Clariant AG

Ladies and gentlemen, good afternoon. My name is Andreas Schwarzreller, and it's my pleasure to welcome you to this call. Joining me today are Conrad Kaiser, Clarion's CEO, and Bill Collins, Clarion's CFO. Conrad will start today's call by providing a summary of the 2023 fourth quarter and full year developments, followed by Bill, who will guide us through the group's financials for both periods. Conrad will then conclude with the outlook for the 2024, as well as our 2025 and medium-term strategic targets. 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 risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on slide two of today's presentation. As a reminder, this conference call is being recorded. A replay and a transcript of this call will be available on the investor relations section of the Clariant website. Let me now hand over to Konrad to begin the presentation. Thank you, Andreas.

Good afternoon, everyone, and thank you all for joining this call. 2023 overall has been a year of continued challenges for the chemical industry, impacted by the uncertain macroeconomic and geopolitical environment, with end markets remaining weak. In that context, Clariant showed a resilient performance in the fourth quarter, delivering sales of around 1 billion Swiss francs. This represented a quarterly sequential increase of 4% in local currency, driven by volume growth, as some end markets stabilized. On a year-on-year basis in local currency, revenue decreased by 14% or 10% organically against a very strong comparison base in Q4 2022 when Catalyst delivered record sales. Looking at the underlying performance of the businesses, EBITDA before exceptional items was 158 million Swiss francs. This corresponded to a solid underlying margin of 14.9%, before restructuring an exceptional cost related to the closure of the biofuels business. For the full year, we recorded sales of 4.4 billion Swiss francs, reflecting a 7% organic decrease in local currency versus 2022. EBITDA, before exceptional items, was 641 million Swiss francs, with a corresponding underlying margin of 14.6%. As mentioned, 2023 was a difficult year for the chemical industry. And while we see some demand stabilization in our key end markets, conditions remain challenging in most geographies. For 2023, the European Chemical Industry Council, CEFIC, reported an 8% decline in the EU27 chemical output. CEFIC signals some signs of recovery and expects 2024 to show a gradual improvement in growth. In China, the largest chemical market, chemical output increased by 7.7% in 2023, according to S&P Global. This is believed to be mainly attributable to COVID-related pent-up demand. For 2024, S&P Global expects chemical output in China to normalize with a 4.9% increase. The U.S. economy was impacted by global weakness and monetary tightening throughout the year. Chemical output declined by 1.1% in 2023. But there were signs for improvements in December, with the chemical production regional index sequentially higher by 0.4% for the first time in four months, according to the American Chemistry Council. Given this backdrop, I'm particularly proud of our ability to defend pricing throughout 2023 and to deliver on our commitments relating to our performance improvement programs. I'm also pleased with our sustained improved level of cash conversion of 36%, which enables our board of directors to propose an unchanged distribution of 42 Rappen per share to our shareholders. Moving on to our strategic priorities. As announced in December, we made the decision to cease operations at our bioethanol site in Kodari. and to downsize related activities in Germany. Bill will provide more detail on the financial impact of this decision later in the presentation. As I briefly mentioned, we continue to deliver on our performance improvement programs with 14 million Swiss francs additional savings achieved in the fourth quarter. We remain on track to reach our 2025 savings target of 170 million Swiss francs with 135 million or almost 80% already achieved by the end of 2023. The acquisition of Lucas Meyer Cosmetics was announced on October 30th last year and we expect completion as planned. This acquisition marks another significant step forward in our purpose-led strategy. further strengthening our position as a true specialty chemicals company. We are excited by the opportunities ahead as we combine our personal care ingredients portfolio with Lucas Meyer Cosmetics to become a leader in the high-value cosmetics ingredients space. We see this as one of the most attractive markets in specialty chemicals, both in terms of growth and profitability. Turning to our revenue development for the quarter, we recorded sales of 1.062 billion Swiss francs. Currency had a negative 6% impact, including a 1% net impact from hyperinflation in Argentina and Turkey. While pricing was stable overall for the year, in the quarter, we reported a 4% decrease. This is on the back of a 13% pricing increase in the same period last year. In Q4 2023, a 3% increase in catalyst pricing was offset by chemicals declining by 7%, primarily due to index-based contracts, while absorbents and additives was down 2%. Our priority remains to defend pricing in a deflationary environment. Volumes