Recovery - Every part of the chemical industry has felt the impact of the recession, including chemical distributors. Companies who reacted quickly to the crisis when it began are now the ones who are emerging on top in 2010. Ter Group a German-based group of chemical distributors including its operative holding Ter Hell & Co. GmbH, is one of those group of companies who has posted good results despite a sluggish economy. CHEManager Europe asked the group's managing shareholder Christian Westphal about his strategy for weathering difficult times and what he sees as upcoming trends in the sector.

CHEManager Europe: How has the crisis impacted both Ter Group and the European chemical distribution industry, in terms of financial performance, restructuring, investment plans?

C. Westphal: Although 2009 was a tough and difficult year, Ter Group managed to perform better than chemical wholesale trade in Germany. The European chemical distribution industry had to face a double-digit decrease in sales for 2009. As far as Ter Group is concerned, we had an acceptable year with our overall results and new acquisitions performing well.

In our company history of over 100 years, we have overcome many crises. Especially for our younger sales staff, it has been valuable to experience first hand how fast and severe prices and volumes may decline. Our pre-warning systems worked well, and we managed to instruct our employees to adapt quickly to the new market situation and threats.

What measures did the company take during the crisis?

C. Westphal: Ter Group put special emphasis on credit risk management and stock optimization. While managing the risks, we took advantage of the market opportunities and hired additional well-skilled employees to support our team. In this respect - and in terms of training and motivating our staff -we reacted contracyclical. Furthermore, we enhanced the group vision, beyond the simple aggregation of companies, intensified our cooperation within the group and improved our systems and processes to provide even more added-value for our customers and suppliers.

What are the key trends in the sector?

C. Westphal: For 2010, we expect that chemical markets will be in better shape globally and overall demand levels will be higher than during the depressed period of October 2008 to June 2009, but without reaching the peaks of 2007/2008. The chemical industry, distribution and trade will be in the position to improve their results for the first half of 2010.
For sustained growth of the chemical sector, it will be important when and how strong the automotive industry and the building industry gain momentum again. Both sectors were the main factor of losses in sales for most chemical wholesalers and distributors. Capabilities of distributors in inspiring their customers and suppliers with new solutions to succeed in their markets will continue to be the discriminator for players in the market to decide with whom they are going to team-up.
Fine-tuning of logistics and warehousing to perform as an efficient system will stay a trend and a source to achieve bottom line growth.

What are your views on industry consolidation?

C. Westphal: We expect a progressing market consolidation of specialty chemicals distributors. The driving force of M&A activities, however, is now taking a breather due to the current credit situation. The performance of the Brenntag IPO will be critical for similar exits expected for IMCD, Azelis or Univar.

Where do you see your company in all of this?

C. Westphal: Ter Group is one of top 10 specialty chemicals distributors in Europe. Our objective is to belong to the top five in five years. We will achieve this goal by acquisition of new suppliers, organic growth, integration of additional distribution companies and hard work. We are focusing our activities on our key application industries: paints and coatings; adhesives and sealants; cosmetics; food and feed; fiberglass; paper; specialties and plastics.

What role can distributors play in adding value?

C. Westphal: It has been important and will be key to supply quality products from world-class suppliers through well-trained, skilled and motivated sales staff. Technical expertise and expert knowledge in regulatory affairs as well as insights into the markets and a good understanding of the customers' applications and their customers needs will be crucial for suppliers and clients to chose their partners.
We have made investments in these factors as a prerequisite to expand our business with world-class partners. Furthermore, Ter Group will benefit from our efforts and outcomes in process standardization, organizational harmonization and sound leadership from our operational holding in Hamburg.

How has Reach affected your business?

C. Westphal: Quality, safety and environmental issues will become more important to what they are today. We invested in these areas to be prepared for the challenges. The positive side about Reach is that we know much more about the wide range of applications for the products we trade, distribute and produce by now. This will allow us to consult our partners intensely in the near future.

What is your view on the growing trend on sustainability?

C. Westphal: Sustainability is already a strong trend and will continue to play an important role for our industry. We are happy to accompany and support the activities of FECC and the German chemical Distributors Trade Association (VCH). As part of our participation in the Responsible Care program, quality management and other safety, health and environmental issues we work on reduction of our carbon emissions and ensure safety and health of our employees, customers and neighbors. Sustainability is more than collecting ISO certificates and will be a differentiator for the chemical distribution business. We need to make sure we are able to maintain the commitments of our suppliers in this respect and take their commitments further.

What do you think the impact will be from the new EU regulation for distribution agreements, which goes into effect on June 1?

C. Westphal: With the new "block exempts," manufacturers remain free to decide how to distribute their products as long as they do not have a market share in excess of 30% or restrict competition. We expect slight changes in the distribution agreements of some leading distributors. Small and mid-sized enterprises might benefit from the new regulation. I expect an increase in price competition for some products sold online. In this context the new regulation involves considerable change for established market rules and agreements.