Clariant AG

Ladies and gentlemen, welcome to the Clariant second quarter first half year results 2023 conference call and live webcast. I am Sandra, the chorus call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Schwarzwalder, Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Ladies and gentlemen, good afternoon. My name is Andreas Schwarzwalder, and it's my pleasure to welcome you to Clarion's second quarter half-year 2023 results conference call and live webcast. Joining me today are Conrad Kaiser, Clarion's CEO, and Bill Collins, Clarion's CFO. Conrad will start today's call by providing an overview of the second quarter developments and a few comments on Clarion's sustainability transformation commitment, followed by Bill, who will guide us through the group's financials and provide some brief business unit-specific comments. Conrad will then conclude with the outlook for the full year 2023. There will be a Q&A session following our presentation. At this time, all participants are in listen-only mode. I would like to remind all participants that the presentation includes forward-looking statements which are subject to risk and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on slide two of today's presentation. As a reminder, the conference call is being recorded. A replay and a transcript of the call will be available on the investor relations section of the Clariant website. Let me now hand over to Conrad to begin the main presentation.

Thank you, Andreas. Good afternoon, everyone. and welcome to our second quarter half-year 2023 analyst conference call. Slide four provides an overview of Clarion's results. In the second quarter of 2023, we generated sales of nearly 1.1 billion Swiss francs, a 7% decrease in local currency versus the second quarter of 2022. Although these figures reflect a strong performance in our Catalyst business unit, the challenging macroeconomic environment significantly impacted sales and profitability development in our other two business units, Care Chemicals and Absorbents and Adhesives. Absorbents and Additives. This resulted in EBITDA of 175 million Swiss francs. reflecting a 19% decline versus the second quarter 2022 and resulting in a 16.1% EBITDA margin. Economic conditions have worsened in many geographies, and this has led to lowered expectations and revised forecasts for the remainder of 2023. The European Chemical Industry Council, CEFIC, expects the EU27 chemical output to decline by 8% in 2023 due to weakened industry confidence, order book deterioration, and inventory levels assessed as being too large. Meanwhile, China, the largest chemical market, did not recover as anticipated at the beginning of the year, and the Chinese economy lost further momentum in Q2 2023, with GDP only expanding 0.8% sequentially. This was primarily driven by domestic retail sales and services post-COVID restrictions, but the industrial manufacturing PMI remains below 50. Whilst the US economy has held up reasonably well, the global weakness and continued monetary tightening are having an impact. Consequently, the American Chemistry Council, ACC, outlook shows slowing in production after a 2.8% decline in chemical production in June 2023. The production decline in base and specialty chemicals was even more pronounced at minus 5.8%, creating a challenging business environment. Given this economic outlook and weaker current trading, we took further actions in all business units to align our cost base to a lower volume environment, as we will outline later. Given this context, I'm pleased with the group's strong operating cash flow generation of 78 million Swiss francs in the first half, which is almost 100 million Swiss francs more than reported in the previous year. This was achieved by maintaining our focus on cash flow optimization through active working capital management and increased capex discipline. The resulting last 12 months free cash flow conversion rate of 56% reflects the success of our efforts. Slide five depicts the sales performance in the second quarter. which amounted to almost 1.1 billion Swiss francs. A 7% decrease in local currency. Volumes decreased by 5% in the second quarter, despite a 25% volume increase in the catalyst business, which was driven by the successful execution of our strong order book. Volumes decreased in care chemicals. and adsorbents and additives due to very weak demand, particularly in key end markets such as personal care as well as crop and electrical and electronics applications. According to Euromonitor, the retail volume forecast for personal care in 2023 was reduced from 2.6% growth to 1.6% growth in the second quarter. Meanwhile, Crop Solutions is facing an overfilled supply chain in a still robust environment for farmers, which is driving global channel destocking and negatively impacting the demand for our products. Destocking also continued in the electrical and electronics sector. because of easing supply shortages and weak consumer demand. We are observing changed behavior in consumer spending. During the pandemic, consumers spent disproportionately on durable goods such as furniture, electronic devices, and appliances. This spending pattern has changed significantly since the end of the strict lockdown policies. and particularly in China at the beginning of the year. Individuals now spend more on travel and services despite the inflationary environment. As a result, demand in the chemical sector remains low. These developments are underpinned by the following data. International Data Corporation forecasted an 11% year-on-year decline in global shipment volumes of smartphones in Q2 2023. In addition, although the underlying growth trend remains valid, the e-mobility market started slowly into the year, particularly in China. This led to reduced growth expectations for EV production in 2023. Despite this environment and after nine consecutive quarters with notable year-on-year price increases, we reported flat pricing year on year. Both catalyst and absorbance and adhesives increased, absorbance and additives, increased prices by 5% and by 2% respectively. Care chemicals pricing declined by 2%, driven primarily by formula-based pricing. This overall performance reflects Clarion's continued to focus on defending pricing in a challenging environment, where raw material costs were down around 12% year-on-year, while energy and logistics costs both fell 2%. To put the stable prices in Q2 2023 into perspective, it is important to note that prices had increased by 19% in Q2 2022. The net effect from the recently integrated U.S.