decreased by 6% as Catalyst experienced a decline due to both the project nature of the business and prolonged refill cycles against a record performance a year ago. In addition, we experienced weak demand in key editors and markets. The electrical and electronics sector was impacted by continued weak consumer demand. The International Data Corporation expects global notebook and PC production to show a decline of 13% in 2023 compared to 2022, with demand experiencing a delayed recovery in the second half of 2024. Smartphone shipments grew sequentially in Q4 2023 by 14% given holiday seasonality, while remaining negative at minus 3% on a full year basis. This latest data implies two years of sustained decline in these shipments. For Clarion in Q4, divestments and acquisitions had a net negative impact on sales of 4%. Excluding this impact, organic sales in local currency declined by 10%. As mentioned earlier, sequential revenues were up 4% in local currency compared to the third quarter of 2023. Moving on to the performance by geography, sales in the Americas decreased by 21% in the quarter, predominantly due to the divestments of our North America land oil and quartz businesses. Organically, sales decreased by 11% due to lower volumes in catalysts and adsorbents and additives. In addition, Care Chemicals was impacted by formula-based pricing and the seasonal aviation business was also affected by less favorable weather conditions. In Europe, Middle East, and Africa, sales were down 13% in local currency as catalysts gross in the Middle East only partially offset lower sales in chemicals and absorbents and additives. Sales in Asia Pacific were down 9% with a 22% decline in China. due to catalyst sales in propylene and ethylene being below the very strong comparison base of prior year. In terms of profitability, EBITDA in the fourth quarter of 2023 was 106 million Swiss francs, 31% lower year on year, resulting in a 10.0% EBITDA margin. Excluding restructuring charges, and exceptional costs related to the closing of the biofuel business, EBITDA before exceptional items was 158 million Swiss francs, resulting in a robust underlying margin of 14.9% versus 15.3% in 2022. Lower volumes compared to the prior year negatively impacted operating leverage. However, cost savings of 14 million Swiss francs from our performance improvement programs contributed positively to offset inflation impacts. We have delivered significant improvements against our long financial KPIs, including continued progress in reducing our greenhouse gas emissions. In 2023, Clarion's Scope 1 and Scope 2 total greenhouse gas emissions fell by 13% compared to 2022, with businesses reducing their emissions by more than the overall volume decline. We improved the carbon intensity by 13% from 163 to 142 kilogram CO2 per ton of product. In 2023, we also reached another important milestone as our sites in Bontapali, India, became Clarion's first production site to reach net zero emissions. Scope 3.1 indirect greenhouse gas emissions decreased by 12% from the prior year. These results are also partly attributable to the lower purchasing volumes in 2023, while also demonstrating continued progress towards reaching our 2030 emission reduction targets. Around 40% of the net reduction in scope 3.1 emissions was achieved through focused projects to advance decarbonization of our raw materials. In 2023, we successfully implemented our new operating model, which was designed to foster better customer orientation and decision-making. greater empowerment, more accountability, and improved transparency. This operating model has enabled a significant improvement in our KPIs relating to safety, customer satisfaction, and employee engagement. On safety, we aim to achieve a zero-accidents culture and be a leader in safety in the chemical industry. In 2023, we made significant progress in reducing the dart rate by 46%, which reflects both an increased safety awareness and the effectiveness of our safety training programs. This performance places Clariant now in the top quartile of the chemical industry. Clariant customers globally participated in the customer satisfaction survey for 2023. with our overall customer net promoter score, NPS, further improving from 42 to 45. 44% of respondents stated that their general perception of Clarion had improved in the last 12 months, and our improved score places Clarion eight points above the chemical industry average. In January 2024, we invited all employees to participate in an engagement survey. And we saw an increase in participation rate from 75% in the prior year to 83% this year. We achieved significant progress in the employee net promoter score, EMPS, increasing from plus 3 in 2023 to plus 25 in 2024. moving Clarion up from the third to the second quartile compared to relevant industry peers. All of these achievements are linked as studies show a direct correlation between employee engagement on the one hand and both accompanies safety performance as well as customer satisfaction levels on the other. Going forward, we remain firmly committed to drive further continuous improvement in these key metrics. I will now hand over to Bill for further details on our business performance in the fourth quarter.

