Strategy Update

Sep 18, 2018

Ladies and gentlemen, good morning, and welcome to Clariant's Conference Call and Live Webcast on the New Stronger Clariant. My name is Anja Pomryn, and joining me today are Harjot Scottman and Patrik Jani. A copy of the media releases and the presentation of today's announcements are available on the Clariant website, clarion.com. I would like to remind the participants that the presentation does include forward looking statements, which are subject to risks and uncertainties. Therefore, listeners are readers and readers are strongly encouraged to refer to the disclaimer on Slide 2 of the presentation. The replay of this call will be available on the Clariant website for 30 days. And now let me hand over to Harald to begin the presentation. Ladies and gentlemen, good morning. Today, it's a very exciting day. Klarion is making a step change into higher value specialties by announcing an updated strategy and financial outlook as well as the signing of a memorandum of understanding with SADIC on a significant collaboration opportunity between the 2 companies in the area of High Performance Materials. These steps will allow Clariant to expand more strongly by focusing on customer specific products and solution offerings with attractive growth prospects and above average value potential. Let us start with the highlights on Slide 4. First of all, we will create the business area High Performance Materials through the combination of Klavian's additives and high value master batches with parts of Sabik's Specialties Business. The newly created High Performance Materials Business Area will be a uniquely positioned provider of highly customized, high performance materials and solutions. Secondly, by 2020, we are to divest the remaining plastic and coatings business area, which comprises pigments, standard master batches and medical specialties. And thirdly, we are delighted to provide you with an attractive update outlook updated outlook on Care Chemicals, Catalysis and Natural Resources. All of these three steps add to a significant portfolio upgrade and allow Klarion to be focused around customer specific technologically advanced applications with high growth and value generation. The signing of a memorandum of understanding between SABIC and Klaviyant presents a significant step in the creation of the new business area High Performance Materials. Clariant will hold the majority stake in this combination. An equalization consideration will be made by Glarian to SABIC dependent on valuation. Cost synergies and enhanced operational efficiencies of CHF 100,000,000 are to be realized until the end of 2022. The net debt to EBITDA pro form a 2019 leverage, including pensions, should not exceed 2.4x based on the current portfolio, which includes parts of SABIC Specialties Business and Klavian's current portfolio before divestments. The completion of the combination is expected end 2019, effective as of 1st January 2020, subject to reciprocal due diligence and regulatory clearances. We also expect significant EPS accretion already in the 1st year. Following the creation of High Performance Materials and the divestment of the remaining and coatings business area, Clariant expects to deliver significantly higher sales of around CHF 9,000,000,000, which represents a sales growth upgrade to 5% to 6% per annum, driven by the group's enhanced growth profile. The EBITDA margin should rise to approximately 20% and the operating cash flow to more than CHF 1,200,000,000. On the guidance, we will come back on this topic in more details at the end of the presentations. Therefore, let us move to Slide 5, which shows that following the step change into higher value specialties, the new Stronger Clariant will be composed of 4 core business areas, namely High Performance Materials, Care Chemicals, Catalysis and Natural Resources. The other business area is the remaining plastic and coatings, which is to be divested by 2020. Going forward, we will change our communication regarding the group EBITDA margin target from previously before exceptional items to after exceptional items. Moving on to Slide 6, which summarizes Klarion's financial outlook. Sales will rise from CHF 6,400,000,000 in 20 17 to around CHF 9,000,000,000 in 2021. EBITDA after exceptionals will augment from 12.7% to approximately 20%, and the operating cash flow will surge from CHF 428 1,000,000 to above CHF 1,200,000,000 in the same time period. ROIC, after exceptional items, is targeted to be above peer group average. We will discuss the transaction and its financials on the next slide in more detail. Therefore, we move on to Slide number 8. The combination of Klarion's business unit additives and high value master batches And parts of SABIC's Specialties business will create a uniquely positioned provider of highly customer specific, high performance materials and solutions under the name high performance High Performance Materials. The combined customer specific and application Now How driven offering of High Performance Materials addresses global growth trends within rapidly expanding end applications and place the business in an advantaged position. The expanded global footprint will not only allow for an accelerated growth via complementary market and customer exposure, but will also further strengthen our position and presence in China and North America. With this combination, we will be able to create a unique R and D and technology platform. The resulting expanded innovation capabilities will establish the basis for increasing win rates. Until 2021, for the Business Area High Performance Materials, we expect an above market sales growth of 6% to 9% per annum. And noteworthy, EBITDA margin range after exceptionals of 24% to 25% from 19.4% in pro form a 2017. The resulting synergies from this combination should amount to CHF 100,000,000 realized over 3 years from closing. The implementation costs are estimated at CHF 80,000,000 over the same time frame. The combination will be significantly EPS accretive already in the 1st year. Let's turn to Slide 9 for transaction highlights. Clariant will have the majority stake in the business combination. Depending on the definitive valuation, which is to be determined by both parties in the coming months, an equalization consideration will be made by Klavian to SABIC, which, however, should not lead to Klaviyans pro form a 2019 net debt to EBITDA leverage ratio, including pensions, exceeding 2.4x and will leave the current investment grade rating unaffected. In the coming months, Clariant and SABIC will execute the carve out of their respective businesses, conduct reciprocal due diligence and continue negotiating the transaction with the target of signing the definitive agreement by the end of the first half of 2019. Completion of the transaction is expected to take place towards the end of 20 19, effective as of 1st January 2020, subject to regulatory clearances. If we move on to Slide number 10, you see that High Performance Materials' superior ability to meet customer specifications and to provide technological advantages will create the basis for an accelerated profitable growth. This foundation in tandem with cost synergies and enhanced operating efficiencies will fuel