Chemical distribution
Global picture, trends and opportunities
Dr. Udo Jung The Boston Consulting Group, Frankfurt (Germany)
México D.F., October 26, 2012
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 - ANIQ Oct 2012 -Final.pptx
1
Global State Chemical Distribution
Chemical Distribution: A view from the Old World
1 Chemical distributors are a vital part of integrated chemical supply chains from producers
to customers
2 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
3 Chemical customers value bundled supply and one-stop-shopping of many products from
chemical distributors
4 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
5 Responsible care is a precondition for the license to operate in the entire chemical value
chain
Source: BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
2
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)
Other smaller
customers
• Distributors often with high switching cost for
their suppliers (principals)
• High level of data integration
Distributor
• "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
Source: The Boston Consulting Group
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
3
Global State Chemical Distribution
Key criteria for producers to choose chemical distributors
Interview results of specialty chemicals suppliers
Importance of success factors
Performance of major distributors
Product know-how
Complementary
products
Quantity/
customer base
Product know-how
D1
Complementary
products
D2
Quantity/
customer base
D4
Transparency on
end-customers
Transparency on
end-customers
Track record
Track record
Pan-Europeanreach
Own vs. outsourced logistics
Pan-Europeanreach
Own assets in
storage, mixing and
filling
Own vs. outsourced
logistics
Price
Price
Own assets in storage, mixing, filling
Not rated
Not
Less
Average Important
Very
important important
important
D3
Very
Not
InsuffiAverage Good
insuffirated
cient
cient
Very
good
Source: Market expert interviews; BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
4
Global State Chemical Distribution
Chemical distributors create value for customers: Single
sourcing and technical serve
"Contract business—single sourcing"
• Quite often formal contractual relationships
with customers
Other smaller
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
Distributor
• Typical business model for smaller customers
(with diverse chemicals supply base—
however with rather low overall volumes)
...
...
Source: The Boston Consulting Group
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
5
Global State Chemical Distribution
Key criteria for customers to choose chemical distributors
Growth opportunity
Single sourcing
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."
59%
- paint company Technical support
54%
Application
expertise
"Distributors have far better speed and flexibility of delivery than chemical
suppliers—unfortunately they lack the technical expertise we need in some
categories."
48%
- specialty company -
"We would love to get rid of all the inventory management—unfortunately
no one is offering something for medium-sized companies."
Vendor managed
inventory
31%
Customer-tailored
service
16%
Regulatory
support (REACH)
15%
- 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 -
Customized
mixing,
blending etc
13%
0
50
100
% of answers
Note: Quotes reflects statements from more than one individual
Source: Customer survey; BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
6
Global State Chemical Distribution
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
Other smaller
customers
• Bundling of demand for several products into
one customized delivery
• Drum exchange service and waste disposal
material loop
Distributor
• Addition of value adding steps -examples
...
...
– Material services ,
e.g. formulation/blending, licensed
production, filling/labeling
– Immaterial services,
e.g. VMI, certification, training
Source: The Boston Consulting Group
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
7
Global State Chemical Distribution
The business model of chemical distributors covers the whole
value chain – Option space for distinct business models
Set targets for
volume per period
Development of
price models (boni,
fixed price, …)
Supplier Mgmt.
Contract
Spot
Supplier
Target
•Acqu.
setting
•Report.
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
Solution provider for
customer specific problems
Technical consulting
(usage, handling)
Product development
Value-added services
(research, analyses)
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
Accounts payable
Accounts receivable
General ledger
Invoice verification
Financial statement
Planning/Budgeting
Asset management
Currency/risk mgmt.
Treasury
Cost calculation schema
Invoicing initiated on receipt of delivery
note
Printing/submitting
Bundling of invoices on demand
Environmental and
regulatory advice
Marketing & Sales
Purchasing
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
Inbound
logistics
Stockkeeping
Transport/ route
planning
Release of
transport
documents
Contr. bus.
Spot bus.
