Ladies and gentlemen, welcome to the Clariant Full Year 2019 Figures Conference Call. I'm Andre, 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. At this time, it's my pleasure to hand over to Ms. Maria Ivek, Deputy Head of Investor Relations. Please go ahead, madam.
Ladies and gentlemen, good afternoon. My name is Maria Ivek, and I welcome you to Clariant's Full Year 2019 Results Conference Call and live webcast. Joining me are Hariolf Kottmann, Executive Chairman of Clariant, and Patrick Jany, CFO of Clariant. As a reminder, this conference 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 and financial review. 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, which is a part of today's presentation. A replay of this call will be made available on the Clariant website.
Hariolf Kottmann will first go through the highlights of 2019, followed by Patrick Jany, who will then discuss the results in more detail. Hariolf will finish the presentation with some Clariant insights and our outlook going forward. Let me now hand over to Hariolf to begin the presentation.
Thank you, Maria. Ladies and gentlemen, good afternoon. 2019 was an important year for Clariant, in which we firmly progressed with the reshaping of the portfolio and also managed to show a good operating performance in a challenging environment. In a year which proved to be difficult for the industry, Clariant continued to increase sales in local currency and achieved higher underlying profitability in comparison with the previous year. Let us go through the highlights of 2019 together, starting with slide number three. Please note that all figures discussed refer to continuing operations unless specifically noted otherwise. For the full year, Clariant grew sales organically by 3% in local currency, with both higher volumes and pricing contributing to this expansion. The sales growth was driven by increases in the business areas Catalysis and Natural Resources.
Looking at profitability, the EBITDA after exceptionals was negatively impacted by the one-off CHF 231 million provision, which was already booked in the second quarter as a result of further developments in an ongoing competition law investigation by the European Commission into the ethylene purchasing market. The full year 2019 EBITDA therefore decreased significantly to CHF 461 million. From an operational performance perspective, excluding the effect of this provision, the EBITDA after exceptional items increased by 14% in CHF to CHF 692 million. The corresponding EBITDA margin advanced nicely compared to the previous year, reaching 15.7% for the full year 2019. The progression we reported in the full year was underpinned by good sales expansion of 3% in local currency in the fourth quarter. The EBITDA before exceptionals improved by a solid 5% versus a strong fourth quarter 2018 and reached a margin of 19.2%.
Also, the EBITDA after exceptionals reflected a significant 68% improvement due to both higher operating profitability and notably lower exceptional costs, which implied an EBITDA margin progression from 11%-18.5%. In the full year 2019, the net result for the total group declined to CHF 38 million, primarily due to the one-off provision. Despite the difficult economic environment, the solid performance of the continuing businesses allows the board of directors to propose an unchanged dividend of CHF 0.55 per share. I will now hand over to Patrick for the discussion of the results in more detail.
Thank you, Rolf. Ladies and gentlemen, good afternoon. Let us take a closer look at the numbers by moving on to slide number four. In the full year 2019, Clariant delivered sales of CHF 4.4 billion. Sales grew organically by 3% in local currency, driven by the Catalysis and the Natural Resources business areas. The local currency growth was achieved through 1% higher volumes and 2% price increases. In CHF, the sales figure was unchanged as the unfavorable foreign currency development negatively impacted Clariant sales growth by 3%. In the fourth quarter of 2019, sales increased by 3% in local currency as well due to higher volumes. The growth in local currency was driven by a progression in all business areas. The sales of approximately CHF 1.1 billion remained largely unchanged due to the negative foreign exchange impact of 3%.
Slide five reflects the regional sales development for both the full year as well as the fourth quarter of 2019. Almost all regions reported positive sales growth in local currency in the full year. Latin America and Asia-Pacific were the main drivers of growth, achieving 13% and 8% respectively. Asia-Pacific improved in strength as the year progressed, mainly due to the solid business in China, which finished the year at the previous year's level, thanks to a very strong fourth quarter. Europe, on the other hand, had a good start into 2019, but ultimately only managed to grow by 1% as the performance deteriorated over the course of the year. Only North America reported a contraction of 5%, largely impacted by one-off effects in Care Chemicals and subdued growth in the other business areas.
