Earnings Call: Q3 2020

Oct 29, 2020

Ladies and gentlemen, welcome to the Clariant 9 Months 2020 Figures Conference Call. I'm Alessandro, 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 and A session. The The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Maria Ivek, Investor Relations. Please go ahead, madam. Ladies and gentlemen, good afternoon. My name is Maria Eibek, and it's my pleasure to welcome you to Clariant's 9 month Q3 2020 results conference call and live webcast. Joining me today is Stephan Lunin, CFO of Clariant. As a reminder, this conference call is being recorded. At this time, all participants are in a listen only mode. There will be a Q and A session following later. The slides for today's presentation can be found on our website along with our media release. 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 2 of today's presentation. A replay of this call will be made available on the Clariant website. Let me now hand over to Stephan to begin the presentation. Thank you, Maria. Ladies and gentlemen, good afternoon. It's my pleasure to welcome you to KLM's 9 month results conference. Please note that all figures discussed refer to continuing operations unless specifically noted otherwise. Also, please be aware that the numbers, which we previously referred to as EBITDA after exceptional items, are simply called EBITDA and will be always the focus when we discuss profitability. Yes, ladies and gentlemen, in an unprecedented environment marked by the COVID-nineteen pandemic, receding global demand, oversupply in oil markets and adverse currency trends, Clariant preserved its EBITDA margin in the 1st 9 months of 2020 in spite of a sales decline, thereby again demonstrating the resilience of our specialty core portfolio. As reflected on Slide 3, in the 1st 9 months of 2020, Claren sales declined by 6% in local currency in an exceedingly challenging environment. This negative impact was attributable to lower demand in all business areas as a result of the COVID-nineteen pandemic. As expected and as guided, in the Q3 2020, Clariant saw the most pronounced sales declines of the first three quarters with a 7% decrease in local currencies in continuing operation sales. The main driver was the weakness in natural resources, where all the 3 businesses were negatively impacted by the global COVID-nineteen pandemic and, in particular, the decline in oil demand and production. Sales in Care Chemicals and Catalysis softened only slightly during this time period. Clariant was confronted by significantly lower demand environment several segments in the 1st 9 months of 2020. These buoyant profitability results are therefore particularly noteworthy as they clearly reflect the effectiveness of Clariant's business continuity programs as well as the timely execution of margin, cost and cash measures to minimize the impact of the COVID-nineteen pandemic and improve the performance in the midterm. The absolute EBITDA decreased in the 1st 9 months of 2020 to CHF419 1,000,000. Yet, the group successfully defended margins despite the weaker top line development and adverse currency. The 14.8 percent EBITDA margin remained unchanged versus 14.8% in the 1st 9 months of 2019, excluding the one off CHF 231 1,000,000 provision booked in the Q2 of 2019. Looking at profitability in the Q3 of 2020, the absolute EBITDA reached CHF 127,000,000. The corresponding EBITDA margin remained comparatively stable at 14.2% versus 14.5% in the previous year despite the weaker top line development. Let's look at the sales results by moving on to Slide 4. In the 1st 9 months of 2020, Clariant generated group sales of CHF 2,840,000,000. Sales softened by 6% in local currency, primarily due to an 8% weaker volume development in all business areas attributable to the continued softer demand environment amid COVID-nineteen. Despite the feeble market development, prices were kept resilient at +2%. In CHF, the sales declined by 13% due to the unfavorable foreign currency development, with a negative impact of 7%, mainly attributable to the depreciation of Latin American currencies, euro and U. S. Dollar versus the strong Swiss franc. Slide 5 depicts the regional sales development for the 9 months of the current year. The sales development in Asia remained resilient with 2% expansion in local currency. Both China and India reported double digit growth. Sales in Latin America also increased by local currency 7%. Sales in North America decreased by 14% in local currency in the Q1. This was primarily due to the mild winter, which had a negative influence on the aviation business. The demand environment, especially in natural resources, weakened in the 2nd quarter and third quarters due to the more significant COVID-nineteen impact and the decline in oil demand and production, which was amplified by hurricanes in the Gulf of Mexico. Europe weakened by 12% in local currency, primarily due to the negative impact from COVID-nineteen pandemic lockdown measures in the 2nd quarter. In particular, Germany, the most significant country in the European region, continued to be negatively influenced by the weak demand environment in the 3rd quarter. In the Middle East and Africa, sales declined by 5% in the 1st 9 months of 2020. Let's review the business area figures in more detail, starting with Care Chemicals on Slide 6. In the 1st 9 months of 2020, Care Chemicals sales weakened by 5% in local currency and by 12% in Swiss francs due to the strong decline in aviation amidst the mild winter and the COVID-nineteen induced reduction in air traffic in the Q1. Excluding the aviation effect, Care Chemicals would have recorded growth in local currency in the 1st 9 months of 2020. The sales development in Consumer Care reflected high single digit range expansion underpinned by double digit growth in Personal Care and COP Solutions. As anticipated, except for Paints and Coatings, industrial application sales were lower, primarily due to the weak demand environment in the wake of COVID-nineteen pandemic and the particularly feeble aviation business in the Q1. The lackluster economic environment also resulted in lower construction chemicals, industrial lubricants and base products demand. Sales in the Q3 of 2020 decreased only by a slight 1% in local currency as a result of growth in Consumer Care, although it was softer than in the 2nd quarter. Consumer Care sales rose in the mid single digit range, yet as anticipated at a slower pace than in the Q2 due to some stockpiling of care products by customer during the Q2 lockdown period. The demand environment normalized in the 3rd quarter again. The positive development was also supported by strong demand for COP Solutions. The sales development in Industrial Applications improved sequentially. However, sales in the Q3 of 2020 were lower versus the Q3 of 2019 because of the negative COVID-nineteen pandemic related impact on relevant end markets. The Care Chemicals EBITDA margin in the 1st 9 months of 2020 increased by 50 basis points to 18% from 17.5%. The weak Aviation business in the