A year in review

We leave 2018 with the momentum of a very busy year. During 2018, we have re-positioned our portfolio after having sold the BioProduct business and the Capa™ business. These transforming actions allowed us to significantly strengthen our balance sheet and leverage our position, which will enables us to focus on driving future growth from our three platforms; Polyols, Oxo and Animal Nutrition.

2018 was also a year, when we saw a change in ownership. In September, Perstorp Holding AB was transferred to a new investment fund with our current owners, PAI Partners, backed by a new investor Landmark Partners and other co-investors. As a part of the deal, the new investors have agreed to commit EUR 130 million to Perstorp for M&A and CAPEX activities to further advance the company’s growth strategy.

At the start of 2019 we introduced a new transformational program; Level Up. After the last years’ development of functional excellence, a new operational model and a new organization were launched with the main objective to better address customer demands for supply, reliability and focused innovation. Together we have created a more lean and efficient company, with the aim of being even better at serving our customers’ needs. With this as our springboard, our strategy remains and we have clearly defined drivers for our growth going forward.

Short after the transformational program was launched, Perstorp entered into a new financing agreement . The new capital structure will strengthen our balance sheet and further enhance our ability to generate free cash flow, fully in line with our strategic objectives. In addition, we obtained an improved credit rating from both Moody’s (B2) and Standard & Poor (B).

2018 resulted in a mixed performance for our business, due to a general weakening of demand as well as internal factors. The scheduled maintenance turnaround at the Stenungsund site, together with some production disturbances in Q3 and Q4 impacted the financial result negatively. On the other hand we experienced positive exchange rate effect as a result of the weak Swedish krona. Despite the mixed performance, the year ended with a record high EBITDA, amounting to SEK 2,324* m.

*consolidated Group

Strategic direction

We use our global expertise in chemistry and engineering to transform basic materials into high value products that give our customers a competitive edge. We often innovate hand-in-hand with our customers to make better solutions, helping them improve competitiveness, create value and drive differentiation from their peers. Our chemicals improve performance and can help to reduce environmental impact. Perstorp’s leading market positions drive growth and margin, backed by an almost 140-year track record and an experienced international leadership team.

The portfolio has been revisited after the sale of BioProducts and Capa™ and we will continue to optimize our portfolio of cash contributors as well as attractive growth businesses, and have reorganized our structure to compliment this focus. Proceeds have been used to deleverage the balance sheet, and allowed for continued investments in strategic niches.

A substantial part of Perstorp’s R&D spend is used to find sustainable solutions. For example, we are exploring innovative ways to produce or source renewable raw materials to expand our Pro-Environment Solutions and we are looking for equally innovative ways to give our products additional sustainability properties.

After having implemented a new capital structure, we now have greater flexibility to pursue new investments. However, our core strategy is to continue to grow organically – having invested on average approximately SEK 300m in capacity expansion per annum during the last years– and through bolt-on acquisitions in strategic niches. Our strategy will support volume and margin growth, backed by global macro trends, through strategic positioning in prioritized market segments.

Focused innovation

Focused innovation is one of our core values and last year we saw a number of exciting results from our innovation capabilities. I would especially like to mention the following initiatives:

Pevalen™

As phthalate-based plasticizers are stepwise being phased out globally, there is growing demand for phthalate-free plasticizers;

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  The trend around legislation for plasticizers is clear and consistent

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  China, being the world’s largest PVC / plasticizer market has started phasing out specific phthalate-based plasticizers

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  The total market for phthalate-free plasticizers is growing fast

Perstorp’s general purpose phthalate-free plasticizer Pevalen™ has with its unique chemistry shown to have many technical properties that are better than the existing plasticizers, giving important advantages to customers.

In 2018, Innovation has worked further with the formulation of the product and can now recommend the different customer application areas the right stabilizers and additives when formulating with Pevalen™. Additionally, foamed applications, like flooring and artificial leather were accelerated to deliver result, a Food Contact application was filed (FCN) and the number of new customer qualifications met the target.

New Penta technology

The growing demand of Penta and Di-Penta requires support by the best available technology for future investments. Particularly we aim for improved flexibility and the possibility to extract more of the high value Di-Penta in our existing and future production facilities.

Important achievements in 2018 were the new synthesis developed to enable high Di-Penta yields and an increased knowledge about co-product formation and synthesis control targeting a more optimized production.