In the fourth quarter of 2019, Latin America reported strong growth of 22%, and Asia improved by 20%. The expansion in Asia was driven by a robust improvement in China and continued dynamic demand in India, Southeast Asia, and South Korea. In contrast, Europe further deteriorated throughout the year with a 4% contraction in the fourth quarter versus the previous year. Germany in particular was down 10%. The weakness we have seen in North America continued in the fourth quarter, this time being impacted by softness in Catalysis and stable demand in Natural Resources and Care Chemicals. Let us start reviewing the business areas figures in more detail, beginning with Care Chemicals on slide six. In Care Chemicals, full year 2019 sales growth was - 1%, nearly at previous year level, as expected.
The development in consumer care reflected good progress and increased in a mid-single digit range due to solid progression in personal care and expansion in crop solutions. Industrial application sales developed less favorably due to lower demand in all segments, including construction and lubricants, and a double-digit decline in aviation and base products. Base products remained under pressure due to continued market headwinds. In addition, as previously announced, in the second quarter, North America was hampered by a prolonged plant shutdown of a key supplier following a case of force majeure. This development negatively impacted the performance in the second and third quarter. In the fourth quarter of 2019, sales in Care Chemicals increased by 2% in local currency and decreased by 2% in CHF due to unfavorable currency fluctuations.
The sales growth was supported by small advances in both Care Chemicals and industrial applications, despite a weak de-icing business. In terms of margin for the full year 2019, the Care Chemicals EBITDA margin softened to 17.6% from 18.9% in 2018. The profitability was impacted negatively by the previously explained raw material disruptions in North America, mainly in the second quarter. Furthermore, volume reductions in industrial applications resulting from weaker demand also negatively impacted the cost coverage. In the fourth quarter of 2019, the EBITDA margin advanced to 18% from 17.7% the previous year due to sales expansion in local currency that was hampered by a less favorable product mix, notably a softer aviation business in Europe, and therefore did not meet our expectations.
In terms of the outlook, we expect to see low sales growth in 2020 in Care Chemicals due largely to the continued adverse conditions for industrial applications. We anticipate an improved profitability, positively impacted by receding one-off effects. Moving on to Catalysis on slide seven. Sales in the business area Catalysis expanded by 9% in local currency in the full year 2019. This expansion was driven by a good progression in petrochemicals and supported by a solid increase. The sales development benefited from double-digit growth in Asia and Europe, and resilient demand in North America. In the fourth quarter of 2019, Catalysis reported 5% local currency growth, exceeding the high sales reported in the previous year and surpassing expectations. This expansion is mainly attributable to continued sales growth in petrochemicals, partially due to some forward product shifts from the first quarter of 2020.
The full year 2019 EBITDA margin after exceptional items, developed as anticipated and improved to 22.9% from 21.5% in the previous year. Also, the increasing proportion of petrochemical sales contributed to the margin improvement. In the fourth quarter of 2019, the more favorable product mix towards the end of the year resulted in a significantly increased EBITDA margin to an excellent 36.1%. In terms of the outlook, we anticipate continued but slower growth in Catalysis in 2020, below the midterm 6%-9% target range, following several years of continued strong top-line expansion. With three signed licenses for Clariant's sunliquid cellulosic ethanol technology, the bioethanol business progressed well in 2019 and above our original expectations. This highlights the attractiveness of our technology.
The focus is now shifting to accompanying the plant construction at our customers in order to trigger the ramp-up of the enzyme sales activity and licensing income. As several constructions are currently delayed, including our own factory in Romania due to permitting issues, we would expect the positive impact of this activity to be noticeable in 2022 rather than 2021, as initially anticipated. Let us move on to slide eight, Natural Resources, which now also includes Additives, as you know. Natural Resources sales rose by 4% in local currency in the full year 2019 and remained unchanged in CHF due to unfavorable currency fluctuations. The oil and mining service business reported low double-digit sales growth in local currency for the full year, attributable to robust expansion in oil services and mining solutions, while refinery remained largely unchanged.
