Clariant AG

Ladies and gentlemen, welcome to the Clarion's second quarter, first half year results 2024 conference call and live webcast. I am Sandra, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Schwarzwälder, Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra, and ladies and gentlemen, good afternoon. My name is Andreas Schwarzwälder, and it's my pleasure to welcome you to this call. Joining me today are Conrad Kaiser, Clarion CEO, and Bill Collins, Clarion CFO. Conrad will start today's call with providing a summary of the second quarter developments followed by Bill, who will guide us through the group's financials for the period. Conrad will then conclude with the outlook for the full year 2024 and the medium term. 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 uncertainty. 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 transcript of the call will be available on the investor relations section of the Clarion website. Let me now hand over to Conrad to begin the presentation.

Thank you, Andreas. Good afternoon, everyone, and thank you all for joining this call. In the second quarter of 2024, we generated sales of over 1 billion Swiss francs, a 3% organic decrease in local currency versus the second quarter of 2023. Our top-line performance was impacted by an expected decline in catalysts, offsetting growth in chemicals and absorbents and additives. Reported EBITDA in the quarter was 166 million Swiss francs, resulting in a 15.7% EBITDA margin versus 16.1% in the prior year, which included a 62 million Swiss francs gain from the quads divestment. Excluding the quads gain, we delivered a strong underlying margin improvement of more than 500 basis points. This positive development stems from the successful implementation of our leaner, customer-focused operating model and continued execution of our performance improvement programs. As a result, we benefited from improved operating leverage as we achieved growth in care chemicals and absorbents and adhesives, while maintaining pricing discipline. I'm also pleased with our improved cash generation in the first half of the year, resulting from higher underlying earnings. I continue focus on cashflow optimization through active working capital management and CapEx discipline. We recorded operating cashflow of 112 million Swiss francs compared to 78 million Swiss francs in the first half of 2023. reflecting a free cash flow conversion of 42% for the last 12 months, which is in line with our median term target of around 40%. Looking at our top line development in more detail, in the second quarter, we delivered sales of 1.056 billion Swiss francs, representing a 3% organic decrease. with no impact from scope or currency. Pricing decreased by 3% as flat pricing in catalyst was offset by a 4% decline in care chemicals, primarily due to formula-based pricing adjustments, and a 3% decline in absorbents and additives. Our priority remains to defend pricing in a deflationary environment, as we experienced a 10% year-on-year decline in raw material costs in the second quarter. Volumes were flat overall, as strong growth in care chemicals of 7% and adsorbents and additives of 5% was offset by the expected year-on-year volume decline of 18% in catalysts, against a very high comparison base. In fact, the second quarter of 2023 was an exceptionally strong quarter for the catalyst business. While we continue to see slight improvement in output and capacity utilization rates, uncertainties over underlying demand remain. The European Chemical Industry Council, CEFIC, has reported that a strong recovery in 2024 remains unlikely. given most of the chemical industry's downstream users continue to show downward trends, and order books still reflect limited demand. The European manufacturing PMI in July was 45.6, and thus continued to trend well below 50. S&P Global projects flat chemical production in Europe in 2024 versus 2023. In China, the largest chemical market, S&P Global, expects chemical production in China to grow by 5% in 2024, fueling global growth of chemical production of 3.2%. However, the manufacturing PMI in China dropped slightly below 50 to 49.5 in June. According to the American Chemistry Council, chemical production in the U.S. increased by 0.7% year-on-year in June. The manufacturing PMI in the U.S. also dropped below 50 to 48.5 in June. S&P Global projects a 0.5% increase of chemical production in North America in 2024. The International Data Corporation, IDC, expects global notebook and PC production to return to growth of 5% in 2024 compared to a minus 11% in 2023. For smartphone shipments in 2024, the IDC is forecasting growth of 3.5% compared to a 4% decline in 2023. There was no impact from Scope on our year-on-year sales, as the acquisition of Lucas Meyer Cosmetics offset the divestment of the quads business. Moving on to our performance by geography, sales in the Americas declined by 1% organically, where strong growth in chemicals and a slight improvement in absorbance and additives were offset, by lower sales in catalysts. In Europe, Middle East, and Africa, sales were flat organically versus the second quarter 2023, with volumes up in all business units, compensating for lower pricing in chemicals and absorbents and additives. Pricing in catalysts was flat. Sales in Asia Pacific were down 8% organically, In China, sales were down 6% organically as the project cycle driven decline in catalysts more than offset strong double digit growth in chemicals and adsorbents and additives. The latter benefiting from the new flame retardant plant as customer qualification progressed. In terms of profitability, reported EBITDA in the second quarter decreased by 5% year-on-year to 166 million Swiss francs. Last year's figure was positively impacted by a 62 million Swiss francs gain from the quads disposal. Excluding this gain, the underlying EBITDA increased by 47%, with a margin of 15.7%, over 500 basis points higher than the prior year's underlying margin of 10.4%. This improvement was supported by growth in care chemicals and absorbance and additives, which drove operating leverage as we continue to execute on our performance improvement programs, delivering 9 million Swiss francs in the second quarter. A 10% decline in raw materials and an improvement of 8 million Swiss francs in the negative operational impact from the sun liquid bioethanol activities also contributed to the positive margin development. Moving on to our strategic priorities. On April 2nd, 2024, we completed the acquisition of Lucas Meyer Cosmetics. With this acquisition, we are taking another significant step forward in our purpose-led growth strategy, further strengthening our position as a true specialty chemicals company. We are pleased to confirm that the integration and business combination remains well on track. The second quarter 2024 operational performance of Lucas Meyer Cosmetics was in line with our business plan. with 23 million Swiss francs despite the challenging environment. Together with our new team members, we are excited for the growth opportunities that lie ahead as we combine our personal care ingredients portfolio with Lucas Meyer Cosmetics to leverage a leading position in the high-value cosmetic ingredient space. In the second quarter, we also saw several key developments related to Sunliquid. The operational restructuring and downsizing are well on track. We have reached an agreement to sell the Podari plant assets. We sold our Straubing demonstration plant. We signed a sub-rent agreement for the Planex site and successfully terminated multiple contractual relationships. Given these developments, we now expect the financial impact to be 20 million Swiss francs lower than originally anticipated. We continue to deliver on our performance improvement progress with 9 million Swiss franc savings achieved in the second quarter. We are well on track to achieve our increased savings target of 175 million Swiss francs by 2025. Variants, purpose-led growth strategy, reflects our ambition to create value with innovative chemistry and a focus on sustainability, putting our customers, employees, and the planet at the center of all our activities. Our talented people turn this ambition into action with exciting, innovative solutions as highlighted here. The growing concern over the environmental and health impacts of PFAS chemicals particularly PTFE, will drive a significant shift in the coatings and packaging industries. For the last 18 months, we have been launching a comprehensive portfolio of PTFE-free solutions for metal coatings, inks, and plastic packaging applications. Our new offerings provide market-ready solutions that match the performance of their PTFE-containing predecessors while enhancing sustainability. Most recently, in June, we successfully launched a PTFE-free processing aid for packaging polymers at China Plus in Shanghai. These PFAS-free editors contain no inorganic content or silicone components and preserve high performance while meeting current and anticipated regulatory requirements. With that, I now hand over to Bill for further details on our business performance in the second quarter and our group performance in the first half.