substantial profitability progression and unlock greater value creation. By 2021, sales of High Performance Materials are expected to grow to approximately CHF 4,000,000,000 from pro form a 2017 sales of CHF 3,000,000,000. And the EBITDA margin after exceptionals, including synergies, to 24% to 25% from 19.4% in pro form a 2017. Slide 11 provides you with an overview of the parts of SABIC's specialty businesses, which are to be combined with Klavian's BU Masterbatches BU Additives, sorry, and higher value Masterbatches business. SABIC's specialties offerings are highly differentiated products, which offer a distinct set of physical properties and serve highly attractive niche and applications, including health care, consumer electronics, e mobility and, for example, aerospace. The high differentiation of the physical properties of these materials is a unique selling proposition. Innovations in new businesses allow for significant growth with a strong financial profile. If you turn to Slide 12, you can see that the products of SABIC's Specialties Businesses to be included in the business area High Performance Materials are positioned in the High Performance Polymers area within the plastic pyramid. After having walked you through the future High Performance Materials business, I still want to say a few words on the expected synergies. For this, I ask you to turn to Slide 13. As already mentioned earlier, the combination of Klavian's additives and high value master batches with parts of SABIC's specialty business is expected to result in synergies with an anticipated annual run rate of CHF 100,000,000 realized over 3 years from closing. Service cost and procurement synergies will enable synergies of approximately CHF 50,000,000, while the remainder will be generated from site efficiency as well as distribution and asset network optimization. Additionally, we can envision that further synergies could be realizable due to our experience accomplishing large scale integration and synergy projects. The implementation costs are estimated at CHF 80,000,000 over the same time. Now we turn to Slide 14 for an overview of the next steps. In the coming months, Clariant and Saabik will execute the carve out of their respective businesses, conduct reciprocal due diligence and continue negotiating the combination with the target of signing the definitive agreement by the end of the first half twenty nineteen. The valuation is to be negotiated and an equalization consideration to be mutually determined in order to achieve economic ownership levels. Closing is expected to take place towards the end of 20 19, effective as of 1st January 2020, subject to regulatory clearances and other customary closing conditions. Pigments, standard master batches and medical specialties are to be divested by 2020. This divestment decision underlines Klaviyant's commitment to move the portfolio into higher specialty areas and ensures best ownership for each of its businesses. Despite being well positioned and having significantly increased their profitability over the past years, these businesses to be divested to not match the group's criteria to differentiate through innovation in higher growth and higher profitability areas. Having discussed the combination of Klarion's Additives in high value Masterbatches with parts of SABIC's specialty business, I would like to turn to the new strategic direction of the Glariant Group. Following our strategic review, which took place over the past month, we today also announced new well founded targets for our business areas. Please turn to Slide 16 for group strategic direction. Our strategy is based on leveraging operational efficiency to effectively size the profitable growth opportunities, which arise from global challenges. Clariant has improved and will continue to improve its ability to deliver innovative, sustainable products and solutions, which address the higher demand for more convenience, stricter safety requirements and tighter environmental regulations as well as as exemplary customer specific product portfolio technology and solution offerings into above average top line growth and profitability progression, coupled with a resilient and improving operating cash flow. Clariant's 5 pillar strategy on Slide 17 includes continuous developments within each of the 5 pillars, demonstrating their effectiveness and are tangible illustrations of how Glarian is utilizing these key pillars to successfully implement strategy. In addition to the group's continuous developments, the portfolio upgrade, which we announced today, will not only increase the scale of our operations, it will also widen the scope of our high formation of the new High Performance Materials business area. These developments will result in a real step change for Klaviyant into higher value specialties. With that, I hand over to Patrick to take you through the updated outlook for each of our businesses. Patrick? Thank you, Heiers. Slide 18 provides an overview of Clariant's innovation pipeline, showing some project examples of our total pipeline worth approximately CHF2.1 billion. We will go through each business area to look at innovations in more detail, starting with Care Chemicals on Slide 19. The business area Chemicals will continue to grow more quickly than the market. The updated outlook represents an additional step up in growth resulting from offering more sustainable products and solutions, which meet the market's expanding demand for convenience, renewable and natural products. The expansion of our market presence in strategic regions such as North America as well as China and Asia in general will also support this growth. The higher degree of specialty in care chemicals and the offering of individualized customer specific products with scalability will not only foster growth, but will also increase profitability. Accordingly, the midterm guidance for Care Chemicals has been increased to a per annum 2017 to 2021 sales growth rate of 5% to 7% and a higher EBITDA margin range after exceptionals of 19% to 21%. On Slide 20, we see some examples of product innovations at Care Chemicals. Gannadvance, our new innovation in Personal Care, provides 3 new conditioning ingredients based on naturals, which enable a much improved hair conditioning performance. The picture on the right side of the slide represents our client CheMin's active value product range, which includes several clients' sustainable formulations and natural ingredients. Examples of such products include, but are not limited to, Ganadvance Hydra in their conditioner Balsamo and Balsamo Essenciare and hair mask, Mascara Essenciare. An additional innovative client product within Crop Solutions is SYNOGAIN OS. This product reduces the spray drift, which occurs during pesticide application. Spray drift has several negative consequences, which, amongst others, include the loss of expensive pesticide and the reduction of the application effectiveness. The benefits of Saragane, in addition to being eco compatible and nonhazardous, also includes higher crop yields together with reduced drift and the reduction of water consumption. For new information on the right hand side of the product innovation slide, you can access detailed information on the mentioned