Altana utilises crisis for acquisitions
Mr. Babilas, as recently as March, you had anticipated a slight increase in revenue and earnings for the current cycle. What are your expectations now, after revenue and earnings declined by 11% and 27%, respectively, in the first half of the year?
At the beginning of the year, we had expected an economic recovery, starting in the second quarter. This assumption did not materialize. Now, we anticipate a high single-digit decline in revenue for the full year, and while we haven't quantified the expected earnings decline, it is likely to attenuate compared to the first half of the year.
A pronounced demand weakness affecting all regions and business segments characterizes the chemical industry. When do you expect a turnaround?
We do not expect a significant recovery in the second half of the year. However, we anticipate seeing growth impulses again next year. This is particularly expected in North America and Asia. Additionally, a significant portion of the current demand weakness is due to inventory effects, which will eventually come to an end.
The inventory effect appears to be exceptionally distinct in this cycle. What is the reason for this?
This is due to supply chain issues following the pandemic. In 2021, we, like many others, had to make significant efforts to secure required raw materials. This led to increased safety stocks throughout the industry. Then, the economy turned around. The extent of stockpiling and its consequences are much larger than in a typical cycle.
The development in China seems to have been the biggest disappointment and misjudgment regionally. How do you assess the economic prospects for the People's Republic?
The biggest challenge is undoubtedly the real estate market in China, which has been a major driver of economic dynamics in recent years. It affects the construction industry and some of our customer industries as well, such as colors, facade design, or equipping properties with household appliances. This is one of the main reasons why China has not shown the expected turnaround so far. Nevertheless, I am confident that we will see growth impulses from China in the coming years. China is a large market and still has a lot of catching up to do. We see several growth opportunities in China, especially in the field of electric mobility.
Altana's revenue share in China amounts to about a fifth. What is your strategy for China?
We consider ourselves well-positioned in China. Our markets are global, and we aim to be present in all essential markets.
Do you see a need for adjustment in light of the China strategy formulated by the German government and the geopolitical challenges?
Certainly. That said, we are almost a local player with local value creation in China. Therefore, we have a good foundation to adapt to possible geopolitical developments.
Looking at Altana's revenue and employee distribution, it's noticeable that you have nearly a one-third split in terms of revenue (USA, Europe, Asia), but 65% of your employees work in Europe. Is this sustainable in the long term?
We have been successful with that kind of distribution in recent years. However, there have already been shifts towards regions outside of Europe. Our goal is to be present worldwide. We build resources where we need them. With our current setup, we can operate competitively, but our obvious goal is to establish structures close to the customer. Consequently, we have primarily invested outside of Europe in recent years. This will continue to be an important topic for us.
Globalization has led to supplier industries following their customers around the world. At the same time, the German industry is now loudly warning of an exodus. How justified is the warning?
When we look at how the industry has developed over the past year and a half, we have to take the warning seriously. For the industry as a whole, cost structures, especially energy costs, are already a significant factor, regardless of the fact that Altana is much less affected by this. It must be noted that there are significantly better location conditions in other regions, and global companies take these into account when making investment decisions.
Do you support the call for an industrial or bridge electricity price, even though you are hardly affected?
We have always said that we need a significant expansion of renewable energy. An energy supply that also considers the energy transition. This is the key point. First, we need a secure and sufficient supply of renewable energy. Second, it must be affordable and provide an incentive to move away from fossil fuels. In our opinion, not enough emphasis is placed on the incentive function. In this regard, a bridge electricity price, or however you want to call it, would be a useful instrument.
Does Germany, as a high-wage and high-energy-cost country, need a basic materials industry?
We should not forget that we are talking about value chains. Value chains extend beyond industry boundaries. The chemical industry is at the beginning of many value chains. It is essential to consider that we are a resource-poor country and an importer of many raw materials. The industries that add value to these materials are important because these chains cannot be arbitrarily divided. Therefore, it is a dangerous path for a country like Germany, which relies on industrial value creation, to think that it can function without certain parts of the value chain.
So, continue as before?
We must consider that we have an industry that must transition to climate neutrality, and we must acknowledge that in Germany, we can only be successful in the long run if we can offer innovations that are superior to others. Therefore, we need an environment where education and innovation provide the foundation for further prosperity. In summary, I believe this is even more critical than the discussion about cost levels and specific industrial segments. This should be the key to further prosperity for our society.
Despite the challenging economic conditions, Altana has continued to increase research and development (R&D) spending in the first half of the year. How long is this sustainable?
History has shown that we have always been able to do so throughout the cycles. We can and want to fuel future growth through innovation. When conducting our innovation activities, we look beyond the current situation. Our current innovation spending will not help us in the second half of this year, but will lead to growth in the more distant future. Hence, innovation activities require a certain long-term perspective. We can afford it because we have the capital and are financially strong. Altana has the means to further develop a business with a focus on long-term success.
To what extent does it help that you are no longer publicly listed?
It is certainly a positive aspect. Since our delisting from the stock exchange, we can pursue our strategy even more consistently.
Does your owner, Skion, the investment holding of Susanne Klatten, not insist on dividends?
The most important thing for our shareholder is the long-term success of the company. Whatever is necessary to ensure success, will be done. We are in close agreement about this.
With the acquisition of Switzerland's Von Roll Holding, you are also taking advantage of the competitors' weakness. If the public offer yields the desired result, you may spend more than €320 million. Have you used up your resources with this acquisition?
First of all, in our opinion, Von Roll is an attractive, innovative company. Thus, it is an opportunity for us to further develop Elantas and Von Roll into an even more powerful company for the energy and mobility transition.
But there is, after all, a reason why the majority shareholder is exiting.
The added value comes from the combination, and Elantas is, according to our analysis, the better owner. Nevertheless, we have not exhausted our resources with this acquisition. There is certainly more potential. However, more is only possible if we find interesting opportunities. I am convinced that we will succeed in the coming years.
The challenging economic environment is likely to increase acquisition opportunities.
That is our expectation, and we are actively looking for options. When the time comes, we will let you know.
The difficult economic environment is likely forcing many competitors to implement cost-saving programs and even close facilities. Where do you see optimization potential in Altana's portfolio?
There is a continuous need for optimization. Nonetheless, we have always been attentive to ensure that our activities provide added value. The current situation is no exception, and we are mindful of costs and working capital. There are, of course, project delays on the timeline as well. But in the past, we have always ensured that we operate in clean structures.
Does it help to be as highly specialized as Altana is?
That is certainly an advantage. We operate in specialty markets and have a very agile, flexible organizational structure. That helps us in these times as well.
Martin Babilas, CEO of Altana
A bridge electricity price, or however you want to call it, would be a useful instrument.