Chemical distribution - ANIQ QUINTA SESION PLENARIA/1...Chemical Distribution - ANIQ Oct 2012...

Chemical distribution Global picture, trends and opportunities Dr. Udo Jung The Boston Consulting Group, Frankfurt (Germany)

México D.F., October 26, 2012

http://webpublico.aniq.org.mx/Paginas/Home.aspx

1 Chemical Distribution - ANIQ Oct 2012 -Final.pptx

Agenda

What is the state, globally, of the chemical distribution market?

In particular, what is happening in Mexico and Latin America?

What global trends can forecast a brighter future for the Mexican Chemical Distribution market?


Chemical Distribution: A view from the Old World

Chemical distributors are a vital part of integrated chemical supply chains from producers to customers Chemical producers consider leading distributors as an important element of their go-to-market strategies

• Opening new markets and customer segments • Complexity reduction in marketing and sales

Chemical customers value bundled supply and one-stop-shopping of many products from chemical distributors

Leading distributors grow faster than most producers

• Brenntag, the global market leader, is in the top league of value creators in the overall chemical industry

Responsible care is a precondition for the license to operate in the entire chemical value chain

1

2

3

4

5

Source: BCG analysis

Global State Chemical Distribution


Chemical distributors create value for producers: Realizing growth and managing complexity in marketing and sales

"Contract business—sales outsourcing"

• Usually formal contractual relationships with "principals" (often mutual exclusivity)

• Distributors often with high switching cost for

their suppliers (principals)

• High level of data integration

• "Window of opportunity" (i.e., consolidation of sales partners; complexity reduction of marketing and sales) when major chemical producers ("principals") are restructuring their distributor base

• Product-wise often—but not always—

specialties

Other smaller customers

. . .

Distributor

. . .

Source: The Boston Consulting Group


http://upload.wikimedia.org/wikipedia/de/8/8e/Du_Pont_Logo.svg


Key criteria for producers to choose chemical distributors

Interview results of specialty chemicals suppliers

Important Not important

Not rated Average Less important

Very important

Importance of success factors Performance of major distributors

Product know-how

Quantity/ customer base

Complementary products

Transparency on end-customers

Pan-European-reach

Track record

Price

Own assets in stor-age, mixing, filling

Own vs. out-sourced logistics

Product know-how

Pan-European-reach

Quantity/ customer base

Complementary products

Price

Track record

Own vs. outsourced logistics

Transparency on end-customers

Own assets in storage, mixing and

filling

D 4

D 3

D 1

D 2

Not rated

Very good Good Average Insuffi-

cient

Very insuffi-cient

Source: Market expert interviews; BCG analysis



Chemical distributors create value for customers: Single sourcing and technical serve

"Contract business—single sourcing"

• Quite often formal contractual relationships with customers

• Outsourcing of parts of the procurement function with high switching cost for customer

• "Window of opportunity" as more and more customers restructure their procurement

• Typical business model for smaller customers (with diverse chemicals supply base—however with rather low overall volumes)


. . .

Distributor


. . .




Key criteria for customers to choose chemical distributors

Growth opportunity Current constraint

"Currently we purchase from 5-6 distributors – currently a single distributor doesn't offer all the products and the required support we need."

- paint company -

"Distributors have far better speed and flexibility of delivery than chemical suppliers—unfortunately they lack the technical expertise we need in some categories."

- specialty company -

"We would value distributors even more, if they had more application expertise to revise formulations with us."

- Asian specialty company -

"We are a coating company - REACH is mainly a topic for chemical suppliers"

- coating company -

Note: Quotes reflects statements from more than one individual Source: Customer survey; BCG analysis

50

% of answers 100 0

Customized mixing,

blending etc 13%

Regulatory support (REACH) 15%

Customer-tailored service 16%

Vendor managed inventory 31%

Application expertise 48%

Technical support 54%

Single sourcing 59%

"We would love to get rid of all the inventory management—unfortunately no one is offering something for medium-sized companies."