Functional minerals delivered low single-digit sales growth in local currency, driven by the purification business. The growth of the purification business for edible oils compensated for the weakness in the foundry activities, which was attributable to a subdued automotive sector. Sales in the Additives business decreased at a high single-digit rate in local currency for the full year 2019, compared to a record high 2018. The strong new business generation was unable to offset the softer demand resulting from a lackluster automotive market, as well as the continued weakness in the electrical and electronic sectors. The sales development in Natural Resources in the fourth quarter developed similarly with 4% growth in local currency. Both the oil and mining services as well as the functional minerals business contributed to the expansion. While oil and mining services advanced in the highest single-digit range, functional minerals grew at a slower pace.
The Additives business was still negatively impacted by the unchanged cautious demand in the consumer electronics market, as well as the soft automotive sector. In the full year 2019, the EBITDA margin, after exceptional items, rose to 16.3% from 14.4%. This improvement was attributable to sales growth in conjunction with a continued focus on more value-added applications in oil services, which was also supported by a more streamlined cost base. The good progress in oil and mining services more than offset the shrinkage in Additives. Also, Additives partially mitigated the negative margin impact from lower volumes due to a rapid and stringent cost control. The positive full year development was strongly supported by the fourth quarter, in which the EBITDA margin increased significantly to 18.2% from 13.3% last year, mainly due to sales expansion and the margin improvement in oil services.
Looking forward in 2020, we expect the sales growth in Natural Resources to slow down as oil growth will normalize, and Additives will still be facing a challenging environment, particularly in the first half of the year. Profitability should continue to improve. Let us continue to the discussion of the financials on slide nine. The full year 2019 continuing operations EBITDA after exceptional items was negatively impacted, as you know, by the one-off provisions of CHF 231 million as a result of the further developments in an ongoing competition law investigations by the European Commission into the ethylene purchasing market. Hence, the EBITDA decreased significantly to CHF 461 million compared to CHF 607 million in 2018. In terms of the underlying operational performance, and excluding therefore the effect of this provision, the continuing operations EBITDA rose by 14% to CHF 692 million.
This corresponds to a margin increase to 15.7% versus 13.8% in the previous year. The profitability improvement was attributable to a more favorable product mix in Catalysis and an intensified focus on more value-added applications, Natural Resources, together with a more streamlined cost base. The strong underlying operational EBITDA performance reflects the resilience of our portfolio despite the weak economic environment. This picture was actually even more pronounced in the fourth quarter, as seen on slide 10. The EBITDA increased by 68% in CHF to CHF 208 million on the back of both higher operating profitability and notably lower exceptional costs. The corresponding EBITDA margin advanced to 18.5% from 11% due to an excellent profitability in Catalysis and also margin improvements in Natural Resources and Care Chemicals. The net result in operating cash flow for the total group can be seen on slide 11.
The full year 2019 net result declined to CHF 38 million. Net result, excluding the one-off provision, was CHF 269 million. The decrease is largely attributable to the one-off provision we mentioned, but it is also due to the weaker operational performance in the discontinued operations by CHF 45 million. The net exceptional cost of CHF 30 million on the discontinued operations, mainly driven by costs related to the carve-outs, higher income tax of CHF 31 million, and a negative FX impact of CHF 25 million. The operating cash flow for the group declined to CHF 509 million from CHF 530 million in 2018. This development is primarily attributable to a lower total group net result of CHF 87 million, as well as increased working capital of CHF 91 million, given lower payables and increased receivables in the fourth quarter.
I will now focus on Clariant's dividend development since 2014 and the proposed dividend in 2020 on slide 12. Although we operated in a difficult economic environment and had a lower net result in 2019, we nevertheless achieved a solid operational performance. This resilience allows the Board of Directors to propose an unchanged dividend of CHF 0.55 per share to the annual general meeting to be held on the 30th of March 2020. This distribution is proposed to be made from a capital decrease by way of a par value reduction with an expected pay date in June 2020. Clariant has increased its dividend by approximately 7% per year since 2014. This year's distribution is in addition to the proposal of an extraordinary cash distribution of CHF 3 per share linked to the completion of the divestment of Masterbatches, as announced on the 19th of December 2019.
