Earnings Call: Q1 2019

Apr 30, 2019

Ladies and gentlemen, good afternoon. My name is Anja Pomrehn, and I welcome you to Clarion's First Quarter 2019 Results Conference Call and Live Webcast. Joining me today is Patrik Jannie, the CFO of Clariant. As a reminder, this conference call is being recorded. At this time, all participants are in a listen only mode and there will be a Q and A session following later. The slides for today's presentation, they can be found on our website along with our media release. And I would like to remind the participants of the call that the presentation includes forward looking statements, which are subject to risks and uncertainties. Therefore, you are encouraged to refer to the disclaimer on Slide 2 of the presentation you have in front of you. The reply of this call will be available on our web site for 30 days. And with that, I'd like to hand over to Patrick to take us through the highlights of the Q1 2019 on Slide 3. Patrick? Thank you, Anja. Ladies and gentlemen, good afternoon. In the Q1 of 2019, Kallarian grew sales organically by 2% in local currency despite a slow start in plastic and coatings. The sales growth was driven by expansion in the business areas Care Chemicals, Catalysis and Natural Resources and was underpinned by higher pricing in all business areas. The newly reported absolute EBITDA after exceptional items reached CHF 236,000,000 with a corresponding margin of 13.8%. The 8% lower absolute EBITDA after exceptionals is the result of weaker profitability in Plastics and Coatings as well as higher project costs relating to clients' step change into higher value specialties announced in September 2018, which is progressing well. Despite this development, Care Chemicals and Catalysis both reported a significant positive profitability progression year on year. Natural Resources also delivered a sound profitability improvement in EBITDA quarter on quarter, in line with our expectation. Let us move on to slide number 4. In the Q1 2019, the 2% organic sales growth in local currency compared to a high comparison base was driven by an improved sales performance in most businesses as just highlighted as well as by higher pricing in all business areas. Volumes for the group decreased by 1%, largely due to the decline in plastic and coatings, which was mostly the result of the weaker than anticipated automotive and plastics markets, as well as the further economic slowdown, particularly in China. Client sales growth in Swiss francs was negatively impacted by 2% due to the unfavorable FX development, mainly due to the euro and emerging market currencies. On Slide 5, you see the regional sales development for the Q1 of the current year. Latin America delivered solid single digit growth of 6% in local currency, partly as the result of the continued improvement in oil and mining services. This robust performance was followed closely by Europe, where sales grew by 5%, driven primarily by Care Chemicals and Catalysis. Sales in the Middle East and Africa increased by 2%, while both North America and Asia Pacific reported slightly negative growth of 1%. The reason for the slight slowdown in North America was in part due to the strong aviation sales in the previous year as well as a force majeure at a key supplier. The slightly negative development in Asia is against a strong comparable base. While countries like South Korea, India and Indonesia were expanding, China was down by 18% due to the continued weaker than expected economic environment in the Q1. However, we see that the underlying demand and order intake in China remains solid and we are confident that we will see a gradual improvement throughout the current year. As seen on Slide 6, the newly reported EBITDA after exceptional items of the group reached CHF 236,000,000 with a corresponding EBITDA margin of 13.8%. The 8% lower absolute EBITDA after exceptional items is the result of weaker profitability in Plastics and Coatings and higher project costs relating to client step change into higher value specialties announced in September last year. On business area level, Care Chemicals and Catalysis both reported a significant progression year on year, while Natural Resources also delivered a sound profitability improvement quarter on quarter as anticipated with a decent progression on the Oil and Mining Services business. Reviewing the figures of the business areas for the Q1 2019 in more detail, starting with Care Chemicals on Slide 7. In Care Chemicals, the Q1 2019 sales growth was at 2% in local currency year on year. The sales were unfavorably impacted by the Aviation business due to the mild weather and challenging comparison base. Excluding Aviation, Care Chemicals rose in good mid single digit terms in local currency. Growth was primarily driven by an excellent consumer care development in the high single digit range. Both Personal Care and Home Care delivered double digit sales expansion, while Crop Solutions reported a good mid single digit growth rate. Industrial Applications sales were slightly weaker due in part to the previously mentioned aviation business weakness. On a regional level, in Europe and Asia, Care Chemicals sales grew in mid single digits in local currency, while North America was hampered, as mentioned before, by the Aviation business due to unfavorably mild weather conditions in this region as well as the prolonged shutdown of a key supplier in the U. S. The shutdown of this supplier will regrettably also negatively impact sales in Care Chemicals in the Q2 by an amount estimated to be in the mid teen €1,000,000 range. Moving on to the 1st quarter 2019 Care Chemicals EBITDA