Thank you, Conrad, and good afternoon, everyone. I will now discuss our fourth quarter development by business unit, starting with Care Chemicals. Care Chemicals sales decreased by 17% in local currency. While volumes declined slightly year on year, sequentially volumes increased by 6% compared to the third quarter. Pricing was 7% lower due to the formula-based adjustments linked to raw material prices, while scope had a minus 9% impact due to the disposals of the North America land, oil, and cloths businesses. By segment, we recorded a strong performance in oil services and mining solutions, while crop solutions, base chemicals, and personal and home care declined. Care chemicals EBITDA of 110 million Swiss francs resulted in a 20% margin. Profitability was positively impacted by beneficial raw material developments, the impact from our performance improvement programs, and positive rebate-related one-offs. Catalyst sales declined by 10% in local currency against a very strong comparison base, and as expected, the more even distribution of sales over both quarters in the second half of the year. Sequentially, sales were flat in local currency versus the third quarter, Given the record performance of last year, volumes were down 13% versus Q4 2022, whilst pricing continued to be positive, recording an increase of 3%. By segment, we recorded low single-digit growth in specialties, while all other segments declined by a mid-teen percentage rate. In the quarter, the reported EBITDA margin decreased to negative 3.9%, mainly due to the impact from costs associated with the shutdown of bioethanol production and the downsizing of related activities. EBITDA before exceptional items was 41 million Swiss francs, resulting in a margin of 15.9% versus 12.6% the prior year. The improvement was driven by positive pricing and deflation in raw material costs. Sequential underlying EBITDA decreased because of business mix effects. While excluding operational and exceptional effects relating to sun liquid, catalyst EBITDA margin in Q4 2023 was 20.5% compared to 18.1% in Q4 2022. Looking at the sun liquid impacts in more detail, this slide outlines both operational and exceptional effects for the fourth quarter and for the full year 2023. In the quarter, Total exceptional items resulted in a negative impact of 53 million Swiss francs. The operational impact of negative 9 million Swiss francs improved from the 20 million impact recorded in Q4 2022. For the year, the total operational impact amounted to negative 43 million Swiss francs, and total exceptionals resulted in a negative impact of 60 million Swiss francs. Following the announcement of our decision to cease operations, we recorded impairment charges of negative 81 million Swiss francs. For 2024, we expect a negative operational impact of up to 15 million Swiss francs and exceptional items of up to 30 million Swiss francs. The cash impact related to the closure is expected to be in the range of 110 million to 140 million Swiss francs. Moving to adsorbents and additives. Sales decreased by 11% in local currency in the fourth quarter. This was driven by a 10% decline in volumes and slightly lower prices as very weak demand in key end markets continued in the additive segments. Adsorbents grew by a low single-digit percentage rate, driven by positive pricing and supported by scope impacts. Sequentially, sales increased by 5% in local currency, driven by a volume increase of 6% compared to the previous quarter. EBITDA margin decreased to 6.3% compared to 11.7% in the fourth quarter of 2022. Profitability was impacted by lower fixed cost absorption and negative operating leverage in additives due to substantially lower production volumes, partly to reduce our inventories. We also recorded 6 million Swiss francs restructuring charges for additional steps to align our cost base with the lower volume environment. Sequentially, EBITDA of four exceptional items of 21 million Swiss francs was below the 30 million Swiss francs recorded in the prior quarter. We delivered cost savings of 14 million Swiss francs in the fourth quarter from performance improvement programs, resulting in a total of 50 million Swiss francs savings in 2023. We remain on track to achieve our total cost savings target of 170 million Swiss francs against an original target of 110 million. Thus far, savings of 135 million Swiss francs have been realized from efficiency and right-sizing measures, as well as the initial savings from the implementation of the new operating model. Now let's move to cover the full-year results. In 2023, sales were 4.377 billion Swiss francs, corresponding to a year-on-year 10% decline in local currency, 7% of which was organic. As Conrad mentioned, we were able to defend pricing in a challenging operating environment, which remained stable year on year. Selling, general, and administrative costs declined by 15% from the prior year due to disposal effects, currency movements, and benefits from our performance improvement programs, despite normalization of travel and event costs and general inflation. Reported EBITDA for 2023 decreased by 25%, to 607 million Swiss francs, resulting in a margin of 13.9%. Profitability was negatively impacted by the 103 million Swiss francs of operational losses and exceptional items from Sunliquid, the negative 11 million Swiss franc fair value adjustment of the Hoibach Group participation in the first quarter, and restructuring charges of 64 million Swiss francs. Before exceptional items, EBITDA was 641 million Swiss francs resulting in a margin of 14.6%. The cash generated from operating activities for the group decreased by 81 million Swiss francs to 421 million Swiss francs due to the lower EBITDA in the year despite active working capital management. We recorded a resilient cash flow conversion rate of 36% for the full year of 2023. Group net debt of 755 million Swiss francs was stable versus the prior year end. And with this, I close my remarks and hand back to Conrad.