- specialty company -



Chemical distributors create value for the whole value chain: Extending market reach and providing value added service

"Value Added Services"

• Very often local business with a need for high customer proximity

• Bundling of demand for several products into one customized delivery

• Drum exchange service and waste disposal material loop

• Addition of value adding steps -examples

– Material services , e.g. formulation/blending, licensed

production, filling/labeling – Immaterial services, e.g. VMI, certification, training


. . .

Distributor


. . .




The business model of chemical distributors covers the whole value chain – Option space for distinct business models

Invoicing initiated on receipt of delivery note Printing/submitting Bundling of invoices on demand

Solution provider for customer specific problems Technical consulting (usage, handling) Product development Value-added services (research, analyses) Environmental and regulatory advice

Mixing, blending of customer specific chemicals • Get recipe/make recipe • Blending • Quality control

Filling of customer specific quantities • Determine quantity • Drum size and type • Filling • Weighting/measuring

Coordinated route planning with delivery of goods Release of transport documents Initiate recycling of

• Returned packages • Used drums

Initiate disposal of used goods Pledge charging Accounting for returned packages

Accounts payable Accounts receivable General ledger Invoice verification Financial statement Planning/Budgeting Asset management Currency/risk mgmt. Treasury Cost calculation schema

Budgeting Cost center accounting Profitability analysis Evaluation of stock levels Reporting/MIS Monthly and quarterly reporting Capex control

Inbound logistics

Stock- keeping

Marketing & Sales Advice/

technical service

Order processing

Mixing/ blending/

filling

Outbound logistics

Recycling/ drum return handling

Finance, Accoun-

ting Controlling

Spot bus.

Sales

Contr. bus.

Cust. acqu. + care

Supplier Mgmt.

Purchasing Contract

Supplier •Acqu. •Report.

Spot Target setting

Invoicing

Transport/route planning Release of Transport documents (input from order processing) Pick up of goods Loading of truck Transportation

Order entry Order check

• Regulatory aspects • Availability of products • (Export regulations)

Calculation Credit limit check Printing of delivery note, pick up list, dispatch note and other documents

Acquisition of new customers Customer care Selling/order taking

• Advice on product • Negotiations on price • Product specific information to

technical advice Price fixing, exchange hedging

Acquisition of new customers Customer care New (single) sourcing contracts

• Compare product list with product portfolio • Find supplier for products not in portfolio • Plan logistics, coordinate information collection process • Overall profit calculation • Develop profit sharing system

Development of marketing strategies • For introduction of new products • For sales increase of existing ones

Order taking

Stock planning • Demand planning • Stock targets • Replenishment orders

Warehouse management Goods receipt Quality assurance Handling (loading, pick up of goods) Security/environmental protection

Transport/ route planning Release of transport documents

Selection of supplier/producer Purchasing

• Determine volume • Negotiation on price • Purchase order processing

Two types of purchasing: • On stock • Point-to-point

Foreign exchange hedging

"Acquisition" of a new supplier • Select target supplier to optimize product

portfolio (green boxes) • Collect information about actual customer

base to show industry expertise and sales potential

• Contract negotiations (exclusivity, volumes, prices, logistics)

Reporting • Provide information about sales, profitability,

prices, market trends, customer needs, complaints

Set targets for volume per period

Development of price models (boni, fixed price, …)

Source: Interviews; BCG analysis



z

Customer industries

Activities

Products

Feedstock Industrial gas Cracker products Secondary basic chem. incl. antifreeze Inorganic acids

Standard polymers

Engineering polymers High performance polym.

Elastomers

…

Textiles/clothes

Fibers

Catalysts

Packaging material

Paints

Polymer intermediates Solvents & other interm. Cust.-industry spec. chem. Function-specific chem. Adhesive components

Inks

Feed ingredients Food ingredients

Lubricants Fats, oils

Construction material

Other inorgan. (e.g. miner.)

Biofuels Fertilizers Pesticides

Active pharma. ingredients

Lab chemicals

Agriculture

Mining and quarrying

Coke, refined petroleum prod.

Gas distribution Electricity production

Chemicals excl. pharma.

