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Clariant to Explore Food Ingredients After Rogue Latin Purchase

Feb. 14 (Bloomberg) -- Clariant AG, the Swiss chemical maker that’s exiting commodity products, is exploring opportunities for expanding in food ingredients as Chief Executive Officer Hariolf Kottmann focuses on growth.

In an “entrepreneurial” move by a local manager some years ago, Clariant acquired a small food-ingredient operation in Latin America, Kottmann said. Although there is no strategic decision to “really go big” in food ingredients, the area has been earmarked as having potential for development.

“We are trying to explore if there is something possible,” the CEO said in an interview.

Any move into food ingredients would underpin Kottmann’s efforts to grow while cutting costs in lower-performing businesses. Clariant is undergoing its biggest transformation since its spin off from drugmaker Sandoz in 1995 as it builds out catalyst and consumer-chemical divisions.

The $2.3 billion purchase of catalyst maker Sued-Chemie almost two years ago is spurring Kottmann to dismantle Clariant’s commodity past, with a sale process currently underway for leather chemicals and a detergents unit.

By contrast, Clariant purchased CRM International, a French supplier of natural cosmetic ingredients such as emollients. Clariant joins rivals including DuPont Co. that are reinventing themselves through investments to retain a competitive edge via technology and innovation.

Biotech Budget

Distributing food ingredients currently generates about 12 million francs ($13 million) in turnover for Clariant in Latin America, with products ranging from artificial sweeteners and preservatives for areas such as baking and dairy. The operation could be expanded to incorporate more in-house premixes of food ingredients, as well production of some goods themselves.

In a similar vein, Kottmann has entered a long-term partnership with KitoZyme, a biotechnology company with cultures that help develop personal-care ingredients. The research and development budget for biotechnology has been increased to 25 million francs this year, he said, as Clariant develops some of Sued-Chemie’s technology that can be applied to the biofuel market.

Kottmann said he’s not prepared to invest in biofuel plants, a strategy employed by both Royal DSM NV and Novozymes A/S to try to kick-start the nascent industry.

Clariant today reported profit that beat analysts’ estimates. Full-year earnings before interest, taxes, depreciation and amortization from continuing operations and before exceptional items fell 4 percent to 802 million francs, the Muttenz, Switzerland-based company said. Analysts estimated 744 million francs, on average, according to data compiled by Bloomberg.

‘Pleasing’ Mix

“What is pleasing is that it’s a very good mix and strong profitability for industrial and consumer specialties, oil and mining services and catalysts,” said Jaideep Pandya, an analyst at Berenberg Bank in London. “It’s a good result.”

Shares of Clariant climbed as much as 6.3 percent, their biggest intraday advance since June 29. The stock traded 1.8 percent higher at 13.64 francs as of 12:29 p.m. in Zurich.

Revenue rose 8 percent to 6.04 billion francs, in line with estimates. Kottmann said he’s budgeting for additional sales growth in local currencies this year and improved profitability. The company has set a goal for an Ebitda margin above 17 percent for 2015.

Fine-Tuning

Kottmann’s saving thrust will be based on “fine-tuning” of the more cyclical commodities that are struggling the most against Europe’s weakened economy. While catalysts and consumer-care ingredients units are performing to plan, operations involved in pigments, masterbatches and additives need an extra push to achieve performance targets, the CEO said in an interview, adding that there is no figure for job cuts “on the table.”

The 57 year-old, with a PhD in organic chemistry, is finalizing the disposal of textile, paper and emulsions businesses to SK Capital for about 502 million francs, part of his aim to make Clariant less sensitive to the volatile cycles of demand inherent in commodity products.

Kottmann said the ongoing disposal plan is a response to investor demands for a more simplified company, and he will continue to review businesses.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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