Clariant AG

Ladies and gentlemen, welcome to the Clarion second quarter first half year results 2025 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 Schwarzwälder, Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra, and welcome, ladies and gentlemen. My name is Andreas Schwarzwälder, and it's my pleasure to welcome you to this call. Joining me today are Konrad Kaiser, Clarion CEO, and Bill Collins, Clarion CFO. Conrad will start today's call by providing a summary of the second quarter developments, followed by Bill, who will guide us through the business unit results and savings program. Conrad will then conclude with the outlook for the full year 2025. 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, this conference call is being recorded. A replay and a transcript of this call will be available in the investor relations section of the Clariant website. Let me now hand over to Conrad to begin the presentation.

Thank you, Andreas. I'm pleased to report that Clariant delivered strong profitability in the second quarter of 2025. demonstrating resilience against a challenging environment for our sector. Let me start by highlighting some of our key achievements. We delivered sales of 968 million Swiss francs. This represents a flat result in local currencies and an 8% decrease in Swiss francs. Our EBITDA, before exceptional items, increased by 3% in absolute terms to 169 million Swiss francs. We delivered a significant margin improvement of 200 basis points to 17.5%, driven by a strong profitability increase in catalysts and in absorbents and additives. Our savings program supported our performance in Q2 and H1, This program is set to deliver 80 million Swiss francs by 2027, with a significant contribution expected this year. In H1, we achieved savings of 12 million Swiss francs and booked 60 million Swiss francs of restructuring charges. As a reminder, we expect to book the total 75 million Swiss francs of restructuring charges related to this program in 2025. I'm also pleased with the improved cash generation in the first half of the year. The 130 basis point improvement of EBITDA margin before exceptional items to 18.1% resulted in operating cash flow of 116 million Swiss francs compared to 112 million Swiss francs in H1 2024. We achieved free cash flow conversion of 37% for the last 12 months, up from 32% reported at the end of 2024. In safety performance, we have achieved two accident-free months this year. This helped to lower our days away, restricted or transferred rate, to an industry-leading top quartile level of 0.16 for the last 12 months compared to 0.17 reported at year-end 2024. Clarion's new greenhouse gas emissions reduction targets were originally announced at our investor day in November last year, and these upgraded targets have now been reviewed and approved by the Science-Based Targets Initiative . By 2030, Clarion is committed to reducing absolute Scope 1 and 2 greenhouse gas emissions by 46.9% and absolute Scope 3 greenhouse gas emissions by 27.5% from a 2019 base year. We have accelerated the rollout of clarity. our digital service platform in the Business Unit Catalyst, which is designed to optimize catalyst management and performance monitoring for our customers. Clarity is now operational at over 185 plants and has over 700 users in 35 countries. Now turning to our 2025 guidance. While we remain focused on driving growth, we have revised our 2025 sales guidance to a range of 1 to 3% in local currency, reflecting the continued weak industrial production outlook and uncertainty in our end markets. At the same time, we confirm our full year profitability guidance of 17 to 18% EBITDA margin before exceptional items, underscoring our confidence in sustaining our improved level of profitability. Despite ongoing market challenges and macroeconomic uncertainties, we remain committed to delivering our medium-term targets, supported by the continued execution of our targeted growth and profitability initiatives. Now, moving on to more details relating to our financial performance in the second quarter of 2025. We delivered sales of 968 million Swiss francs. In local currency, this is a flat result with a reported figure impacted by an 8% negative currency translation effect. We maintained pricing discipline across our portfolio with a year-on-year increase in adsorbents and additives, and flat pricing in care chemicals and catalysts. Our volumes were flat as growth in catalysts offset a slight decline in care chemicals, with a flat performance in adsorbents and additives. Turning to profitability, as I already noted, we had a strong overall performance with a 200 basis point improvement in EBITDA before exceptional items versus the second quarter of 2024. In Care Chemicals, profitability from Lucas Meyer Cosmetics partly compensated for the 2% volume decline we recorded in the second quarter. In Catalyst, the 5% increase in volumes positively impacted operating leverage. Margin management and one-time effects also positively contributed to margin improvement. In adsorbents and additives, profitability was positively impacted mainly by our performance improvement programs, lower input costs and mix effects. At the group level, our performance improvement programs and cost discipline also positively contributed to profitability. Reported EBITDA decreased by 16% to 139 million Swiss francs, representing a reported margin of 14.4%, including the 22 million Swiss francs restructuring charges booked in the quarter. With that, I now hand over to Bill for further details on our business performance in the second quarter.