Rubber and plastics products Textiles and footwear

...

Pulp & paper

Food products, bever., tobacco

Wood and wood products Iron & steel

Other non-metallic mineral prod. Fabricated metal products

Water treatment

Pharmaceuticals

Electrical machinery Medical & optical instruments

Motor vehicles

Communication equipment Office & computing machinery Other transport equipment Transport services Health and social work Research and development Hotels and restaurants Post and telecommunications Finance and insurance Real estate activities Computer and related activities Private households

Building & construction industry

• Extraction of oil & gas

• Cosm., pers. care, cleaning • Paints & coatings

Business models in Chemical Distribution: Value chain coverage – product portfolio – customer industries/application

"Full-line providers with acquisitive growth"

"Industry specialists"

Tran

spor

tatio

n

Dru

m re

turn

ha

ndlin

g D

ocum

ent

hand

ling

Stor

age

Was

te h

andl

ing

& tr

ansp

ort

Dilu

ting,

bl

endi

ng

Bun

dlin

g, fi

lling

, pa

ck.,

labe

l Sa

les

to b

road

cu

stom

ers

Mar

ketin

g

Sing

le s

ourc

ing

Ord

er &

invo

ice

mgm

t. D

ebt c

olle

ctio

n (fo

r sup

plie

rs)

Vend

or-m

anag

ed

inve

ntor

y Te

chni

cal

supp

ort

Reg

. ser

vice

s:

ESH

Q, R

EAC

H

Trai

ning

QM

& la

b an

alys

is

Prod

./ ap

p. d

evt.

Prod

. reg

./ pa

tent

re

s.

Term

inal

ing

Com

poun

ding

Form

ulat

ing

Bat

ch

proc

essi

ng

Che

mic

al

synt

hesi

s

Prod

uctio

n op

erat

ion

Des

ign

Was

te d

ispo

sal/

mgm

t.

Ons

ite lo

gist

ics

(cus

t./ s

upp.

) Lo

adin

g &

filli

ng

(cus

t./ s

upp.

) In

stal

latio

n &

re

pair

Physical handling of goods

Complexity management Financing Customer support Other activities

Prod

uctio

n

Pro- ducti

on

"Producers with distribution business"

"Producers with captive distribution /

trading"

Source: Market study; BCG

"Functional specialists"

"Product range specialists with vertical integration"

"Low cost /value opportunity seekers"


http://www.premiumingredients.com/Default.htm


Global chemical distribution landscape shows few large distributors and a sizable gap to mid-tier

0

150

200

Sales 2011 in $B

50 0.4

115.4

0.5 0.5 0.5 0.5

164

0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.6

1.2 1.3 1.4 1.6 2.3 4.0 5.6 9.7

11.2

0.9

Source: ICIS, Company websites, BCG analysis

Tota

l

Oth

ers

"Top 25 distributors"

2011 Revenues Overall market size based on market model Delta between market size and bottom-up sales of top 25

19% share of global top 5



Brenntag is a top value creator in the overall chemical industry

Brenntag, a success history Stock performance

IPO´s media coverage Brenntag ´s stock performance vs. leading chemical manufacturers

Stock Brenntag BASF DuPont

Oct 1, 2012 BNR.DE 99.15 BAS.DE 55.96 DD 47.63

Source: ICIS Top 100 Chemical Distributors, Yahoo finance, Brenntag´s website & press releases

Percentage change since Brenntag´s IPO

Chemical Distribution Industry gaining more attention due to Brenntag´s IPO

• IPO in 2010 – beforehand owned by two sequential PE firms

• Complete exit of PE firm in several steps

Brenntag´s multiple levers of organics growth & acquisition strategy

• Example of acquisitions in 2012: – ISM/Salkat Group, Australia & New Zealand – The Treat-Em-Rite Corporation, Texas, USA

