March 11, 2021

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

March 11, 2021

Bridgestone Sale of Firestone Building Products to Close at the End of March

LafargeHolcim to acquire Firestone Building Products from Bridgestone Americas

Firestone Building Products and LafargeHolcim logos

Acquiring industry leader in commercial roofing and building envelope solutions to position it for continued growth
A milestone in the transformation of LafargeHolcim to become the global leader in innovative and sustainable building materials and solutions
Strengthening LafargeHolcim’s biggest market, the US, with annual sales to exceed USD 6bn
Plans to expand in Europe and Latin America to become the global leader in flat roofing systems
Sale to enable Bridgestone to strengthen investments in company’s tire business and fast-growing mobility solutions business

LafargeHolcim has signed an agreement to acquire Firestone Building Products (FSBP), a leader in commercial roofing and building envelope solutions based in the United States (US), with 2020 (est.) net sales of USD 1.8 billion and EBITDA of USD 270 million. This acquisition is a milestone in LafargeHolcim’s transformation to become the global leader in innovative and sustainable building solutions.

This transaction is valued at USD 3.4 billion, to be financed with cash and debt while maintaining net debt below 2x. Synergies of USD 110 million per year are expected on a run-rate basis within two years of closing, which is expected in the second quarter. The acquisition is earnings per share (EPS) accretive from the first year.

Jan Jenisch, LafargeHolcim CEO: “I am excited to be entering the highly attractive roofing business. With Firestone Building Products we are strengthening our biggest market, the US, while also building a global growth and innovation platform for the company. Today’s milestone is a strategic leap on our journey to become the global leader in innovative and sustainable building solutions, to build a world that works for people and the planet. I have great respect for the high-caliber leadership and expertise of the Firestone Building Products’ team and look forward to welcoming them into the LafargeHolcim family.”

Paolo Ferrari, Bridgestone Americas President, CEO & COO: “This transaction will create new growth opportunities for Firestone Building Products and allow Bridgestone to focus its resources to further invest in the company’s tire business and rapidly growing mobility solutions business. Like Bridgestone, LafargeHolcim is a global company with a strong financial position and thriving culture. We know they will take great care of our Firestone Building Products employees and customers, and ensure the business enjoys growth and success for many years to come.”

Taylor Cole, Firestone Building Products President: “Today is a big moment for the Firestone Building Products team as we look forward to becoming part of the global leader in building materials and solutions. Together, we are in a prime position to accelerate our growth by combining Firestone Building Products’ advanced technologies and know-how with LafargeHolcim’s global scale and reach.”

Founded in 1980, Firestone Building Products (FSBP) is a business unit of Bridgestone Americas and part of Tokyo-based Bridgestone Corporation, a global leader providing tires and sustainable mobility solutions that create social and customer value. The acquisition of FSBP will strengthen LafargeHolcim’s biggest market, the US, establishing a new growth profile, reaching USD 6 billion in annual net sales. Building on FSBP’s strong organic growth, LafargeHolcim expects to accelerate its leadership through cross-selling opportunities and further bolt-on acquisitions. LafargeHolcim also aims to swiftly globalize the business, leveraging its European and Latin American footprint.

Urbanization trends are accelerating the development of the flat roof market, currently estimated at around USD 50 billion globally. By entering this attractive new business, LafargeHolcim will deliver above-market growth, driven by innovative technologies and branding. It will also benefit from FSBP’s position in the high-growth repair and refurbishment segment, accounting for the majority of its sales today.

With up to 60% of buildings’ energy lost through roofs, FSBP plays an instrumental role in mitigating this process with its industry-leading technologies, including cool roofs, insulation and waterproofing systems. In addition, its green roofs contribute to more sustainable urban environments. These technologies complement LafargeHolcim’s sustainable building solutions, from its ECOPact green concrete to its EcoLabel range, accelerating the company’s net zero commitment. With this acquisition LafargeHolcim will add 15 manufacturing facilities, 1,800 distribution points, and three R&D laboratories to its network. Upon completion of the sale, FSBP will continue to be headquartered in Nashville, Tennessee, and all 1,900 FSBP employees will transition to LafargeHolcim.

https://www.bridgestoneamericas.com/en/newsroom/press-releases/2021/lafargeholcim-acquires-fsbp

March 11, 2021

Bridgestone Sale of Firestone Building Products to Close at the End of March

LafargeHolcim to acquire Firestone Building Products from Bridgestone Americas

Firestone Building Products and LafargeHolcim logos

Acquiring industry leader in commercial roofing and building envelope solutions to position it for continued growth
A milestone in the transformation of LafargeHolcim to become the global leader in innovative and sustainable building materials and solutions
Strengthening LafargeHolcim’s biggest market, the US, with annual sales to exceed USD 6bn
Plans to expand in Europe and Latin America to become the global leader in flat roofing systems
Sale to enable Bridgestone to strengthen investments in company’s tire business and fast-growing mobility solutions business