Brenntag, a chemical and ingredients distributior, released detail of 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 presented 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 introduced 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. Further Portfolio Sharpening and Steering to Enhance the Divisions’ Value Propositions 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 a reporting in two global industry segments, Life Science and Material Science. Brenntag Essentials will continue to be reported in regional segments. Brenntag Essentials: Unleashing the True Potential of Its Platform Brenntag Essentials is the global leader 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: 1) Last Mile Service Operations, 2) Regional sourcing and supply chain services, and 3) 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. Brenntag Specialties: Power to Perform Brenntag Specialties is becoming the global leader 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: 1) Price and margin management, 2) Cost-out and efficiency improvements, 3) Portfolio Management and strategic portfolio choices, 4) Value-added Services, and 5) 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. Financial Framework: Updated Mid-Term Financial Targets by 2027 and Transformational Costs 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. |
Brenntag Details Strategic Roadmap and Initiatives Through 2027
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