Earnings Call: Q2 2019

Jul 25, 2019

Ladies and gentlemen, welcome to the Clarion First Half Year twenty nineteen Results Conference Call. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ms. Anja Pomren, Head of Group Investor Relations. Please go ahead, madam. Thank you. Ladies and gentlemen, good afternoon. My name is Anja Pomrin, and I welcome you to Clarion's half year and second quarter 2019 results conference call and live webcast. Joining me today are Patrick Jarnu, the CFO of Clariant and Harald Gottman, the Executive Chairman of Clariant. The slides for today's presentation can be found on our website along with our media release. And I would like to remind the participants and listeners that the presentation does include forward looking statements, which are subject to risks and uncertainties. The disclaimer can be found on Slide 2 in today's presentation, and you are encouraged to refer to it. The replay of the call will be available on the client website for 30 days. Patrick will guide you now through the results for the first half of twenty nineteen, and Harrison will provide details on the strategic direction that Esselstent is undertaking towards a more focused high value product portfolio. With that, I would like to hand over to Patrick for the half year results. Thank you, Anil. Ladies and gentlemen, good afternoon. Today, we announced a number of news. We updated you on the planned transaction with SABIC, announced a focused portfolio strategy and communicated our half year results. Let me start with a planned combination with SABIC in the area of high performance polymers. Due to the current market conditions and after thorough due diligence, we have jointly decided with SABIC to temporarily suspend the plant transaction. To put it plain and simple, it is mainly a valuation topic there, where under the current market conditions, we could not bridge the gap between the valuation a seller is expecting to receive and the consideration a buyer is willing to pay. It is the logical consequence of a disciplined acquisition process and the right decision to safeguard the best interest of our shareholders. Although we are open to renewed talks as the situation evolves, It was for now the right decision to take, and I'm sure that you expect no less from us as there was concern in the market that multiples were high and clients would potentially overpay for the specialty business of SARB. As a result for the due diligence of the last few months, we also realized the synergies of combining our high value Masterbatch business with the HPP building of SABIC were less than anticipated. We are therefore taking the decision to proceed with the divestment of the whole MasterDutch business unit in order to maximize value creation. Alongside the already announced divestment process for Figma and the already signed divestment of Healthcare Packaging, we will generate significant value with divestments and use the proceeds to enhance growth and return cash to shareholders. This clarity on the portfolio allows us to now focus on our high performing core areas of Care Chemicals, Catalysis and Natural Resources. The organic progression part of those businesses, as announced in September 2018, is the other major driver of value creation and is validated by a solid performance in the first half of twenty nineteen. From a reporting perspective, these core businesses are now classified as continued operations. And the Pigments and Master Patch activities are discontinued operations. Additives, the third activity previously reported on the Plastic and Coatings, is a high performing business and has now been included in the business area, Natural Resources. Clients' new reporting structure is outlined on Slide 3. With the new portfolio and reporting structure, clients will benefit from a stronger focus on differentiated customer specific products and offerings with attractive growth prospects and above average value creation potential as can be seen already in the first half twenty nineteen. Let us now move to the financial summary on Slide 4. Please note that figures discussed refer to continuing operations under specifically noted otherwise. In the first half twenty nineteen, Clion grew sales organically by 4% in local currency. Both higher volumes and pricing contributed to this expansion. The sales growth was mainly driven by the business area Catalysis and Natural Resources. The EBITDA after exceptional items was negatively impacted by the CHF 231 1,000,000 position as a result of further development in an ongoing competition law investigation by the European Commission into the ethylene purchasing market. The EBITDA, therefore, decreased significantly to CHF102 1,000,000. From an operational performance perspective, excluding the effect of this one off provision, EBITDA after exceptional items was CHF 333,000,000, down 2% year on year with a corresponding margin of 14.9%. The net results for the total group, including this discontinued operation, was minus CHF 101,000,000 versus CHF 211,000,000 in the first half year twenty eighteen. Again, the net result was impacted by the one off provision, as already mentioned, as well as by onetime project costs related to the carve out of the discontinued operations. Looking at our operating cash flow for the total group, this rose by 11% to CHF113 1,000,000. Let us move to Slide number 5 to look at the sales development. In the first half, brand delivered sales of CHF2.2 billion. Sales grew organically by 4%, mainly driven by Catalysis and Natural Resources. Higher prices positively impacted sales by approximately 3%, while volumes contributed 1% to the expansion. In the Q2 2019, sales grew by 3% in local currency, driven by 3% higher prices. We maintained volumes at a stable level despite production interruptions in Clear Chemical. Sales were around CHF1.1 billion with a negative foreign exchange impact of 4%. Similar to the development in the first half, the main growth contributors were Catalysis and Natural Resources. On Slide 6, you see the regional sales development for both the first half as well as the second quarter of the current