Cust. acqu.
+ care
Sales
Advice/
technical
service
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
Order
processing
Mixing/
blending/
filling
Outbound
logistics
Transport/route planning
Release of Transport documents
(input from order processing)
Pick up of goods
Loading of truck
Invoicing
Recycling/
drum return
handling
Finance,
Accounting
Controlling
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
Transportation
"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
Stock planning
• Demand planning
• Stock targets
• Replenishment orders
Warehouse management
Goods receipt
Quality assurance
Handling (loading, pick up of goods)
Security/environmental protection
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
Budgeting
Cost center accounting
Profitability analysis
Evaluation of stock levels
Reporting/MIS
Monthly and quarterly reporting
Capex control
Source: Interviews; BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
8
Global State Chemical Distribution
Business models in Chemical Distribution: Value chain
coverage – product portfolio – customer industries/application
Feedstock
Industrial gas
Cracker products
Secondary basic chem.
"Producers with distribution business"
incl. antifreeze
Inorganic acids
Lubricants
"Low cost /value
"Product range specialists with
Fats, oils
opportunity
seekers"
vertical integration"
Polymer intermediates
Solvents & other interm.
Cust.-industry spec. chem.
Function-specific chem. "Producers
Adhesive components with captive z
"Industry
distribution /
Feed ingredients
specialists"
trading"
Food ingredients
Catalysts
Other inorgan. (e.g. miner.)
Active pharma. ingredients
"Full-line providers with
Standard polymers
acquisitive growth"
Elastomers
Engineering polymers
High performance polym.
Fibers
"Functional
Lab chemicals
specialists"
Pesticides
Fertilizers
Biofuels
Paints
Inks
Construction material
Packaging material
Textiles/clothes
Installation &
repair
Loading & filling
(cust./ supp.)
Onsite logistics
(cust./ supp.)
Design
Production
operation
Waste disposal/
mgmt.
Chemical
synthesis
Batch
processing
Formulating
Other activities
Compounding
Terminaling
Prod./ app. devt.
Prod. reg./ patent
res.
QM & lab
analysis
Training
ESHQ, REACH
Reg. services:
Customer support
Technical
support
Vendor-managed
inventory
Debt collection
(for suppliers)
Order & invoice
mgmt.
Financing
Single sourcing
Marketing
Sales to broad
customers
Bundling, filling,
pack., label
Complexity
management
Diluting,
blending
Waste handling
& transport
Storage
Document
handling
Drum return
handling
Products
Physical handling
of goods
Transportation
Activities
Production
Producti
on
Customer industries
Agriculture
Gas distribution
Electricity production
Mining and quarrying
•
Extraction of oil & gas
Coke, refined petroleum prod.
Chemicals excl. pharma.
•
•
Cosm., pers. care, cleaning
Paints & coatings
Water treatment
Rubber and plastics products
Textiles and footwear
Pulp & paper
Wood and wood products
Iron & steel
Food products, bever., tobacco
Other non-metallic mineral prod.
Fabricated metal products
Motor vehicles
Pharmaceuticals
Building & construction industry
Electrical machinery
Medical & optical instruments
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
...
…
Source: Market study; BCG
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
9
Global State Chemical Distribution
Global chemical distribution landscape shows few large
distributors and a sizable gap to mid-tier
Sales 2011 in $B
200
115.4 164
150
19% share of
global top 5
50
9.7
5.6
4.0
2.3
1.6
1.4
1.3
1.2
0.9
0.8
0.8
0.8
0.8
0.7
0.7
0.7
0.6
0.6
0.6
0.5
0.5
0.5
0.5
0.4
11.2
Total
Others
0
"Top 25 distributors"
2011 Revenues
Delta between market size and bottom-up sales of top 25
Overall market size based on market model
Source: ICIS, Company websites, BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
10
Global State Chemical Distribution
Brenntag is a top value creator in the overall chemical
industry
Brenntag, a success history
Chemical Distribution Industry gaining more
attention due to Brenntag´s IPO
• IPO in 2010 – beforehand owned by two
sequential PE firms
• Complete exit of PE firm in several steps
Brenntag´s multiple levers of organics growth
& acquisition strategy
• Example of acquisitions in 2012:
– ISM/Salkat Group, Australia
& New Zealand
– The Treat-Em-Rite Corporation,
Texas, USA
Stock performance
IPO´s media coverage
Brenntag Fulfils Investor´s Wishes,
17 Mar 2010
The Right Chemistry Between Brenntag and Investors –
IPO a Success, 29 Mar 2010
Brenntag ´s stock performance vs.
