Making your capital work

When the world plunged into financial crisis, many finance directors suddenly faced the challenge of their career. Even in healthy sectors cash began to dwindle. Unsurprisingly, most FDs emerged from the crisis with a renewed respect for the importance of good cash flow management.

For Martin Babilas, CFO of German chemicals company Altana, improvements to his company's sustainable working capital position had already taken place. However, this was not as a result of any prescient knowledge of the financial crisis and resulting recession, which hit the chemicals industry with the double-whammy of reduced demand and a lack of access to credit.

Like many of its peers, Altana suffered under the burden of the global financial downturn as sales and earnings declined. But an overhaul of the company's working capital programme, prompted by a shift in company direction in 2007, put Altana in a strong position to ride out the crisis.

"Even in a situation like 2009, when the business was coming under pressure from the crisis, we were able to maintain a healthy margin of about 17 percent," Babilas tells Financial Director.

"We went into the crisis with a pretty stable set up. We had a good credit line with a good credit facility that give us more secure funds than we needed."

Babilas says that the need to achieve and sustain improvements to the company's working capital position was largely driven by Altana's transformation from a pharmaceutical/chemical hybrid into a speciality chemicals company in 2007.

In January 2007, Altana completed the €4.5bn sale of its entire pharmaceuticals business to Danish firm Nycomed because of slow business, high development costs and an inability to compete in the worldwide pharmaceutical market.

The sale left Altana's sole focus on speciality chemicals business – single chemical substances that are commercially produced with chemical reactions into highly specialised applications. According to Babilas, this meant a major rethink of the company's working capital structure was required as the change left the company's balance sheet with a net debt position.

"We had a challenge with regard to our working capital. We not only changed the core business, we changed the balance sheet," he says.