Clariant's first half performance announcement

On July 30, Clariant announced its first-half performance report, with sales of 1.945 billion Swiss francs, a year-on-year decrease of 5%; a profit margin of 15%, a year-on-year increase of 0.1%.

"In the first half of this year, our continuing operations business was particularly resilient, and it performed strongly in a generally challenging environment. The second quarter was negatively affected by the impact of the new crown epidemic. In such a difficult economic environment, our continued The operating business even shows an increase in profit margins. This clearly confirms the effectiveness of Clariant's strategic decision-making in focusing on three core special business areas.

Despite the uncertainties in the current economic environment, the growth momentum of our core product portfolio has not weakened. We will continue to focus on mitigating the impact of the epidemic and advancing Clariant's change plan. This will enable Clariant to achieve above-market growth, higher profitability and stronger cash generation. "

The first half of 2020-EBITDA margin improvement

Note: EBITDA profit refers to profit before interest, tax, depreciation and amortization

In the first half of 2020, Clariant’s continued operating sales were 1.945 billion Swiss francs, while in the first half of 2019, the continued operating sales were 2.229 billion Swiss francs.

Due to the unfavorable currency development, the decline in demand and 13% in Swiss francs led to a 5% depreciation of the local currency.

Due to the outbreak of the new crown pneumonia, the group's demand in many areas has dropped significantly in the first half of 2020. Therefore, these issues need to be paid attention to. Based on the strong balance sheet and liquidity situation, the group has taken adequate measures to minimize the impact of this epidemic. Clariant continues to ensure that employee safety comes first, while running a business continuity plan and implementing cash and cost measures.

In the first half of the year, the Middle East, Africa and Asia maintained resilience, while China and Southeast Asia showed strong growth.

Sales in Latin America have increased in local currencies, while Europe and North America have been weaker due to declining demand in all business areas.

In the first half of 2020, sales of care chemicals fell by 6% in local currencies due to weak weather-related aviation demand in the first quarter, which could not be compensated by strong growth in consumer care in the second quarter.

Due to the temporary weakening of demand in the chemical industry, sales in the catalysis sector fell by 4% in local currency, and compared with the first quarter, the second quarter improved.

Especially in the second quarter, natural resources were affected by weak end market demand and pressure on the output of oil and mining services. This resulted in a 5% decline in sales in local currencies in the first half of 2020.

As a result of economic development, Clariant will resume its efficiency plan originally announced in February 2020. As previously disclosed, these measures will result in approximately 600 layoffs in the next two years and cut the cost base of more than 50 million Swiss francs for continued business.

In the second quarter of 2020, a corresponding provision of 58 million Swiss francs was made for the continuing operations for the costs associated with the implementation of the project. The second quarter results also included the provision of 55 million Swiss francs for the reversal. The corporate-level reversal exceeded 231 million Swiss francs. The competition law regulations were established in 2019 by the European Commission to investigate Clariant and received a fine of 156 million euros in July 2020. EBITDA from continuing operations increased to 292 million Swiss francs. Despite weak revenue growth, the business successfully maintained a basic profit margin.

Excluding the one-off provision of 231 million Swiss francs included in the second quarter of 2019, the EBITDA margin increased from 14.9% in the previous year (reported as 4.6%) to 15.0%.

Excluding the terms of the efficiency plan, the potential profitability of care chemicals has increased due to the increase in the proportion of consumer care products sold, while the potential profitability of natural resources has increased due to the strict implementation of cost control measures by the three business units.

The EBITDA margin in the catalytic field declined due to the timing of the project, and it developed more positively in the second quarter. The net income of the entire group increased to 90 million Swiss francs, while a loss of 101 million Swiss francs in the first half of 2019. Excluding the above-mentioned one-off provision of 231 million Swiss francs, net income in the first half of 2020 decreased by 31% from the previous year, due to the decline in absolute profits driven by volume and the negative impact of currency. The operating cash flow of the entire group is usually low in the first half of this year. Although there was a significant improvement in the second quarter, it fell to 89 million Swiss francs from 113 million Swiss francs last year. This is mainly due to the timing of adjusting net working capital during the development of the new crown pneumonia epidemic.

According to the normal seasonal cash flow model, the net debt of the entire group increased from 1.372 billion Swiss francs at the end of 2019 to 1.426 billion Swiss francs.

The second quarter of 2020-potential profitability improved significantly

In the second quarter of 2020, sales from continuing operations fell by 4% in local currency to 926 million Swiss francs. This corresponds to a 13% depreciation of the Swiss franc due to adverse currency effects.

The strong growth in the consumer care business of care chemicals partially compensated for the weakness in natural resource sales. On a regional basis, China’s strong growth has made up for the decline in other sub-regions and the almost stagnant development in Asia. Local currency sales in Latin America are growing at a double-digit rate. Sales in Europe fell by single digits, followed by the Middle East and Africa, while sales in North America fell more significantly, largely due to the decline in sales of natural resources.

In the second quarter, sales of care chemicals increased by 3% in local currencies, supported by double-digit growth in the consumer care business.

Catalysis’s sales only weakened by 2%, but exceeded the results in the first quarter of 2020.

In local currency, sales of natural resources fell by 11% due to the decline in sales of petroleum services and weaker demand for functional minerals and additives.

EBITDA from continuing operations increased to 135 million Swiss francs, with a profit margin of 14.6%, which was higher than the previous year's 14.0%, excluding the impact of the one-time provision included in the second quarter of 2019.

Excluding the terms of the energy efficiency plan, due to strong profit margin management, the potential profitability of care chemicals has increased significantly, mainly due to the strong top-line growth in the consumer care sector and the increase in the proportion of petrochemical sales in the catalytic sector.

In the field of natural resources, the reason for the decline in potential profit margins is that oil and automobiles are affected by the new crown pneumonia, and the industry's output has fallen, and internal performance indicators cannot fully compensate for this.

Non-continuous business

In the first half of 2020, sales of discontinued operations (masterbatches and pigments) fell by 9% in local currency and 15% in Swiss francs. However, based on the same category comparison, excluding the performance of medical packaging in the first half of 2019 (the business was divested in October 2019), sales in local currencies fell by only 3%.

The absolute decline in EBITDA in the first half and second quarter of 2020 was partly due to the sale of the medical packaging business and the one-time cost of the separation of the pigment business efficiency improvement project and the discontinued business. However, due to effective cost management, the basic operating performance of these two businesses has improved.

Outlook

Prospects: The third quarter will still be challenged by the new crown epidemic. Performance improvement measures will help the product portfolio achieve above-market growth, higher profitability and stronger cash generation in the medium term.

Clariant expects that the new crown epidemic will continue to have a negative impact on sales and profitability in the third quarter of 2020. The group has quickly set up a working group to focus on employee safety, community support, ensuring business continuity and cash generation.

Clariant’s three core specialty business areas are implementing performance improvement plans in order to create tough performance during this period, and achieve above-market growth, higher profitability and stronger cash generation in the medium term.

In addition, the group is reshaping its product portfolio through a series of measures, such as the divestiture of the medical packaging business in October 2019, the sale of the masterbatch business in July 2020, and is preparing for the planned divestiture of the pigment business. After the transformation, Clariant will become a sustainable and innovative specialty chemical company. The goal is to achieve above-market growth based on its three core specialty business areas, and thereby achieve higher profitability.