20% VOLUME GROWTH IN 2018

Mexico 2019 | INDUSTRY | VIP INTERVIEW

TBY talks to Martín Toscano, President & General Manager of Evonik, on cross-sectoral operations, mergers and acquisitions, and the petrochemical sector.

What industries has Evonik identified as key in Mexico?

Today, we have a major presence in a wide variety of sectors such as mining, automotive, and the animal nutrition and health businesses. The company has identified further opportunities for growth in the personal and household care, dental care, aerospace, pharmaceuticals, coatings and oil and gas segments as well. The automotive industry is an interesting area of opportunity for us because our presence in the sector coincides with many of our business lines, which allows us to offer an integrated approach. The same goes for oil, gas, and aerospace. Evonik is working with the Mexican authorities and regulatory institutions to implement new technologies that can support the production and development of gas pipes. When it comes to aerospace, Querétaro has one of the fastest growing hubs in the world today. It is roughly a USD20-billion industry in Mexico that Evonik can provide a wide variety of solutions to. As a global company, we benefit from seeing many of our global accounts in Mexico and setting up assets here. They want Evonik to support their business in Mexico the same way we do in other regions.

How does doing business in Mexico differ from other markets?

One of the biggest differences in Mexico is that many global players and key regional accounts invest more in local R&D in comparison to their investments in other emerging countries, especially those involved with industries connected to manufacturing. This also due to the high level of quality that customers and companies expect from products and services. For this reason, it is important to not only rely on what is being developed in headquarters but we must also develop services and products adapted to the local needs. We also see companies investing in the Mexican talent pipeline. Companies such as Audi are developing programs with universities to develop local talent. It gives young students the opportunity to work and initiate their careers at an academic stage. Audi offers opportunities for Mexican students not only in Mexico but also in its facilities in Germany. To some extent, Evonik is developing in Mexico a similar program. We collaborate with universities in both Mexico and Germany to work in different areas of our organization through internships, and many of these students stay in the company after the program is finished.

How will recent mergers and acquisitions affect Evonik's business model?

Integrating recent acquisitions into our business model is one of our most important projects at the moment. We completed two important acquisitions in the US, one is the Performance Materials division of Air Products and the other is a producer of precipitated silica for dental care, J.M. Huber. These acquisitions will increase our product portfolio and our customer base in Mexico. J. M. Huber is a well-known and active American company in precipitated silicas, especially for the production of toothpaste. In this business, we will strengthen our partnership with Mission Hills and Procter and Gamble in Mexico, among others. We have been selected as the main supplier of all its necessary raw materials for the production of toothpaste. Mission Hills Mexico is the largest toothpaste manufacturing site of Colgate globally; from here, it serves the international markets. In addition to dental care, our products and technologies for the manufacturing of car seats will benefit the most from our other acquisition, particularly tier one and tier two automotive companies. The acquisition also benefits our coatings and additives business line, from which we serve companies like PPG Comex, one of our largest customers. So far in Mexico, both acquisitions have received positive feedback from our customer base. On top of these two projects, Evonik continues to target additional future acquisitions. By the end of 2018, Evonik Industries has signed an agreement with One Equity Partners to acquire US-based PeroxyChem, a manufacturer of hydrogen peroxide (H2O2) and peracetic acid (PAA). PeroxyChem will significantly strengthen our growth segment Resource Efficiency globally. We are expanding our portfolio of environmentally friendly and high-growth specialty applications. We are excited about the opportunity to join forces with PeroxyChem in Mexico and make our successful business even stronger. The complementary fit of the two businesses will unlock new and attractive growth opportunities for our customers and employees. We look forward to more to come in the next year. We are going through an interesting transformational phase, in which we are focusing even more on specialty chemical. Thanks to this new focus, our investments will now support strong organic growth in the specialty chemical segments in specific areas in Mexico.

What are your expansion plans for your sodium cyanide JV subsidiary, Cyplus Idesa, in the medium term?

We are pleased with the relationship and investment we have established with Idesa to create this JV. The silver and gold mining industry continues to be promising in Mexico. Cyplus is well positioned, as it is the only sodium cyanide manufacturing company in Mexico. If the market continues developing in a positive direction, and our customers believe more support is needed, there will be potentially opportunities to further expand and invest in Cyplus Idesa in Mexico. Our number-one priority is safety and sustainability in our business and our customers' business. We offer a large range of services and support to our customers in the handling and dosing of our product in the mining sector. We go beyond merely providing the product by collaborating with the technical and engineering departments of our customers. We want them to handle sodium cyanide in their operations as safely as possible. We collaborate with many players and partners in the industry to advocate for safety and are always exploring opportunities to engage with local players in the industry to eventually try to bring technologies and manufacturing sites to Mexico.

What strategies does Evonik use to remain relevant in the petrochemical market?

One of the major challenges in this respect is to find the right product for the right market and assuring access to local raw material. We are part of the North American platform and have a strong footprint in the US with manufacturing sites across the country. Our main focus today is optimizing our supply chain and logistics as much as we can to bring in new products. We look for new opportunities based on the market and the availability of partners and raw material. As to the supply of raw materials, we need a strong downstream of the petrochemical industry that is competitive and sustainable to make sure a production site in Mexico would be efficient. Depending on the segment and business line, Evonik also looks into global and regional businesses.

How does Evonik plan to further consolidate its presence in Mexico?

For the third year in a row, our company has seen double-digit growth. In 2018, we grew 20% volume-wise and more than 15% in terms of turnover, which is a result of our strong organic growth in many of our businesses and the realization of many projects with Mexican customers. The integration of our acquisitions is also a positive contributing factor. The rising middle class in Mexico also directly benefits all our business lines in Mexico, as the country has more purchasing power. This motivates more companies to enter Mexico, create jobs, and boost the well-being of the country. In general, we expect our 22 business lines to continue to develop and grow in Mexico.