Brenntag Details Its Strategic Transformation & Initiatives Until 2027 to Drive Growth

Brenntag (ISIN DE000A1DAHH0) details its strategic transformation and growth path including updated mid-term targets until 2027. Brenntag, a major player in the chemical distribution realm, is progressing steadily with its "Strategy to Win," introduced in November 2022. Now, with the implementation of the "Advanced Operating Model," launched in January 2024, the company sets its sights on further fortifying its divisions through distinctive steering and refining their profiles.

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 presents 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 introduces further cost take-out measures to realize efficiency gains.

The strategic realignment involves introducing a new governance and steering structure, with divisional CEOs and executive committees taking center stage. This decentralization also involves the transfer of specific functions and responsibilities from the corporate level to the divisions, empowering them for autonomous business steering, enhancing decision-making agility, and improving overall business performance. The aim is to create dedicated legal entity structures for each division, effective from the beginning of 2024.

Brenntag's meticulous steps align with its ambition to harness market opportunities, create flexibility, and position itself for strategic moves by 2026. This roadmap leads towards "Horizon 3," Brenntag's vision to emerge as the undisputed market leader across all dimensions.

Christian Kohlpaintner, CEO of Brenntag SE, emphasized the significance of the advanced operating models for the two divisions, noting their alignment with market dynamics and the evolving needs of customers and suppliers. Kohlpaintner stated, "Our two autonomous and independent divisions will bring us even closer to market developments and our customer and supplier needs."

Further Portfolio Refinement to Enhance Divisional Value

Brenntag is executing a decisive Product Portfolio Steering initiative, refining the composition of its divisions. Notably, all Pharma activities will transition from Brenntag Essentials to Brenntag Specialties, while Water Treatment, Finished Lubricants, and specific semi-specialty products from the Specialties segment will move to Brenntag Essentials. These shifts aim to sharpen divisional profiles in alignment with specific customer and supplier needs, fostering coherence within each division regarding business models and product portfolios.

As a result of these changes, Brenntag Essentials is projected to contribute 70% of the Group's current gross profits with a conversion ratio of 31 to 33%, while Brenntag Specialties will represent 30% of gross profits, with an increased conversion ratio of 38 to 40%. These portfolio adjustments will be reflected in Brenntag's reporting structure starting from Q1 2024 results onwards, with Brenntag Specialties transitioning from regional segment reporting to two global industry segments, namely Life Science and Material Science.

Kristin Neumann, CFO of Brenntag SE, reiterated the company's financial guidance for the Group, highlighting the updated financial targets for both global divisions. Neumann emphasized that the ongoing strategy implementation aims to strengthen organic growth, enhance margins, and align with focused M&A strategies.

Brenntag Essentials: Unlocking the Potential of a Global Platform

Brenntag Essentials, a global leader in chemical distribution, operates on a unique and resilient platform. With a "triple" business model encompassing Last Mile Service Operations, Regional Sourcing, and Global Sourcing, Brenntag Essentials is positioned for accelerated growth in the expanding market of chemical distribution. The division plans to invest in performance enhancement and execute a targeted M&A strategy for further growth and increased margin.

Brenntag Essentials has set medium-term targets by 2027, aiming for annual organic operating gross profit growth of 4 to 6%, 5 to 7% organic operating EBITA growth, and an operating EBITA conversion ratio of 32 to 34%.

Ewout van Jarwaarde, CEO of Brenntag Essentials, emphasized the division's unique business model, combining local, regional, and global capabilities. Van Jarwaarde stated, "Unleashing the true potential of our platform while leveraging network optionalities supports us on our mission to become the easiest to do business with for our supply partners and customers worldwide."

Brenntag Specialties: Empowering Industry-Focused Growth

Brenntag Specialties is positioning itself as a global leader in innovative specialty and ingredients distribution, concentrating on Life Science and Material Science markets for sustainable solutions. The division, with its advanced operating model, streamlined portfolio, and industry alignment, aims to enhance its partnership with suppliers and customers.

Brenntag Specialties is implementing a comprehensive improvement plan, focusing on price and margin management, cost efficiency, strategic portfolio choices, value-added services, and M&A. With the introduction of global industry segments, the division plans to pursue dedicated industry strategies, focusing on attractive market segments and aiming to grow the share of Life Science in its portfolio.

The mid-term financial targets for Brenntag Specialties by 2027 include an annual organic operating gross profit growth of 5 to 7%, 7 to 9% organic operating EBITA growth, and an operating EBITA conversion ratio of 43 to 45%.

Michael Friede, CEO of Brenntag Specialties, emphasized the division's sharpened focus and industry-aligned portfolio, stating, "With our sharpened profile and industry-focused product and service portfolio, we will capture the potential of the attractive Specialties growth markets, enhance our performance, and significantly improve our profitability."

Financial Framework for Growth and Efficiency

With ambitious financial targets for both divisions, Brenntag expects annual organic gross profit growth of 4 to 7%, organic EBITA growth of 7 to 9%, and a conversion ratio of 35 to 37% by 2027. The company plans to continue cost discipline, implementing efficiency initiatives, and reinforcing a culture of continuous improvement.

Brenntag anticipates one-off costs of EUR 250 million for the DiDEX program and the implementation of a harmonized, lean ERP system. Additional one-time expenses for cost take-outs and operational and legal entity disentanglement are expected to amount to EUR 450 to 650 million until 2027.

Annual capex is projected to be EUR 300 to 400 million, including DiDEX investments, and the annual M&A strategy and target spending remain unchanged, with Brenntag continuing to invest EUR 400 to 500 million annually in M&A for a growth contribution of 3% annually.