year. In the first half, almost all regions contributed to the sales growth in local currency. Sales in Latin America grew the strongest by 10%, followed by the Middle East and Africa with 8%. In Asia and Europe, the sales development was in mid single digits at 5% 4%, respectively. However, sales growth in China was down 9%. North America reported a slight contraction of 3% due to a case of force majeure of a key supplier in Q2. And third, in Q1, sales growth was again strongest in the Middle East and Africa and Latin America. Both regions grew in the mid teens, followed by Asia, which expanded by 8%. In contrast to the Q1, sales in China stabilized in Q2. On the other hand, Europe was softer, while sales in North America were down 6% as a result of the mentioned force majeure case. This matter, however, has been resolved in the meantime. Reviewing the figures of the business areas in more detail, let us start with Care Chemicals on Slide 7. First half twenty nineteen sales remained unchanged in local currency year on year. Consumer Care sales increased at a good mid single digit range with positive contributions from all three business lines: Personal Care, Home Care and Crop Solutions in particular. Personal Care delivered a good mid single growth rate, while the sales expansion in crop was in the double digits. Industrial Applications sales, however, were softer. This was related in part to the weaker economic environment, which affected industrial lubricants as well as a challenging comparison base in the aviation business. Excluding Aviation, sales in Care Chemicals advanced by around 2% in local currency. On a regional level, in Europe and Asia, Care Chemical sales grew in the mid single digits in local currency, while Latin America was almost flat. North America, on the other hand, was hampered by the prolonged car shutdown of a key supply. Sales in the Q2 of 2019 decreased by 3% in local currency and by 8% in Swiss francs due to the above mentioned force majeure. Excluding this temporary impact, the sales development in Care Chemicals was in a solid mid single digit range, supported by continuous expansion in Consumer Care, in particular, Crop Protection, which grew at a mid teen range. The EBITDA margin in the first half softened to 17.6% from 18.2% year on year as a result of the temporary negative impact from the raw material disruptions in North America, which mainly had an impact in the Q2. Consequently, in the Q2, the EBITDA margin declined to 15.1% from 18.3%. Moving on to Catalysis on Slide 8. Organic sales in the business area Catalysis expanded by 8% to local currency in the first half of twenty nineteen. This was mainly driven by the robust syngas demand. On an original level, the sales progression predominantly benefited from a good demand in Asia, Europe and North America, while sales remained comparatively volatile in the Middle East and Africa. In the Q2 of 2019, sales climbed by an excellent 12% in local currency and by 11% in Swiss francs, which is very encouraging given the already robust sales development in the Q1. The half year 2019 EBITDA margin decreased from 31.5% to 19.4%, primarily due to the lower profitability in the Q2, which was attributable to temporary capacity outages in Asia as well as the less favorable product mix. Against a strong comparison base, the Q2 EBITDA margin after exceptional items decreased to 17.5%, primarily due to a fire at the manufacturing facility and a higher pass through precious metal price increase. As seen in previous years, margins in Catalysis can fluctuate significantly over the quarters. However, we can confirm that the fundamentals of 4 Catalysis remain positive for the current year, given our current order pipeline. Let us move on to Slide 9, Natural Resources, which now also includes additives. First half twenty nineteen sales rose by 6% in local currency. The Oil and Mining Services business delivered excellent mid teen sales growth with positive contribution from all three business lines: Oil Services, Mining Solutions and Refinery. Sales in Functional Minerals rose at a solid single digit rate in local currency with a continuing strong purification business, but some softness in the foundry business due to the weak automotive environment. Additive sales decreased at a single digit rate year on year against a very strong comparison base. The softer consumer electronics market, paired with a subdued automotive sector, was reflected by more cautious demand. In the Q2, sales in natural resources climbed by 5% in local currency. Similar to the development in the Q1, Oil and Mining Services sales continued to expand in the mid teens year on year, which is a satisfactory development. Functional Minerals also contributed to the business areas growth, while sales in Additives were weaker. Additives not only faced a record high comparison day, but also encountered challenging business dynamics, primarily within the automotive, electric and electronics market, which are in the midst of a changing technological cycle. In the first half year twenty nineteen, the EBITDA margin in Natural Resources rose to 15.6% from 15.4% in the previous year. This was the result of stronger top line growth in tandem with a more optimized cost base in the oil and mining business. This remarkable progression was able to offset the weaker development in Antigen. In the Q2, the EBITDA margin increased significantly to 15.7% from 14.1% last year, mainly due to the focus on value added projects within the oil shale and electricity, but also supported by an uplift in the mining business. Hence, as anticipated, the first half of the year not only reflected the improvement in the margin versus the first half of the previous year despite the seasonality of the refinery business, but also an improvement versus the second half of twenty eighteen. Let us take a look at the EBITDA development of exceptional items on Slide 10. The continuing operations EBITDA after exceptional items was negatively impacted by the one off provision of €231,000,000 as a result of the further developments in the outgoing competition investigation by the European