Ladies and gentlemen, welcome to the Clariant first quarter 2020 reporting conference call. I'm Andre, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 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 Ms. Maria Ivek from investor relations. Please go ahead, madam.
Ladies and gentlemen, good afternoon. My name is Maria Ivek, and I welcome you to Clariant's first quarter 2020 results conference call and live webcast. Joining me are Hariolf Kottmann, Executive Chairman of Clariant, and Stephan Lynen, 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&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 two of today's presentation. A replay of this call will be made available on the Clariant website.
Stephan will initially go through the first quarter 2020 results, and Hariolf will finish the presentation with Clariant's outlook going forward. Let me now hand over to Stephan to begin the presentation.
Thank you, Maria. Ladies and gentlemen, good afternoon. It is my pleasure to welcome you to Clariant's 2020 first quarter results conference call. 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 now simply called EBITDA and will be always the first focus when discussing profitability. As you can see on slide three, in the first quarter of 2020, Clariant sales declined by 6% in local currency in a difficult environment. This development was due to a mild winter season, the timing of Catalysts sales, and a weaker global demand in the context of the COVID-19 pandemic. The sales development was supported by stronger sales in the business areas Natural Resources, while Care Chemicals and Catalysts sales weakened in the first quarter of 2020.
Looking at profitability, the EBITDA margin remains resilient at 15.4% due to our core portfolio and rapid and efficient cost control measures, and the absolute EBITDA reached CHF 157 million. Clariant, like the entire chemical industry, is facing an unprecedented situation with the COVID-19 pandemic. Yet I can confirm that all efforts to minimize the impact are fully in place at Clariant. These measures are backed by our strong balance sheet and liquidity position, which is based on our solid conservative financing approach. We continue to assure employees safety first, while concurrently running business continuity programs and implementing cash measures. Let us take a closer look at the first quarter sales by moving on to slide number four. In the first quarter 2020, Clariant generated group sales of CHF 1 billion.
Sales softened by 6% in local currency in a weaker global environment amidst the impact of the COVID-19 pandemic and versus a high comparison base in the previous year. Sales increased in the Natural Resources business area, while Care Chemicals was hampered by weak aviation conditions and the timing of Catalysts sales, which weighed on the top line. The sales development in local currency was attributable to 1% higher prices and 7% lower volumes. In Swiss francs, the sales development was 12% lower as the very unfavorable foreign currency development negatively impacted Clariant sales by 6%. Slide five reflects the regional sales development for the first quarter of the current year. The sales development in Asia was fundamentally robust, despite a 1% contraction in local currency, which was driven by the COVID-19 impact to China and the prolonged Chinese New Year.
In Latin America, as well as in the Middle East and Africa, sales increased the most strongly at 10% each in local currency, a development which was also affected by the devaluation of major currencies in Latin America. Sales in North America decreased only slightly by 5% in local currency. This was again due to the mild winter and the negative impact which COVID-19 had on aviation, while the other businesses grew. Europe weakened by 17% in local currency, also due to the substantially softer aviation and Catalysts business. Let's review the business area figures in more detail, beginning with Care Chemicals on slide six. In Care Chemicals, first quarter 2020 sales declined by 14% in local currency. The development in consumer care reflected a slight low single-digit decline with a progression in Personal Care, but a small decline in Home Care and Crop Solutions.
Industrial application sales developed less favorably, primarily due to the significantly softer aviation business, which was driven by the particularly mild winter and reduced air traffic amid the COVID-19 pandemic. The weak economic environment also resulted in lower base product demand, although paints and coatings sales grew. Excluding the seasonal and COVID-19 impact from the aviation business, Care Chemicals sales were only very slightly weaker versus the strong first quarter in 2019. As a matter of fact, the aviation grounding made up for 80% of the decline in growth in local currency. The lower sales also affected the Care Chemicals EBITDA margin in the first quarter of 2020. This declined to 17.8% from 19.6% in the same period of 2019. This development was mainly attributable to the explained weak aviation business in Europe as well as in North America amid the COVID-19 pandemic.