margin. It rose to 19.6% from 18.2% in the same period of 2018. This positive development was primarily the result of an improved product mix as well as operating leverage. Moving on to the Catalysis on Slide 8. The organic sales expanded by 4% in local currency in the Q1 of 2019 against a record previous year. As anticipated, the robust syngas demand persisted and underpinned this positive development in Q1. This expansion is particularly strong given the previously communicated forward shifts from the Q1 of 2019 into the Q4 of 2018. On a regional level, the sales progression predominantly benefited from strong demand in Europe and North America, while sales in Latin America, the Middle East and Africa and Asia developed less favorably, mainly due to the high comparison base. The Q1 of 2019 EBITDA, after exceptional items advanced to 21.7 percent from 19.8% primarily as a reflection of a more advantageous product mix, while the sales contribution from Syngas remained resilient. On Slide 9, we see that in the Q1 of 2019, sales in Natural Resources rose by a good 10% in local currency. The Oil and Mining Services business delivered solid double digit sales growth in local currency in an improving environment with strongly higher sales in most regions, including a feasible sales progression in North America. Functional Minerals reported solid single digit growth in local currency, primarily driven by the purification business, while soft automotive market demand had an unfavorable influence on the foundry business. From a geographic perspective, the positive development in Functional Minerals was most pronounced in North America as well as the Middle East and Africa. The EBITDA margin after exceptional items in Natural Resources lessened to 12.5% from 14.3% in the same time frame of the previous year as the result of weaker demand in the more seasonal refinery business and the continuingly challenging price environment in oil services. However, the margin increased quarter on quarter as anticipated. The sequential progression was the result of a good margin improvement in the Oil and Mining Services business. Slide 10 reflects the development in Plaster Importings, where sales were 2% lower in local currency against a strong comparison base. Pricing efforts positively influenced this development while volumes were lower similar to the previous quarters. However, in the Q1 of 2019, the impact of the volume decrease was more substantial due to the unfavorable automotive and plastic market developments. Although Healthcare Packaging sales increased, the overall sales development in Masterbatches and Pigments continued to be negatively influenced by the global economic slowdown with softer demand in Asia, China in particular. Additives was affected by the softer plastics demand and certain raw material constraints. However, new business development solution for smarter homes and smarter cars advanced promising. The Q1 of 2019 EBITDA for exceptional items in Plastics and Coatings decreased in absolute value by 17% in Swiss francs to CHF 92,000,000 year on year. The economic slowdown, especially in China, shifted sales towards a less favorable product mix and also decreased capacity utilization. Despite the further economic slowdown in China, partly driven by the VAT regulation change, the underlying demand remains solid and the client expects gradual improvement throughout the remainder of 2019. Let us summarize the Q1 as shown on Slide 11. Care Chemicals delivered a solid performance in the Q1 both in terms of sales as well as profitability despite a weak aviation season and the planned shutdown of a key supplier Q2 Force Majeure. Thus, the business area is well on track towards achieving its 2021 targets. The expansion in Catalysis continued high comparison base and forward product shifts from Q1 2019 to Q4 last year, resulting in strong sales growth and increasing profitability. Catalyst therefore took another step towards achieving its 2021 targets. Natural Resources and Oil and Mining Services, in particular, is well on track in progressing towards its 2021 targets with strongly higher sales, mainly lifted by good oil and mining services demand, but also solid growth in Functional Minerals. The profitability is improving sequentially as anticipated. In Plastics and Coatings, the performance temporarily deteriorated primarily as a result of the weaker than expected automotive and plastic market as well as the further economic slowdown in China as discussed earlier. However, as stated before, the underlying demand and order intake remains solid, and we expect gradual improvement throughout the remainder of 2019. Now let us move on to our outlook on Slide 13, which remains unchanged from our previous communication. Clariant is a focused and innovative specialty chemical company with the aim of making our customers more successful. We therefore confirm our 2021 guidance to achieve above market growth, higher profitability and strong cash generation. With that, I return the call to Anja. Thank you, Patrik, for Patrick to take us through the Q1 2019, and we would like to open the line for questions now. We will now begin the question and answer session. The first question comes from the line of Patrick Rafaisz with UBS. Please go ahead. Thanks and good afternoon everyone. Three questions please. The first is around volumes. You had minus 1% for the quarter. You mentioned Plastics and Coatings as the main reason here. Does that mean that volumes were at least flat or positive in all other segments? Or did you have other segments where you had negative volumes? Then the second question on project