Commission. Therefore, the EBITDA decreased significantly to CHF102 1,000,000 compared to CHF341 1,000,000 in the previous year. In terms of operational performance and excluding the effect of this provision, the continuing operations EBITDA after exceptional items only slightly decreased by 2% to CHF 333,000,000 corresponding to a margin of 14.9%. The profitability in Natural Resources improved as a result of the stronger top line coupled with a more optimized cost base in Oil and Mining Services. This, however, could not offset the temporary negative influences in Care Chemicals and Catalysis in the Q2. Overall, the EBITDA operational performance shows the resilience of our portfolio. Similarly, Slide 11 reflects the same evolution in the Q2 of 2019 with EBITDA from continuing operations decreasing significantly to minus CHF 82,000,000 versus CHF 160,000,000 in the previous year due to the one off provision of CHF231 1,000,000 for the already mentioned ongoing competition or investigation. Consequently, excluding the effect of this provision, the EBITDA from continuing operations decreased to CHF149 1,000,000, corresponding to a margin of 14%. In terms of operational performance and excluding the effect of this provision, Profitability advanced significantly in Natural Resources due to the focus on value added projects within the oil service activity. This, however, could not offset the temporarily softer margins in Care Chemicals and Catalysis due to the one off capacity outages and idle facility cost initiatives. All those negative factors were limited to the Q2. On Slide 12, we can see the development of our net result as well as the operating cash flow. First half twenty nineteen net result for the total group, including discontinued operations, was minus CHF101 1,000,000 versus CHF 411 1,000,000 in the first half twenty eighteen. This result in turn was negatively impacted by the one off provision and by project costs related to the carve out of the discontinued operation. The net result, excluding the one off provision, was CHF 130,000,000. Operating cash flow for the total group rose by 11% to CHF 130,000,000 from CHF102,000,000 in the previous year, driven by favorable development in inventories as well as lower income tax paid. With this, I hand over to Haynes. Yes, ladies and gentlemen, good afternoon. At the end, a few remarks from my side. Please turn to Slide 14. As part of the portfolio upgrade announced in September 2018, Klavian will continue with the divestment of the Pigments business and has decided to also divest the entire Masterbatch business, including both standard and high value Masterbatches. These divestments are expected to be concluded unchanged by end of 2020. The proceeds from the divestments will be used firstly, to invest in innovations and technological applications within the core business areas secondly, to strengthen Glarian's balance sheet and thirdly, to return capital to shareholders. With the new portfolio and reporting structure, Glariant will benefit from a stronger focus on differentiated customer specific products and offerings with attractive growth prospects and average value above average value potential. With this more streamlined portfolio, Klarent will be able to intensify the focus on customer experience and fast, reliable customer fulfillment as well as on the development of innovative and sustainable products and applications. This will generate a competitive advantage for customers and hence enable Klaviyant to realize above market growth, higher profitability and stronger cash generation. This brings me to the outlook on Slide 15. Klarion is a focused and innovative specialty chemical company with the aim of making our customers more successful. Despite the current challenging environment, Clariant expects its continuing businesses to achieve above market growth, higher profitability and stronger cash generation based on our focus, high value specialty portfolio. With that, I turn the call back to Anja. Thanks a lot. Thank you, Hariel. Thank you, Patrick, for taking us through the presentation and for all the elaborations. I now ask the operator to open the line for questions. We will now begin the question and answer The first question comes from Peter Clark, Societe Generale. Please go ahead, sir. Yes. Good afternoon, everyone. Thank you for taking the questions. I've got 3 linked ones. You mentioned that it was a difference over valuation on the Stabic JV. Previously, you gave the impression that you were pretty close to having valuations similar in terms of the multiples I think you're putting on the businesses. Just wondering what went wrong in that? Was it something to do with the collapsing performance perhaps of the Sabik business with the auto electronic focus and they wanted the same absolute cash, I don't know. 2nd question linked to that, you talk about temporarily suspended with the talks. I mean from the first point, it seems quite difficult to reconcile. So if you just have a comment about what you mean by temporary. And then lastly, within 18 months ago, you were saying that the business required the Plastics and Coatings for the cash flow, and it wasn't strong enough on its own really to lose that cash flow. Obviously, now you're pretty much doing that and your cash flow is less. So just wondering how you reconcile that one as well. Thank you. Thank you, Peter. Indeed, I think from starting with your question on the valuation, that we announced the GV structure back in September 2018 and was based on assumption on both sides of the businesses based on the summer 2018 performance. I think in the meantime, with the diligence and the market conditions as well evolving, there has been a different evolution of the business as expected and therefore, a divergence of views on valuation that happened. And that is the main reason really of not continuing the project right now. So just see that it's best for both companies not to do the deal right now. When we see it right now in this temporary suspension is certainly reflecting the fact that we need just few topics to be cleared and this topic of conditions, market