innovations by clicking on the link. Moving on to the business area Catalysis on Slide 21. In our business unit Catalysts, we target continued above market growth rates by capitalizing on our innovation leadership and strong licensing partnerships. This will accelerate the introduction of innovative, customer specific catalysts, targeting specific reactions with large scale potential and be the driver for future growth. The addition of more sustainable solutions, such as the reduction of hazardous materials providing a much improved toxicological profile also adds to the growth and cost advantages of our The growth accelerations in the business unit, biofuels and derivatives is mainly driven by the global search for more climate friendly energy sources and the legal frameworks set out in Europe, the U. S. And China. Clariant is exceptionally well positioned to benefit from this challenge and development. Clariant expects to generate sales of at least CHF 100,000,000 at an EBITDA margin exceeding 40% from licenses for the Sun Liquid Technology and bioethanol sales from the production plant in Romania, which groundbreaking was announced last week. The contribution from both biofuels and derivatives and new customer specific catalysts will significantly expand the profitability of the business area Catalysis by 2021. Accordingly, the midterm guidance for Catalysis has been increased to a per annum 2017 to 2021 sales growth rate of 6% to 9%, at an higher EBITDA margin range after exceptionals of 26% to 30%. The product innovations at Catalysis, which I enumerated on Slide 22, include the catalyst NV Cat, which is beneficial for reducing harmful emissions by mitigating the greenhouse effect, helping to preserve the ozone layer and reducing atmospheric pollution with other health and climate damaging nitrogen oxides, the ENVINOX process contributes to climate and environmental protection. As announced with our full year 2017 results, we already highlighted some insights on our Sun Liquide technology. It is undisputable that the reduction of greenhouse gas emissions is vital for the environment and that alternative sustainable sources of energy must be found to reduce the dependence on oil. Client's development of the Sunny liquid technology is clearing the way for the 2nd generation of biofuels because this unique fully integrated process converts any liquid cellulosic agricultural residues into cellulosic ethanol in a highly efficient, extremely economic, energy neutral and sustainable process. Slide 23 shows that within the Natural Resources business area and the oil and mining service activities are expected to build up momentum as general demand and a rebound of the oil market improves the industry outlook. Differentiate business steering according to the changing business landscapes with a focus on growth in the oil basins of North and Latin America, combined with technology and innovation will result in sustainable strong growth. Diverse offerings, regional expansion mainly in Latin America in tandem with accelerated growth in North America underpin the strategy outlook for our mining activities. The main profitability improvement drivers at the Oil and Mining Services include tight cost control and cost reduction. Trunks and Minerals is expected to grow sales above the bentonite market, which grows approximately in line with GDP. This growth will be driven by a regional expansion in North and Latin America as well as in the Middle East. Moving into new applications through innovations such as smart and active packaging within feed and agro will also underpin this progression. Accordingly, the mid term guidance for natural resources has been increased to in the Natural Resources business area are found on Slide 24. In Oil and Mining Services, the highly innovative VeriTrak system allows customers to turn data into actionable information, which is a key consideration to maintain production and improve operational efficiency and reliability. Not only does our Veritrax product differentiate client from competitors, it also results in tangible benefits for our clients. At Functional Minerals, the introduction of our INVOOC product into sediment management for the mining industry enables our clients to lower their impact on the environment by reducing water consumption and improving the use of saving reservoirs whilst helping them to reduce operating costs and capital expenditures. Moving on to Slide 25. The remaining Plastics and Coatings business area, including pigments, standard master batches and medical specialties, will continue to be managed using differentiated business data. Pigments and standard Master Badges are anticipated to grow in line with GDP. Sales growth in pigments will be marketing driven via selective innovation projects, growth in preparations with a regional focus on opportunities mainly in China, India and North America. Standard Master badges should benefit from its strong market position and will also focus on more rapidly growing regions, while medical specialties are expected to grow more quickly in accordance with the underlying end market in healthcare packaging. The profitability of pigments and standard master batches is expected to seasonably improve via stringent cost management. While Medical Specialties will benefit from innovations resulting in profitable growth. With that, I hand back to Hajj. Thanks a lot, Patrick. Let us now move to the governance topics on Slide 27. The governance agreement that has been signed underlines the commitment of SABIC as strategic anchor shareholder. The extraordinary general meeting scheduled for the 16th October will decide on the expansion of the Klavian Board of Directors to 12 members, of which 4 may be nominated by SABIC. It is proposed that I will become Chairman of the Board of Clariant, which will continue to be an independent listed company on the Swiss Stock Exchange. Ernesto Kielo, SABIC's current Specialty Executive Vice President, was appointed as new CEO of Klariont, effective as of 16th October 2018. And last but not least, Patrijani will continue to serve as CFO of Glarian. And with that, I turn back the call to Anja. Thank you, gentlemen, for taking us through the details of today's exciting announcements on the creation of the new stronger Clariant. And we will now open the line for questions. We will now begin the question and answer session. The first question is from Peter Clark, Societe Generale. Please go ahead. Yes. Good morning. Well done. Two questions though. First one, you talked about the step up in the operating cash flow, I think, to about over 13%, which is something you haven't seen since you spun out of Sandoz. I don't think effectively, what about the free cash flow? Because if I look at the businesses coming in, I would have thought they require a bit more CapEx and for the growth. And certainly, then the business is going out. Presumably, you see a step up, but not as strong. So the projections on the free cash flow and perhaps a bit of the track record of the business is coming in, in terms of the cash flow record of recent years. And then the second question, looking at the High Performance Materials kicker on profitability that you have even before the synergies, it's a sort of