Development and Growth - At the end of April, specialty chemicals distributor Azelis, which has an annual turnover of €1.1 billion announced that it had successfully secured a refinancing package for a further three years. In addition the company's main shareholder, private equity investor 3i, has provided further equity support of €10 million. The deal that provides Azelis with strengthened liquidity and financial resources reflects exceptional support from the banking community and from 3i for the business plan proposed by the new management around Dr. Hans-Joachim Mueller. The former executive at Swiss specialty chemicals group Clariant and German chemical company Süd Chemie became CEO of the Azelis Group a year ago. CHEManager Europe's Dr. Michael Reubold spoke with Dr. Mueller about what the new leadership team has achieved so far and about his strategy to further develop and grow the business.

CHEManager Europe: Azelis has gone through some restructuring. What are key changes that have been made, recently?

Dr. Hans-Joachim Mueller: I wouldn't call it restructuring because that sounds as though we were only cutting costs, which was not our prime focus: This is most definitely to generate profitable growth. Azelis was established in 2001 and over time has grown rapidly through acquisitions bringing together over 37 specialist distribution companies.

In 2008, new management was brought in to build one streamlined organization, a one-brand Azelis value system and a common ERP platform. During this process a number of internal activities were started. However, when you do this, quite naturally you can lose sight of external factors; thus our market focus was maybe not as good as it could have been. So at the end of 2012 a new management team was brought in - Laurent Nataf as the COO, Martin Hollenhorst as the CFO, and myself. We were entrusted to take Azelis to the next stage of its development by building on what was already established and to push more strongly into the markets we serve.  We aim to improve our offering to customers by fostering relationships with existing principals and forming sustainable relationships with new principals.

Have you changed your market approach in terms of the product portfolio you offer or the market segments you address?

Dr. Hans-Joachim Mueller: No, there are still two markets we address. On one side, there is the chemical industry with segments like coatings, additives or homecare and cleaning. On the other side is the life sciences industry where we are active in pharma, food and health, personal care and to a lesser extent, animal nutrition. So here we didn't restructure, to use that word, as an effective market driven organization already existed. What we did do though, was to better adapt our set up to deliver on growth objectives: we focused on developing a clear-cut strategy and securing refinancing to ensure that we have the means to really grow in these markets in the years to come. So our prime focus for the first couple of months was really refinancing.

After you successfully accomplished the refinancing, you then focused on the strategy?

Dr. Hans-Joachim Mueller: Yes, after winning the trust of the lenders, we started to develop a strategy that will allow us to offer what we internally call the lateral value chain to an industry. Offering a lateral value chain portfolio from A to Z into a market enables one-stop shopping for our customers and also demonstrates to principals that we are generating a pull. This is what we have addressed strategically: identifying the principals we need to develop further, and knowing the principals we need to get on board, to be even stronger along this market driven lateral value chain.

Why do we want to have that? As the company is geared for growth, we have well defined growth objectives with clear-cut responsibilities on who is driving the business from a financial point of view: this takes place in the countries because in distribution, where we aim to add value and be close to customers, we must have local managers in a country who run the business. Over and above that, we have additional personnel who oversee and drive principal development. These are key people for business generation who have close interactions with our principals and with Azelis' managing directors in the countries.

Speaking of countries, will this new strategy also increase Azelis' geographic footprint?

Dr. Hans-Joachim Mueller: Definitely, we will further build on what we have in Europe and also expand our reach into Asia. As we speak, we are active in India, have a fast-growing representation in China and an established presence in Japan. Next we will roll out our activities into Southeast Asia by establishing three, maybe four new distribution centers within less than two years. That doesn't mean that we will stop investing in the countries where we are already established, but vast countries with several regional languages like China or India, just cannot be served from one office.

For instance in China, in addition to our headquarters in Shanghai, we have representations in Guangzhou in the south and in the Chaoyang District of Beijing in the north. We will also be rolling out into the west of China, because we believe there is extensive untapped potential for distribution there.

In India we will also add more offices as we are currently only represented in Mumbai. But we also need to be in Delhi and in Hyderabad, and will consider having a representation in Trivandrum, Kerala. This is our role as a distributor, as a partner for our principals, to channel their products into every corner where there is a potential buyer.

Do you also look into other geographies like the Americas?

Dr. Hans-Joachim Mueller: We certainly do look into these markets, however, not with the strategic ambition to address them within the next two to three years. The distribution industry, and this obviously has something to do with how it was primed, is very much opportunistic driven. As there were so many opportunities in the past, companies' cherry picked and there was no real need to have a rolled-out strategy. I strongly believe though, that the time of just "going with the flow" is gone. You need to have a clear-cut strategy to decide what you want to accomplish and where you want to go. In Latin America, even though these are very attractive economies, there are several people already playing. The same applies to the U.S.: we have a representation in Canada, which is doing well, but going into the U.S., which is the most mature distribution market for chemicals you can think of, is not somewhere we would really enter into at this time.