conditions and performance to resolve. And that is a topic we should continue to address between both companies and we'll see whether the future brings a narrowing of positions or not. But it's something we cannot guide now from a time perspective. We will take a pause in the project, and we let things evolve consequently. And that leads us to the fact that we just continue on our strategy to focus on Care Chemicals, Catalysts and Natural Resources, which have actually increased the cash performance. I think Classe and Coatings was the main provider of the cash flow in the last 2 years, which is why we also decided at the time back in 2015 to keep it in the 1st place. I think this cash generation of Plastics and Coatings has certainly peaked. They are not just, I would say, alone in the world and the economic environment we just mentioned is also applicable to those activities. I think the cash generation there is flattening out, while actually the cash generation of Care Chemicals Catalysis and Natural Resources now is actually picking up. Back in 2016, 'seventeen, we had more issues with the catalysis and followed by the weakness in the oil market at the time. Now all those activities are coming back. Catalysts are doing very well. The oil business is performing better and better quarter by quarter as we reported. And Care is fairly solid. So from that point of view, we do have a stronger cash flow profile of the continuing business looking forward and at the decreasing contribution of the Plastics and Coating business, which leads us to the fact that now is a good moment to actually continue to implement the strategy of the EUP Rise in 20 Thank you, Patrick. The next question comes from Andreas Heine, MainFirst. Please go ahead, sir. Yes. I would like also to come back to these temporary suspension of steel. Looking in how you are intending to structure the business that you put your specialty master batches and additives into combining with the ceramic business into a joint venture And seeing now that you sell the total Masterpieces and elaborated that the synergies are not that great, would that then mean that you would look to acquire the total business? I would think that the balance sheet is not strong enough. Or if you go to continue this negotiation, it would end up in being a share deal. That's the first question. And then some operational on Care Chemicals. You were referring to having an issue with the supply in the U. S. You heard from competitors that they in general had quite a tough and weak business in North America. Could you outline whether you have seen this for your Care Chemical business? My understanding is from your comments that you should assume in, let's say, our models that the margin swings back to what we have seen in recent quarters as of Q3. Is that the right understanding on Care Chemicals? And on OMS, you do not report separately this business, but referring to what you said, is that then that you achieved what you were trying to do that every half year you see an improvement. So the second half twenty eighteen was better than the first half of twenty eighteen and now the first half of twenty nineteen was also better than the second half of twenty eighteen. These are my questions. Okay. Thanks, Andreas. Yes, indeed, I mean, you're exactly right, in September 2018, we specified we would look at the joint venture structure by combining the high performance Polymer business of SABIC with our additives business and higher value masterbatch business. Now when we did the due diligence and we looked at the actual overlap of activity, we realized that the synergy would probably be less than we thought, which therefore independently now from the temporary suspension of that project leads us to the fact to exclude it from this construction and to actually pursue the sale of the whole Masterbatch activity because we just believe we'll have much higher value creation by divesting the whole activity on Master Patch than keeping one part and sending only part the other part, right? So that is, I think, a very clear sentiment, which comes from the lower synergy than expected and from the higher appreciation of potential interest of the total Masterbatches activities and pieces of it. Now therefore, when we look at potentially continuing the discussion with SABIC, we indeed only talk about bringing together the high performance polymer activity of SABIC with our Additives business. As you might remember, and we have consistency said during the project phase, but ultimately, both parties agreed that Clariant should be the 1% owner of that business. So I think that's something certainly which I would expect should we continue and renew conversations that is still the framework. And therefore, we would seek to combine and have control of the HPP business of SABIC and Additives together. On the question on the valuation and whether it will push our balance sheet or force a share component, that precisely depends on valuation. And that's you are back to one, which is why we basically have decided to temporarily suspend the discussion. However, I would highlight that the disposals we are now doing with significantly strengthened our balance sheet and that we probably would expect to be debt free at one point in time, which always gives you more financing flexibility for whatever kind of expansion you might think of and also probably have enough proceeds to forecast a return of cash to shareholders. But we'll talk about this when we are more down the road. When we look at Care Chemicals' performance, indeed, the performance was brought down by the weakness in the U. S, which was given or provoked by the force majeure we had. If you look at the Q2 margin decrease in Chemicals from 'eighteen, or a little bit more than 18% to 15% in Q2. Twothree of this margin deterioration were caused by the force majeure in the U. S. So that was absolutely the main driver. This has been resolved. And we see our business in the U. S. Being quite nice, particularly in the area of consumer care, so talking about personal care and crop in particular, excellent development in the