Thank you, Conrad, and good afternoon, everyone. I will now discuss our second quarter development by business unit, starting with Care Chemicals. We recorded a 2% organic decline in local currency entirely due to lower volumes as strong performance in crop solutions and mining and slight growth in industrial applications could not fully compensate for declines in oil services and base chemicals. On a quarterly sequential basis, sales decreased by 12% in local currency, again, driven by weaker volumes, which is largely attributable to the seasonality in aviation. We recorded strong, high double-digit organic growth in crop solutions as the demand environment improved compared to the prior year, which was impacted by destocking. Sales in mining solutions increased at a high double-digit percentage rate and industrial applications at a low single-digit rate with volume growth supported by positive pricing. Oil services sales came in lower against a high comparison base as well as in base chemicals. Personal and home care sales were muted despite continued growth by Lucas Meyer Cosmetics as positive pricing could not offset lower volumes in challenging markets. Regionally, sales in EMEA decreased at a low single-digit percentage rate driven by volumes as a decline in Germany could not offset growth elsewhere in the region. Sales in the Americas also decreased at a low single digit percentage as positive pricing could not compensate for lower volumes and strong growth in Brazil could not offset a decline in the United States. Sales in Asia Pacific decreased at a mid single digit percentage rate despite slight growth in China and was largely attributable to lower volumes. We recorded EBITDA before exceptional items of 88 million Swiss francs versus 100 million Swiss francs in the second quarter of 2024. This translated into a margin of 17.7%, maintaining the level achieved in the prior year period. Profitability was positively impacted by the strong operational performance of Lucas Meyer Cosmetics, which is maintaining growth and profitability in a challenging market. Catalyst sales increased by 5% in local currency, driven entirely by an improvement in volumes versus Q2 2024, as the business picked up as expected following a slow start to the year. Sales in syngas and fuels increased at a high double digit rate, and ethylene catalysts at a low single digit percentage rate. Sales in both propylene and specialties decreased at a double digit rate. Regional dynamics were driven by the project nature of the business, with sales in the Americas increasing at a high double-digit percentage rate. In Asia Pacific, sales decreased at a low single-digit percentage rate, as growth in India was only able to partially offset the decline in China. Sales decreased at a high single percentage rate in Europe, Middle East, and Africa region, as lower sales in Germany could not offset growth seen in the Middle East. In the second quarter, EBITDA before exceptional items increased by 20% to 49 million Swiss francs, representing a margin of 22.5% versus 18.5% in the prior year. This was a result of operating leverage driven by higher volumes, margin management and cost control. The performance was also positively affected by one-time effects. Excluding a positive one-time effect of 2.5 million Swiss francs related to termination fee and the sun liquid impact of 2 million Swiss francs, the underlying margin was around 20% for the quarter. Moving to absorbance and additives, sales increased by 1% in local currency. Pricing increased by 1% while volumes were flat. By segment, adsorbent sales were flat as growth in EMEA was offset by declines in other regions. In the additive segments, sales increased at a low single digit percentage rate despite a high comparable base. Regionally, we recorded sales growth in EMEA at a mid single digit percentage rate with both pricing and volumes up as the region's automotive industry improved slightly from a low base. In the Americas, sales increased at a low single-digit percentage rate, particularly driven by growth in additives. In Asia Pacific, sales decreased at a mid-single-digit percentage rate, with sales in China declining at a similar level, as growth in additives was unable to offset a decline in absorbance. EBITDA before exceptional items increased by 16% to 50 million Swiss francs, with an underlying margin of 19.8%, representing a 380 basis point improvement versus the prior year period. Profitability was driven by a positive mix effect in additives, as well as by benefits from our performance improvement programs. Lower raw material costs of 3% and energy costs of 2% also contributed positively. Reported EBITDA of 46 million Swiss francs increased by 2% compared to the prior year. This corresponds to margin of 18.2% versus 16.7% in the prior year period, despite restructuring charges of 3 million Swiss francs. Now turning to our savings program. As a reminder, we expect full run rate savings of 80 million Swiss francs from business unit and corporate actions to be delivered by the end of 2027 for the savings program that we announced at our investor day back in November of last year. As Conrad mentioned earlier, total savings achieved in H1 of 12 million Swiss francs with 9 million Swiss francs achieved in the second quarter. The key measures aimed at helping us To deliver these savings have now been announced and are being implemented. These include a headcount reduction of approximately 200 full-time equivalents as of June 30, 2025 across the business and corporate functions, the closure of two production lines and two sites globally as part of our footprint optimization, and procurement savings of 4 million Swiss francs related to structural changes in qualifying alternative suppliers and best practice contract management. In the first half of 2025, we booked 60 million of the expected 75 million Swiss francs in restructuring charges and expect the remaining 15 million Swiss francs to be booked in the second half of this year. Let's now move on to cover the first half year financials. In the first half of 2025, sales of 1.981 billion Swiss francs represents a stable organic performance versus the prior year period. Volumes had a negative impact of 1% while pricing and scope each contributed positively by 1%. Currency translation impacted sales by negative 5% in the first half of the year. Looking at our business units, we saw slightly lower volumes in care chemicals and catalysts, while adsorbents and additives was up. Selling general and administrative costs increased by 9% versus the prior year, mainly related to restructuring costs and the inclusion of Lucas Meyer cosmetics. Our cost savings programs continue to offset inflationary pressures. Group EBITDA before exceptional items increased by 3% to 359 million Swiss francs against the prior year, while the corresponding margin increased by 130 basis points to 18.1% from 16.8% a year ago. Group reported EBITDA decreased by 14% to 291 million Swiss francs due to 60 million Swiss francs of restructuring charges being booked during the first six months of the year. This resulted in an EBITDA margin of 14.7% below the 16.4% reported for the same period in 2024. In the first half of 2025, net income was 44 million Swiss francs versus 176 million Swiss francs in the previous year, largely driven by the restructuring costs, impairments of 30 million Swiss francs related to footprint optimization as part of the investor day savings programs and exchange rate differences in net financial results. We recorded operating cash flow of 116 million Swiss francs compared to 112 million Swiss francs in H1 2024 as improved profitability more than offset an increase in net working capital. Our free cash flow conversion increased to 37% for the last 12 months, up from 32% reported at the end of 2024 and confirming our path toward our medium term target of around 40%. Group net debt increased to 1.596 billion Swiss francs from 1.489 billion Swiss francs recorded at the end of 2024, largely due to refinancing activities. The resulting net debt to EBITDA ratio stood at 2.6 times at the end of the second quarter and at 2.4 times on an EBITDA before exceptional items basis, lower compared to 2.7 times a year ago. And with this, I close my remarks and hand back to Conrad.