mid teens growth I think you have on EBITDA through to 2021 against the sales line growing perhaps half that level. So that's even before the synergies kick in. Just a bit more again how you expect to deliver that in the high in the new high performance materials? Thank you. Thank you, Peter. When you look at the cash flow, we expect a significant increase. We guide for 1 point €2,000,000,000 cash flow minimum in 2021, which really is a massive increase compared to what we have today. And that comes from the fact that we have the benefit of getting business in, which is extremely cash generative and not only profitable, but with a very efficient supply chain, which really improves the cash flow profile. As far as the free cash flow is concerned, after CapEx, we certainly will have some CapEx costs associated with it. I think particularly High Performance Materials, we will invest in both areas, in our Additive business, which we are contributing, but also in the High Performance Materials business, which comes from SABIC. That will increase a bit the CapEx number for the group. It will not be, I would say, material and the free cash flow increase will be quite similar in terms of proportion to the free cash flow increment we expect in the next few years. So count about an increase in our CapEx guidance from currently €300,000,000 to €400, €450,000,000 but we'll get there in more detail when we have a precise deal to announce, but significant free cash flow improvement as well. On the increase on the profitability side, indeed, it is, I think, a good point in time to enter into that combination. I think we are putting in 2 fairly similar pieces in terms of profitability, but benefit from the growth prospects together. I think on our side, we will have new additives manufacturing plants coming on stream. We have announced one expansion of Lycosine a few months back, which is a major product with a good profitability in the next years. And on their side as well, on the SABIC side coming in, we do have a significant growth in the high performance materials area and within that with the high value ones. So the PEI based components will grow significantly in the next few years based on customer contracts and expansion of capacities, which are already underway. So both businesses will contribute to, I would say, if I call it like this, organic growth and profitability increase independently from the synergies as well. Next question is from Patrick Lambert, Raymond James. Please go ahead. Hi, good morning and congratulations. I have a few questions around the deal itself. First, could you give us a bit of flavor on the track record of the HPM Polymers, the PIE, in particular of SABIC over the past few years in terms of growth and in terms of EBITDA margin. I think from what I've seen, the 2017 is about 20% EBITDA margin, But a bit of history of the development there would be helpful. Also the expected CapEx needs and restructuring, is that fair to say that the new client will take that as a cost going forward? And now finally, I think the in terms of the clarity of the valuation part of the deal. It's still very difficult to for us to very split the value between the assets bringing from client and from and brought by SABIC. Can you help us a bit in terms of what type of multiple, what type of exit multiples you're looking? How you're thinking of the cash outflow for the Sabik asset post the, I guess, the timing of the exit too? Thank you. All right. Thanks, Patrick for your questions. So looking at the track record of the HBM business, it has been progressing quite well. It is currently actually capacity constrained. So they are doing capacity expansions right now, which has limited growth in the last couple of years. But before that, they were growing in the area of what we have guided for as well looking forward. It's always a matter where you're very application driven and close to a customer, so you may lose an application there and you have to re win new contracts for your product in other areas. Excellent growth pipeline, and therefore, we are confident on the growth being shown here, particularly in electromobility in our aerospace. And all the sensors, if you look at the sensoric applications, it's all about high performance plastics. And that is really an area which is expected to grow tremendously looking forward. So very much based on the PEI application we're mentioning, which is obviously as well driving profitability. So I would say a strong past track record with a bit of flattening of sales last couple of years as their capacity constraint. And now with new capacity is coming on stream, then development of growth as we show it in our projection for the whole area. I think growth, if you decompose growth, it's more like coming from both pieces. We will grow significantly in additives as well. And therefore, similar not equal, but similar growth rates for both parts of the businesses being put together. When you look at CapEx, I'll just give a sort of guidance for the years 2020 onwards. We will have a bit more CapEx. We're obviously in big more business as well. So from that point of view, it is absolutely okay from the free cash CapEx going towards, let's say, EUR 400,000,000 from the EUR 300,000,000 we have today. In terms of exceptional, you mentioned a fundamental change, which we have promised and we had promised before, which means as soon as we get a new strategic update and the significant increase in earnings quality, we announced today, we also switched to EBITDA after exceptionals and not before exceptionals. And therefore, all the numbers you see today are actually after exceptionals, which actually represents quite a step up compared to our current numbers. And that is really driven by the fact that by 2021, after completion of integration of the SABIC piece and divestment of the remaining Plastics and Coatings would have roughly 59%, 60% of our EBITDA being generated by businesses having margin higher than 20%, right? So a very strong EBITDA quality as well, which allows to absorb, let's say, the exceptional. On the valuation part, we give you a little bit the comparison of the 2 pieces coming in, right? So we have roughly €2,000,000,000 turnover on 2017 basis. We don't give current numbers or projected 2019 when the deal will actually be done. But looking just at actual number 17, the SABIC piece is around $2,000,000,000 $1,900,000,000 to be precise with an EBITDA of around €20,000,000,000 And our business is a bit more than €1,000,000,000 with an EBITDA of 18,000,000 percent. Hydro Additives is growing. So roughly, it's double the size, yes. We but of similar quality in terms of growth, as I just mentioned, and fairly close in terms of profitability as it stands today. So we have an agreement of roughly similar valuations as well, which indicates that as one business is double the size from the other, we will need to make an equalization payment to get the majority of the combined business area. And if you I'll leave you to calculate the numbers, but our guidance is that the leverage of the whole group will not be materially impacted. We have a view that it will not be exceeding 2.4x net debt to EBITDA ratio before divestment. A a significant cash out, but it will