The lower sales volume also had a negative impact on the cost coverage. In terms of the short-term outlook, we anticipate a stronger negative COVID-19 impact in Care Chemicals in the second quarter of 2020 versus the second quarter of 2019, despite the resilience of the consumer care part of the portfolio in particular. This development is likely to result in lower sales and margins in the second quarter. Let's move on to Catalysts on slide seven. Sales in the business area Catalysts decreased by 6% in local currency in the first quarter of 2020. This development is partially attributable to the previously communicated forward sales shift from the first quarter of 2020 into the fourth quarter of 2019. As also anticipated, sales in Syngas were significantly lower in the first quarter of 2020 due to the large amount of project business in the first quarter of the previous year.
This sales development was primarily observed in Europe, the Middle East, and Africa, which accounted a particularly difficult and previous year comparison base, while Asia and Latin America, as well as North America, demonstrated a resilient sales development. The first quarter 2020 EBITDA margin of Catalysts declined to 13.2% from 21.7% in the previous year as a result of the lower demand, the shifted timing of sales, and an unfavorable product mix effect. The mix effect made up for approximately 50% of the decline in EBITDA margin, while the other half was related to the timing of the sales. Margins can fluctuate significantly over quarters of a calendar year, the fundamentals for Catalysts remain positive based on the present order pipeline, our portfolio strength, and our innovation capabilities. In the second quarter of 2020, we anticipate improved sales at Catalysts versus the first quarter of 2020.
While it would still be a little bit lower than the second quarter of 2019. As yet, improved margins with a fading mix effect. On slide eight, we see that the first quarter of 2020 sales in Natural Resources rose by 2% in local currency. Oil and Mining Services reported low double-digit sales growth in local currency for the first quarter, with higher sales in all three business lines and across all regions. Functional Minerals sales declined slightly at low single-digit rate in local currency due to the weakness in foundry, primarily attributable to the shutdown of the European automotive industry in mid-March as a result of the COVID-19 pandemic. The growth in purification was unable to entirely compensate for the weakness in foundry. Sales in the Additives business decreased at a high single-digit rate in local currency.
The softer demand resulted from a persistent weakness in electrical and electronic sectors, as well as the lagging automotive market, which could not be compensated by new sustainability offerings. The EBITDA margin rose to 19.1% from 15.6% as Oil and Mining Services sales grew in accretive applications, while Functional Minerals and Additives successfully defended their EBITDA margins despite the weaker top-line development. Looking forward in the second quarter of 2020, we expect Natural Resources sales to slow due to our expectations for a weaker economic environment amid the COVID-19 pandemic, paired with the low oil demands. Let us continue to discuss the financials on slide nine.
On an absolute basis, the group EBITDA decreased by 14% in CHF to CHF 157 million, impacted by the sales evolution in the first quarter of 2020. I repeat, especially by the weak aviation business in Care and the softer profitability in Catalysts due to sales timing and sales mix, as well as particularly negative FX effects translating into CHF. The Group EBITDA margin remained robust at 15.4% versus 15.7% in the first quarter of 2019. The EBITDA before exceptional items was reported at 16%. This resilience in EBITDA margin reflected by these results was underpinned by the strength of our core portfolio and the implementation of rapid and efficient cost control measures amid COVID-19. With this, I would like to hand over to Hariolf to discuss Clariant outlook.
Thank you, Stephan. Ladies and gentlemen, after going through the first quarter 2020 figures, I would now like to move to slide 11 so that I can explain to you what we are doing to foster Clariant's performance going forward. Clariant first quarter 2020 results clearly reflect the resilience of our three core business areas in the current, particularly difficult, turbulent, I would say, environment, also in comparison to our peers. Although sales declined by 6% in local currency in the first quarter, the EBITDA margin remained robust, near last year's levels. We have fully implemented measures to mitigate the impact of the COVID-19 pandemic based on our strong balance sheet and our strong liquidity position. We continue to prioritize employee safety first while concurrently running business continuity programs and implementing very hands-on, let me say, cash measures.