-based Atapu Guide business assets in adsorbents and additives and the divestment of both the North American land, oil, and quartz businesses in care chemicals totaled 29 million, which had a minus 2% impact on the group's sales in the second quarter. The currency impact on revenue of minus 10% was mainly due to the appreciation of the Swiss franc relative to the Euro and other currencies. This resulted in 17% lower second quarter sales in Swiss francs. Slide six provides an overview of our sales by geography. In the second quarter, sales in the Americas were down by 11%, with around half of this decrease attributed to the divestment of the North American land oil business. While volumes in care chemicals decreased, adsorbents and additives grew, in part due to the integration of the US at the pool guide business. Local currency sales were down 10% in Europe, Middle East and Africa region. Care chemicals and adsorbents and adhesive sales weakened, while catalyst was strong in the Middle East due to Catofin projects. Sales in Asia Pacific were stable, despite an 8% decline in China, which was compensated by stronger sales in India and Southeast Asia driven by catalyst projects. In China, significantly weaker absorbance and additives demands and a decline in catalysts were not compensated by slightly higher care chemical sales. Moving to the profitability development on slide seven, we see that second quarter 2023 EBITDA was 175 million Swiss francs, representing a 16.1% EBITDA margin, while absolute EBITDA declined by 19%. Lower volumes and business mix in the business units care chemicals and absorbents and additives negatively impacted profitability, partially compensated by higher volumes and prices in catalysts and positive pricing in adsorbents and additives. In care chemicals, the positive impact of the 62 million Swiss francs gain from the quads disposal was offset by lower operating leverage, inventory devaluation, and 6 million Swiss francs restructuring cost. The strong volume increase and positive pricing in Catalyst was partly offset by 17 million Swiss francs impact from Sunliquid, of which 7 million were restructuring charges. While price increases had a positive impact in absorbents and additives, EBITDA was negatively impacted by lower operating leverage in additives, inventory devaluation, restructuring charges of 7 million Swiss francs, and a less favorable business mix due to the sales growth in absorbance. We continue to deliver on our strategic priorities as reflected on slide eight. Our SunLiquid Task Force is delivering continued improvements in Podari. The negative impact was further reduced to minus 10 million Swiss francs operational EBITDA impact in the second quarter 2023. Efforts to address the ramp-up challenges in Podari, Romania, are continuing, as our dedicated team continues to work hard on these issues. Restructuring charges of 7 million Swiss francs were taken in the quarter to bring the cost structure in line with the lower operating level. Clariant is actively evaluating strategic options for sun liquids and will provide an update on this topic by the end of 2023. We have further expanded our performance programs by implementing new and additional actions in all business units to align our cost base to a lower volume environment. These measures have enabled us to increase our 2025 targeted savings by 10 million Swiss francs to a new improved goal of 170 million Swiss francs. As of the end of Q2 2023, we have delivered total savings of 107 million Swiss francs from our performance programs across the company. The cost savings realized in the second quarter were approximately 14 million Swiss francs, which more than offset inflationary impacts, including on salaries. In the quarter, we completed the divestment of our quartz business to Global Amines Company. a 50-50 joint venture owned by Clarion and Wilmar, Asia's leading agricultural business and oleochemicals business. This is a further step on our path to structurally improve Clarion's leading specialty chemical portfolio. The preliminary gain on disposal of the quartz business is 62 million Swiss francs. On slide nine, we provide an update on the continued progress Clarion has made in improving its scope one, two, and three upstream greenhouse gas emissions in the second quarter. In the 12 months to June 2023, the group's scope one and two total greenhouse gas emissions declined by 8%, partly due to the lower production volumes. The total reduction from the 2019 baseline is now 17%. An example of our reduction measures includes decreasing the use of coal by 50% thus far in 2023 versus the baseline of 2019. The total indirect Scope 3 emissions decreased by 11%, with a total reduction from the 2019 baseline of 15%. On slide 10 are some examples of additional ESG milestones achieved in the quarter. Green ammonia plays a critical role in achieving a net zero carbon economy. It reduces the carbon footprint for fertilizer production, and it can be used as carbon neutral fuel for the shipping industry. Additionally, it provides a way to transport green hydrogen from renewable energy rich regions to those lacking sufficient renewable energy sources. Our Amomax Casal catalyst sets new efficiency standards for ammonia production. It has shown exceptional activity, stability, and energy efficiency in its first three commercial applications for Nutrien, Mosaic, and Yara Sluiskil. Amomax Casal has been the catalyst of choice for climate-neutral ammonia production in green ammonia projects. The high-performance catalyst also reduces CO2 emissions by lowering energy consumption in traditional ammonia plants. Baryon's focus on a sustainable bioeconomy is also reflected in the plastics-free Desipac Eco moisture-absorbing packets, which we have added to our range of natural clay solutions that help manufacturers and distributors protect sealed packaged goods from moisture damage. To further help customers reduce their own Scope 3 emissions, the sourcing of raw materials has been extended with a lower environmental impact to include transport packaging. In addition, Clariant Oil Services launched Phase Treat WET to offer more efficient, more sustainable solutions for the oil and gas industry's demulsification needs and to enhance safe operations. Phase Treat WET reduces chemical volume by up to 75% compared to current solutions and it optimizes customers onshore and offshore programs. I will now head over to Bill. for further details on our business performance in the second quarter.