Clariant's chief financial officer said on Wednesday that it expects Clariant's planned joint venture with Saudi Basic Industries (SABIC) for high-performance materials to significantly increase its profits.
Clariant's chief financial officer Patrick Jany said: The planned joint venture business will include Clariant's additives business, high-end masterbatch business and Saudi Basic Industries Corporation (SABIC) specialty polymer business. It will reach 4 billion Swiss francs ($ 397 million) by 2021.
He added that it is expected that the EBITDA pre-exceptionals within the conventional business scope of the joint venture will reach 24-25%, while the Group's estimated profit margin for the third quarter of 2018 is 15%.
"We are separating the innovative and high-margin business of the plastics and coatings portfolio into a high-performance polymer from Saudi Basic Industries Corporation (SABIC) to create a very professional and broad player in the materials sector," said Jany.
The business focuses on industries such as mobile phones and light vehicles, where demand for new lightweight and durable specialty plastics and coatings is likely to increase.
"We need highly specialized materials to keep up with us, and these materials will emerge in the next 5 to 6 years," he said.
Analysts at Baader Bank said the joint venture could increase the company's annual EBITDA level by double digits, according to estimates before the joint venture was announced.
The bank said that after Saudi Basic Industries Corporation (SABIC) acquired a 24.99% stake in Clariant earlier this year, the alliance was a "wedding gift" for Clariant and could strengthen Clariant as a One of Europe's key acquisition targets.
The establishment of the joint venture may be a prelude to Saudi Basic Industries Corporation (SABIC), using Clariant as a more important tool for acquiring or fully acquiring businesses.
Saudi Basic Industries Corporation (SABIC) said in September that it has no current plans to acquire the remaining 75.01% of the company, and Jany declined to comment further.
Earlier this month, the CEO of Saudi Basic Industries Corporation (SABIC) said that the two companies will announce more synergies in the first quarter of 2019.
He added that Clariant is expected to acquire a majority stake in the joint venture, but specific details are still being discussed and negotiations are expected to continue until June 2019.
The company is also selling a variety of low-margin businesses, including standard masterbatches, pigments and medical specialty products, to increase the overall profitability of the business.
Jany said that the total turnover of these businesses in 2017 was 1.6 billion Swiss francs (Swfr) and the EBIT pre-exceptionals within the conventional business range was 12%. There are obvious differences between these businesses, which may Sold separately, rather than as a division, the divestiture is expected to be completed in 2020.
"These are very differentiated businesses, and things are really different in terms of customers, competitors, etc.," Jany said.
He added that the business sell-off and high-value cooperation with SABIC may increase Clariant's average profit margin and make it less affected by the economic cycle.
"The divestment of the group will increase the group's profitability because we will sell lower-margin businesses, so the average profit margin will rise, and we will also gain more GDP independence because those sold businesses It is more vulnerable to the overall economic environment. "
Jany said the rest of its business, the chemicals, catalysts and natural resources businesses, are at the core of its operations and will continue to maintain its core position in 2021.
The company announced on Wednesday that EBITDA before the special projects in the third quarter rose 3% year-on-year to 240 million Swiss francs, slightly lower than analysts' expectations, and catalyst earnings fell 28%.
Jany said that after several quarters of an "extraordinary period", economic growth in Asia has slowed, leading to a decline in catalyst division performance.
He said: "Our level of growth in China is 30%, and the (growth) we achieved in the third quarter is actually our target growth range. Therefore, from this perspective, the growth is actually very stable but it looks Lower than before. "
However, demand growth may become even weaker in the last months of the year due to political tensions, central bank interest rate hikes, and an inconsistent Western economic recovery that is putting pressure on demand growth.
He said: "Of course we see that many people will see that tariffs (and other factors) increase people's concerns about the economy … After years of rapid growth in many regions, we now see demand Weakness, in our view, is a slowdown in growth, not a crisis. "
Although expectations for the coming months may be less optimistic, the company expects overall EBITDA to improve this year compared to 2017.
Jany added: "After the third quarter, our profit margins were flat and the absolute percentage rose slightly, but the fourth quarter was unable to reverse the situation for the whole year."