition of China’s Zhongbai Xingye in January 2021 fits all these criteria, and is seen as the first step in this direction

Zhongbai Xingye distributes food ingredients and had annual sales of €146m in the 12 months to June 2020. Brenntag will first acquire a 67% stake, with an enterprise value of around €90m, in the first half of 2021. It plans to boost this to 100% by the end of 2024.

Kohlpaintner said: “The M&A market is now very vibrant and active. It’s a good time to sell for people who want to – multiples are very high, and people like us who want to act as consolidators are looking for opportunities.”

WORKING CAPITAL CONTROL
Kohlpaintner was unhappy with the way working capital had been employed, identifying a decline in the last half-decade years. He asked managers to improve focus on working capital and gave the CFO a clear role in managing it.

“Brenntag is very decentralised with local business and customer proximity a key strength. However we can ask housekeeping questions about inventory levels, and whether to keep slow-moving product lines – this is what we did in 2020.”

Trading conditions in 2020 allowed inventory to be kept under control: “We had massive volume declines in 2020, especially in the second quarter, then gradually recovering. But volumes were still well below 2019 and in this situation you can harvest working capital which had been tied up in inventory.”

CAUTION FOR 2021
In this week’s full year 2020 financial results, Brenntag gave 2021 earnings guidance of €1.08-1.18bn operating earnings before interest, tax, depreciation and amortisation (EBITDA) compared with €1.06bn last year. The guidance assumes an uplift from its Project Brenntag initiative, M&A contribution and stable exchange rates.

Kohlpaintner commented: “The first half is not yet clear – we have the impact of strained supply chains and we still have Covid shutdowns everywhere. I am more optimistic for H2 on the recovery.”

PROJECT BRENNTAG UPDATE
The CEO said Project Brenntag, which aims to boost profitability, is progressing to plan. Reporting for the two new divisions – Brenntag Essentials and Brenntag Specialties – will begin in the first quarter of 2021.

Of the 100 sites targeted for closure, 30 had been closed in 2020 while 200 out of 1,300 headcount reduction was achieved. The project gave a €15m contribution to operating earnings in 2020, which should rise to €220m/year from 2023.

CHEMONDIS TIE UP
Kohlpaintner sees the value in developing digital sales channels, and in October 2020 Brenntag signed a deal to put its brand on the CheMondis online marketplace. It also has its own digital sales channel, Brenntag Connect.

This is a pilot project, said Kohlpaintner: “It’s early days – we have agreed to put a booth on their marketplace. We want to understand how this additional channel to market will work. It’s clear that digital sales channels will gain  importance so you will hear me talk more about this including Brenntag Connect.”

https://www.icis.com/explore/resources/news/2021/03/11/10616249/logistics-crisis-to-persist-into-q3-as-availability-trumps-pricing-brenntag-ceo