Thank you, Bill. Let me conclude with our outlook for 2025. There remains an increased level of risk and uncertainty due to tariffs and trade tensions, which has a negative impact on global industrial growth expectations. According to the latest assessment of Oxford Economics, the industrial slowdown will be more pronounced than previously expected. This is due to both the uncertainty created by tariffs and a shift back to services in consumer spending. While the global GDP growth projection is still at 2.5%, the expectation for industrial production has declined to 2% from 3% at the beginning of the year and for the chemical industry to 2.2% from 2.9%. In response to this weakening of our operating environment, Clarion now expects local currency sales growth of between 1% to 2% for 2025. We expect slight local currency growth in chemicals and adsorbents and additives, while sales in catalysts expected to be at levels similar to those in 2024. We continue to expect to deliver an EBITDA margin before exceptional items between 17 and 18%. The continued profitability improvements in prior years and now the strong performance in the first half of 2025 shows the effectiveness of the structural changes we implemented under our performance improvement programs. In terms of margin, We therefore have a resilient foundation to weather the current low-growth environment and increased uncertainties. We aim to further improve cash conversion towards our 40% target. I reiterate our commitment to the medium-term targets we outlined at our November investor day. Before I turn the call back over to Andreas for the Q&A session, let me add a personal note. The strong Q2 results presented today mark the final set of results presented under the finance leadership of Bill Collins as Clarion's CFO. As previously announced, Bill will retire as of today, and as planned, will hand over the CFO position to Oliver Ritken. I would like to sincerely thank Bill for the many years we have worked closely together, both at AkzoNobel and the last three years here at Clariant. Bill's contributions to Clariant extend far beyond financial statements. He joined Clariant during one of the most challenging chapters that we had and helped write a new beginning. The results of this journey are already visible, both in our profitability improvement, but also, and equally important, in our non-financial metrics, such as employee satisfaction in the finance organization. I wish you, Bill, all the best for your well-deserved next chapter. Thank you, Bill.

Thank you.

Now, back to Andreas. Thank you, Conrad. And from my side, echoing the big thank you to Bill. It was a pleasure and honor being part of your team. Ladies and gentlemen, we are now opening the floor for questions. To ensure everyone has a chance to participate, please ask no more than two questions per person. Thank you for your cooperation. Sandra, please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume of the webcast while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Katie Richards from Barclays. Please go ahead.

Hello, thank you for taking my questions and also a special thank you to you, Bill. My first question is on catalysts. Can you just do a little bit of a deep dive into what went on with the catalyst this quarter? Volumes are up 5%, which I think is probably higher than most expected. But if I look back to Q1 volumes, these were down 13%. And again, Q4 was possibly stronger than expected, although I appreciate this was partially seasonal. So essentially, it looks like to me where there might have been some projects that have been pushed around here in addition to some of the exceptionals you stated to in this quarter. So can you give me any color on this, please? My second question relates to your exposure to China. You highlighted at Q1 that your business in China was notably more exposed to tariffs because of the 50% local production and slightly lower regional sourcing here. I know you've got some capacities coming on later in November, but could you provide some clarity about how your divisions are faring in light of this? Because I noticed percentage sales to China in Q1, for example, were much lower than the 11 to 12% you've historically reported. So can you talk through the drivers of this and if there are any mitigatory measures in place here?