Q1 was offset by stringent margin and cost management as well as over proportionate and more accretive growth in Consumer Care in the 2nd and third quarters. The EBITDA margin improvement at Care Chemicals was more significant in the 3rd quarter as the margin rose to 21.8% from 17.1% in the previous year. This development was due to performance measures, amorphous favorable product mix effect and positive special effects year on year. In terms of the short term outlook at Care Chemicals, we anticipate a continued difficult situation in aviation amid COVID-nineteen in Q4 2020, which we expect to result in a sales decline in local currency versus the Q4 of 2019, in line with the sales evolution of the average of the 1st 9 months of 2020. Mitigation measures remain in place to offset the muted demand outlook and aim to defend the year to date margin levels. Let's move on to Catalysis on Slide 7. Sales in Business Area Catalysis decreased by 3% in local currency and 9% in Swiss francs in the 1st 9 months of 2020 against the strong comparison base. The sales development in petrochemicals outpaced demand in syngas and specialty catalysts, though all areas were negatively influenced by the subdued demand environment in the chemical industry. From a regional perspective, sales in Asia grew in the mid single digit range with clear improvements in India and China. Sales in Europe, North America and the Middle East and Africa remained comparatively volatile throughout the 1st 9 months of 2020, reflecting the project nature of the business as well as negative COVID-nineteen pandemic related market weakness. Based in the Q3 of 2020, we did only slightly by 1% in local currency compared to a strong previous year. Good momentum in India, driven by the booming mobility sector, underpinned this development. Charent's comprehensive Catalysis portfolio, which makes it unique in the marketplace, successfully mitigated the negative influence attributable to the COVID-nineteen pandemic. The 1st 9 month 2020 EBITDA margin weakened to 18.4 percent from 19.4% in the previous year as a result of the efficiency program provision as well as lower volumes and less favorable product mix in the Q1, which could not be offset fully by the accretive growth in the 2nd and third quarters. Excluding the efficiency program provision, the underlying EBITDA margin at 19.2% was closer to the prior year level. In the Q3, the EBITDA margin increased by 90 basis points to 20.3% from 19.4% due to decent sales, cost mitigation and efficiency improvement. In the Q4 of 2020, we expect slight growth in local currencies at Catalysis versus the Q4 of 2019, with lower margins year on year given the strong comparison base, but stable margins near current levels. On Slide 8, we see that in the 1st 9 months of 2020, sales in natural resources declined by 8% in local currency and by 16% in Swiss francs. As anticipated and said before, demand declined due to a particularly softer economic environment resulting from the oversupply in oil markets and the COVID-nineteen pandemic. Oil and Mining Service sales were hampered by lower oil production due to the weakened demand in the Q3, in particular. As a result, Oil Services sales decreased by low double digits, while Mining Solutions remained unchanged in local currency but weakened in the Q3. Sales in Europe, the Middle East and Africa and Latin America expanded slightly. North America reported a double digit contraction driven by weaker oil services demand in the 2nd and third quarter. Montreal Minerals sales declined at a mid single digit range in local currency, primarily as a result of the weaker foundry business in the 2nd quarter. Demand in the European automotive industry as well as in the construction sector clearly softened due to COVID-nineteen pandemic related weakness, which could not be offset by growth in purification. Additive sales decreased at high single digit rates in local currency in the 1st 9 months of 2020. The decline was largely due to the continually weak fiber markets, while the coatings and automotive sectors demand also remained under pressure. These developments were again attributable to the pandemic induced economic resources declined by 14% in local currency due to the continued feeble demand in all three business units amid the COVID-nineteen pandemic. As anticipated, oil and mining services sales were hampered by the lower oil demand and production, which was amplified by hurricanes in the Gulf Functional Minerals was confronted with a continued weakness in the foundry business. Despite continued stronger demand in Asia, additive sales decreased due to the weaker end markets in most other regions. In the 1st 9 months of 2020, the EBITDA margin decreased to 13.6% from 15.6% year on year. Excluding the efficiency program in the Q2 of 2020, the underlying profitability of 15.4% remained largely unchanged. This resilience was the result of stringent cost management in all three business units and a higher sales contribution from value added applications in Oil and Mining Services. In the 3rd quarter, the EBITDA margin fell to 12.4% from 15.6% due to lower volumes in COVID-nineteen exposed segments such as Automotive, Textile and in particular, Oil, which could not be offset by the internal performance measures. Looking forward, in the Q4 of 2020, we expect natural resources to see continued top line weakness due to the COVID-nineteen pandemic, the decline in oil demand and production and what we foresee as softer mining activities. We expect these factors to lead to a continuous strong sales decline in the Q4 of 2020 versus the Q4 of 2019, which will also have some negative influence on the margins in that quarter. Let us continue to the discussion of the EBITDA development for the 1st 9 months on Slide 9. On an absolute basis, the EBITDA decreased CHF419 1,000,000. However, the business successfully defended underlying margins despite a weaker top line development. The absolute EBITDA decrease is attributable to the volume reduction and currency effects. The EBITDA margin remained at 14.8%, unchanged versus the previous year. The EBITDA margin was successfully preserved despite the negative COVID-nineteen pandemic related impact on the back of the stringent execution of performance measures. Overall, the profitability performance in the 1st 9 months of 2020 reflects also the resilience of our specialty core portfolio despite the particularly weak economic environment. Slide 10 reflects that in the Q3 2020, the EBITDA declined CHF127 1,000,000 with a corresponding margin of 14.2%, close to the 14.5% in the previous year. This development is attributable to the fact that profitability advanced in both Care Chemicals and Catalysis due to more favorable product mixes, cost mitigation and efficiency improvements. But in Natural Resources, the margin reduction is due to lower volumes in COVID exposed segments like Automotive Fibers and the oil decline in particular, which could not be offset by internal measures. Please turn to Slide 12 so that I can explain what we are