be just a difference of size really between the two businesses. And we're not putting danger, I think, our net debt to EBITDA ratio. This divestment itself and if you as well to simulate the extended proceeds. We haven't guided on that, and we'll see how the divestment progresses over the next year, but we'll then actually reduce our leverage and we'll be pretty much in almost debt free situation by 20, 2021. Next question is from Christian Faitz, Kepler Cheuvreux. Please go ahead. Mr. Feitz, your line is open. Yes. Good morning, gentlemen. Good morning, Anja. Congrats on the deal. Three questions, if I may. First of all, talking about the divestment, can you give us an indication of the cash flow generation ability of the plastics and coatings activities that will be part of HPM and the cash flow generation ability of the activities to be divested? And then second, given the announcement of the transaction, can you please tell us if you already saw interest by strategic or private equity investors in the assets that you plan to divest? And third question, since we have the pleasure of having management contact pretty much at the end of Q3, could I prompt you to update us on the demand trends you have seen so far in Q3? Thank you very much. All right. Taking the your question is a reverse order. Obviously, the quarter is not finished now, so we will not guide on the quarter. As you know, we don't give guidance on current quarters, but I would expect to continue to the business to continue in the same growth pattern we have seen until now. Now looking at the divestment itself. Clearly, the business that we have now called Remaining Plastics and Coatings, which is really the business unit Pigments and Standard Masterbatches, has a size of around EUR 1,600,000,000 and a profitability around 11% to 12% EBITDA. I think the cash generation profile is very similar to Plaseline Coatings overall. And as you know, Plastics and Coatings has been the main cash generator with cash flow contribution pretty close to the EBITDA contribution of slightly higher. And that should, I think, surface as a guidance for the cash flow generation for that part of the business. We will start the carve out, right, as well of those businesses, allowing them then to have a future with a new owner. We have had in the past clearly some interest being expressed as it was still, let's say, the former Plasine Coatings. And they're good businesses. So I would expect it to be actually more of a consolidator than being consolidated. Our Pigments business is the number 1 in the world in terms of size and with excellent profitability. Therefore, I think if you want to do something in pigments, you have to have our business as the core. And the other piece of Marcebelcher are certainly in a very, I would say, demanded market as well as plastic conversion continues to grow around the world. So we'll see that in its proper time. Okay. Thank you very much. Thank you. Next question is from Alex Stewart from Barclays. Please go ahead. Hi there. Good afternoon. Thanks for the presentation. 3 hopefully short questions. The first one, why have you decided that the new CEO won't sit on the Board of Directors? I believe you do at the moment. So I'm interested to understand why there's a change. Secondly, your new divisional margin targets are quoted, including the exceptional costs as you've discussed. Those costs are, by definition, unusual in size and nature. So I'm keen to understand what level of exceptional costs you've built into the forecast for the individual divisions and how confident you are that, that level of costs will be met. And then finally, you talked about the relative EBITDA contribution for the new venture with SABIC. You've also talked about the equity stake that SABIC will take being less than 50%. But you haven't yet discussed how much debt is being contributed by each side, which is the missing link. And without that, it's very difficult to work out the cash transfer because of the equity value. So could you give us some idea how much debt and pension you expect to come from each side? And if you're not happy giving numbers, then perhaps just confirm whether they'll contribute roughly the same debt in proportion to their earnings would be great. Thank you so much. Let me come back to your first question concerning CEO and Board membership. We try to position the new Klaviyant according to the highest standard of corporate governance. And with that target, we will introduce a few changes to the new Board of Directors. And one change is that the CEO will focus on the operational execution and be not a member of the Board of Directors. Taking your second question, I think you're right. The difference between before and after exception has been always a subject, and I think we have had a good progress on that topic apart from last year, where given the projects and then the activist brands, we had quite a high exceptional amount. You know that we guide typically on exceptionals moving towards 1% of sales. And I would say, if you want to have a better quantitative figure of the difference, let's say, in 2021, that's a fair assumption to take, right? Then on the Horizon contribution and how much debt is included on pensions, the basic calculations are always debt and cash free, right? Then as the carve out progresses, which is just now just starting on the SABIC side, we'll probably have a little bit of cash in the countries running ourselves as well, but I think we'll produce same amount on both sides, not really impacting the equalization payment and maybe some pensions here and there for the employees. But I wouldn't expect this to be a major distortion effect on the equalization payment. Okay. That's really helpful. And just coming back to your margin point. So can I assume if I wanted to compare like for like your old guidance to your new guidance, I would add on roughly 100 basis points into guidance and that would give me a pretty exceptional level, very generally speaking, I'm talking about? Correct. Next question is from Patrick Rafaisz, UBS. Please go ahead. Thank you, everyone. Three questions from me as well. The first is a follow-up on the history of the SABIC assets you're acquiring. Can you give us a bit more color here, let's say, over peak to trough cycle, what were the peak margins or were the trough margins for those assets? Then secondly, can you talk about what you think regarding corporate costs for the entire group, including SABIC, but excluding pigments and some Masterpouch assets? Where what should we model here for 2021 and beyond? And then lastly, on the governance statement you made that there's no intention of a full takeover, will that be formalized in a contract for a certain period of time at one point? Or will it remain more of an understanding? Thank you. I'm taking your question in there, Patrick. I think we cannot really give you concrete data on the historic part. I think the general business description we have seen as we looked into the business, but you have to remember that this business is actually just starting to be a carve out, right? I think for the last 2, 3 years, this business has been separated from more commodity applications within the former GE Plastic business to call