Okay, thank you, Katie. Yeah, so first your question on Catalyst. Yeah, in the first quarter, minus 13%, in the second quarter, plus 5%. What basically happened here in the second quarter is that we did have, and you're right, the timing of orders does play a role here because we can have in catalyst orders of a significant size, 20, 30 million Swiss franc per order, sometimes even more. We did have actually the benefit in the second quarter of a very large order. This is actually an order, was actually an order in Syngas that actually explains the high double digit gross rate in Syngas that we reported. On a very positive note, this is a customer win. So this is something we're very happy with. But at the same time, it doesn't come back in the coming quarters in the same magnitude. So if you basically look underlying what's happening, if you basically look at Q1, Q2, but also our outlook for the year, what we think is over the whole year, we will see basically the catalyst business bottoming out. We are expecting flat volumes overall on a year-on-year basis in catalyst. And that is reflecting still challenges in the refill business in Europe, but also in the US and even globally. So just to give you a bit more color, if you look at the The plant capacity utilization rates overall in Europe in chemicals, they are roughly 75% at the moment. In the US, we're looking at 80%. In China, we're looking at a very mixed picture, but for example, propane to propylene PDX plants in China, PDH plants in China are running right now at only 60, 65% of capacity utilization. So we still see an environment in catalysts with very weak demands. We're actually quite pleased with our numbers being flat for this year, bottoming out. But I also like to note the structural profitability improvement in catalysts. So we are actually running in this weaker demand environment underlying now at around 20% EBITDA margin. And that is clearly a step up from the past in profitability. associated with the lower structural cost and good margin management in this business. Your second question on China and tariffs and how is that impacting our business? You're right. It's basically, it is actually now more than 50% of our local sales that are locally manufactured, but we are putting up four on stream. two new plants in November. And that would bring the local manufacturing as percentage of revenue close to 70%. We will, as a reminder, start up in November our new care chemicals factory in Daya Bay. This was an 80 million Swiss francs investment for basically multi-purpose plant locally for care chemicals, as well as an EOD derivatives plant, ethylene oxide derivative plant for care chemicals. And we also, in November, will start up the second line of our additives investment. This was a hundred million Swiss francs investment. And this is very much supporting the strong demands for flame retardants in the local market in China. So we are much more robust than we were in terms of local content, certainly after the startup of these new plants.

That's great, thank you. Could I just do one follow-up on utilization rates in China, please? You mentioned PGH is at a weak point, around 60%. Has that lowered just due to tariffs? Because I know these PGH plants are dependent on U.S. imports, or is this a natural trend year on year?

Yeah, if you look at PDH, basically the key reason for the PDH run rates in the 60 percentage rate is the overbuild. So what we have seen is a lot of new plants that have been brought up on stream. So there is still a solid demand here. But we see basically an overcapacity that has been built in recent years. We benefited from that, by the way, with our new builds recently. first-fill catalyst sales, that does mean that we do not expect a soon recovery of the new-built first-fill business in China. But at some point in time, because the demand continues to be there, at some point in time, these plants will be running at full capacity and the new-build cycle will start again in China.

Great, thanks very much.

Thank you.

The next question comes from Christian Feitz from Kepler Chauvereux. Please go ahead.

Yes, thanks. Good afternoon, everyone. And Bill, also from my side, all the best. I hope for your future private ventures. Two questions, please. First, I'd just like to get some more clarity on the Ethylene litigation situation and also your take on it. In my 30-year career as a chemical analyst, I have witnessed quite a few litigation situations, including rather prominent ones that are still active. Maybe your new CFO can talk about that as well. But I've never seen industry participants suing each other for such quite significant amounts, particularly given the fact that Clarion is both a customer as well as a supplier for many of the litigation counterparts. So please enlighten us. And the second question is, when do you see the personal and home care segment returning to growth? And in this context, with the consumer trading down perhaps to private label products, does this really affect your sales and or margins? Thanks very much.