Brenntag Fulfils Investor´s Wishes, 17 Mar 2010

The Right Chemistry Between Brenntag and Investors – IPO a Success, 29 Mar 2010



Agenda





80

60

40

20

0 2011

48

2010

43

2009

38

Asia and Latin America with high growth rates in chemical distribution

1. Incl. Western and Central & Eastern Europe 2. North America includes USA and Canada 3. Incl. Mexico Note: Small differences due to rounding Source: ICIS, chemagility, BCG analysis

World Europe1 North America2 Asia Pacific Latin America3 Middle East

80

60

40

20

0 2011

41

2010

39

2009

35

80

60

40

20

0 2011

14

2010

13

2009

12

80

60

40

20

0 2011

7

2010

6

2009

5

50

150

100

0 2011

164

200

2010

155

2009

138

20

0

80

60

40

2010

54

2011

54

2009

48

Market sizes in B$ Market sizes in B$ Market sizes in B$ Market sizes in B$ Market sizes in B$ Market sizes in B$

+6%

+8%

+9%

+18%

+12%

+10%

Mexican & LATAM markets


Year Exports1 Imports2 Balance

2011 14.2 39.5 -25.4

2010 11.9 34.1 -22.2

2009 10.1 27.8 -17.7

Chemical trade between Latin America and other regions grew by more than 50 % since 2009 – significant net imports

1. Coverage: Includes processing zones 2. Coverage: Includes processing zones; Method of valuation: Imports are valued f.o.b. 3. Method of valuation: Imports are valued f.o.b. Source: World Trade Organization

Mexico Brazil LATAM

Year Exports Imports3 Balance

2011 15.1 41.8 -26.8

2010 12.2 32.3 -20.1

2009 10.5 25.3 -14.8

Year Exports Imports Balance

2011 55.6 154.2 -98.6

2010 44.7 124.4 -79.6

2009 39.2 99.9 -60.6

Billion USD, at current prices Billion USD, at current prices Billion USD, at current prices



Market size 2011 USD B

Latin America with high fragmentation of the chemical distribution industry

Source: ICIS, chemagility, BCG analysis

Brenntag Univar Helm Nexeo Solutions Protea Chemicals Petrochem Middle East ICC Chemical REDA Chemicals Azelis M. Cassab Manuchar Grupo Pochteca IMCD Group Connell Brothers DKSH Prinova Other

8.6

17.3

3.5

8.3

1.1 61.2

54

10.3

4.4

5.5

2.9 2.0

74.8

92.0

14

7.5

Market share 2011 100%

40%

20%

0% 100% 80%

4.1

40% 20% 0%

7

7.1

6.2

5.3

2.7 4.3

74.5

60%

1.1 2.2

1.9 1.7 1.2

2.5 2.4 2.3

81.3

41 48

25.2% 38.8% 18.1% 8.0% Share of top 5 25.5%

Ranking Europe North America Latin America Asia – Pacific ME&A 1 Brenntag Brenntag Brenntag Brenntag Brenntag 2 Helm Helm quantiQ Helm ICC Chemical 3 Univar Univar M. Cassab ICC Chemical Protea Chemicals 4 Azelis Nexeo Solutions Manuchar Connell Brothers Petrochem Middle East 5 IMCD Group Prinova Grupo Pochteca DKSH REDA Chemicals



Major regional differences in the market shares of the top 5 chemical distributors

Source: ICIS, Company press releases

Market shares and position

Market size (B$)

1

2

3

4

5

Top 5

Fragmented competitor land-scape with sizable gap between Brenntag and the top 2–5 Top 5 with lower market share than in North America

Gap between top 3 and followers Numerous national, medium-sized distributors Fragmented landscape

Very fragmented market landscape (not a homogeneous region, mostly local competitors)