it like this. And therefore, we are really talking of a carve out of a carve out, yes? And therefore, I think it would not be representative now to do huge simulations in the past. What we are combining now is the high value, high performance materials part, which is an extract of the specialty, a part of the specialty business of SABIC, right? So it is not the whole. And this process is just now being started. So we looked at the product, at the sales, at the structure, structural costs and so on, but you don't have really a 1 on 1 historical official figure that you can compare to. But I would say if you compare the similar pieces, it is running currently at a level in line with past performance. And the 2nd wave of growth, as I explained earlier on, is really coming because that capacity constraint right now. Now on the corporate cost, we currently do not forecast that the corporate cost will have any significant increase because of the size difference. We grow by €2,000,000,000 and we also divest €1,600,000,000 and the rest is organic growth, which typically does not demand for higher corporate costs. So clearly there, the guidance is that we should come at a €9,000,000,000 turnover in 2021 with more or less same corporate cost as we have today. And then in terms of governance, I think obviously, it is there are 2 aspects 1, we have a governance agreement, which is communicated in part of the Board participation of SABIC. That's one point. But SABIC today also in their release confirmed that they do not have the intention of taking over client, but that's a separate topic, which obviously can't be put into a contract. It is an understanding and it's subject to answer on that question. Next question is from Daniel Buchta, Von Doebel. Please go ahead. Thank you very much, gentlemen, for taking my questions and congratulations Daniel, can you speak up, please? We can hardly hear you. Can you hear me better now? Yes, perfect. Thank you. Sorry, thank you very much for the hint. The first question would be on the other financials after the deals, the 2 point 4 times net debt to EBITDA including pensions. And excluding the disposal proceeds from the non core plastics and coatings part, Can you elaborate a little bit on how you derive these 2.4? Because as far as I understand, there is no capital increase in both than that. Could you confirm that as well? And then the second question on the synergies you have identified, the €100,000,000 Could you hear also a little bit elaborate on how you derive these €100,000,000 So what can I expect, example, from workflow harmonization or consolidation of assets? So here are a bit more details on that. And then the last question would be on Oil and Mining Services. Here you were mentioning a differentiated steering in Oil and Mining Services with a focus on North America and South America. Is this different to the guidance before? And what is about regions like Middle East and Africa or Europe in that regard? Thank you very much. Thanks, Daniel. So yes, looking at the net debt to EBITDA ratio, which we stipulate for 2019 as a maximum of 2.4 after integration of the SABIC business, but before disposals. It is very similar to the current net debt to EBITDA ratio, which is 2.3 if you and then you should take the pensionary for the 2.3 with the EBITDA before. And so you'll have not a material change there, which really is a good indication, I think, for the sizing of the equalization payment when you look at the numbers we discussed before, the €2,000,000,000 business at 20 percent and €1,000,000,000 1,100,000,000 that's close to €20,000,000,000 assume any multiple that you want, but you'll have to pay a delta, maybe with a bit of a difference in multiple that gives an equalization payment, which is totally financial able to be financed by the cash payment. And therefore, it is fully in debt, but without significantly overleveraging the group at all. Then comes in a second step or during that time as well, but as separate transaction, the sale of the different pieces of the remaining Plastics and Coatings, which actually will then deleverage the group significantly when you look at the 2020 end of 2020 horizon. So from that point of view, I think it's as far as we can go today in terms of guidance for values because we will have still to negotiate final valuation topics until June 2019. Yes. Just a quick follow on, on this. I mean, so it means that within 2 years, you are assuming that you have paid down all the debt you need to take up to finance the equalization payment, right? Because you were mentioning we are currently at 2.3x and it will be 2.4x for almost the same level. Yes. Well, you receive a lot of EBITDA as well, right? So from that point, of course, the numbers are a bit bigger, right? But then you really deleverage more by the sale by the proceeds of the divestments of the remaining Classe and Coatings. Looking at the synergies, I think we give you a chart in the additional information package, which gives an indication of the tentative synergy breakdown. I think the main important piece here is to see that we are integrating a EUR 2,000,000,000 piece. And therefore, we feel absolutely confident we can leverage the services and the shared service centers we have. And therefore, a significant part of it will come from service cost synergies as we can take over the additional volumes without having significantly higher cost administration. There will be it's around €25,000,000 There will be a bit €25,000,000 as well in procurement order of magnitude always. And a bit of side efficiency as well as we can certainly leverage our client excellence operational efficiency into the 14 sites coming in. And that is probably the biggest part of the synergies. An additional one is on the distribution element. We do have a significant distribution network through Masterbatches, which is compounding and ultimately delivers the same OEMs as the high performance part of SABIC as well. And there, we will be probably able to cut on distribution costs on that side by distributing the newly incorporated products from SABIC into our distribution networks, giving you some cost savings as well here in the EUR 10,000,000, EUR 15,000,000 range. So that gives you the breakdown of synergies as it stands today. And then in terms of your Oil and Mining questions, we highlight the differentiated steering as a topic to improve the performance in Natural Resources and particularly obviously in Oil and Mining. As you have on the one hand, a rebound in volumes in oil, which we all see, which leads to an increase in growth as well as we gain new contracts as well. But on the other hand, we also need to be very cost efficient, and we still have to work on the cost, particularly in North America on the integration of the 2 purchase businesses. And therefore, there is a cost aspect as well, which we highlight as well in the presentation on improving profitability. So it's about growth with new contracts with higher margin, but also in a very strong cost discipline in some geographies. Okay. Thank you very much. That was very helpful. You're welcome. Next question is from Alexander Bossert, UBS. Please go ahead. Hi. I just have a follow-up question to the below. I'm still struggling