After Southeast Asia we are considering to move more into Africa. Although the African market is still very fragmented and distribution is difficult, we have seen good growth rates in economies like Angola, Kenya and Nigeria in the last couple of years. So we will further determine whether it makes sense for us and for our partners to be represented in those countries.

Does the refinancing give you a solid basis for these future investments and expansions?

Dr. Hans-Joachim Mueller: Absolutely. The whole refinancing was done in light of what we are trying to accomplish. We explained to our lenders what we planned to do and then outlined what we needed to get there. We were able to secure all the necessary funds in that refinancing so we can take the necessary steps for a successful future for Azelis, centered on helping our principals to grow in the markets we serve.

Having worked for chemical producers in the past you know both sides of the fence. What are the success factors of a good relationship between a chemical distributor and a chemical producer? Does the producer also have to have a strategy for outsourcing distribution?

Dr. Hans-Joachim Mueller: The essential success factors, like almost everywhere in life, are openness and trust. As a chemical distributor, we have to align our strategy with the strategy of our principals, which we do on a regular basis. This sometimes can be a little bit of a challenge because different principals can have varying strategies and we need to amalgamate them into one approach that satisfies the ambitions of all. That said, overall our partners have the ambition to grow, so for us this is the common denominator and the basis of a relationship that creates value for our partners.

At the annual congress of the European Association of Chemical Distributors, delegates discussed the role of distributors in driving innovation in the supply chain. How do you see this role?

Dr. Hans-Joachim Mueller: Outsourcing into distributors is growing in the chemical industry. And that is partly because the face time chemicals producers have with smaller B, C and D customers - sometimes even with A customers - is diminishing. So when you don't have direct customer contact, where do you learn what the market wants to have tomorrow? Distributors facilitate a really close interaction between the principal and the customer. We are well placed to hear about a future trend in a certain market which we can then encourage our principal to embark upon.

On top of that, at Azelis we are continually adding to our suite of labs located worldwide, to carry out formulation work for customers. This is another value-added service which is strongly pushed within our group. As we represent different products from various principals we can do things a manufacturer cannot do: we can promote adjacent products because our chemists and chemical engineers have the expertise to develop inventive formulations.

So firstly, we can help our principals learn what the trends are and secondly, we are able to ensure that their products are embedded in formulations that are then offered to customers. This is a service very much appreciated.  We develop new ways to create value for our partners, and through our experienced people we introduce fresh ideas and innovative products to benefit both our customers and principals. Thus, we believe that we have a refreshing approach to chemical distribution.

Would you say that for distributors, who usually don't have product brands and production facilities, the most important assets are market knowledge and the skills of your people?

Dr. Hans-Joachim Mueller: It is most definitely our people. They are the real asset of a distributor. As said, we don't have any production facilities, so we need to make sure that the assets we offer to our partners are value-added, relevant and appreciated. And this is very much what we do have in Azelis, an understanding that our value is in our knowledgeable people.

In the past "think globally, act locally" was the formula for success for chemical distributors. Is that still true or do you think that meanwhile there are other requirements and success factors?

Dr. Hans-Joachim Mueller: I think the statement as such is still very much true. But there is a different facet that needs to be taken into consideration. Clearly you always sell locally. You have to be in front of a customer wherever the place and this has to happen on a local basis. However, when it comes to knowledge and expertise, this is where I think we also need to have a more global approach. For example, when we represent a principal in one country and the same principal also entrusts us his business in another country and yet another country; our customer-facing people across a market can interact and exchange their views on the USP of the product, how to best position it and so on. This in turn results in more rapid market penetration, hence a clear advantage in having this global perspective. This is also the prime driver I believe for expanding our geographical reach, because it optimizes synergies, maximizing technical and commercial expertise, and is therefore beneficial for both principals and customers.

Do you think that consolidation in the chemical industry among the producers of chemicals also affects the chemical distribution industry? Do you see more challenges from that or more opportunities for your company?

Dr. Hans-Joachim Mueller: Certainly, when you consolidate as a producer and reach the critical mass that allows you to have the lateral value chain in-house, then you may be tempted to move more away from distributors. And yes, consolidation in the chemical industry is going to continue, because when you look on a global scale, this is still a very, very fragmented industry. Having said that, I do not envisage this to be disadvantageous for us within the next 20 to 30 years. There is still a great deal of innovation taking place in the industry, not necessarily coming from the biggest firms, but also from those challenging. There are many smaller firms coming up with new, game changing technologies. So I do really believe that there is great potential for the distribution industry.