Sustainability

In 2017 we set the tough ambition to become Finite Material Neutral. It is an ambition that will stretch us as a company, but we are convinced that we will get there. This decision will of course over time have an impact on the way we do business and make choices within our value chains, which is also when what we do starts to have a real impact. This ambition means a lot more than operating our business in a resource-efficient way. Significant global challenges lie ahead of us with continued high expectations on the chemical industry as being part of the solution. Becoming Final Material Neutral to us means among other things to switch from fossil resources to renewable, recycled or reused, supporting a circular economy. This shift will not happen overnight and we are humble about our ambition.

As an important outcome of our sustainability work, in 2018 we started to sell the world’s first portfolio of Polyols with renewable content, Pro-Environment Polyols, built on the mass balance principle and certified by ISCC. The products have been well received by customers who want to build renewable value chains and as icing on the cake Perstorp received the prestigious “Best Practices Award” from Frost & Sullivan. One of my proudest moments of the year.

Sustainability though, is a lot more than the Finite Material Neutral ambition. It is about everything we do and how we do it. 2018 was the year when Sustainability became one of our corporate change programs, and also became part of the daily work among many more of our employees.

During the year, we have continued our partnership with the Hunger Project, which funds local investments to support women leading change in especially poor societies. This new way of contributing to society will become increasingly important for us in order to live up to our commitment to be a responsible corporate citizen, in areas that matter.

Care 365

Our Care 365 program is Perstorp’s way of putting health and safety first in everything we do, every day, 365 days a year, and to translate that ambition into concrete actions. And we do it because we care, not because we want to improve our statistics. Care 365 is an integral way to living our core values Responsibility - “Do right”, Reliability - “Keep the promise” and Focused Innovation “Make it better”.

Our performance in 2018 took a positive direction during second half of the year, when our ambition to become world class in safety resulted in a profound and sustainable improvement, with a performance that was better than target every month. Management commitment is continuously strong, as we are convinced that every injury at work is preventable, and our focus should continuously be on prevention. Real change is driven by the people, purpose and values and together with a strengthened leadership, this is how Perstorp will bring Care to the next level.

Other corporate initiatives

After extensive work by a cross-functional Digital Transformation Team, Perstorp now has an envisioned digital future, with a roadmap developed for how digital transformation can enable us to work smarter and use our existing systems and processes more efficiently. During the year, we identified our first couple of concrete ideas and projects within Operations and Supply Chain, where we will run proof of concepts and pilot projects in 2019. We also started the implementation of a new CRM system (salesforce.com) which will enable us to work in new ways, both internally as well as with our customers.

Since 2017, we are an Associated Member of Combient – a joint venture between large Swedish and Finnish companies in traditional industries – where the key question is how to secure competitiveness by being at the forefront of digitization. During the year, Combient has had an advisory role in several of our internal digitalization projects, and Perstorp has participated in their various networks.

Continuous Profitable Growth is our headline moving forward, we have set ambitious and challenging goals for ourselves including outgrowing the market and reaching a new sustainable earnings level after the divestments of Bioproducts and Capa™. Yet beyond hard numbers, we have set clear targets for further developing our Leadership and how to lead change. It boils down to this: we are building one strong culture comprising both the hard financial performance and the softer value that fuels growth. This symbiosis between performance and care is the magic formula for Perstorp.

I am very proud to lead this company, and to be the one leading the way to the next level of performance. It is in our DNA to always look for improvements, to take things to the next level, to the possible, saying: “Wow, we did it! What more can we do?” Regardless of where we work in the company, we take what we have learned and use it to drive that next competitive edge – for ourselves and our customers.

Malmö, April 2019

Jan Secher

Upgraded credit rating by Standard & Poor

In July 2018, S&P Global Ratings announced that it has upgraded its long-term issuer credit rating for Perstorp Holding AB to B-. The upgrade reflects Perstorp’s sustained EBITDA growth and deleveraging, which is a step towards increased financial flexibility and a potential to lower future cost of capital.

A new ownership structure

In September, PAI Partners announced the transfer of their interest in Perstorp from the investment fund PAI Europe IV to a new fund managed by PAI Partners and backed by Landmark Partners and other co-investors. As a part of the deal, the investors of the new fund have agreed to commit c. EUR 130 million for investment activities to further advance Perstorp’s growth strategy. The major transformation of Perstorp during the last years, which has delivered strong results and increased value has now paid off, attracting new investors.