In terms of Clariant outlook, looking at 2020, we anticipate a negative impact on sales and profitability from the pandemic. In fact, the pandemic impact is expected to more strongly affect the second quarter of 2020, which is more than logic. The uncertainty regarding the impact of this unparalleled crisis remains high. Clariant has prepared different scenarios to generate resilient performance and continue its transformation program. Let me give you two examples. To generate resilient performance, we have shifted our focus on short and mid-term cash generation. The efficiency program and corresponding workforce reduction, which we announced together with the full year 2019 results in February, has been put on hold to a large extent given our social responsibility and the COVID-19 pandemic.
The previously communicated CHF 50 million cost base reduction will be delayed for a few months, although we are still targeting to maximize the positive impact in 2021. There's no change in principle so far. In terms of transformation, let me comment on the Masterbatches divestment to PolyOne. As you know, the sales agreement was signed in December 2019. Together with PolyOne, we continue working together constructively on all working levels towards the closing of this transaction, which is expected by the third quarter of 2020, at the end of the second quarter at the earliest. The closing is subject to customary closing conditions and regulatory approvals, which are progressing very well. At Clariant, we continue to focus on the three core business areas: Care Chemicals, Catalysts, and Natural Resources.
In the mid-term, and we really do hope that there is a life after the pandemic, Clariant expects its continuing businesses to achieve above market growth, higher profitability, and stronger cash generation based on our focused high-value specialty portfolio, the ongoing implementation of our corporate transformation process, as well as the ongoing implementation of our corporate strategy.
With that, I turn the call back over to Maria.
Thank you, Hariolf. Thank you, Stephan, for taking us through the achievements and progression achieved in the first quarter of 2020, as well as for providing us with some insights into Clariant's outlook. Before we go to the Q&A session, we would kindly ask that you limit the number of questions to two, 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. Anyone who wishes to ask a question may press star and one on their touch-tone 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. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Christian Faitz from . Please go ahead.
Yes. Thanks. Hello from my side. Hello from Frankfurt. Two short questions, please. Thanks for your comments on expected Q2 performance, Stephan. Just a bit of clarity on Catalysts, please. Given that lots of your customers must have their plants in downtime, is that actually helping demand for refilling the Catalysts, or do you not see that yet? Second of all, can you remind us of your dependence on U.S. shale Oil and Natural Resources? Thank you.
Let me start with your question on the Catalysts business. As what we said with the Q4 results is that we have seen a peaking of the Syngas refilling cycle in 2019. We've seen also a postponement, as I said, from Q1 to Q4 on certain orders, and we've seen a certain rollover of some orders. Our outlook for Q2, as I said, versus Q1 is definitely higher, and we have a very good visibility on the order pipeline from Catalysts. Those opportunities you referred to, we definitely see going forward in Q2, Q3, Q4, as well as the fading mix effect if you come to the profitability. On the Oil business, shale, we have today in the Oil business, basically a split between offshore and land business of 50/50. 50% land and 50% offshore.
Of course, what we see is now with the current oil situation, the demand or the warehouses filling and the demand declining. This affects less the offshore business where we are quite strongly positioned compared to competition.
Okay. Thank you very much. Very helpful.
Thank you.
The next question comes from the line of Patrick Rafaisz from UBS. Please go ahead.
Thank you. Good afternoon, everyone. My two questions would be, firstly, can you update us on Clariant's liquidity position as at quarter end? I'm thinking here about the undrawn credit facilities, and cash on hand. Secondly, on Natural Resources, a follow-up. Given the contract structures, one to three years, and given your production-related exposure in this area, how much of a lag should we assume for Natural Resources and especially Oil Mining to see the full extent of the oil price-related downturn in oil production? Do we already see a big hit in the second quarter, or could that actually drag out into Q3, Q4 maybe? Thank you.
Thank you, Patrick. I start with the liquidity, which is obviously in these times, a core strength for us because we have been very conservatively financing over years in the past and continue to do so. We do not disclose the details of balance sheets and cash flow statements in the first quarter. If you take it from the year-end where we have published a very strong balance sheet with a gearing approximately around 50%. You've also seen that in March, Standard & Poor's repeated its very positive investment-grade rating for Clariant on BBB- long-term and even better on short-term. Of course, the crisis will take its impact, but we have an extremely and definitely better than average industry start into that crisis from the liquidity and also balance sheet, cash on hand, and headroom position.