Going forward, Clariant's dividend policy remains unchanged. That is, to increase or at least maintain the absolute dividend in CHF in correspondence with the net result evolution. With that, I hand back to Hariolf.
Thank you, Patrick. Ladies and gentlemen, after going through the full year 2019 financials, I would like to showcase in a bit more detail some of our innovations and our focus on sustainability. As you can see on slide 14, our sustainable Exolit OP Terra halogen-free flame retardant series is a compelling example of a product which provides superior customer value and at the same time mitigates environmental impacts. In general, flame retardants are added to plastics to meet the requirements of various flammability standards. Exolit OP halogen-free flame retardants provide tailor-made fire protection for thermoplastics in ignition-prone environments. Clariant's Exolit grades show less toxic smoke development compared to conventional halogenated solutions and often have a smaller impact on mechanical properties due to their relatively low dosage. Our Exolit OP Terra products are the sustainable equivalents to regular Exolit OP products, ensuring the same quality and performance levels.
They are based on certified renewable feedstocks, such as waste cooking oil or plant-based oils. This helps reduce the consumption of fossil resources and fossil-based carbon emissions into the atmosphere while reducing the dependency on crude oil as well. In addition, Exolit OP Terra products are the first flame retardants with stable protection characteristics even after multiple recycling processes. Furthermore, the production of Exolit OP Terra is in itself environmentally friendly, as the entire production site runs on 100% renewable energy. Our high-performance Additives series, Exolit OP Terra, is Clariant EcoTain certified. Products that offer outstanding sustainability advantages are excelled with our Clariant EcoTain label and have undergone a systematic in-depth screening process using 36 criteria in all three sustainability dimensions: social, environmental, and economic. EcoTain products significantly exceed sustainability market standards, have best-in-class performance, and contribute overall to the sustainability efforts of the company and our customers.
Exolit OP Terra is also a very good example of a product which promotes the reduction of the consumption of fossil resources. This supports the creation of a value chain cycle that utilizes viable and sustainable renewable sources and helps to combat the climate change. Let us move to slide 16 so that I can explain to you what we are undertaking to further foster Clariant's progression. Clariant's 2019 results, particularly in the fourth quarter, reflect the resilience of our three core business areas and also in comparison to our peers in the current challenging economic environment. In 2019, we announced our intention to sell both our Masterbatches and Pigments businesses. On the 31st of October, 2019, Clariant announced the closing of the sale of our Healthcare Packaging business to Arsenal Capital Partners.
On the 19th of December 2019, we announced the agreement to sell our Masterbatches business for $1.56 billion to PolyOne. This transaction is expected to be closed by the third quarter of 2020. In addition, Clariant expects the divestment of the Pigments business to be concluded by end 2020. Clariant will further increase sales, profitability, and grow cash through our focus on innovation and sustainability. We expect to have more limited growth opportunities in 2020, given the current sluggish economic environment and continued adverse foreign exchange conditions. We have therefore initiated additional selective efficiency measures within each of the business areas to support the margin improvement. These measures will lead to a workforce reduction of approximately 500 to 600 individuals over the next two years and imply a cost base reduction of approximately CHF 50 million.
We intend to improve performance despite the difficult economic environment by delivering on innovation and focusing on sustainability and through the fast implementation of operational improvement initiatives. With that, I turn the call back over to Maria.
Thank you, Hariolf. Thank you, Patrick, for taking us through the achievements and progression achieved in 2019, as well as for providing us with some exciting insights as to Clariant's way forward. Before we go to the Q&A session, we would like to 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.
The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Good afternoon, Maria. Good afternoon, gentlemen. Two questions, please. First of all, in the press conference this morning, you seem to have pointed out your openness to future M&A. Can you please elucidate this a bit. Second question, can you please make some comments on Clariant's insight into China? What are your people on the ground saying about supply chains in light of the coronavirus, and how do you see Chinese demand for your product portfolio at present? Thank you.