doing to preserve and improve Clariant's performance going forward. Clarence 9 month 2020 results once again clearly reflect the resilience as well as the potential of our 3 core business areas in the current particularly turbulent environment in comparison to our 2019 results and in comparison to the specialty chemicals industry. Although sales declined by 6% in local currency in the 1st 9 months of 2020, we nevertheless succeeded in maintaining the operating EBITDA margin at last year's level. Our measures reflect our continuing ability to mitigate the effects of the pandemic. The group task forces will continue to focus on safety of our employees, support to our communities, ensuring business continuity to our customers and maximizing performance improvement. In terms of Clariant's transformation program, as you know, we have already successfully completed the Healthcare Packaging divestiture in 2019. In the beginning of Q3 of 2020, we have completed the Masterbatch divestment at the previously communicated terms and shared that success by distribution of the extraordinary dividend to our shareholders. Kering's transformation program remains our priority, and we therefore restarted the pigment divestment process as part of our ongoing portfolio upgrade. With the divestments, much of the complexity will lead the company, and Clarington will have the opportunity to adapt the organization to the new setup. Therefore, while the Pigments divestment process is progressing, we are currently preparing for the rightsizing of the organization. We will provide an update on this topic in due course. In terms of Clariant's short term outlook, looking at the Q4 of 2020 specifically, we anticipate a slightly less negative impact from the COVID-nineteen pandemic on sales and profitability than the average of the 1st 9 months of 2020. We will be continuing our successful mitigation programs going forward. Although just in these days, the uncertainty around the resurgence of this pandemic remains high, Clariant will continue to generate resilient performance and execute its transformation program. Our mid term guidance for above market growth, higher profitability and stronger cash generation remains unchanged. With that, I would like to turn the call back over to Maria. Thank you, Stefan, for taking us through the achievements reached thus far in 2020 and for providing us with an insight into Clariant's outlook. Before we go to the Q and A session, we would kindly limit the number of questions to 2, thus providing more participants with the opportunity to ask a question. Thank you for your understanding. We will now open the line for questions. We will now begin the question and answer session. The first question comes from Chaudhrymour Movaashe from Citi. Please go ahead. Hi, thank you for taking my questions. Hi, Tassane. Hi, Maria. Just two quick ones, please. The margins held up quite well in K Chemicals and Catalysis. From a group perspective, could you provide some comments around temporary cost savings that you saw within the Q3? And how we should think about those going forward in terms of the taper down as the volumes come back? And then secondly, on the price increase that you saw in the Q3 of 3%, can you break out where those came through in terms of which divisions? And were those to offset the declines in FX? Or were these price increases that we will see stick through going forward regardless of how the FX moves? All right. So let me start with some comments on how we were able to preserve EBITDA margins after 9 months resilient, which has also been contributing by our strong margin management. So the decline in raw material prices in the beginning of the year, the higher competition for lower volumes in these markets, we were pretty strong in defending our price levels and our margin levels from a gross margin standpoint. And finally, yes, of course, of saving programs. And the saving programs basically are 2 dimensions. 1 is the direct mitigation of COVID-nineteen impact, and that's where we talk about reduction in travel costs, reduction of overtime accounts, taking out temporaries, reprioritizing projects and stopping some which are not feasible in these times as well as work flexibilization such as short term labor. And those effects accumulate to a significant amount of savings but will, of course, not be fully sustainable in volume recovery time. But then again, the volume recovery and the contribution will overcompensate a share of the potential comeback of those mitigation action savings. The second dimension of the saving is in particularly in regards to our announced efficiency program. As you know, we have announced a program of a reduction of 600 positions. The 600 positions refer to the continuing business alone. The measures will contribute to a saving of €50,000,000 We have provided cost of the dimension of CHF 58,000,000 in the second quarter already. We started the implementation already in the beginning or in the end last year. We have put it on hold in the 1st lockdown season in Q2 because we also saw our moral commitment that we cannot we have to have a direct interaction with the employees concerned. After the 1st lockdown, we have taken up that initiatives and execution once again. And we are now on a very good course that from the €50,000,000 we already will see a sizable contribution in 2020. And at the end of 2020, I believe from the €600,000,000 position, we have more or less most of them reduced by the end of this year so that you can expect, yes, I would say, north of 90% run rate in 2021, and as I said, already a considerable share in 2020. Can you quickly repeat your second question? Yes. It was on the price increases that you saw in the Q3. I think you said that there's 3% price increases. So I just wanted to get a feel for where those price increases came through in which divisions? And were they to offset the FX impact that you would see? Or are these kind of genuine price increases which will stick going forward? Yes. I mean as much as I would like to market it as active significant price increases, I would rather refer to a very strong margin management. The pricing is always an attribute to 2 factors. 