We had no major change or no change to that position as such in the course of the first quarter. If I come to your second question, the Natural Resources. Yeah, I would say we're looking, of course, at a situation which is not so typical, when you look at oil prices and forward prices turning into negative now for the second time. Maybe let me start to answer your question by saying that our improvement of the Oil business was particularly homemade. We have an excellent team, management team, with an excellent program, which is an excellent execution. This was the main driver for growth and for profitability. I would say more than the contracts, this gives us the fundamental belief that we will steer very well through the crisis.
Definitely, we will see also on the Oil business, a negative impact already in the second quarter.
Okay, thanks.
The next question comes from the line of [David Simmons] from JPMorgan. Please go ahead.
Hi, guys. Thanks for taking the question. The drop-through of the Catalysts sales decline into EBITDA was 90% in Additives margins are the lowest they've been in a few years. I know you said 50% of that was mixed, but we also talked about lower gas contracts, which obviously would normally be margin accretive. Are you seeing any kind of pricing or raw materials pressure in that division? What is the business that's so dilutive to margins to bring the margins down to this level? Secondly, just any update on the timing of the special dividend. I know you said after the Masterbatch sale had closed, but given the current drive for conserving liquidity, is there any change around the messaging on that? Thank you.
Let me start with your first question on the Catalysts margin. No, we do not see any specific squeeze from raw material costs or pricing. Actually, the pricing performance also of Catalysts, as you saw, and this is still, I think, an expression or it is an expression of the strength of our portfolio that we had, even in these times, a positive price increase in the first quarter by 1%. Also in the Catalysts, you saw a positive impact. The erosion came really from mix effect, and the mix effect came mainly, and this is quarter-over-quarter, sometimes a little bit different by a higher demand on Catalysts with a bigger share of precious metals, which just have by the nature of how we provide them then, have a dilutive effect on the margin. It doesn't change anything on the cash generation.
Again, it has a dilutive margin effect, and that's something which can happen from one quarter to another, from a mixed position. For the specialty dividend, I would hand over to Hariolf.
Yeah. In principle, you can approach your question from two sides. Number one, we had planned an AGM for April, and we decided to shift it to June. Now the new day is June 29th. The recommendations and decisions our board took for the first AGM, will now be, let me say, rediscussed in a board meeting mid of May to prepare usually the agenda and recommendations and decisions for the AGM end of June. I don't know how the board will decide in May regarding the dividends. In the dividend, especially, we have two kinds of dividends to discuss. Number one is the regular dividend for the year 2019, there is a decision and recommendation made by the board for the shareholders' meeting needed. In addition, the extra dividend we defined at CHF 3 per share after successfully closing the divestment of Masterbatches.
This is also up to the board to make this decision. I'm pretty sure that we do not challenge this decision in principle, but it could well be, and this is now really theoretically spoken, it could well be that the board decides to pay out in 2020 just CHF 2 and reserve CHF 1 for the AGM in 2021. In principle, we stick to the total amount of CHF 3 extra dividend based on the successful closing of the transaction.
Understood. Thanks very much.
Welcome.
The next question comes from the line of Markus Mayer from Baader Helvea . Please go ahead.
Yeah, good afternoon. I have two questions as well. First one is on the Catalysts business as well. Have been already cancellations of refill orders. As I remember correctly, that was the Catalysts business in the last financial crisis which saw the impact first. Also in the first two business, have you already seen delay of projects? The second question would be on the Pigments divestment. Should we expect a delay of this divestment as this COVID might be not that easy to do the due diligence and then all the other stuff which is needed for the divestment?
Markus, let me start with your second question, and Stephan then will respond to the Catalysts-related question. When it comes to dividend, I think all of you know the entire story. We announced divestment many years ago. We successfully carved out everything and put it up for sale. We sent out the prospect to strategic buyers as well as to private equity firms. We had a very strong response to that. We thought about having the first meetings with interested parties in May, and now we are in the middle of COVID-19, and as you rightly said, this is really not the ideal time for make divestments and acquisitions.