Yeah. We received some questions this morning concerning the future strategy of Clariant and regarding M&A activities. We just mentioned that currently we do have a clear objective, 2021. We have a clear strategy to get there. We call this the base case. That means shrinking the company. We combine this with efficiency measures in all business areas to improve the profitability of our business. We have started a so-called rightsizing project, which we will report maybe mid-year in order to rightsize the company with respect to the new size. This is our base case. Nevertheless, this was our response this morning, and that's what we usually respond to that. Clariant still have all strategic options available. That does not mean that we do have several transformational acquisitions already on the priority list or several bolt-on acquisitions or this or that.
I just want to remind the media and press representatives this morning that going into 2021 from today's point of view, this is not the end of the world. This is just the base options and all strategic options are available to Clariant. That was all what we said.
Referring to your second question on China. Yeah, we certainly have seen some impact. Our own factories have been stopped for a few weeks. We intend to restart the factories, most of them, next week, which means that after a very strong Q4 for China, we are currently seeing obviously a lower level of sales in January and probably February, which means that we should not expect too much growth in the first quarter. Obviously, it is unknown to us and I guess to everybody how long the situation will continue in China and how fast the recovery is. Our current assumption is that during the year, we'll be offsetting what has been lost now in the first few weeks of the year. We are confident to do so as the year progresses.
Thank you very much.
The next question comes from the line of Patrick Rafaisz from UBS. Please go ahead.
Thank you for taking my two questions. The first one would be on the EBITDA bridge for Care Chemicals, or at least indicatively, can you quantify a bit what the delta was for your aviation business? I also recall from the third quarter call, where you had some inventory valuations that this should positively impact EBITDA in Q4. Did that happen, and if so, how big was it? The second question would be around the efficiency program. You mentioned CHF 50 million. Can you add a bit more color around the timing of this and the phasing, and will there be one-off costs related to this program? Thanks.
Yeah, sure. Well, thanks for your question, Patrick. Going for the first one, we see the EBITDA slightly progress in terms of margin in Care Chemicals, which hadn't happened since Q1 after the difficult Q2 and Q3 that this business area has faced in 2019. We saw an improvement in the general business conditions, particularly as well in the U.S., in the fourth quarter. Nevertheless, I think raw material still came down, we still had a bit of inventory devaluation effect in that quarter. The full reversal did not come to our P&L in Q4. We have to wait for the second part to come in Q1.
I guess the most important element here, which did not allow for further margin expansion, and that's why we mentioned in the call that we were a bit disappointed as well, is that the aviation business did not really materialize in the Q4. Therefore, we had a strong weakness here in Europe in the fourth quarter, given the warm weather, which, compared to the previous year, opened a hole when you look at the comparison year-on-year. We nevertheless managed to increase the margin, shows that there was some positive impact there, but it could and should have been a bit better. Looking at the efficiency measures in the different business units, we guide for savings of CHF 50 million.
Typically, I would say you have to count that the cost of personnel measures are more or less one to one, which means I would expect here expenses and severance payments and so on to be roughly the same amount as the saving guidance of CHF 50 million, which will be probably mostly in 2020 with the remnant part in 2021. They will be split between both years, but with a more heavy impact in 2020.
2020 and 2021. Overall, I would not expect the exceptional line to be above 1% for the year. If you are going a bit more in detail to your question, if you want to model that, I would expect that for the different business units, and actually particularly for Catalysis and Natural Resources, we should be close to the 1% of exceptional items and less of an impact in Care Chemicals.
Okay. Thank you for that.
Welcome.
The next question comes from the line of Jaideep Pandya from Millennium. Please go ahead.
Thank you. Question on Catalysis to start with. Obviously a good Q4. If I just look through your product pipeline, there's a lot of PDH plants coming in 2020, 2021, and then I guess the refill cycle from the U.S. Catalysis should also start to kick in. Just want to understand, how do you see 2020, 2021 with regards to product mix and growth in Catalysis? Just on sunliquid, you've three licenses now. Again, what should we expect for 2020, 2021, within this business? What is your scope for more collaboration, more licenses here as well? Thank you. Finally, Mr. Jany, goodbye and very sad that you're leaving, obviously wish you very well for Maersk and good luck to Stephan.