1 is active price increases and second is also the mix effect when you sell more accretive products than or sell into more accretive segments. And it's a combination of both. But ultimately, it means that in these times, overall, volumes are not bullish except in very specific segments like in hygiene articles, of course, where it's really booming or in Personal Care where it's booming, in Body Care where it's booming or also in purification where we're growing or in certain hygiene additive articles where we are growing. But overall, we see, of course, a strong decline in volume, and you saw it at minus 8% after 9 months. And the most strongest action when we look at the 2% pricing, I would call it, is to defend our margin levels and pricing levels Here and there, maybe manage or lift our unique value propositions where we could even raise prices, but it's more or less a defense of price levels and a growth with more accretive products. And the defense is strong because you have that 8% volume decline and you have stronger competition for the smaller cake in these COVID-nineteen and oil decline times. The next question comes from Markus Mayer from Baader Helvea. Please go ahead. Hey, good afternoon. It's Stephan and Maria. Several questions on the outlook. You anticipate in the Q4 a small sequential improvement versus Q3. Does is this basically meant from the relative side, I. E. That you expect the normal seasonality in the Q4, but the year over year decline is less than it was in the Q3? Or is this more seen as absolute terms, I. E. That the Q3 the Q4 will be only slightly better than the Q3 in EBITDA terms, so in absolute terms? That would be my first question. And the second question would be on your comment on the Catalysts business that you expect stable margins versus current levels at the for the Q4? Does it mean you basically expect the EBITDA margin around 20% for the Q4? Thank you for clarification. Sure. I mean, definitely not difficult not easy, not difficult, not easy to give an outlook just after yesterday's announcement of additional lockdowns in certain countries. But we want to be as precise and transparent as we can. And let me take that question also for maybe giving more transparency to everyone here in the call. When we talk about the Q4 outlook, let's say, 1st, on a total continuing on a continuing Clarent level, What we mean is with a slightly less negative impact. We don't see that COVID-nineteen has a less negative impact on the economic environment, but we see our resilience to be stronger to net of that impact on us better than in the Q3 or so. And that means precisely look at our development in Clariant over the course of 2020. In the Q1, we had a sales decline in local currency by minus 6%. And the biggest contributor was actually the Aviation and Whittler part. In Q2, we've seen the first really rising impact from COVID-nineteen with minus 5%. And then in the Q3, we came to minus 7% with a combination of COVID-nineteen and oil, right? And if that if you aggregate that, that means for the 1st 9 months, we look at the minus 6%. And what we are saying in the first place is that we would see today, Q4, a slightly better than this minus 6% decline. So it's an expression to the relative terms. But actually, if you look on our normal seasonality, that actually also would mean that we would expect absolute sales also higher than the Q3. But our guidance particularly is easier to understand that we say, okay, if it's minus 7% after 9 months sorry, minus 6% after 9 months in local currency, plus, of course, the FX deviation, then it would be better than the minus 6 percent, but only slightly. Very close. That's the first on the top line, to be very precise. And again, where does it come from? Maybe I'll stay at that question a little bit longer and because there will be maybe follow-up questions. Why and where does it come from? Well, we definitely see, as I said in my speech, we see a still stress momentum on the Natural Resources business because we still see the oil pressure around us. We still will have a negative effect from Aviation in Q4, a deviation at least year on year. Last year, Q4 was not COVID affected. So whatever the climate does or the winter as such does, just the air traffic will have an impact. And that is considered in my guidance. So the main positive impact comes from Catalysis, where we still see despite some rollovers of orders from Q3 to Q4 or from Q4 to Q1, we see a very strong commercialization of projects in the Q4. And at a certain point of time, you have to change the catalyst, right? And we are very close in communication with our customers when to do that. So this is the main reason why we see a slightly better performance from top line in the Q4 versus the minus 6% of the 1st 9 months. If we come to EBITDA margin, we had last year in Q4 really one of the record performance quarters in Clariant, a very high Q4. You remember the EBITDA margins reaching 19%. And that means we had there a very strong business development in accretive businesses plus some extraordinary effects. For example, you remember when I commented on the full year results still together with Patrick, we said that we had some Catalyst orders pulled from Q1 into Q4. So any comparison of Q4 and EBITDA margins will definitely not stand up to the performance which we have reported Q4. So year on year, we will have a strong erosion in margin from that angle. But when we look again on the year to date and run rate performance, we are now after 9 months at 14.8 percent EBITDA, all inclusive, as we said, all exceptional items included. And what we believe is with the slight improvement versus the top line and our mitigation actions, we could bring that at least this EBITDA margin home and over the run rate or over the finish line of December. So what our guidance is here that despite the additional uncertainty from the resurgence of infections and potential lockdowns, we should be able to bring the 14.8 percent over the finish line of the end of the year, if potentially very, very slightly better. But that's what we, yes, would guide for as of today. And your second question, I took a bit longer for this first question because I noticed or I can imagine that you wanted to have a little bit more substance to that guidance. So on Catalysts particularly, the Catalysts, as I said, will be a bit more positive. We might see a slight growth Q4 on Q4. And the EBITDA margins, if you look what we have been reporting here after 9 months, I would look at the 9 month run rate, we were at 18% and we should be in that ballpark also by year end, maybe again very slightly better, but I would probably see us close to the 18% of the 1st 9 months. Okay. Thank you. That was very helpful. The next question comes from Peter Clark from Societe Generale. Please go ahead. Yes. Good afternoon. Two questions, please. The first one, I guess, around the comments on Aviation. I know there was a slightly weaker quarter in Q4 'nineteen for the comp, but I would have thought, obviously, nothing not much is flying. So I would have thought Aviation year on year is going to be worse than maybe even Q1. I'm getting the indication from what you're implying with the numbers. Maybe you don't have that. I just want to clarify that Aviation is still very bad, but maybe not as bad as Q1 is what I'm sort of getting from the sort of commentary you're indicating. And then the second question, you obviously mentioned the magnitude of the temporary cost is pretty large. Just a feel of how the temporary costs progressed just in the guidance, I guess, in terms of directional Q3 on Q2, how you see them in Q4. And then obviously, it's a moving picture day by day almost now, but how we see these support in early 2021? Thank you. Of course. Yes. I already said when we commented the Q1, there's hardly a lot of Aviation business left compared to when you look at Q1 of this year. But