Thank you, Christian. On the first one, I can be rather short, because at this point in time, we cannot publicly comment any further on all the things that have already been said around these ethylene claims. We do expect this to be a multi-year process, and we are still in the early stages. What is, I think, the important point here is that we do have substantiated economic evidence that shows that the conduct of the parties did not produce any effect on the market, and therefore we are adamantly defending ourselves here in the further proceedings. As far as your second question on personal and home care, what we saw here is apart from a very strong comparison base with the prior year in personal home care, we did see actually in the second quarter an effect where a large program with a large personal and home care customer actually run out. And this is not unusual. And there's at the same token, a number of new programs coming in. We are seeing a very positive momentum in our personal and home care business. On personal care, obviously in cosmetics, we see in the premium segment of cosmetics, continued double digits around 10% growth. In the sort of less premium segments, there is some down trading. What we see in home care is really a pipeline very much based on innovation. So as a reminder, we won the... innovation supplier of the reward at Unilever this year for our soil release polymers. These are actually products that take the dirt out of your laundry, not at elevated temperatures, but at normal room temperature. And they actually do that in a wash cycle of only 15 minutes, one five minutes. We see very strong traction with Unilever on this product line, but also the sort of the technology underpinning we think is a platform for further growth. And we see that already, that recovery on personal and home care in Q3 and Q4.

Okay, thanks very much.

Thank you.

The next question comes from from BNP Paribas. Please go ahead.

Hi, all. Good afternoon. Two questions from me, please. The first one is on pricing. How confident are you in your ability to maintain pricing levels into the remainder of the year and into next year? And maybe are there any areas where you would consider giving back some pricing to stimulate volume growth? And for my second question, I'd like to go back to China. Would you be able to give us some insights on what has been happening on the ground there and whether or not you're having discussions with customers around the anti-involution policy? Any thoughts here would really be appreciated.

Yeah, thank you very much for the question, Thea. So basically on pricing, what we're seeing, we're actually quite pleased with the results because if you look year to date, we're largely flat or slightly up in pricing. And this is very much fully consistent with our strategy, which is all about the repositioning of the company towards more specialty chemicals. It's for us clearly value over volume. And what we see is that we are holding on to our pricing in an environment where actually competition is increasing. There are some competitors that are out there that want to fill their plants with volumes, with more commodity type business. That's not our strategy. So what you see, and we're very pleased with it, is that we've actually been overall able to hold on to our pricing. And that's very consistent with our strategy. On China, yeah, this is an interesting policy which is happening and it is actually going to be a net positive for us. So the Chinese government is not happy with the sort of excess levels of competition locally in some segments, including in chemicals, where there is an overcapacity, actually a significant overcapacity, particularly in petrol chemicals and base chemicals. So basically, the idea is that facilities that are not efficient, that are aged, let's say, 20 or 30 years, that they should actually close down at some point in time. Now, this is impacting our businesses in different ways. So if you look at it in terms of our business catalyst, who's very much sort of linked to the chemical industry in China, on PDH, we're not going to see such a big impact here because these are fairly new plants. But if you look at other segments like polypropylene or ethylene or ammonia or methanol, there are definitely a lot of older plants out there around. And that actually means that some of these would be targeted for closure. Now, that is going to negatively impact our refill business, but positively impact our first fill business. So on balance, for us, it's more sort of a shift towards newer plants, which in the end always is good because we tend to be more represented in the premium segment.

Great. Thank you. And then I wish you all the best. Thank you.

The next question comes from Walter Bamert from Zürcher Kantonalbank. Please go ahead.

Thank you. Good afternoon. I have one for Bill. I'm referring to page 9. I was always very positively surprised on your separation between EBTA and EBTA before external itinerary items. But in the second quarter you have also the underlying EBTA, so a third matrix, where you don't exclude the positive one time effects and the some liquid impact from the adjusted EBTA. Why is that the case and do we have to expect such moves going forward?

Did you have a second question or just, okay, I'll go straight into this one. Actually, Walter, we only have the two metrics. So we do like to talk about the EBITDA before exceptionals. We talk about the reported EBITDA, which is after exceptionals. We only talk about those two because Clarion has historically had quite a lot of restructuring costs. to reduce the cost base as we have become a smaller and more focused company. The additional measures that you're talking about, for example, taking out biofuels, that is just to give an indication of the catalyst business and the underlying performance of catalysts alone. This is not something that we do for the other. So please rest assured that we only have the two before exceptionals and after exceptionals. Right.

You exclude in before exceptionals the positive effects, the negative effects, and you still include the positive effects. Before, I think you did it differently. You excluded both the positive and the negative effects. Is that correct?

No, I mean, in the three years that I've been here, we've been remarkably consistent in how we've shown this. So, for example, if we happen to have an exceptional item that is positive in nature, it still gets reflected as an exceptional item. And we had that with some provision reversals last year. So, no, we've been remarkably consistent.

But you didn't do it in Q2 in catalysts.

Well, we didn't have an exceptional item with a positive or negative impact to report on Catalyst. It was really just the one-time items. So one-time items for us are not necessarily exceptional.

But when you had in previous quarters reversed from some liquid provisions, you excluded that from the before-extra-annual.