U. S. So from that point of view, I don't think it's, in our case at least, not the weakness of the U. S. Per se, but it was just frankly because during 8 of the 12 weeks, our plan there did not work. It is now running again, and therefore, we'd expect Q3 to return back to a normal growth pattern, more normal margin pattern. So at least for twothree of the margin difference that was excluded in the force majeure. So there was some of other different factors explaining the difference, but I would not expect them to be too significant going forward. So I would expect a return to decent margins for Care Chemicals overall in Q3, Q4 looking forward. So just unfortunate simulation of events in Care Chemicals. If you look at Q1, it was aviation. If it's Q2, it was its force majeure, which we highlighted, I think, by the end of Q1. But it turned out to be probably double as long as we thought at the beginning. And therefore, the impact was higher than we thought. But those cases are now down. So if nothing happens further for that business, we should be returned to better retaliating patterns looking forward in Q3, Q4. Looking at the evolution of Natural Resources, very solid development on the whole oil and mining business. We have an excellent business development in mining, which we don't often highlight or not highlight often enough. And the oil business is back to the oil business is growing nicely. Overall, oil and mining is growing by midteens quarter after quarter. Utility is ramping up. As you rightly mentioned, we guide on a half year basis. There's always rather comparable photogenics in this comparison, and we have achieved an increased margin compared to the second half of twenty eighteen and also so both sequentially as versus previous year. And we would expect this evolution to continue when we look at natural resources in the old configuration without additives. The next question comes from Nicola Tang, Exane BNP Paribas. Please go ahead, sir. Hello. It's Nicola Tang from Exane BNP Paribas. I just wanted to follow-up actually with the original question from Peter Kark at the beginning. One of the reasons for not divesting P and C in the first place was not just about cash flow, but also about orphan costs. And I was wondering with moving Masterbatches, the whole of Masterbatches to discontinued whether we should expect big orphan costs? And then the second question was on this provision that you've taken for the European Commission case. I was wondering, I appreciate there may not be a lot you can say, but why you decided to take the provision now given the case was raised, I think, 2 years ago? Thank you. So looking at the rent cost, it was indeed always a topic, why we always highlighted that we wanted to acquire before we would sell business a bit like we did at the time it's achieving and after the course of textile, leather and paper. That was the intent clearly as well. Now with the discussion with SABIC, there are different reasons we cannot do it right now. But I think it's not a reason not to continue in the right strategic path of focusing on the main value add areas. And therefore, we continue with the endeavor to divest pigments and master brushes. As you know, we already sold quite successfully the Healthcare Patchings and Packaging business earlier this week. And the question of revenue and cost is a question that if you have more time, you can tackle them. So having prepared for that in the last few years, as you remember, we have announced this back in 2016, so we have a little bit of time to prepare the structure. We are now carving out both businesses. So on top of segments, which I think we talked about the carve out back in Q1, we are now doing the same for Masterbatches, which allows you to have a clarity on the cost and allocate people and resources to those businesses and have them as well leave the company with the business itself because we work for this business. And if you look at the actual time of transitory service agreements, we count on having roughly 2 years through 2020, 2021 to have an adaptation of the central cost and therefore avoid any remnant cost topic because with the natural fluctuation and, as I said before, allocating the right resources to these businesses, we can indeed now minimize those costs and do not expect to have revenue costs post stringent service agreement. So closing now at 2022 horizon. Now when we look at the EU investigation, that's the case indeed, as you rightly mentioned, which we reported back in July 2017, if I'm not mistaken, on the 25th July 2017. And it's as typical in those cases, it's a very long investigation on which we cannot comment. It's still ongoing. But however, we have, in the process, received further evidence that now leads us to be able to do a quantification of these proceedings. And therefore, as we have the quantification possibility, we have to take a provision, and that's what we did to be fully transparent now by Q2. But that's really all we can say. The ongoing investigation is still there. It's ongoing, and therefore, we cannot comment further. The next question comes from Christian Ziets, Kepler Cheuvreux. Please go ahead. Yes. Good afternoon, Anja. Good afternoon, Tanja. I mean, a couple of questions, please. Where do you see cash flow developing this year, I. E, obviously, that's an extra question? 