yes, you were right, despite being soft, we still had some decent business in the Q4 of 2019. And therefore, there will be a strong double digit erosion year on year purely in the Aviation business. That's for sure. And that will take its impact. And that was already included on the guidance I spoke about before. So again, if we look on Care Chemicals as such in particular, after 9 months, we look at minus 5%, which was mainly driven by the aviation factor in Q1. Then remember, Q1, I think we were down 14%, then Q2, 6% and then 1% in local currency. So Q4 will be obviously again worse than it's a nice track 14.61%. So mathematically, we should turn positive. But due to Aviation, I would say we'd probably be pretty much in the ballpark of the 1st 9 months where we accumulated and looked at a minus 5% local currencies aviation. And I would assume that, that maybe slightly negative could be the dimension for the 4th quarter purely or mainly driven by that aviation sector. Jan, your question on the temporary costs, I mean, as I said, we started when epidemic turned pandemic after a propagation of Chinese New Year basically back in April March, we started what we called an emergency management around that crisis for safety, for business continuity, but also for performance management. So the executive team and the business leadership is running a couple of programs very hands on through the group. And so in Q2, we've seen already impact from that buildup of savings in, as I said, travel, work, flexibilization, taking out tents, etcetera, with a slight increase in Q3, and that will basically slide now on the Q3 levels into Q4 and was already part of the guidance I have been given before. The next question comes from Andreas Heine from MainFirst. Please go ahead. Thanks for giving the opportunity to ask questions. I like to first to come back on the catalyst. You have already outlined what you expect for Q4, but I'm not fully get this. You said that in before, you expect sales to be higher than last year. Usually, Catalyst is known for having very high fixed costs. So that means when sales go up, then also earnings have solid move. If I got you right, you expect that the margin in Q4 will only be where it was in the 1st 9 months, which according to my model is 600 basis points below last year. Maybe you can help me understanding this. And in Consumer and Care Chemicals, at first, I would like to know what the special item includes REIT was, the positive one. Maybe you can shed some light on that. And when we last time have seen margins being very high, it was also when the oil price was very low and so driven by lower raw material cost. And then margins came considerably down in the U. S. When the oil price recovered. How confident are you that the indeed very solid margins in Care Chemicals can be defended into next year and the year after that? All right. So a couple of questions. Let's start, Andreas, with the Q4 margins in Catalysis. Obviously, as I said before, we had a couple of special effects in Q4 'nineteen, not solely from the sales and top line, but also from license income, which we accumulated in the Q4 of 2019. And therefore, that's why we will not see market levels in Catalysis on year on year level. We also have mix effects in the last quarter, which also accreted to the contribution of the sales in Q4 2019. And that's why the comparable the comparison for the Q4 EBITDA margin is more the run rate, and that's exactly right and that's what I said before, of the 1st 9 months into Q4. And that's why we said if we are now after 9 months at a margin level of 18% or 19.7%, almost 20% excluding the restructuring provision, but that will distribute over a longer period of time. So that means if we look at the 19.7% EBITDA by underlying, excluding the restructuring provision, that is something which we see we can bring into the Q4 as well with slightly better sales, so also accretive then for the group, but not at the Q4 'nineteen level. That's the wrong comparison date for those reasons. 2nd, on the Care part, you're right. I mean, I had the pleasure to manage a part of that business myself for some time in Asia Pacific. The risk is there that in falling raw material price times, you gain and in rising raw material prices, you lose. But we had both in this year already. If you remember, in the Q1 and the beginning or into this year, we had a, okay, significant decline in oil pricing, started actually already end of last year. And then you came into a momentum in Q2, end of Q2, where you could see certain olefin prices again rising. It's not just oil. It is, at the end, propylene, ethylene, and it's regional pricing. So shortage long also how they run the reactor in influence the price, not only crude oil. So we have seen price increases in the Q3, and we could still stabilize margins on that behalf. So it's a question the risk is there. I'm not disputing the fact, of course, that for any business that in fastly in very fast rising raw material times, you have a problem. And in fast shrinking raw material prices, you have an advantage. But the question still remains, how do you manage and mitigate it as quick as you can? And that is a very hands on approach to manage it, and that's what I referred to before the executive team and the business units have been doing in this year very close together. And secondly, it's also the question of the value proposition which you have, which is anyway maybe less raw material price or more independent. And that's where I said refer to the consumer facing part of the portfolio where we have stronger value propositions where and the opportunity to at least over average of the total portfolio to be a bit more resilient over the volatility of feed prices. And that's why we could, yes, not have the same price advantage we had before, but we still can manage it going forward on the expectation or the pricing raw material price levels we are today. And then on the special effects in Q4, yes, you're right. So you could see in the sorry, in Q3, you could see that we actually had in the 3rd quarter a higher exceptional EBITDA margin than the underlying EBITDA margin. So that at least unproved or proves or disproves the fact that exceptions only have negative items. Obviously, we had a positive item. And that was largely it was around €9,000,000 with 2 factors actually. And the biggest effect came from a sale of a plant and business, which was not core in the area of sulfation. However, I would, at the same time, emphasize that we also had some extra owner expenses actually a little bit higher than that positive effect. They occurred in the corporate cost in the same quarter. So yes, for the exceptional margin of or the sorry, for the reported EBITDA margin of Care, it had an effect. But even if you take it out and look at the underlying, we would have seen an improvement year on year, and we would have been still on a positive trend also over the quarter. And on a group continuing level, it was a low effect because we had other effects which absorbed that effect and spend on a continuing total on a continuing EBITDA level in Q3 of Clariant, we had not an accretion from that fact. The next question comes from Christian Faitz from Kepler Cheuvreux. Please go ahead. Yes. Thank you. Good afternoon, Maria. Good afternoon, Stephan. Two questions, please. First, a simple question. What is your cash flow expectation for 2020 as a whole? 