Therefore, we decided to slow down the process. We are not in a rush. We will slow down it a few months. We wait until August, September, so that we better understand the total environment in the market, the interest of the strategic or private equity buyers, and then we continue with the regular process in fall.
Okay. Thank you.
Right. Markus, on Catalysts business, the answer is we have not seen any cancellation of refill on orders in the first quarter or as of to date. Let's keep in mind that the refill business is around 70% and the new project business is around 30%. What I said is we have seen a certain peak of the refill business in 2019, and a little bit of a shift into the fourth quarter, which was exceptional and really good. We are preparing that we would see a certain rollover of orders into Q2, Q3, Q4. That is something which I would not be surprised to see, but as I said, from our today's outlook, we already will see a stronger Q2 on the top line versus the first quarter this year.
Okay. Mm-hmm. Thank you.
You're welcome.
The next question comes from the line of Theodora Lee Joseph from Goldman Sachs. Please go ahead.
Hello. Hi, good afternoon. Just two questions. The first one is, I was wondering if you're able to quantify kind of the net raw material tailwind you saw in the business for the first quarter, because I know that the pricing was actually positive 1% on a group level, but obviously, the majority of your raw materials must have come off year to date. The second question relates more to Care Chem. Can you remind us what percentage of Care Chem is the aviation business? If you're able to give any color around the magnitude of decline that you saw this quarter. If you're able to comment on the exit rate you saw for Care Chem in March and what you're seeing in April, that would be super helpful. Thank you.
All right. Let me start with the raw material piece. Actually, in the first quarter of 2020, we did not have yet a huge impact from raw material deflation. It takes a little bit of a time till crude oil prices to naphtha into olefins, ethylene, propylene have translated and impacted and also the pricing for our feedstock. We do expect that, and, as much as we have discussed already that the oil price and oil market situation has a little bit of a negative effect on the outlook on Oil and Mining businesses in the next two quarters. We will see, of course, an advantage by the lowering raw material prices on olefins, ethylene, propylene now forward looking into Q2 and Q3, particularly in the main off-takers of those olefins in Care Chemicals as well as in Additives part of the Natural Resources.
They use quite a bit of those olefins. The second part of your question on the aviation business. If you ask me about the weight, it could not be lower than in the first quarter. I think this is really with grounded airplanes worldwide and I guess you've seen in different geographies, outside of the window and not seen too much snow. If you take Q1, the ratio would be extremely low. The deviation to already lower Q1 in the last year was still in the magnitude of -60%. As I said, that contributed to 80% of the decline of the whole Care business. I think it's a really grounded bottom business in the first quarter 2020 and taking a major effect on the Care business.
The next question comes from the line of Alex Stewart from Barclays. Please go ahead.
Hello, good afternoon. Can I come back on your comment on the 50/50 mix between onshore and offshore in OMS? Could you confirm where the onshore business is? Is that the legacy, the remnant in shale exposure you had with the two acquisitions in 2016? I was under the impression you'd shifted a lot of that into more challenging, more difficult worlds. Secondly, your Crop Care business declined, albeit slightly, for the first time in a while. You also said that Home Care, which was slightly negative in the fourth quarter of last year, we shouldn't read into that, but it's negative again in the first quarter. Is there something going on in the Home and Crop Care business that implies or that suggests that growth and demand is going to be now structurally slower than it was in the past?
That's been a very important growth driver for you. Thanks.
Thank you, Alex. That was three questions. I'll take them. The first question on the offshore, onshore. You're totally right. Not only to the acquisitions, but part of the management team's execution and strategy and improving the results is, of course, shifting more to value accretive businesses, and that means a shift from onshore to offshore, and that is in progress, and that is deleveraging the tracking business, if you may. That's part of the results which you see already in the profitability in the first quarter of 2020. If I come to the Crop business, yeah, this was slightly below, and basically the whole deviation or the majority deviation Crop came from Europe. If you see also coming out of a mild winter, also very dry season in the first quarter of this year.