costs, which you mentioned now affecting Q1 one offs. Can you give us a guidance here? What do you expect for the rest of the year? And at one point, will the project costs stop and will go into the scheduled integration costs for the new business area? And then the third question, you confirmed the 2021 outlook. Can you give us at least qualitatively some color on how you see 2019 from today's perspective? Thank you. Thank you, Patrick. I'll take your questions in their order. So looking at the volumes, indeed in Q1, we had a minus 1 volume development in the group, which was very much reflecting the focus on price that we have. We had a plus 3% on price. If you look at a comparison between the business areas, it is indeed actually true that the volume reduction almost exclusively focused on Plastics and Coatings. To give you an idea on Plastics and Coatings, obviously the price increase was basically the same figures for the group, but you see a minus 2% local currency growth. So therefore, volumes were obviously negative. The other area, so good volume growth, particularly almost flat almost flat as you had a good growth in the Consumer Care area. But obviously, we mentioned the weakness in de icing, which is quite a volume business. So in terms of volume, that decrease offset the growth in the more value adding parts. And therefore, more or less, it was a flat gain for Care Chemicals on that side. Now looking at the project costs, indeed, we are actively preparing the separation of the businesses we have indicated back in September, creating legal entities and so on. This work will continue for the next few quarters. It is fundamentally explaining the increase in exceptional costs from 1 year to the other on the corporate line that gives you direct guidance on the amount of those costs per quarter. We would expect them to continue. I would say probably at one stage what will happen is not so much that we'll see this cost as part of the integration of the new business, but rather you will see those costs disappearing as they go into more than the discontinued reporting of the businesses as we go forward and closer to natural divestment, which is not the case now, but progressively. As you know, we have guided by end of latest by the end of 2020, those businesses will be divested. At one point in time, we will then start to reporting those operation as discontinued and have those costs then no more in the normal P and L of the group. If you look at your third question in terms of outlook, indeed, we confirm our outlook for 2021. And as you know, I think the significant progression in terms of profitability of the group towards 2021 comes half of it from the actual progression of our businesses and another half from the portfolio switch incorporating a high performing business and selling the other businesses. And therefore, for the organic half, so to say, I would still expect that 2019, qualitatively speaking, sees a progression in terms of sales and EBITDA and cash flow as well. Okay. Thank you. Very helpful. The next question comes from the line of Joseph Theodora Lee from Goldman Sachs. Please go ahead. Hello. Hi. Thanks for taking my questions. 3 again, if I may. So the first is actually in the IFRS 16 impact. Just wondering if you can give a guidance on what you expect for the full year? And any color on how we should think about the distribution between the divisions? And the second, which I want to talk on is about the force majeure that of one of your suppliers within Care Chems. Just wondering if this is something you expect only in the second quarter or should we think about this also in the second half of twenty nineteen? And how should we think about the drop through to EBITDA for Caircents? And lastly as well, can you clarify on the timeline regarding this more details around the announcement of the deal with SABIC? And what should we be expecting to hear from that event? Thank you. Yes, right. So taking your questions in the order as well. If you look at the IFRS impact that we have disclosed it in the first slide of the backup on Slide 16, which is an impact of €15,000,000 now for the Q1. I would expect this impact to be fairly regular across the year. So I think that's a very stable number per se. We have not disclosed the impact by business areas, But logically, it's fairly well spread with, I would say, the higher capital intensive businesses bearing a little bit more than the others. So you would expect ICS, you would expect Plasim Coatings to be the major beneficiaries from that position. Now looking at the force majeure, which concerns Care Chemicals for one of our suppliers in the U. S, we have guided, as you have heard, for an impact in Q2, mid teen impact on sales for Q2. We would expect this to be limited to the Q2 and the operations to be back online towards the end of the quarter. And therefore, we currently do not anticipate an impact for the Q3 and Q4, so the second half of this year. So it will be a bit it will be a limited impact on Catchemicals, but still worthwhile mentioning. On the timeline with SABIC, we confirm that we are in active discussions to finalize the steps we have announced in September 2018. I think we have guided for the first half of twenty nineteen, so we have a few months to go still, But we will be within that guideline and give you then an update on the actual structuring of us incorporating the High Performance Materials business and creating business areas by combining it with our activities. So that will include obviously the scope and the evaluation topics which are associated with that. Okay. Thanks very much. The next question comes