Yeah, that's because the $2 million that we saw this quarter was sort of ongoing operational impact. I mean, we've shut things down there, but we still have some inventories that we have to store and deal with. So from that perspective, that would not get classified as an exceptional item from our version of accounting. It gets lumped in with the operational result.

No more questions on that one. Then a follow-up on the catalyst business. So you mentioned what you could expect here in China. Do you also expect more new builds in the U.S. and in which areas?

New builds?

Well, in terms of new builds... Of clients, I mean, client plans.

Yeah, so plants, new plants. So basically, we still see some new plants coming on stream in China as well. It's just at a lower pace, just to clarify that. So if you look at the gross rates in China, high level production volumes in China last year were high single digit this year. They're definitely at a lower level, but they're still a very solid mid single digit growth level. So that does mean also new plants coming on stream. And there's actually quite a few plants already. If you look at the US, yes, there is also some new build activity coming and the US still has obviously a feedstock advantages, particularly on gas. cheap shale gas. For Europe, there's actually only one big plant that will come up on stream, one big investment in ethylene next year. And I think we're in a very good position to basically win that, but we can't give any further comments on that at this point in time.

Okay, thank you very much.

Yeah, thank you.

The next question comes from Christian Bell from UBS. Please go ahead.

Hi, thanks for the opportunity to ask a question. I only had one. So since you first provided your guidance, the midpoint of your sales guidance has gone from 4% to 2%, but you've managed to keep margins the same. So just curious as to what were the main factors that have allowed you to keep those margins unchanged? For example, has the margin improvement in catalysts and absorbents and additives been better than what you've expected? And if that's true, what has led them to outperform relative to your initial expectations?

Sure. No, thank you for the question, Christian. First, on the revenue outlook, it is a marginal change because we said basically we're going to be at the bottom end of the 3% to 5% local currency. We said that before. Now what we say is figuring in all the impacts of tariffs and continued uncertainty, we basically say it's going to be a 1% to 3%. local currency growth in the second half. We have indeed been able to maintain the guides on profitability, the range between 17 and 18%. And this is very much reflecting the ability that we have to basically show a step change improvement in profitability, even on flat to slightly positive revenue growth. I think there's a few elements. If you first look at costs, we have finalized the 175 million Swiss franc cost savings program that we were working on. And this is not something that obviously we did in recent months. This is something we've been working on in the recent years. But the numbers now sit fully in our P&L, and we finished that in the first half. We also, as Bill alluded to, the new cost program, where basically we commit to an additional 80 million savings. We already got 12 million savings in the P&L right now in the first half. So we're also well on track to deliver against that 80 million savings target. And Bill mentioned the full year run rate of 80 million by the end of this year. But if you look at what sits in the P&L for this year, we're targeting at least half of that to be in the P&L. So that is actually very important as well. Then second building block, really what we're very happy with is our pricing. So we sit in an environment where there is clearly an increased competition for volumes and we've been very consistently able to hold our prices and in some segments even slightly up. That definitely helps. That margin management, I think, is really important. really embedded in our strategy, but it's also really embedded in the capability of the company. You cannot charge premium pricing to customers if you don't have the true differentiated technology. You cannot charge premium pricing if you don't have the best-in-class OTIF levels and customer satisfaction levels. So I think this is also actually based on capabilities that really are there right now. And then finally, it's important also to note that in terms of the guides, we see the 1% to 3%, but there is actually some above-market growth baked in there. In the first half, we have a plus 1% on local currency growth. In the second half, we will see the effects of our new plant for care chemicals in China. We will see the effect of the flame retardants business. We will see recovery in care chemicals based on the pipeline, the innovation pipeline. And finally, recovery is baked in also for biofuels and SAF, where we had some weakness in the first half in our absorbance business.

Just as a follow-up, I guess the question is more around, given that I guess the cost initiatives and the ramp-up in certain projects in the second half were already in place when you first set your guidance, I'm guessing that some other drivers not have been expecting have performed better? For example, have you been able to save further costs than you initially thought you might have? Or has pricing held up better compared to when you first set your guidance?

Well, I think it's a fair question. So what was baked in already in the prior guidance was the full delivery of the 175 million cost out program. What we're very pleased with is actually the speed and the amount of savings coming in from the second program, the 80 million savings program. That's actually internally, that's actually ahead of plan. So that we're very pleased with.

Okay, cool. Thank you for that. Thank you.

The next question comes from James Hooper from Bernstein. Please go ahead.

Good afternoon and thank you very much for taking my questions. I've got a couple, please. The first is about Lucas Meyer and the inventory step up you mentioned there. Can you tell us a little bit more about that, please? Is this just effectively an investment in future growth? And also some of the joint projects between Lucas Meyer and the other parts of Care Chemicals that you've talked about in the past. Can you give us an update? And then secondly, I guess building on the previous question, can you give us a little bit of a steer on how on a kind of absolute basis you expect Q3, Q4 EBITDA to progress? Obviously, it sounds like you're going to have more of a benefit than cost savings in the second half, but also perhaps a little bit of a step down in growth. Thank you.