We don't see any fundamental change to our growth potential in Crop Solutions, absolutely not. Yeah, a weak start in Europe particularly, which led to a little bit decline on a Q1 comparison, nothing fundamental. On the Home Care business, yes, also there we have seen a small decline. This had to do also with our customer product mixes and, in principle, is a business where you're totally right. We see also ongoing growth potential in the future, specifically also as it addresses, of course, aspects like hygiene, which are of high importance these days.
Sorry, can I just clarify on that onshore, the 50% onshore exposure, can you confirm that that's U.S. shale still? Are there other parts of the world where that feed into that? I'm just trying to gauge your exposure to the short cycle oil producers.
There is a few parts of the world, but by far the biggest is, of course, the U.S.
Thank you.
You're welcome.
The next question comes from the line of Daniel Buchta from Vontobel. Please go ahead.
Yeah. Thank you very much. Two questions also from my side. Maybe the first one on your Masterbatches disposal, and you commented a little bit on this. Also earlier today, I read that you are not concerned that PolyOne may stop this disposal or may renegotiate it. If I read what the CEO of PolyOne in the Q1 conference call said, and also before, he said they stick to the strategic idea or rationale behind this deal. Nonetheless, they confirmed that there is a breakup fee of $75 million. They also said that, yeah, they would have to look at it because the markets are as they are. Between the lines, they also said that as of today, they probably could get this asset cheaper than what they have agreed with you late last year.
Could you please clarify a little bit, Mr. Kottmann, what makes you so sure that PolyOne is not maybe renegotiating the deal or is maybe even terminating it? The second one on your efficiency program. In the call you confirmed that the CHF 50 million savings target with 500 million- 600 million people being laid off, this is still the case and maybe a little bit delayed, which is fair in this current difficult environment. On the other side, you mentioned in the transcript or in the presentation, rapid and efficient implementation of cost control measures. What kind of cost control measures were there if these layoffs are at the moment delayed? You also, Mr. Kottmann, stated today that the redundancy program is on hold.
Maybe you can clarify in that regard a little bit on what you have done on the cost side so far. Thank you very much.
Yeah. Thank you, Daniel. Let us start with the second question. You have to distinguish between the, let's call it fitness program for the Clariant business unit, which was started in the fourth quarter 2019 and prepared for implementation in the first, second, and third quarter 2020. We announced it at our press conference, I think February 14, 2020.
It's only focusing on headcount reduction and efficiency increase measurements in our business units. Here we are talking about these CHF 50 million savings and round about, let me say 500-600 positions worldwide. This program was put on hold four weeks ago, and we decided that we discuss again about the further implementation in September when we hopefully better understand what kind of impact the pandemic had on our businesses and will have on our businesses in Q4 and maybe also in 2021. What situation we are in the third quarter regarding the overall COVID-19 development in principle. That's a separating issue. What we are talking now about short-term cost measures and cash management measures is that we have already started mid of January until end of January when we recognized that we do have a Chinese problem.
I think the entire industry in January recognized Corona as a Chinese problem in Wuhan with the double Chinese New Year and the shutdown of many factories. There were only a few guys thinking about the possibility that this could go to Japan or to Korea or to the rest of Asia. Suddenly we saw, like all other colleagues, this coming up to Europe and to the U.S. and this then generates on our side, a continuation of weekly cash and c ost control calls of my three EC colleagues with all business people in the company, the business unit heads, the members of the management committee in order to reduce costs in any form and shape, and to generate additional cash by very traditional hands-on top-down networking cash management. That's what we are talking with short-term and mid-term cost and cash measures.
Okay.
This is ongoing, and this will generate a significant additional contribution to the cash flow of the company and the reduction of the cost base now in the second and third quarter. Regarding Masterbatches, I can only repeat what I mentioned in the beginning of this call and what I said this morning to a few journalists. It is difficult for me to comment on the statements of Bob Patel, but Clariant and PolyOne are positively, constructively working on all working levels in all working teams to make a successful closing happen.