leading chemical manufacturers
Stock
Brenntag
BASF
DuPont
Oct 1, 2012
BNR.DE 99.15
BAS.DE 55.96
DD 47.63
Percentage change since Brenntag´s IPO
Source: ICIS Top 100 Chemical Distributors, Yahoo finance, Brenntag´s website & press releases
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
11
Agenda
What is the state, globally, of the chemical distribution market?
In particular, what is happening in Mexico and Latin America?
What global trends can forecast a brighter future for the Mexican
Chemical Distribution market?
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
12
Mexican & LATAM markets
Asia and Latin America with high growth rates in chemical
distribution
Europe1
North America2
Asia Pacific
Latin America3
Middle East
Market sizes in B$
Market sizes in B$
Market sizes in B$
Market sizes in B$
Market sizes in B$
80
80
80
80
World
Market sizes in B$
80
200
+9%
164
155
+6%
60
54
54
60
60
+8%
48
40
40
+12%
39
60
60
150
40
40
100
138
48
43
41
35
40
38
+10%
20
20
20
20
12
13
14
20
5
0
0
2009 2010 2011
0
2009 2010 2011
0
2009 2010 2011
50
+18%
6
7
0
2009 2010 2011
0
2009 2010 2011
2009 2010 2011
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
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
13
Mexican & LATAM markets
Chemical trade between Latin America and other regions
grew by more than 50 % since 2009 – significant net imports
Mexico
Brazil
LATAM
Billion USD, at current prices
Billion USD, at current prices
Billion USD, at current prices
Year
Exports1 Imports2 Balance
Year
Exports Imports3 Balance
Year
Exports Imports Balance
2011
14.2
39.5
-25.4
2011
15.1
41.8
-26.8
2011
55.6
154.2
-98.6
2010
11.9
34.1
-22.2
2010
12.2
32.3
-20.1
2010
44.7
124.4
-79.6
2009
10.1
27.8
-17.7
2009
10.5
25.3
-14.8
2009
39.2
99.9
-60.6
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
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
14
Mexican & LATAM markets
Latin America with high fragmentation of the chemical
distribution industry
Share of top 5
Market share
2011
100%
25.2%
38.8%
18.1%
8.0%
25.5%
Other
41
54
7
48
14
61.2
1.1
40%
74.8
8.3
17.3
4.4
10.3
8.6
7.5
M. Cassab
0%
20%
40%
60%
North America
Latin America
4.3
Azelis
2.7
REDA Chemicals
5.3
ICC Chemical
Petrochem Middle East
6.2
1.2
1.9
Protea Chemicals
1.7
2.2
1.1
0%
Connell Brothers
Manuchar
92.0
2.3
2.4
2.5
4.1
DKSH
Grupo Pochteca
81.3
3.5
5.5
Prinova
IMCD Group
74.5
2.0
2.9
20%
Market
size
2011
USD B
80%
Nexeo Solutions
7.1
Helm
100%
Univar
Brenntag
Europe
Ranking
1
2
3
4
5
Brenntag
Helm
Univar
Azelis
IMCD Group
Brenntag
Helm
Univar
Nexeo Solutions
Prinova
Brenntag
quantiQ
M. Cassab
Manuchar
Grupo Pochteca
Asia – Pacific
Brenntag
Helm
ICC Chemical
Connell Brothers
DKSH
ME&A
Brenntag
ICC Chemical
Protea Chemicals
Petrochem Middle East
REDA Chemicals
Source: ICIS, chemagility, BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
15
Mexican & LATAM markets
Major regional differences in the market shares
of the top 5 chemical distributors
North America
Europe
Market
size (B$)
Market
shares
and
position
Latin America
Asia-Pacific
2011
2010
2011
2010
2011
2010
2011
2010
54.0
53.8
41.0
39.0
14.0
13.0
48.0
43.0
1
Brenntag
10.3%
9.7%
Univar
17.3%
14.9%
Brenntag
7.5%
7.4%
Helm
2.2%
2.5%
2
Helm
5.5%
5.5%
Brenntag
8.6%
8.3%
quantiQ
4.1%
3.2%
ICC
Chemical
1.9%
1.9%
3
Univar
4.4%
3.5%
Nexeo
Solutions
8.3%
8.7%
M.