2nd of all, very changed portfolio on a pro form a basis, what was discussed in the previous questions. How will your dividend policy change? How will your dividend policy be looking ex the Plastics and Coatings activities? Thank you. So I think the cash flow evolution will be pretty similar between this year and previous year. We would expect cash flow to ramp up. As usual in the second half, I think the cash flow generation profile of the group is unchanged, roughly speaking, which means the biggest part of the cash flow comes into the second half. We do have some separation costs, which really are significant and it will be even more significant in the second half. However, we will match them with the proceeds of the disposal we've just announced. So from that point of view, the overall cash flow for the group will be would actually be quite good by the end of the year of 20 19. And if you look at the dividend policy, I would probably ultimately the decision of the Board, but I would probably see it unchanged. We will have significant proceeds and book gain through the disposals, which I would forecast for 2020 as we have guided for. And therefore, that will be only a separate topic, which we will tackle when we have quantification of those proceeds to see to which extent to return or not cash to shareholders. Okay. Many thanks, Patrick. Your next question comes from Daniel Buchra from Trubel. Please go ahead. Yes, thank you very much. Three questions from my side, please. The first one on the impact you have seen in Catalysis. I mean, here you had a very good quarter in Q2 with 12% organic growth. But nonetheless, I mean, the margins were soft. And you mentioned again that the mix was rather syngas biased and while you were indicating before that petrochemical should become more important. Could you quantify a little bit more the impact you had from these one off events and when the mix actually should change now in 2019? Then quickly an update maybe on your Romania plan for biofuels. How is that doing, the investments? And also, is the process working stably as it should be, as you guided before? And then the last one on your supply situation in the U. S. I mean, it seems that you're really highly dependent for ethylene oxide from 1 supplier. I mean, is there a way how to overcome this risk of being dependent from one supplier? Or how is the situation there? Thank you very much. Yes. Thank you for your question, Dan. So yes, looking at the Catalysis and the impact of the performance in the 1st two quarters, indeed, we had a very nice sales development, but the margin is a bit lagging when you compare it to previous year. But again, a word of caution here. As you know, quarterly margins for capital is just there for reference, but really what counts is the sum over the whole year. But if you look now at the mix in the first half, indeed, it was still very much syngas. We saw a slight pickup in petrochemicals, which we expect to be very strong in the second half of the year. So we maintain our guidance for the whole year. Petrochemicals will gain speed and be strong and will actually drive profitability. The one off effects in Q2 were that in the petrochemical side, which came up, you had some significant proportion of catalysts which use precious metal, where the prices are higher. And those ones we just passed through. So it's really margin dilutive. It doesn't really impact the profit per se, but you just have a higher inbound amount with the same margin because we only do the margin in the catalyst and on the pressure metal. So it has a pure technical dilutive effect, which I would not overdramatize. It happens, but it's all right. And the second effect was, as we shortly mentioned in our call, a capacity outage in China, specifically where we had a fire in the Malawao factories, which stopped production. So again, a bit of an unfortunate accumulation of events in Q2. But overall, looking at the order pattern that we have in catalyst, I think we can confirm our growth in the range of our typical guidance, 6% to 7%. We will have this growth by year end, and we will also have a higher margin than previous year. So from that point of view, as usual, don't be too focused on the individual quarters of Catalyst, the full year figures will be there and that will show an improvement in sales as always guided, but also an improvement in profitability. So a very solid and continued solid development in Catalysis. On your biofuels question, indeed, the process is stable and runs. We are having good success with potential interested parties because we remain being, in our view, one of the only ones who actually have a process, which is operationally working in our pilot plant. So that is actually very well progressing on that front. And I would hopefully not be surprised to have some license sales this year even before we have our plant running. On the investment itself, on the plant, I think the investment itself is doing well. We are on track in terms of costs. I think we have had some delays here and there on permits. We'll have to see how this overall affects the time and not. But from the project point of view, everything is under control. Now going to Care Chemicals and our supply in the U. S. Indeed, it's Care Chemicals, there's a high proportion of its sales being linked to ethylene, ethylene oxide. Europe being the only place where we actually do our own ethylene oxide. We are reliant on others in the other regions to provide us with that so much. And that's the pipeline topic. So you are actually dependent on one supplier. We always have emergency cases by rail, railcars in the U. S. That you just cannot handle the volumes we handle. And on the prolonged phases of the cutoff we have this time because of this unplanned event at our supply after we maintain production. So the typical contingency plans are in place that you indeed have a reliance on 1 supplier, which is something we cannot tackle in the short term. Okay, great. Thank you very much for the information. The next question comes from David Simons, JPMorgan. Please go ahead. Hi, this is Chetan Udeshi actually from JPMorgan. I had a few questions. First one, is there some sort of a fallout between the SABIC as a shareholder and Clariant post this sort of project where you guys couldn't disagree. And I'm just thinking whether there was some sort of bad feelings, which could mean that the 25% holding of SABIC could be under some sort of discussion within SABIC? That's number 1. 