to see how you want to get to the 2.4 times net debt to EBITDA, given that you stand at 2.7 as per end of 2017? And the second question is, you state that you intend to remain investment grade. This is based on what kind of ratios given that Moody still has a sub investment grade rating on the company? Thank you. Yes. So I think if you start with the leverage, so you have to see this on 2017 numbers, right? Last week because we published by 2019, we have obviously a progression both on our side, let's say, to call it like this, to the old client side, but also from the SABIC business coming in, right? So the absolute EBITDA numbers are actually higher and reduce the leverage if you combine both entities like this. And I think as I said before, it depends a bit on the valuation multiples you put in your simulation, but you'll come to a very digestible cash payment to be done within the 2.4x net debt to EBITDA. That in turn makes us confident that we will continue to be BBB, the main parameters here being the 2.5 times netted to EBITDA leverage. The cash flow performance itself in terms of free cash flow generation, right, which is the other criteria, being vastly better than it is today, given the increased cash flow performance, which we highlighted at the beginning of the call. So you are actually improving the quality of the business and the cash flow generation quite significantly without really changing the leverage of the group. That makes us confident to be a BBB, which is really S and P based. Moody's per se is still doing a rating on us, but more on the bonds which have been emitted. They are no more officially evaluating the company per se, yes. So they don't have access to the business plan. Okay. Can we move on to the next question then please? Next question is from Gunther Zechmann, Bernstein. Please go ahead. Hi, good morning, everyone. First of all, Mr. Cotman, congratulations to 10 years of leadership as a CEO of the company. Can I ask 2 questions? One is, dare I ask about the Carion legacy business. What gives you the confidence in a more narrow guidance at this point to 16% to 17% EBITDA margin for Clariant standalone that you put in the additional financial information? And the second one is more around strategically how you think about the cyclicality of the new Clariant. About half the business will be in the new well, in the High Performance Materials. And you haven't you have been reluctant or not willing to provide information about the peak to trough margins of the HPP business that comes with SABIC. Is it a similar logic to what you had around Huntsman that the size of the business, the scale will give it more resilient? Or is there anything about the HPB business that we should know that makes it more defensive compared to the end markets that it serves? All right. Looking at your topic first on the 16% to 17%, we add this information to be totally transparent. That is, let's say, the client standalone without any portfolio. As it stands today, we would reach around EUR 8,000,000,000 by 2021 and have an EBITDA margin of 16% to 17% after exceptionals, which is really coming through the increase in Care Chemicals. You'll note that we have increased the guidance there in terms of profitability guidance to 19% to 21% after exceptionals, the Active Ingredients and the cosmetics area, we highlighted here with a few examples. That's certainly an area where we have been investing consistently in the last 8 years as we continue to very consistently improve performance in that business area, and we expect it to continue in the next few years. You have the catalyst being upgraded because of just innovation with customer specific catalysts as well as you can probably see one big bubble in the innovation chart, which is coming on stream pretty soon and will allow Catalyst to progress in profitability until 2021. And obviously, the biofuels, which we guided for by year end last year, which per se adds EUR 100,000,000 at a very high profitability as well. So we pass now to a guidance up to 30% EBITDA margin for the whole Catalysis area, which helps to lift the group, obviously, compared to current levels. While Natural Resources maintains more or less the same EBITDA margin there, we count first on the rebound of sales and cost discipline to go back to those levels. You know, this is the one area where we are today a bit behind our original plan. If you take our original commitment, we would be there if Natural Resources, specifically oil and mining, would be performing at the levels we had expected to. And that plan implies they're coming to those levels by increasing sales and being cost disciplined. So it's, to make it short, removing, let's say, the drag down of oil and money by getting them to the performance level they had anticipated to be and further progression in Catalysts and Care Chemicals, which leads the group without considering any portfolio to the 16% to 17%. And we put this as a transparency for you to get a good flavor of comparison with the previous plan and then put, obviously, the upgrade in terms of portfolio we have announced today in addition. The midpoint of the guidance hasn't changed, though. So if Care Chemicals and Catalysts upgraded and Natural Resources more or less the same, would the delta come from the legacy, the stand alone plastics and coatings or the corporate cost? Where does the balancing figure come from? I think Plastics and Coatings has certainly reached a certain maximum in terms profitability in the standard Plastics and Coatings area, so pigments and standard master batches. So that's leveling off and not contributing to the additional profitability. And I already remind that this is now after exceptionals and before it was before exceptionals, right? So it is at least 1% up, yes. Then when you look at the cyclicality, I think cyclicality is improved clearly by having a higher quality of business. We will have after portfolio changes, as I was mentioning before, 59% of EBITDA being generated by businesses with intrinsically high margins like Catalysis, like High Performance Materials. And I don't think you do have a strong volatility on the new High Performance Materials business, and thanks for coming back on that. I should have highlighted it before. I mean, you do have not comparable, but other players in that plastic pyramid that you have. You have VICTREX, which is right on top with one material, but it's very small. And then you have very close to us here in Switzerland, Ems, which also has different set of materials, but are consistently improving profitability and sales every year. And that's really the area we are playing with different materials, different applications, not in automotive, but much more in electronics and in aerospace and sensors. But these are areas which I expect to grow. I would say are also part of the megatrends we see today. So I don't see a cyclicality increase, but on the opposite, significantly being reduced for the group looking forward. Thank you, Patrick. Next question is from Andy Schneider, ZCapital. Please go ahead. Hi, gentlemen and hi, Andy. I would have a question also on the 3 remaining and existing divisions. As you just mentioned, you formulated slightly higher targets for each division. And