We have zero indication that PolyOne is looking for any easy way out or renegotiating of price and conditions and what kind of details at the end. For the time being, it is a regular project, and there is absolutely nothing today at the horizon that we can assume that there is any disturbance until we finally then close this transaction.
Okay. Thank you, Markus. That's very helpful.
Yeah.
The next question comes from the line of Andreas Heine from MainFirst. Please go ahead.
Yeah. Thanks for the opportunity. Two questions I have. The first is on Oil and Mining Services again. Going back to 2014, 2015, what you have seen there is that it was quite robust, in the first place as the volume was not affected. That was explained in those days as the business not being linked to the exploration but only to the production. With the delay of one to 1.5 years, there was price pressure with the renegotiations of the contract. Now I learned that most of the recovery in earnings was homemade and rather from the price-driven renegotiation of the contracts. Anyhow, do you see the risk as you have these contracts running out and have to be renegotiated and as the profitability of your customers is very depressed, that what we have seen in 2016, 2017 will happen again?
Do you see this as highly unlikely due to the shift to offshore and due to the homemade work you did? That's the first. Second, on Care Chemicals. Going into the second quarter, I would assume that Personal Care, Home Care should do reasonably well. Crop, you said, is more a seasonal impact, and that leaves you then with the industrial business where you said that the main impact was from aviation, which basically doesn't do any business anyhow in the second quarter. We should see the impact of lower raw materials. In the sequential trend from Q1 to Q2, how do you see there the business developing?
Okay, Andreas, thank you for the question. I take on that first. You're right. We are now coming into that momentum, which you described a couple of years ago, five, six years ago, completely different. We come in with a strength, and we have a strength of having a more cost-adjusted organization, focused organization with more accretive contracts and a higher value proposition in our sales. That's why I do believe and see that we have a different starting position when it comes to potential renegotiation of the contract. That has to do with our higher share in offshore. It has to do that we have selected contracts which are particularly value-driven, where the exploration is particularly difficult and we are particularly good in the way we do business and really improve efficiency and effectiveness.
Have also actually a lot of innovation launched over the last couple of quarters in the way we explore. I would say due to the demand drop and also the full warehouses, for sure you will see an impact from the volume side. I see us much more robust or much more prepared going into that phase than years ago. To Care Chemicals, yes, you're right. Our expectation on Personal Care remains high also throughout the whole year. What we will see is that in the second quarter we have a higher impact on the industrial side of the business. That's not the aviation business, which I'm talking about, because there is hardly any comparison basis in the second quarter. There is no deviation possibility.
We have construction business, we have a lubricant business, we have some base products, and so on and so forth. With certain industries being in a lockdown and you have delay effects. I mean, look at the unemployment rates or the registration for unemployment in certain geographies like the U.S., which has a delay effect. You will see this also in industries which affect Care Chemicals. From that side, we do see definitely a weaker second quarter in a Q2-Q2 comparison and even in a Q1 comparison, in a way, given those factors. Yes, the raw material gives us some chance to improve the direct cost margins. Again, the volume and the effect on utilization in the surfactant business will make its mark also in the second quarter.
That's why we do not see a significant opportunity in the second quarter, but more a sales-based decline effect in the second quarter, given from the COVID-19 pandemic. Of course, taking away the aviation effect.
Thanks, Stephan.
Welcome, Andreas.
The next question comes from the line of [Flavio Schultheiss] from Credit Suisse. Please go ahead.
Yes. Hi. Thank you for taking my question. I just have one. I know you say you want to strengthen your balance sheet and also support organic growth with the proceeds. Could you imagine to distribute maybe a share of the proceeds from the potential Pigments disposal to shareholders as well, or is this completely ruled out?
We always said when we described our intention regarding the divestment of Pigments and the divestment of Masterbatch, that with the successful closing of the Masterbatch divestment, we pay out an extra dividend of CHF 3 per share. With the successful closing of the Pigments business, there is no extra dividend combined.
Thank you.
Welcome.
There are no more questions.
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 the call today, and goodbye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Clariant , and thank you for participating in the conference. You may now disconnect your lines. Goodbye.