Divestment of the BioProduct business

In November 2018, Perstorp announced and completed the divestment of its BioProduct business in order to streamline the portfolio. The BioProduct business was concentrated to Sweden and Norway, and hence the sale was in line with the strategy to focus on global high growth areas in the specialty chemicals market and build on the position as a global leader in the field.

Leveraging the full business potential in Animal Nutrition

In order to take full advantage of the current growth opportunities in the agricultural business, as well as exploring new business opportunities, Animal Nutrition (former Feed & Food) became a separate Business Area, and a new Executive Vice President was appointed. The future growth expectations are high, both due to macro trends but also due to a very promising innovation pipeline as well as how Perstorp is now building capabilities with both significant global recruitments and increased production and supply capacity.

Innovative steps to support customer’s use of phthalate free plasticizer Pevalen™

The trend around legislation for plasticizers is clear and consistent, and there is a growing demand for phthalate-free plasticizers, as phthalate-based plasticizers are stepwise being phased out globally. Perstorp’s Pevalen™ has shown to have many technical properties that are better than the existing plasticizers, and can be used as a superior alternative in most PVC applications. During 2018, Innovation has worked intensely to be able to conclude and recommend to our customers, the right stabilizers and additives when formulating with Pevalen™. Foamed applications, e g flooring and artificial leather, are areas where interest has grown rapidly, and where Perstorp has focused its innovation resources. The number of new customer qualifications met the target and on top, a food contact application was filed.

Awarded Pro-Environment Polyols

Perstorp’s new Ambition Level for sustainability - to become Finite Material Neutral - was first presented in 2017. For Perstorp to become Finite Material Neutral means switching to alternative resources that are abundant and/or renewable, or to close the loops in order to recycle or reuse those that are finite. All Perstorp’s three essential polyols are now available in renewable and partly renewable options – Voxtar™, Evyron™ and Neeture™, produced based on the mass balance concept and certified by third-party ISCC (International Sustainability & Carbon Certification). Frost & Sullivan has in 2018 rewarded Perstorp for this transformation, which is also an external confirmation of Perstorp providing employees with room and opportunity to run with ideas, making a change for the company and more importantly the world.

Relentless work with Care 365 pays off

The relentless determination for Perstorp to become world class in health and safety has started to pay off and there is now a profound and sustainable change in terms of safety. In the second half of 2018, performance was better than target every month and five out of the last twelve months had zero injuries. We are convinced that every injury at work is preventable, and our focus is continuously on prevention. A global integrated roadmap has been developed in order to take Perstorp to the next level as a safe and healthy workplace, and the work continues.

Let’s talk Care 365

To demonstrate focus and importance of health, safety and care all across Perstorp, on August 24, “Let’s talk Care 365” was arranged in all geographical locations, sites as well as offices. All employees were invited to an event in their respective location, and there was a variety of topics on the agendas, everything from hands-on safety training to office yoga. The level of engagement was high and the conclusion was that this day will become a yearly event.

A revitalized Perstorp Brand builds business value

The traditional Perstorp Brand has undergone a major brush up, both from a visual perspective, but also from a value perspective in order to make sure that it is contemporary and reflecting the company of today – resonating with customer needs. As a tribute to the hard and delicate work with everything from how the company communicates the brand in text and image, to its long-term development, strategy and also how to legally protect it from infringement, the Perstorp Brand was nominated to the prestigious Signum Award in Sweden, in competition with well-known Swedish brands like Barnängen, Com Hem, Moderna Museet, Polarn O. Pyret and Vitamin Well.

Divestment of the Capa™ business

In February 2019, the sale of the Capa business to Ingevity was completed. Capa has under Perstorp’s leadership during the last 10 years, become a global market leader in the production and commercialization of caprolactone. The sale of Capa unlocks significant value and proceeds will be used to strengthen the balance sheet, as well as to invest in growth areas with strong future potential, such as the polyols market, the phthalate free plasticizer Pevalen™, expansion of the animal nutrition business and establishment of Pro-Environment Products and Solutions.

A new capital structure through a debt refinancing agreement

In February 2019, Perstorp announced the refinancing of its existing credit facilities which will provide a more flexible capital structure. This was possible thanks to the solid track record of strong performance and in addition the sale of the Capa business. An improved credit rating was given by both Moody’s (B2) and S&P (B). Perstorp has now a significantly improved position to achieve its long-term strategic objectives.