2nd question was why is it that you guys haven't reported the EBITDA and cash flow of discontinued operations separately? That's number 2 question. The third one was you mentioned about the pass through of pressure metal prices in Catalysis. Can you tell us how much of that pass through was a contributor to the 12% organic growth in Q3? And last question is on provision for the European Commission sort of investigation. Of course, this is probably, I assume this is an estimate that you guys have come up with. It's not a sort of an agreed number. So realistically, when are we talking in terms of any potential cash out from that provision? Yes. This is Hari Ove. Just let me make a short comment on your SABIC related questions. Please take into your consideration that yesterday in our Board meeting in the presence of the 4 SABIC representatives, we had a very open and very collegial solid discussion about the current situation concerning the project. And we came to the conclusion, which was public this morning, announced this morning, from the SABIC side as well as from the Glarian side, that we both agree to temporarily spend the discussions on the project. Therefore, from the SABIC side, there are no tensions and no frictions in our relationship. We still and this is what I said many times, especially when Ernesto Ociello came on board, We really appreciated the support of Youssef Albenyan and of Ernesto Ociello in specific when it come to came to the acquisition of the shares of Whitetail. It was a strategic investment. It is a strategic investment from the SABIC side. And we are sure, and this is what I hear and what we hear from SABIC representatives in our board as well as from the several meetings I had 1 on 1 with Mr. Josef Albenjan, the CEO of SABIC, that this solid relationship is well on track. And we now give us just the time to reflect on the current situation, to discuss a few more topics which are currently unclear related to the project, and then we will continue with the discussion on many other areas. This was always mentioned by us that the relationship and the cooperation with SABIC not only focuses on this, let me call it, acquisition or transaction of the HPB business. SABIC is a large customer of Klarion and a very important customer for us in Catalysts. We have common ideas to further develop this business. Ethylene oxide is a key raw material for SABIC, and it's a core raw material for us. Therefore, there are several discussions in this area as well as in additives as well as in other areas. Therefore, there are no signals from the other side, and there is no intention from our side to disturb this very solid relationship. Following on your other questions, particularly the second one on the reporting. Typically, when we discontinue, and that's the accounting standard, when we discontinue operations, we report on them separately because basically, under more parts of your operations, they are summed up the new onshore sales and net results. So we have sticked to that because of operational progressively sold. Healthcare packaging is already signed, and we'll leave the group by latest Q4 this year, and we will expect further dynamic development of our projects, and we'll maintain the guidance that everything will be sold by the end of 2020. So it will make too much sense now to report on those businesses and discuss the operational ups and downs of those businesses. Now when we when you to your question on the pass through of Catalysis, it's an interesting question. Let me give you a little bit, hopefully, a bit of more and more detail on that and try to give some color on the margin impact. I think if you look at the pass through of how much it is, typically, not a very big topic for us. But when it accumulates in 1 quarter, a lot of those sales and certainly it has a certain impact. That's what we always say about those 4thly views on catalysts. It's a little bit not always giving the right view, and therefore, don't get disturbed by it. Look it on a 4 quarter view and you have a very, very solid picture. If you look at the single quarter, however, to give you a bit of color, typically, I would say that probably a quarter of this margin deterioration or margin dilution, to put it like this, was driven by the raw material effect, so the precious metal effect. And the rest was several different elements, but the past, 1 biggest one of them was the capacity outage in Asia due to a fire, as we just discussed previously. So I won't be able now to guide you on a Q3 impact because it really depends on the sale of deliveries. But if you look at it from our order perspective, independently now the scheduling of the deliveries for the full year, as I mentioned and I repeat, we'll show a very nice growth in Catalyst and a margin progression for better producers. So we are very well on track on that business. Now considering the EU investigation, clearly, it's something we cannot comment now on the timing of the final decision, nor on the therefore, on the cash flow impact of it. And therefore, we'll keep you posted as we have done this quarter. As soon as we can do something, we'll talk about it. But for now, we can't comment any further. Just a quick follow-up. Are those outages now resolved in both Catalyst and Care Chemicals? Yes, absolutely. As I tried to highlight in the speech, all those one offs are basically gone. They hit us more in April May. And in June, we were mid June, we were back on track on all those operations. Okay. Very good. Thank you. Thank We have a follow-up question from Andreas Heine, MainFirst. Please go ahead. Yes, please. A couple of small ones. I think it was the first and not small. The CEO position is now open. Maybe you can give some more ideas how you will proceed or how the Board will proceed to find a new CEO. May I ask, it was said that it was for private reasons, but as it was yesterday and you mentioned that the supervisory board wasn't yesterday, I would assume that it has to do with the decision not to proceed at this time with SABIC deal. Could you put elaborate a little bit on that? And the other smaller ones, maybe an update on the polypropylene catalysis plant. Is that now operation fully operational and contributing positively to the EBITDA? And then you have reported pre special items, after special items, very detailed in this report. Will you continue to do so by segment? And last, referring to the fire on Catalysis, is the impact of the fire, is that booked reported as special items for these EUR 4,000,000? Or is it a combination