from the line of Andreas Heine, MainFirst. Please go ahead. Yes, I have basically only 2 questions left. In the charges you mentioned, you were referring very much and that's what we could see that most of the special items were in the corporate line and has to do with the carve out process. The other business lines were basically free of only €3,000,000 of special items. You had back end loaded last year quite an enormous impact from special items. Is there anything you have in mind which will come later in the year in charges? Or do we have to look mainly for these roughly EUR 60,000,000 carve out costs by multiplying the EUR 15,000,000 with EUR 4,000,000 on the corporate line? That's the first question. And the second one, could you give some more flavor in Plastics and Coatings, how the business and what you will keep in as core business has developed compared to what you would dispose. So I would expect that, as you mentioned, some of the master batches business doing quite fine that the drop we have seen is more in the to be disposed businesses. Maybe you can put some more flavor on that. These are my questions. Thank you. Thank you, Andreas. So referring to the one off costs which we report now, and we have seen very much are focused on the corporate line because indeed, it is the separation which drives the cost this year. The business areas are really limited in their one off costs. Last year, you're right, we made a significant effort to normalize the cost base in our oil business. That is now finished and there's no further cost to come. On the other hand, I would say that in the Plastics and Coatings area, we certainly will look at improving the performance. And I would not exclude that some costs occur during the year to improve the cost base there, So I would not be able to dimension them, but I would not expect that it's really massive at corporate level, but it certainly will have an impact on business area itself as we keep on improving the business and its performance. Now if we look precisely at the Specialty and Coatings area, I would indeed see the impact of the current downturn, as we mentioned, being driven very much in terms of businesses by the plastic value chain by Automotive, which will affect primarily the Pigments business and part of So it is clearly something which has an impact. I would say Masterbat is probably fairly resilient because it's fairly broad as well as a large proportion of packaging, for instance, as an industrial outlet and therefore is, in principle, more stable than the Pigment business, if that's of any guidance. While the Additive business is actually doing pretty okay, it has suffered in terms of sales because you cannot escape a downturn in the plastic chain with electronics, but you know our flame retardants are particularly strong. However, overall, I would say the performance in terms of margin has been particularly good in terms of additives in this environment. And therefore, the lack of margin is probably more coming from Pigments and some parts of Masterbatches indeed. Thanks a lot. Very helpful. Your next question comes from the line of Christian Faitz with Kepler Cheuvreux. Please go ahead. Yes. Good afternoon, Patrick. Good afternoon, Anja. Three questions, if I may. Can you please be a bit more specific about what is going on in China in terms of demand trends at present? Don't know if you're familiar with a company called Huntsman, but they were saying today that China is gradually improving. Do you share this view? 2nd, what signals are you currently getting out of the automotive industry in terms of demand trends? Again, I'm referring to Q2 trends rather than Q1 trends. And then can you give us an idea how the Syngas margin currently is versus the rest of the Catalyst business? Thank you very much. Thank you for the question, Christian. So obviously, it's always a bit difficult to comment on current development. But if you look at China, really, it has been the one element which dragged the group down in terms of sales growth and particularly Plastics and Coatings in terms of profits as well. And if you really look at it at sales evolution, you know that in Q4, China was already negative by 3%. Now we're negative by 18%. So it's really a continuation of a deceleration we have been observing due to a multitude, I would say, of factors which we all read in the newspapers. But from that point of view, I think it was a general deceleration, particularly relevant for Plastics and Coatings. We look for instance of care chemicals that did not see reduction of sales in China in Q1, right? So quite specific in terms of slowdown. We would anticipate, as we have communicated now in the presentation, that actually China will progressively improve during the year. You know that there are some measures which have been put in place locally in China by the government to strengthen growth. And some incentives, for instance, was a VAT change by 1st April. So you could expect probably that the March sales were a bit understated as demand was waiting for the new VAT rates to apply. And April actually will probably be a very good month, right? So there's a bit of shifting around. But overall, we would see the underlying demand is quite solid. And therefore, we are confident that things are starting to turn in China. And we obviously, it's too early to talk about the pace and the amplitude of this improvement, but we certainly feel confident that China will actually start to perform better starting in Q2 and progressively improve during the year. The automotive topic is probably more of a long term topic. I think here, we certainly see sales