2nd question, just wanted to ask about your agricultural activities within Care Chemicals. As far as I know, you are one of the key producers of the antidrifting agent for Dicamba. Can you give us any indication of the sales level you are recording for this? And on agriculture, any other innovations in your agricultural pipeline you can talk about? Thank you. Yes, let's start with neuroplasticity. So, of course, a major area of or an area of program which we work on. But we have to look at a net cash flow with certain while keeping certain facts in mind in this year of 2020. So if I say positively, we also have a working capital program to we could see that Q1, we were still running with very high tight cash and inventory, particularly because it takes some time to adapt to the new normal of a COVID-nineteen scenario. We're better in that now. But we have to time also then for the orders, which we get in Q4 and Q1 in Catalysis. So that's something which we need to keep in mind for inventory. On the receivable side, we are relatively very fine. We have not seen any major outfall or anything. So we have a very tight credit control because I think this is still a building risk in the markets, in the financial markets and in certain industries going forward, maybe more into next year than this year. We have though a super strong shrinkage in payables because while adjusting for the inventory and for the new normal and the demand and at the same time, work flexibilization, having put certain plants into short term labor, that has a dramatic decline on payables into account. And then we also, of course, have reduced our CapEx commitment. Nevertheless, it's still going to be extraordinary high because this year, next year, we are expanding our or we are investing in our biofuel startup, as you know, in Romania and progressing with that. And finally, we although the fine for the from the European Union was lower than our provision, and we could release certain part of the provision in the Q2. We still have to pay in the dimension of €160,000,000 And we paid a 1st tranche now in September, and we will pay the remainder tranche in the Q4. And therefore, I would say from the long or midterm guidance in terms of improved cash conversion, which we will prove with that new portfolio and all the measures which we're taking in the midterm, you will not see the full flavor yet in 2020. And to your second question on crop, yes, on crop, we have seen a good growth in this year, also in the 1st 9 months. As I said before, the Consumer Care part was very resilient, Personal Care, Home Care, but also Crop. So Crop grew by just double digits after the first 9 months. We see it geographically even stronger outside of Europe. We see some innovation trends in this area as well. We traditionally come, of course, from crop protection, but we also more present in adjuvant spaces. And then also to add a bit yes, to summarize it, to increase the effectiveness of plantation, meaning if you take a square yard or whatever aerial dimension you take to increase the yield out of that area over period. And that means that you particularly for us, growth regulation or climate resistance, crop protection, these are the areas where we have continued innovation. And maybe in one of the next times, I can give you a little bit more detailed briefing on what those are in Precise. But that's the areas where we are actually pretty strong, and we have invested into that also. We have our own greenhouse in Frankfurt at the Innovation Center. And there's a lot coming out in this space now, and we're suffering from that and also in the short term future. But so the core of my question was the Dicamba anti drifting agent, is that a meaningful sales level within your agricultural sales? The what? Sorry? The anti drifting agent for Dicamba, preventing Dicamba drifting into neighboring fields, which is, I believe, one of your products. Is that a meaningful sales number within your agrochemical sales? Yes. Honestly, I have we would have to come back to you. I would say, let's do this by a separate follow-up. Cannot tell you about the significance of that. Okay. Thank you. Appreciate it. Although I went up this that wasn't so Next question comes from Jean Baptiste Rolland from Bank of America. Please go ahead. Good afternoon, and thank you for taking my questions. I just wanted to come back to on the side of Consumer Chemicals, the resilience of your margin. Can you remind me industrial side, please? And the second question in relation to Catalysis. I understand that you have a product offering which is strong, etcetera. But what do you attribute the resilience of your sales to considering that several competitors reported double digit declines in the Q3. Are you do you believe that you're taking shares in this market? Do you see this as sustainable? And also still related to Catalysis, Could you give a sense of what sales potential you will be able to extract from your Duchenne Catalysis facility, please? All right. I hope I got all the questions. Let me start with Care and the dimensioning of consumer facing and industrial applications. Traditionally, and this is the same organically, I mean, internally from an organization standpoint or reporting standpoint also externally? When we speak about Consumer business, we speak about Personal Care, Home Care and Crop, right? And the dimensioning of that would be north of more than half of the business of total of Care. But actually, in the industrial part, besides the lubricants, construction, aviation and so on and so forth, you also have a Paints and Coatings business, which is actually which we yes, which maybe from the technology backbone is closer to the industrial space. But actually, in the Care Chemicals arena with Paints and Coatings, we also more go to the consumer facing paints application, so Architecture, Deco. And while in Additives, we also have a Coating segment, this is more the highly specialized technical industrial applications. And therefore, if you really look at consumer facing, it is actually more than half. It's more in the dimensioning of 2 thirds of the Care Chemicals arena, which are really going into consumer facing industries. The second question I understood was our yes, as I said it before, I mean, we're happy that you also bring in here the peer comparison of our performance. That's how we should be measured. And in Catalysis, we have been outperforming in the 1st 6 months and also looks not bad with minus 1% in Q3 in the Catalysis space. The main reason here is that we have probably in the market or let's say, we have a very comprehensive portfolio. We are not strongly into a single market. We