Thank you very much, Jaideep. It's always a pleasure. I think we'll see each other in a few days time. Looking forward. All right. Coming back to the questions. Looking at Catalysis, indeed, a very good quarter, which has been exactly as we commented previously during the year, as you all know. Ramp-up of petrochemicals during the year, increasing margin was totally there. A bit of too much sales almost. They were above expectations, in terms of pulling forward a couple of petrochemical contracts. We would expect this trend to continue into 2021 for the whole petrochemical offering. The question was referring more to PDH. I think for PDH, we probably will see a very strong demand with a further horizon looking 2021 - 2025.
The plans coming on stream are actually quite impressive and therefore we would expect to be on that particular Catalysis on a very good growth pattern for the next few years. We are also thinking of expanding capacity on that specific line. When you look at sunliquid, as we mentioned, we had had a good success in 2019, including first sales of the licenses to China. Very happy on the licensing part of the business. We are obviously continuing to be in negotiations and discussions with a lot of partners as the deadline for the EU regulation, for instance, has been pushed back from 2021 to 2022. There's a certain time now also as well, but we would nevertheless expect that we continue to be successful in licensing in those years.
As far as the P&L impact is concerned, we guided now in the call, this delay in the regulatory aspect of the EU regulation plus construction as well delays, will probably push the real big impact on the P&L from a 2021 aspect to 2022. We'll see some positive impact in 2021, we'll come back to that during the year to guide you better. The real strong impact of the CHF 100 million with 40% margin, which you'll recall in terms of guidance, is more 2022 event.
Okay. Just sorry if I may ask just one quick follow-up. On the SABIC deal on plastics, just to reconfirm, this is still off the table, Mr. Kottmann?
Yeah. As we said already in July, it is off the table.
Thank you.
The next question comes from the line of Andreas Heine from MainFirst. Please go ahead.
Yeah, only two small ones. Could you give some insight how the aviation business was since the beginning of this year? It used to be the heavyweight of profits in the first quarter, and according to what I see, it is a pretty warm winter. Maybe on the cash flow, is it possible to give some indication how the cash flow was split between the continuing and the discontinuing business on operating cash flow and free cash flow, please?
Andreas, referring to your weather observations, I can only confirm that indeed the beginning of the year was pretty warm, particularly in Europe. Therefore, without getting on precise numbers, but up to today, I think the aviation business is lower than previous year. Which speaks, if you combine that with the China topic I was mentioning before, that Q1 will not be a tremendous growth element, but we would expect to catch up in Q2 and then have a decent evolution of the year. If you look on the cash flow, yeah, it's always difficult to guide. As you know, the cash flow is just from a pure accounting point of view on a total company basis. If you look at the cash conversion and the operating cash of the businesses, they have been very positively surprised or confirmed in the cash generation of Catalysis.
Let's see the excellent cash flow conversion, oil and mining as well, and Care Chemicals certainly has some way to go just because of the EBITDA, because of the working capital in 2020. If you look at it, looking forward, I would expect increasing profitability and in cash flow generation from Care Chemicals being the main element of progression actually for the group, in 2020.
Maybe allow me one more question? The special dividend, is that paid exactly after the completion or with the normal dividend, in 2021, so full 2020, in 2021?
No, correct. Actually, it's a good question. The special dividend of CHF 3 will be paid very soon after the receipt of the proceeds of the Masterbatches sales, where we are likely using and recommending the general assembly to use the capital contribution reserves, so ensuring a swift payment after receipt of funds. For the normal dividend, this is why we switched this year, we use a par value reduction, which is a more lengthy procedure. That allows us, and therefore normal dividend will be paid in June, as I mentioned in the speech. The advantage is that for the special dividend, we'll be able to use everything from the capital reserves and therefore we have a swift payment here in whenever the closing is, I would say Q3 2020, following our current expectation of antitrust approvals.
Thanks.
Right.
There are no more questions at this time.
Ladies and gentlemen, this concludes today's conference call. The investor relations team is still available for any further questions you might have. Once again, thank you for joining the call and goodbye.
Thank you.
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.