figures coming down in quite a few automotive markets, and the supplying industries are preparing for certainly some downturn there. So whether that's foundry or the other suppliers have been industries which have seen a regression in terms of sales. I think probably of the 3 negative factors we mentioned, 1 being China, 2nd being the plastic chain and 3rd being automotive. It's important to see that probably automotive is, on the one hand, the one which impacts us smallest because we only have 5%, 6% of sales indirectly ending up in the automotive industry, but it's probably the one factor which will remain longer given the structural change of that industry. We would see China and the plastic chain reacting faster and recovering faster. And in terms of Syngas Margins, I think we as you know, the margins in last year in Catalyst were slightly on the downside of our margin range given the high proportion of Syngas sales. Syngas has continued to grow in the 1st part of 2019. We expect this to turn around during the year and petrochemicals to improve. But overall, I would say Syngas probably a better margin this year than it had last year, which also helped in the improvement of the margin in Q1. Okay, great. Thank you very much. Your next question comes from the line of Daniel Buchta with Fintovo. Please go ahead. Yes, thank you very much. And I would have 2 questions. The first one on net pricing. I mean, you have shown 3% higher sales prices. But on the margin side, you were still down even on an underlying basis. Can you say a bit more about whether those 3% were compensating at least the higher input costs or whether you had a net benefit even on the pricing side from that? And given where raw material costs are at the moment, can we expect prices to at least compensate for these rising input costs and how the picture is here in general? And the second one, I mean, with the weaker trends in Plastics and Coatings, but especially in Pigments and Parts of Masterbatches you mentioned, can you give a little bit insights on how the SELT process is running and whether this is a big topic you see at the moment with willingness to pay and interest in general becoming weaker again? That would be my 2. 2. Thanks for your question. So if you look at the price evolution, indeed, we had a 3% price increase compared to previous year quarter, which is quite a good development and in line with the progression in pricing that we have seen last year quarter on quarter. Overall, you know that as we aim to focus more on specialties, we want to be less dependent on the raw material costs and price of our products according to the value add they create at the customer and having sufficient margins to absorb volatility of raw materials here and there. I think if you look at the Q1 itself, we have actually have been able to totally overcompensate the increase of raw material costs. And therefore, we are starting to have a positive impact on the gross margin in terms of relationship between sales and raw material input costs. The volume decrease, however, certainly has also increased our aisle facility costs and therefore overall on the gross margin, you will not see totally yet the benefit of the higher pricing, which has accumulated, I would say, since the second half of last year. But should volume, as we expect, hold on or slightly recover in some geographies as we just talked about, this impact should become visible later on during the year. If you look at your second question in terms of dynamics in terms of Pigments and Masterbatches, I think the business are holding on quite well given the environment. And if we directly compare to their competitors as far as communication has been made up to today, I think we are faring quite well. And therefore, we feel confident that the businesses remain attractive and will benefit from quite a significant demand once we actually start the divestment process. As I mentioned before, we are currently separating those businesses in stand alone entities, which are really autonomous in terms of IT, legal entities and so on. So that you can really have a nice carve out financial setup and have a swift process later on. A bit of a learning certainly from our previous divestments a few years back where we had a very fast process at the beginning, but then we spent almost a year in separating the business. We are doing that the other way around this time, separating the businesses first, also having time to improve performance here and there, I was alluding to before. And then we'll see who is the best owner for these businesses later Okay. Thank you very much. Very helpful. The next question comes from the line of Markus Mayer with Baader Helvea. Please go ahead. Yes, good afternoon, Patrik. Good afternoon, Anja. Three remaining questions. Firstly, on your Natural Resources business, I'm a little puzzled that you referred to the foundry business as I thought you have sold majority of that 5 years ago. And this business can't be not any more that big. Maybe you can quantify how big this business is from actual sources as this automotive impact has impacted you negatively? That's the first question. And the second question is on Catalysts. Maybe you can quantify what was the portion of Syngas project over the last years versus now and what is right now the portion of Petrochem project to get a better feeling what could be a potential positive product mix effect for this business? And then lastly, again, on gross margin improvement. This gross margin improvement at our Mining Services, can you maybe help us to understand when the new contracts are coming place and this improvement