are not strongly exposed to emission control automotive applications. We have several fields of applications. We have also, you're totally right, like a solid free propylene catalyst recently launched a nice assortment of more sustainable catalysts. And therefore, I think the combination of the width of our portfolio, of the comprehensiveness, the specialized characters are not exposed to too much commoditized applications and then the innovation and sustainability differentiation factors are the reasons why our portfolio is performing the way it does and did perform and will perform. And then on your last question, you were asking about, I think, our announcement about the Dushan investment. Well, listen first, I mean, as you could see, we really struggle in this volume decline in markets pretty much in the historic core markets of North America and Europe. Yes, that's where most of the deviation came from, from a country side or region perspective. But in Asia Pacific, we were up 2% after 9 months and in China, even 10%. So as you know, we have in our 5 pillar strategy a clear focus on China because we believe that for the midterm and long term, the future of our company and the future of specialty chemical industry and chemical industry will be decided mainly in that region. And therefore, we have been investing in that region. And that actually also we took into fortition with reporting the results that we did for 9 months with the increase in China and in Asia. And the Duchenne investment is very simple, focusing on purpose made propylene, such as PDH and other ways where we are particularly strong but where China has particularly, by far the biggest market share and the most activities from an anyway over proportional growth are happening. And that's why we did the investments here. And despite, as you know, we already have a propylene facility in the U. S. And we had some struggles with it in the beginning. We're ramping that up. We are approaching breakeven by maybe end of next year or not maybe, by end of next week. And then we see now from a demand standpoint, we also see the necessity to have more, and then we need to be close in one of the strongest growing and appetizing and investing markets for purpose made propylene in China. I will not and cannot give you a detailed guidance what the magnitude of that investment is. But what you can see is in our midterm guidance on the growth of Catalysis, this is included. And it's of course, also biofuel investment is included. But also this stronger presence of Catalysis in China is part of the core strategy to deliver the growth mid term guidance of Catalysis, which we have announced. The next question comes from Andrew Stott from UBS. Please go ahead. Yes. Good afternoon, Maria, and good afternoon, Stefan. I had a couple, if I can. So the first question, I'm sorry to come back to the Catalysis guidance, but I wasn't I just wasn't clear on it. It was probably my mistake. So every year since you bought Sud Camille, you've had that big step up in Q4. And you're saying that revenues are not the problem sequentially, And yet, you're going to see an absence of that massive step up, in typical terms, somewhere between 500 basis points to 1,000 basis points. So I'm a bit of a loss as to understand why. And I know that question came up already, so apologies. Second question was a simple one. You've relaunched the pigments process as a disposal. I just wondered if you could give us an idea as to where we are with that timetable when you say relaunch? Has that just happened, for example? Of course. So back to the Catalysts. So I will proceed answering the question. So your first question was about Catalysis in Q4. The magnitude of quarterly performance in top line and EBITDA is a combination of factors. One is definitely the commercialization of projects in that quarter. Is that really then the takeoff and is that then commercialized in that quarter? So that gives you the sales dimensioning. As I said, we should see a slight growth opportunity in Q4 year on year in that regard on top line. The other factor is the second factor, for example, is how much did you actually then produce in that quarter? How much are you utilizing your assets? And here, from a COVID-nineteen pandemic, we have been balancing the production better in or differently in this year, also in Q3, Q4, etcetera. So whether you produce strongly in Q4 and then also the question is how big is your Q1 demand, right? So you could have a very strong, you're right, super strong step up in EBITDA margins, but that would correspond to a higher inventory for Q1 demand. And we are very careful that we don't see Q1 getting back to normal, and there is no more COVID-nineteen after 31st December. And therefore, this utilization factor in Q4 is also not playing that strong. And thirdly, there is other aspects, as I said, also license income, etcetera, which play a role in EBITDA margins. And the combination of the three factors gives you what I have said before in the guidance, the reality why we believe, yes, compared let's talk about the run rate EBITDA BI, which was before exceptional item, which was around 19.7% after 9 months. That's something which we should be able to repeat in Q4, but I would not see the significant up step or step up from that because the normal the other factors, which you could have, we will not have. To your second question on the pigment process. Well, as I said before, we have in March, April, where we initially planned the marketing or launch of the marketing campaign, we've not done that at that time because, again, epidemic turned pandemic and the marketing timing was, according to textbooks, not the perfect timing. But there was a second reason as well. We needed to give Pigment some time to mitigate COVID-nineteen impact and take its own measures. We've have been speaking all the time about the €600,000,000 position and the €50,000,000 savings, and I kept on pronouncing that this goes to the continuing business. We also have had and have an efficiency program in Pigments where we've provided more than SEK 20,000,000 in the Q1 and discontinuing, which is ramping up the EBITDA month by month. And that's a very important value accretion driver, of course, specifically important in these difficult times. And that was the second reason why we have postponed the timing in the marketing of or the launch of the marketing. We have now restarted and launched the marketing process again. We are collecting a potential buyer universe. It's still wide and deep, so there is high interest. There is private equity. There is strategic interest and other interest in the market. And we are collecting that. We are going through the process now. The process with the difficulty of physical visits also will be a bit longer than normal. I mean, we will take that time to give the buyers also the insight into the business and into the full potential here because we believe and strongly see that potential. And then what we will see is that we will turn into probably mid of next