Cassab
2.5%
2.8%
Connell
Brothers
1.7%
1.7%
4
Azelis
2.9%
2.9%
Helm
3.5%
3.7%
Manucha
b
2.4%
2.6%
DKSH
1.2%
NA
5
IMCD
Group
2.0%
2.1%
Hydrite
Chemical
1.1%
1.2%
Grupo
Pochteca
2.3%
1.9%
Brenntag
1.1%
0.7%
38.8%
36.7
18.1%
17.4%
8.0%
NA
Top 5
25.2%
23.8%
Fragmented competitor landscape with sizable gap between
Brenntag and the top 2–5
Gap between top 3 and followers
Numerous national, medium-sized
distributors
Very fragmented market
landscape (not a homogeneous
region, mostly local competitors)
Fragmented landscape
Top 5 with lower market share
than in North America
Source: ICIS, Company press releases
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
16
Mexican & LATAM markets
High market fragmentation in chemical distribution in Latin
America
Characteristics
Market size
Latin America
Ranking
Company
US$ 14 Bn
Revenue
2011
US$ M
Growth 2009-2011
(CAGR)
10%
Number of main
Distributors
726
Top 10 Market Share
21%
Distribution Model(s)
1
Brenntag
1,046
2
quantiQ
572
3
M. Cassab
344
4
Manuchar
332
5
Grupo Pochteca
325
Chemical Distributors,
Traders, Agents
6
Bandeirante Brazmo
244
7
Indukern
144
Shipment Models
Predominately Road
8
Makeni
104
Suppliers / Principals
Foreign / Domestic
Producers
9
Univar
100
10
Quimisa
95
Regulatory
Environment
Responsible Distribution
– Brazil, Mexico. GHS1
implemented in most
major countries
1. Globally Harmonized System of Classification and Labeling Chemicals
Sources: World Chemical Distributor Directory, www.chemagility.com, ICIS 2012 – Top 100 Chemical Distributors
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
17
Mexican & LATAM markets
Mexico still with a low share of chemical distribution vs.
overall chemical market
Characteristics
Industry structure
Share of chemical distribution conducted
via 3rd. party distributors, 2010
1. Source: ICIS; BCG
Mexico
Highly fragmented
• Few local & regional leaders with a large number of
smaller family businesses
~ 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
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
18
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 - ANIQ Oct 2012 -Final.pptx
19
Mexican & LATAM markets
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
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
Industry Associations in the chemical industry have a vital role in promoting HSEQ and
institutionalization of business models from an overall value chain perspective
20
Global State Chemical Distribution
Chemical Distribution: The future in Latin America
1 Chemical distributors will become a vital part of integrated chemical supply chains from
producers to customers
2 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
3 Chemical customers will increasingly value bundled supply and one-stop-shopping of
many products from chemical distributors
5 Responsible care will be a MUST HAVE - A precondition for the license to operate in the
entire chemical value chain
Source: BCG analysis
Chemical Distribution - ANIQ Oct 2012 -Final.pptx
21