at the Natural Resource business should be obvious then in the gross margin plan? Thank you. Thank you, Markus. So in Natural Resources, clearly, we typically always talk about the purification business, as you know, which is the main part of the business. Nevertheless, we have kept quite a significant foundry business, particularly on the automotive sector, which is a good probably a 5th or 4th of the business overall. And I think we mentioned it this quarter because it's in the line of the weakness in automotive, which we have seen across the board in the various business areas, which deliver to this industry. And that goes, as you know, from Care Chemicals to Pigments, Masterbatches, but also Functional Minerals. So it's a common thread, a common theme which we wanted to highlight. In terms of Catalysts, I would say the growth that you see this year is exclusively really coming from Syngas. And therefore, the proportion has further tilted towards Syngas compared to previous year. And we would expect, as we have guided for the year, to have Petrochemicals swinging back progressively, starting during 'nineteen but more pronounced in 2020. So we are peaking and slowly then coming off the peak of Syngas during 2019. Typically, in a normal proportion of things, you would have roughly speaking 50% petrochemicals and 25% syngas and 25%, especially catalysts. But you know that this can swing quite a lot from 25% to 40% easily depending on the year and the project. So yes, we are we will revert to a more normal pattern looking at 2020, 2020. Now looking at the Oil in Mining improvement. We highlighted that you really have to consider profitability improvement on Oil and Mining and Natural Resources really on a half year basis, right? You always have, I would say, then a good mix between a strong quarter and a weak quarter because Q1 and Q4 are strong. Q1 and Q3 are typically weaker from the mix. Refinery, for instance, is missing in Q2, Q3. So you need to have those half years to really be able to actually see the pace of that business. We confirm our guidance that we would see the second half or the first half of twenty nineteen improving in the second half of 'eighteen and continuing the tendency. I think the ramp up in terms of sales is nicely encouraging in terms of trend, and you will see the margin progression coming through during 2019. So keep on watching. Only one clarification question, just one there's onefour to onefive of the swanly business that is of Functional Minerals, not of the natural sources of oil? Of the Functional Minerals part, obviously. Okay. Thank you very much. Thank you. The next question comes from Alex Stewart from Barclays. Please go ahead. Hi, Patrick. Thanks a lot for your comments. Hopefully, it's simple questions to answer. Firstly, could you tell us what the balance sheet impact is from capitalizing your leases, the impact on your net debt, which I don't think you've disclosed today? Secondly, we've obviously moved to reporting and thinking about not adjusted but reported EBITDA. Historically, you talked about roughly 100 basis points of exceptional costs. This quarter, you did about that, but it was heavily weighted towards the corporate line and heavily weighted towards the separation bill. Have you adjusted what you think exceptional costs might be in the future? Or are you sticking by the 100 basis points? And then finally, I'm interested in your comments about VAT impacts in China because the VAT cut was actually quite widespread. But during the course of the Q1 results, the only companies that talked about it are you, Akzo, Axalta and PPG, which makes me think that it's primarily limited to the Coatings segment within the chemical industry. Is this that kind of not happening elsewhere in the sector? And if so, why are we not seeing it in other industries? Thanks. All right. So looking at the balance sheet impact of IFRS, I think we'll come back to that in Q2. I wouldn't have the number readily available, but I think we'll see that when we have a full disclosure on half year. Now looking at the exceptional dimensioning, I think we guided for 1.5% of sales in 2019. I think that's a good estimate. Obviously, it will depend on the pace of the carve out. It is mainly driven, as you've seen and we talked about, by the actual preparation for the portfolio changes. So it is a mainly a corporate line item indeed. And at one point in time, we'll also pass into discontinued operation as we advance in those processes. On the VAT impact, it's difficult for me to comment on what other companies have been reporting because I haven't been looking at it, frankly speaking. But it's a VAT change for the whole country on several categories. So it should probably affect most of the businesses, but has certainly a higher significance on areas which are closer to the end customer because of the VAT is then really a trigger of demand or not. So it will probably depend on which industry you are serving. But that's my estimate. Okay. That makes sense. Thank you very much. Just going back to your point on the exception on the one off costs, although obviously not one off anymore. If you say 1% to 1.5% of sales in 2019, next year, we presumably won't have the carve out costs. So into 2020 2021, is there any rule of thumb that we can use given that it's now much more important? Thank you. Well, we always say that it would be typically below up to 1% of sales, and we maintain that guidance. Currently, I think we'll come back on 2020 2021 when we get there, but it will not be as significant as it used to be certain. Your next question comes from Chetan Udeshi from JPMorgan. Please go