you mentioned mainly higher margin products to R and D pipeline, but there was no mention of potential collaboration with SABIC in these areas, potential benefits from having closer relationships or doing business together or even exploring some days synergy potentials, other JVs. Is this in the guidance, but a potential collaboration with SABIC for each division? Is that also part of the reason why you formulate the tire targets? Or might that come on top one day? Yes, you're absolutely right. Thanks for mentioning that. It is actually not part of our current guidance because we do have, obviously, ideas, whether that's in Care Chemicals or Catalysts, for instance, as we had highlighted before, right, since in January. But we have not included those in the current guidance because they are projects, they're ideas, but we don't have the level of definition and concrete realization that we would include them in the plan today, right? So in order to have a solid plan, we have just formulated what the businesses see coming in function of their pipeline and normal business evolution. But those ideas, and there are some, would be on top. You're welcome. Next question is from Priya Biswanathan, Societe Generale. Please go ahead. Thank you. I hope you can hear me. Yes, very well, yes. Great. Thank you for taking my question. Just domain to netback, but can I just clarify? When I calculate leverage, including pensions and basing it on the LTM EBITDA after exceptionals for the last 12 months, I come up with a 2.82 turns? And can I confirm that you are basing it off the EBITDA after exceptionals? I think that's something you mentioned also when you're highlighting the 2.4 turns target. Yes, correct. We base it on the EBITDA after. And let's say on the SLP calculation, which always has a bit more adjustment, just the pensions, right? But overall, it is pretty similar, so it doesn't really distort too much the numbers. Okay. So then in that case, I need to come back to you a little later offline, maybe why EUR 2.82 billion is what I'm coming with at the end of the first half basing it off EBITDA after exceptional for the last 12 months, including pensions on the net debt. And just to get a sense of if I just add in, if I base the take the LTM EBITDA of CHF 895,000,000 at the end of the first half and if I just add in what you've indicated is the EBITDA for the SABIC High Performance Materials business, which is coming in, I come up with something like $1,300,000,000 or just under that. And so it sounds to me like there is a lot more other than just the synergies also, which is coming in from the growth prospects elsewhere. So my difficulty is when you what was what is in there now, for instance, with respect to the other businesses, for instance, which wasn't there until the first half. So what's the big change that has happened considering that you're not yet taking into account any sort of synergies, for instance, that you may have from greater cooperation with SABIC? Yes. I think you're highlighting one element is that the EBITDA growth of the new High Performance Materials being the combination of our Altice and High Value Masterbatches and the Commerce Polymers from Stabic is actually creating a player which will increase its profitability quite significantly, passing from EUR 3,000,000,000 to EUR 4,000,000,000 in terms of sales and increasing EBITDA margin from around, let's say, €20,000,000 or €19,400,000,000 as it is today or 2017, actually, it's higher today. Then to the 24%, 25%, we are guiding for 2021. That obviously from the numbers is not really reliant on the synergies, it is much faster than the synergies. And this progression has started already in 2018 and is continuing 2019 by the time we made those pro form a numbers to indicate the leverage because we expect the transaction to close by end of 2019, so on actual 2019 numbers, if we get the regularity approvals by that time. So you have a margin progression between the last 2017 and the actual point of integration of the business. And then you still have quite a significant project in 2020, 2021, new capacities both on the Framatile sites, for instance, and our waxes, for instance, but also on the particularly the DEI part of the new SABIC business come are coming online and are shifting profitability as those products have actually the highest margin within the portfolio. So there's an intrinsic growth and improvement of profitability in that business, independently from connections. Okay. Thank you for that. I just have one other question. If I took the 4 out of 12 board members as an indication, is that to mean that a third of the company is what SABIC is looking to own? And also in that case, can I understand if you will be looking to raise financing with respect to the payment that you will look to make to SABIC? Or will you look to kind of raise it from the P and C sale that you're also looking to do at in that similar time frame? Yes. I think from the first question on the Board membership, I think the 4 seats represent thought effectively a third of the new Board number. That's a number which has been basically agreed and discussed for a few months independently of what is the actual level of SABIC wanting to ultimately have in client. I think there's no indication for that. We just have, as you see today in the SABIC release, the confirmation of the intention not to take over clients. But then to which level they ultimately want to settle is up to them. Frankly speaking, their governance is regulated as it is. And they are currently and will be and continue to be core anchor shareholder. I've just asked the families of the pharmacy, GMEA. So that is the stability we now have, but it's not directly correlated to a percentage of ownership of shares per se. Now looking at your financing question, I think we'll probably not have an exact timing of having the utilization payment being done on the moment that we divest the 3 businesses we talk about. And therefore would have basically a zero sum game. I think we probably will have some temporary financing to be done as we will progress in the divestment as they go along to maximize value without any pressure on time. And on the other side, try to focus our attention to get the new business in, so finalized negotiations, including valuation by June 2019 and then get the business on board by 30 or end of 2019. So from that point of view, you'll have a cash out, which is pretty much hopefully by the end of 2019 as earliest, and the cash in will be a middle staggered approach. So there might be some interim financing there. But overall, that will be not a real topic, I believe. Thank you for those. I will get in touch offline for the rest. Thank you. Perfect. Thank you. Ladies and gentlemen, this concludes today's conference call. Should you have any further questions, which we couldn't answer due to time reasons, we will see many of you during the next days. Otherwise, the Clariant Investor Relations team is also available should you have any additional questions. So once again, thanks for joining the call today. Have a good day, and bye bye. Ladies and gentlemen, the conference is now over. Thank you for choosing CarsCall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.