Thank you, James. I'll take a couple of these because they're more in my wheelhouse, and I'll leave the LMC update for Conrad. Let's start with the inventory step-up. I mean, that was an IFRS adjustment that we had to do to bring the acquired Lucas Meyer Cosmetics inventories to a fair value at the time of acquisition. So as you recall, that was a $5 million step-up in Q2 and another $5 million in Q3 of last year. So you're correct that we do not have that expense this year. So I think the way to look at that is when you look at the total results of our consumer business, I mean, it's really – The upside that we were getting from Lucas Meyer Cosmetics is unfortunately offset by weakness in a couple of the other segments. I mean, oil is a very good profitability business for us, which is down in volumes this year. Base Chemicals is also down in volumes this year. So I think when you look at the comparative EBITDA margins for Care Chemicals Q2 this year versus Q2 last year, we are still pleased with the fact that they've been able to hold a very healthy level of margin when there's been this weakness on some of the more industrial segments of the business. If I look at our profitability in the second half of the year, I mean, let me just start by reiterating how excited I am by the performance that we've had in the first half of this year. I mean, 18.1% margin on an EBITDA before exceptionals basis. I mean, if you think back where we've been, I mean, 14.6% in 2023, 16% last year. Now we're talking in a range of 17 to 18% in 2025. I mean, that's really, I think, an exceptional movement for us. And as Conrad mentioned, it flows nicely on the back of all of the cost savings programs that we've had. So when I look at the margin range that we have this year, even if we're expecting a little bit weaker top line growth, I mean, we are still then expecting growth in the second half of the year. So we'll see a positive benefit of that. We expect to see care chemicals basically flat, I think, in terms of profitability second half and first half. Catalysts should be slightly improved in the second half of the year following their seasonality pattern and the operating leverage that we typically get in Q4. And then on additives and absorbents, it's a bit of a mixed bag. I mean, on one hand, we've got... So unfavorable mix that will bring down the overall margin as the absorbance businesses are starting to do a little bit better. And as we get toward the end of the year, we will probably slow down production in some of the additives areas to make sure that we're maximizing our inventory levels and cash flow for the end of the year. But even with a reduced sales growth for this year of 1% to 3%, we're still extremely confident of being in that 17% to 18% range.

Okay, thank you, Bill. Yeah, then some more color on Lukasmeyer and cosmetics maybe more broadly. So, yeah, what has been reported by particularly some of the big brands is actually some downtrading. There is a... That is a direct impact of consumer confidence being weaker. But what equally has been reported and what we see in our own numbers is that the upper end of the premium segment still is fully intact. So if you look at hair care products, skin care products, In the premium-premium segment, if you talk about anti-age creams that basically get your wrinkles away, there's an extremely loyal customer base. And there's basically no change there that we see in our numbers from a gross perspective. That upper segment is still solidly around a 10% gross year-on-year. So we're actually very, very pleased with that performance. What you also see in Care Chemicals, specifically in cosmetics is sort of broadly speaking a shift where you see the indie brands, social media brands taking, continuing to gain some share. We are very well positioned there actually through Lucas Meyer with our penetration. So we have a very attractive offering for these indie brands because it's not only the active ingredients that work that we supply but we also actually help them with the whole marketing narrative and the formulation of of the cosmetics ingredients and this is something the big brands can do themselves but actually if you look at some of these indie brands they basically completely outsource the development of the formulation as well as the manufacturing of the formulation and the combination of lucas meyer and our former A cosmetics business is very well positioned to provide that service.

The next question comes from Georgina Fraser from Goldman Sachs. Please go ahead.

Hello. Hi, Conrad. Hi, Bill. And again, Bill, we'll miss you. Thank you for everything the last couple of years and good luck. So two questions. One of them we kind of had already, but I wanted to dig a bit more into it. In care chemicals in particular, I was very positively surprised to see you deliver the flat pricing. You mentioned that you're seeing some competitors go for more commodity areas and cut prices to fill their plants. Should we expect you to continue going for this value over volume strategy? And can you talk a bit about what those real the trends look like in that business, particularly on the ag side after a very strong first half. And then my second question is a bit of a tougher one, I'm afraid. What should we make of all of the ethylene cracker closure announcements in Europe and the pipeline network in terms of Clarion's raw material supply and the sustainability of that pipeline network for supplying your ethylene oxide derivatives going forward. Thank you.

