The chemical company is investigating whether employees have posted the provisions and accruals incorrectly in order to steer the company’s results in such a way that financial targets are met.
(Photo: Reuters)
Zurich, Dusseldorf The specialty chemicals group Clariant has launched an investigation into possible manipulation of important balance sheet figures and has therefore postponed its annual financial statements. The stock then collapsed by almost 20 percent on Monday morning.
The review is about the booking of provisions and accruals in the 2020 and 2021 budget years, as the Swiss company announced on Monday. Clariant is examining whether employees have posted the provisions and accruals incorrectly in order to steer the company’s results in such a way that financial targets were met. The possible balance sheet tricks are said to have had no impact on sales and cash flow. However, margins are said to have been polished up.
According to the information, the trigger for the check was information from internal whistleblowers. The internal investigation has been running since September last year and is being accompanied by the auditing company Deloitte and the law firm Gibson, Dunn & Crutcher.
Clariant’s auditor, PwC, has now informed the chemical company that it does not want to audit the balance sheet for 2021 without the result. It is still unclear when the company will be able to present signed annual accounts. As a result of the investigation, Clariant may be forced to adjust previously released financial reports, it said. The company also has to postpone the general meeting.
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According to preliminary figures, sales from continuing operations in 2021 increased by 15 percent in local currencies to CHF 4.37 billion. The operating margin (Ebitda) should be between 16 and 17 percent.
One of the largest specialty chemicals manufacturers in Europe
Clariant is one of the larger specialty chemicals manufacturers in Europe. The company was formed in 1995 as a spin-off from the then pharmaceutical manufacturer Sandoz. The Swiss are very strongly represented in Germany. In 1997 Clariant took over the specialty chemicals business of Hoechst AG and in 2011 Munich-based Süd-Chemie AG.
The possible balance sheet tricks are still a mystery to those responsible. Peter Steiner, head of the board’s audit committee, said a small group of employees are suspected of mis-booking or delaying provisions to meet margin targets. They would not have gained any personal benefit from it.
The allegations of manipulation are a setback in the large-scale restructuring of the group for company boss Conrad Keijzer. He has been CEO since early 2021 and should bring calm to Clariant. CFO Stephan Lynen has been on board since February 2020.
Keijzer spoke of a culture problem: “Apparently there are people at Clariant who believe that it is good to trick the system in order to achieve the goals.” He will continue to work on ensuring that the corporate culture meets the highest ethical standards in the future.
“We will get to the bottom of the allegations,” emphasized Keijzer. He was relieved that the trickery was uncovered by employees. His reference to cultural problems amounts to an indirect criticism of previous management. From 2008 to the end of 2020, Clariant was managed almost continuously by CEO Hariolf Kottmann, who temporarily moved to the top of the Board of Directors, but then returned to operational management as interim CEO.
turbulent years
Kottmann left the board of directors in 2021 at the urging of Clariant’s major shareholder Sabic. The Saudi Arabian chemical group holds a quarter of the shares in the company. Under Kottmann’s leadership, the Swiss experienced turbulent years: in 2017, the planned major merger with the US group Huntsman collapsed. Then the Saudis got involved with Clariant, which wanted to merge specialty chemicals businesses with the Swiss. This plan also failed.
The group had lost trust in the capital market in the past, mainly because of the internal conflicts. Analyst Markus Mayer from Baader Bank sees the possible balance sheet manipulation as a negative surprise that could threaten Clariant’s reputation among investors and analysts, which has just grown again.
However, Mayer considers the massive drop in the Clariant share price to be exaggerated. Reason: On the one hand, the effect of possibly incorrectly posted provisions is likely to be rather small, because if the impact on performance was greater, Clariant should have reported such problems earlier.
On the other hand, the possible effects are not cash-effective, but could only affect individual balance sheet items. The analyst also assumes that there will be no impact on valuations from the recent sale of parts of the company.
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