Asia-Pacific

Helm

ICC Chemical Connell Brothers

DKSH

Brenntag

43.0

2010

2.5%

1.9%

1.7%

NA

0.7%

NA

48.0

2.2%

1.9%

1.7%

1.2%

1.1%

8.0%

2011

Europe

Brenntag

Helm

Univar

Azelis

IMCD Group

53.8

2010

9.7%

5.5%

3.5%

2.9%

2.1%

23.8%

54.0

10.3%

5.5%

4.4%

2.9%

2.0%

25.2%

2011

North America

Univar

Brenntag

Nexeo Solutions

Helm

Hydrite Chemical

39.0

2010

14.9%

8.3%

8.7%

3.7%

1.2%

36.7

41.0

17.3%

8.6%

8.3%

3.5%

1.1%

38.8%

2011

Latin America

Brenntag

quantiQ

M. Cassab

Manuchab

Grupo Pochteca

13.0

2010

7.4%

3.2%

2.8%

2.6%

1.9%

17.4%

14.0

7.5%

4.1%

2.5%

2.4%

2.3%

18.1%

2011


High market fragmentation in chemical distribution in Latin America

1. Globally Harmonized System of Classification and Labeling Chemicals Sources: World Chemical Distributor Directory, www.chemagility.com, ICIS 2012 – Top 100 Chemical Distributors

Characteristics Latin America Market size US$ 14 Bn

Growth 2009-2011 (CAGR)

10%

Number of main Distributors

726

Top 10 Market Share 21%

Distribution Model(s) Chemical Distributors, Traders, Agents

Shipment Models Predominately Road

Suppliers / Principals Foreign / Domestic Producers

Regulatory Environment

Responsible Distribution – Brazil, Mexico. GHS1 implemented in most

major countries

Ranking Company Revenue2011 US$ M

1 Brenntag 1,046

2 quantiQ 572

3 M. Cassab 344

4 Manuchar 332

5 Grupo Pochteca 325

6 Bandeirante Brazmo 244

7 Indukern 144

8 Makeni 104

9 Univar 100

10 Quimisa 95


http://www.chemagility.com/


Mexico still with a low share of chemical distribution vs. overall chemical market

1. Source: ICIS; BCG

Characteristics Mexico

Industry structure Highly fragmented • Few local & regional leaders with a large number of

smaller family businesses

Share of chemical distribution conducted via 3rd. party distributors, 2010

~ 8% 1

M&A activity, rationale: • Tier-1 (Global) distributors such as Brenntag and Univar looking for high growth rates outside developed nations, increasingly focusing on Asia-Pacific and Latin America

M&A activity, 2011 (case example): Purchasing company: Brenntag Purchased company: Amco International S.A.de C.V. Strategic rationale2: • Improve full-line portfolio and expand it into aroma

chemicals, essential oils and food ingredients

Market Outlook, 2013 – 2020: • Consolidation trend, improving margins • Opportunity for larger regional players seeking growth

through M&A • A push from suppliers and their customers for better

practices & raising standards • Streamlining and development of distribution channels


Share of chemical distribution in Europe is around 12% and 13-14% in the US


Agenda





Key hypotheses for the market for chemical distribution in Latin America

Value chain perspective

Chemical distribution is a vital element of the overall chemical value chain – and needs to be recognized as such

HSEQ "Responsabilidad Integral" (Health, Safety, Environment, Quality) is essential for the "license to operate" for any chemical distributor

Consolidation Even higher fragmentation in Latin America than elsewhere – will lead to a significant consolidation

Institutionalization Strong drivers to institutionalize chemical distribution companies: The requirements of the producers, the overall value chain perspective, the consolidation

Growth ahead The share of third party distributors will present an over-proportional growth in Latin America

Industry Associations

Industry Associations in the chemical industry have a vital role in promoting HSEQ and institutionalization of business models from an overall value chain perspective



Chemical Distribution: The future in Latin America

Chemical distributors will become a vital part of integrated chemical supply chains from producers to customers Chemical producers in Latin America will consider leading distributors as an important element of their go-to-market strategies

• Opening new markets and customer segments • Complexity reduction in marketing and sales

Chemical customers will increasingly value bundled supply and one-stop-shopping of many products from chemical distributors

Responsible care will be a MUST HAVE - A precondition for the license to operate in the entire chemical value chain

1

2

3

5

Source: BCG analysis


Chemical distribution - ANIQ QUINTA SESION PLENARIA/1...Chemical Distribution - ANIQ Oct 2012...

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