year or before that where we could potentially, if the value is right, see a signing. And then depending on who the buyer is, is it strategic, is it private equity, we could proceed to closing potentially depending on regulatory processes towards the end of next year. The last question comes from Chetan Udeshi from JPMorgan. Please go ahead. Yes. Hi. Thanks. I just wanted maybe some help in understanding the can you maybe help us understand the split of natural resources sales by different end markets, which like oil, mining, what else is in that business and how big is it? And also the same thing for Care Chemicals. I heard you say the consumer facing markets are more than 50%, but it would be useful if you were to make it into personal care, consumer care, home care and prop, etcetera, just to get some flavor. The sort of last question was, we've been hearing this commentary about preparing for right sizing now from start of this year. Why is it still not formalized as a process? Are you waiting for something? Is it to do with the fact whether you are waiting for the Maven A to do or is it just the process itself that takes time? Because it seems like we've been hearing it now for 2 or 3 quarters, but it doesn't seem to have been formalized. Okay. Well done. That was at least packed 4 questions into the round, but fair enough. So on the Natural Resources mix, let's start from there. We have 3 business areas, right? Oil Mining services, then we have the functional minerals and then we have the additives. The oil and mining services are going into 3 end markets into oil, mining and refining businesses, while oil being the dominant ones. The functional minerals going into 2 big applications and then a few smaller ones, the biggest one being foundry, automotive related mainly, but the biggest one, purification. Purification, again, a bit more consumer related than the other piece, which I also said purification was positive after 9 months. And then in Additives, you have a couple of end markets. The biggest is plastics, but that's not the normal plastics, which you might think of. The majority of that is very sophisticated plastics for E and E and special applications, going also into the space of a digitalized world where you want to have autonomous driving, sensors, high thermal resistancy, mechanical recycling in that part. The second part in Editas is Coatings, which is more the high-tech industrial coating. And the third part also in Additives, you have a consumer facing area, which also goes into more adhesion and hygiene applications. And then if you put all together, so the weight in Natural Resources is roughly that the Oil and Mining Services is a little bit less than half of the whole Natural Resources business, while within oil and mining, the dominant part is oil. Then the functional minerals makes a little bit less than a third and the additive part makes a little bit less than functional minerals of the total. And if I come to back to Care Chemicals and your question, as I said before, purely from a consumer definition when we talk about the way we report, it will be north of 50% on consumer. If we also include the consumer facing elements of the industrial side, it's more like twothree. The biggest one in that whole arena is the Personal Care segment, but I will not give more I cannot give more splits than I just mentioned. Then you had a question about the rightsizing and also about M and A. On the rightsizing side, no, there is no program problem and we're not waiting on anything. We have been with the full year results in February, we were already announcing that we've started a progress or program to define the right sizing, dimensioning and what we want to do and how we want to do it. Let's keep in mind that we have based on our €6,500,000,000 sales and turnover in 2019 on a total level, with Healthcare Packaging, Master Veg and Pigments, we basically divest almost onethree of the business. But actually, it stands for much more of the complexity. If you think about amount of customers, logistical model, amount of plants, it's more than that 30% or 33%. And therefore, rightsizing means to yes, of course, to avoid remnant costs in a more focused clearance, but it also means to adjust the operating model to take advantage of the simplicity and also to do more to focus the activities and not just to refocus the workforce. So that is the reason why it takes some time to define that, but that was always the plan, and that's not a surprise because the biggest first biggest divestiture was in July 1 with Masterbatches, but we have a couple of transitory service agreements still running. So it means you have to have the back office still in place to support that sold business. And pigments, we haven't even sold yet. So the timing of the adjustment process as a result of the rightsizing depends on the divestiture, not the closing date, but the completion date of the transitory service agreements. And there, we had total perfect timing. The only thing is that we say, okay, we need to give some more details, of course, also to the market, And we plan to do that with a communication. Initially, I said we do this with the full year results in Feb next year. I believe that we could probably a little bit earlier, maybe before end of the year, already give an update with a little bit more of the dimension of that rightsizing program. And finally, to your at least underlying question of M and A, though we're not waiting for anything there, I would say we have our clear priorities right now. The number one is really to fight off this unprecedented time, COVID-nineteen, to really fight it off and show the resilience of our specialty portfolio with a couple of strong program execution. 2nd one is then to bring these 3 core business areas to their full potential and towards the midterm targets. That's the second priority we're working on. And the third one is then to run the divestitures, accrete in value back to Claren for strengthening our balance sheet and improving our opportunities to for investments and also rightsizing the company, as we just talked about. And in all these priorities, of course, we are actively monitoring opportunities on the market also for inorganic growth. And it might be that we come up with something fast or it might not be. We will communicate if we are at that stage. And we have the ability because our balance sheet is super strong. Already now, it is at the levels of precrisis. And we will with all our programs, we will even expand it even more that capability and that options. And if we find something very interesting on an inorganic side, we will step up and come forward, but there's nothing ahead of us tomorrow. Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to the speakers. Thank you. Ladies and gentlemen, this concludes today's conference call. The Investor Relations team remains available for any further questions you might have. Once again, thank you for joining today and goodbye. Thank you. Bye bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.