Yeah, Georgina, thank you for these very insightful questions. Yeah, so let me start with the strategy. So there is absolutely no change in the strategy and it's been working out very well for us. Maybe just big picture. What we've seen now in the last three years is an EBITDA margin of 14.6%. Back in 2023, an EBITDA margin of 16% in 2024 for the full year. And this year we're maintaining the 17 to 18% EBITDA margin guide. So what you clearly see is a significant step up in profitability for three consecutive years in a row. in quite a challenging environment. And there's obviously a lot of levers underneath, but the core one is the repositioning of the company towards more specialty. And we will continue to that trajectory. I mean, the recent action of the 80 million includes some actions on our footprint. So the strategy is when there is actually commodity business at a low margin, we're actually rationalizing our footprint rather than bringing in commodity volumes to keep our plans running. So basically that strategy has paid out very well for us. I wouldn't have any concerns that we would deviate from that because this is really aligned with our board and we all appreciate very much the step up in profitability that it is delivering to us. Your second question on Ag. If you look at Ag Solutions, I think you have seen that also with Peers. We report it as strong double-digit growth. I could tell you it is very strong double-digit growth. So we are fully in line here with Peers and even above some of the numbers that I saw out there. Now, to put it in perspective... this is very much against a very weak base last year because in last year in ag we had significant destocking so in the q2 we are comparing here a number which now is truly reflecting underlying growth in in egg which is good and solid but versus a quarter where there was really Very, very modest revenue because it was a massive destocking in Q2 last year. What I think is finally to your second question on ethylene closures, this is a very important question. If you look at our catalyst business, we have actually... very well differentiated technology with our ethylene catalysts. We are very well positioned globally. I mentioned basically also in Europe coming one big plant on stream next year, and we cannot comment specifically, but we're in very good position that every new plant anywhere in the world that we are the preferred supplier and and that is what we see so yes there is a shift of ethylene capacity away from europe but where it shows up we are in a very good position to pick up that position that business so for for catalyst we're not seeing um a negative impact from it but it is a shift in terms of a regional shift Your other question, as far as the ethylene impact on our chemicals business, where ethylene is obviously for us a very important raw material for our ethylene oxide derivative business. There's basically two plants in Europe and we basically did this entire analysis that your question is alluding to. We looked at the sustainability of supply of ethylene. both from an availability as well as from a competitiveness. And the two plants, the one is in Gendorf, as you may know, the other one is in Tarragona. Both plants actually have ethylene supply associated with this that is very competitive and that will be very available. So from our side, no concerns there, but it is a very relevant question. Thank you.

Thanks so much for all the details.

Thank you.

The last question comes from Sibyl Bischofberger from Fontobel. Please go ahead.

Thank you very much and good afternoon. I had a question about July. So we were talking about the second quarter. Could you tell us if something has changed in July in the first month of the third quarter? Are customers more holding back and other changes maybe? And my second question would be about the impairment of the 30 million talked about footprint improvement. Could you give us more details about this impairment, please?

Do you want me to start? Yeah, sure thing. So I can talk about the impairment for sure. So yeah, we booked 30 million of impairment, largely related to footprint initiatives. You know, this was something that was indicated at the Investor Day in London last November that we were looking at this. We have announced, I mean, I think it's fair to say, We've talked about a plant in France, a plant in Argentina, a few other lines in other plants that will be sort of decommissioned. So that's what this $30 million relates to. It's just the impairment of those assets. So nothing more than that.

Do you want me to comment on July? I can make some comments. So basically what we see in July is for us, the numbers are coming in very much in line with our expectation. So I'm very much in line with our guide. So to your question in terms of what is happening in terms of volumes and tariffs and how is this all impacted? We are seeing a weakening. in demand, so actually the consumer goods demand is affected by uncertainty on the one hand, by tariffs on the other hand, tariffs drive up inflation, that will drive down demand ultimately, it's not good for business. But what we see basically is, we see this most pronounced in our additive business, where we deal with end markets like consumer electronics, automotive, We did see some pre-buying at the end of Q1, at the beginning of Q2 for our additives that go into, for instance, consumer electronics, automotive. There was some pre-buying also in automotive by customers. We did see a rather weak finish of Q2 as a result of that. But if you look at our guidance, the 1% to 3% guide for revenues, there is also here baked in above market growth from the new plants that come up on stream in China for care chemicals and also for additives. There's also baked in the pipeline and first commercial orders in care chemicals that we see a rebound. And finally, we see also a recovery for biodiesel and SAF towards the end of the year. So we feel still very confident about the guide on revenue.

Thank you very much and all the best, Bill. Thank you.

This is Andreas speaking. Ladies and gentlemen, this concludes today's conference call. A transcript of the call will be available on the Clarion website in due course. The investor relations team is available for any further questions you may have. Once again, for joining the call today and goodbye.

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