of pre and after special items? Maybe you can give some more details on that one, please. Yes. Andreas, first of all, talking about Ernesto Ociello. Ernesto had this personal and private reason to ask for the possibility to leave the company at the end of July 2019. I think we have to respect his decision. And I can crystal clear assure you, it has absolutely nothing to do with the development of our negotiations in the HPP project with SABIC. The Board had a 2 day session and the personal discussion and everything related to the CEO and other personal issues were already discussed and decided and accepted 2 days ago. Therefore, we deliberately separated the message and the announcement regarding Ernesto from the announcement regarding project and our financials. The process now to find a new CEO is a standardized process. Clariant operates based on Swiss corporate governance. We do have a nomination committee with 2 representatives of SABIC and 2 representatives of Klarion. Since yesterday, we do have an independent lead director, that's Evelyn Soper. She will be a member of this nomination committee as well. And I would assume in 1 or 2 weeks from now, we start officially the process of selecting a firm just to find suitable candidates within the next, yes, assuming 3, 4, 5 months. Usually, such a surge, you can expect 3, 4 months. I can guarantee and promise that I will do my very best to do this together with the members of the nomination committees and finally with the members of the Board as soon as possible. Continuing with your other questions on the more operational topics. The polypropylene plant in Catalyst is now online. It is ramping up. I would say our goal for this year, as we communicated, is to achieve breakeven. It is our goal for the year. I think it's not yet totally there, but that's what we want to achieve this year. So we'll keep you posted on that. But we are running and the quality actually of the product is absolutely excellent. Now if we look at the reporting, indeed, we chose to, for 2019, to report both the default exceptional and the normal EBITDA, so the so called after exceptional items, just to provide you with the transparency and that you can compare things with the previous year in a simple manner. And therefore, if you order, we would continue to do that for obviously Q4 just to give you the transparency that you need to analyze our figures. And I do respect the difficulty that you have now to readjust the base of calculation as we have a contingent and discontinued concept. That is not the easiest, but it was, I think, the right thing to do to ensure already swift change internally and externally to the new portfolio and focus everyone on the new company. But it has its complexity from the numbers point of view, and therefore, we are totally open to and we will provide further transparency to help you. Now if we look at the impact of catalysts and the fire in Asia in China, it is actually not in the difference between exceptionals and before and after. And to the €4,000,000 you mentioned, the main part of this €4,000,000 charge is actually the remnant settlement of a customer complaint of a few years back. The actual impact is quite significant. It is I was mentioning before that the precious metal effect was a quarter of the margin dilution of Q2. You can probably see the vast majority of the remainder dilution is actually coming from the cost from the fire, which in principle comes from the product the interruption of production, the cost of remediation of this impact that is all booked for in Q2. That is in the before exceptional if you look at those lines. Ones. The next question comes from Herr Joffe, UBS. Please go ahead. Hi, this is Geoff Herr from UBS. Thank you for the opportunity to ask some questions. Just two very quick questions. I was just wondering when you expect to be able to give us some financial targets for the continuing business. And as you said that the JV has been temporarily suspended or the talks have, Could you give us a little bit more detail on what needs to happen for those talks to restart, please? Yes. So I think we'll obviously now work on readapting the strategic plan we communicated on September 2018 to re adapt it to the market condition and, more importantly, to our portfolio. And we'll guide you on new targets as soon as possible next quarter or later in the year. But I would say it is a very, I would say, logical evolution of our guidance that we had previously that our core businesses of Care, Catalyst and Natural Resources continue in an unchanged manner. And as if you remember, we say that half of the value creation that we highlighted for the group was coming from those businesses and the other half from the transaction. So the one half is continuing as it is. That's Care Chemicals, Catalyst Natural Resources with a bit of additional flavor because we've got additives, which has quite a nice growth times next few years. So that is certainly reinforcing, let's say, the organic growth and profitability improvement on the core portfolio. The transaction is temporarily suspended, so we cannot count it on the guidance anymore. That is true. On the other hand, we are continuing with the divestments from a fewer cash proceeds, economic profit. You'll have a different pattern because you indeed will realize some significant value add in proceeds to the divestments. And then we'll take it from there. For the talks themselves, I would say that's a topic we will take for the SABIC, so we cannot share too much. But as Harald was highlighting, there's the valuation topic we discussed at the beginning and a few other issues we need to clarify. And then we can see whether we can start discussion on a new base or not. Okay. Thank you. Ladies and gentlemen, this concludes now today's conference call. If you have any further questions, my colleagues and myself, we are available. So thank you very much for your participants today, and have a nice day, and goodbye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Corp, and thank you for participating in the conference. You may now disconnect the lines. Goodbye.