ahead. Yes. Hi, thanks. Just a few questions. Firstly, on Catalyst business. I know it's lumpy from quarter to quarter, but any comment around how you see the order flow or backlog of new projects into your books at the moment? Given some slowdown we've seen in the chemical world in terms of pricing, etcetera, have you seen any change in customer activity in terms of new order flow? That is the first question. Second question is, I don't know if you can give any color here, but we've not had any disclosure on the SABIC HPM business besides just the 2017 numbers. And in the current environment where things have softened, is 2017 based on sales or margin the right sort of benchmark to look at in terms of doing our own analysis in terms of potential valuation or accretion from that business will be useful. And the last question is just a clarification on your previous comments around the improvement in Natural Resources margin in first half versus second half. Just to be clear here, that is based on reported second half margin, not the pre exceptional margins. Yes. So looking at Catanx, I think, as you see in the Q1 was actually quite good because the 4% growth was quite significant taking into account that we had a shift of orders from the Q1 into Q4 of last year as we highlighted by the end of the year. So the underlying it reflects the fact that the underlying demand is actually quite solid. The backlog is fine and we can confirm our guidance on Catalyst growth. And therefore, I would say no change to our view on that business, nor a favorable development of sales in this year, but also looking at our guidance in 2021. When you look at the second question, well, we currently cannot communicate any number on the SABIC business. We are under a non disclosure agreement. So I'm unfortunately not able to give you any flavor on that. We will obviously give you more flavor as soon as we have signed that in the next few months, but it will have to wait until that moment, I'm afraid. And your third question was on after exceptional? Resources, input management report, that's already based on after exception. Yes. Well, we report now on after exceptionals. So obviously, it is based on after exceptionals. But typically, it should come from as well from the before exceptional items looking forward, right, and it's just a flow through. There's not too much exceptional costs in that business looking forward. Thank you. We have a follow-up question from Mr. Andreas Heine with MainFirst. Please go ahead. Thanks for my second chance. Very small stuff only. Can you give an update on the polypropylene catalyst plant, how that's progressing? And secondly, in the oil and mining business, I understand these improvements mainly come from the oil part and that the mining business is rather stable. Is that still the case? And lastly, also on the oil business, another company in the chemical business is has seen in Q4 and even more in Q1, a slowdown in that business because of the oil price drop we have seen in Q4. You are more linked to the production and there the volatility might be less important. So I would assume that the recent volatility in oil prices has not affected your business in your incoming orders and that it was really pretty smooth than what you have seen in Q1 that what you reported and what you can expect from Q2? Thank you. Yes, glad to give you a certain chance, Andreas. No issue. Looking at polypropylene catalyst, yes, as we have mentioned, we have a ramp up in terms of sales. So I think there, we're on track to achieve our guidance, which is to achieve a breakeven position in that plan for 2019 before contributing in terms of margin in 2020 2021. So there we are in the market. We are starting to produce product type in specified customer places. And therefore, we are starting to have the commercial phase of this investment. So the build and technical topics are behind us, and we actually have a very nice quality of BP Catalysts there on the market. If we look at Oil and Mining, I would say the one part, oil is certainly growing, as we mentioned. Refinery was a bit lower, which also affected a bit the profitability in Q1. It's typically a very rewarding business in terms of margin. Mining has picked up and is actually growing quite nicely and we would expect it to grow with some variation on the copper in Latin America. But overall, we have had a nice growth in mining, which we would anticipate to continue in 2019. As far as the growth quality is concerned in terms of oil, I think it's been very, very smooth. We are, as you rightly mentioned, very much linked to contracts and therefore, the actual production of oil has been very stable or increasing. And that is reflected in the very constant growth that we can see in our oil business. Therefore, we are quite confident to continue to see this growth looking forward in 2019 as well. Thanks. Ladies and gentlemen, there are no more questions at this time. Ladies and gentlemen, that concludes today's conference call. I think despite the temporary weakness we saw in Plastics and Coatings, overall Care Chemicals, Catalysis and natural resources delivered solid numbers and are progressing towards our 2021 targets as we have announced in September last year and have reiterated for full year and now again. Should you have any further questions, please do not hesitate to contact the Investor Relations team. We will be very happy to answer any questions you still may have. So thank you very much for joining and bye bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thanks for participating in the conference. You may now disconnect your lines. Goodbye.