Sales from continuing operations decreased by 5 % in local currency to CHF 1.945 billion
• EBITDA margin improved to 15.0 % compared to an operational performance of 14.9 % in the first half of 2019
• Net result for the total Group improved to CHF 90 million
• Operating cash flow at CHF 89 million
• Outlook: 2020 results will be impacted by the COVID-19 pandemic; focus will therefore be on mitigation and cash generation
“In the first half of the year, our continuing operations were particularly resilient and showed a strong performance in an admittedly challenging environment. Particularly the second quarter was negatively affected by influences attributable to the COVID-19 pandemic. In this difficult economic environment, our continuing operations even showed an improvement in margins. This clearly confirms the validity of our strategic decision to focus on Clariant’s three core specialty Business Areas,” said Hariolf Kottmann, Executive Chairman ad interim of Clariant. “Despite the uncertainties surrounding the current economic environment, the growth profile of our core portfolio remains undiminished. We will continue to focus on mitigating the impact of this pandemic and will progress with Clariant’s transformation program. This will enable Clariant to realize above-market growth, higher profitability and stronger cash generation.”
First Half Year 2020 – Improvement in EBITDA margin
Muttenz, July 30, 2020 – Clariant, a focused, sustainable and innovative specialty chemical company, today announced first half year 2020 continuing operations sales of CHF 1.945 billion, compared to CHF 2.229 billion in the first half year 2019. This corresponds to a decrease of 5 % in local currency due to lower demand and 13 % in Swiss francs, attributable to unfavorable currency developments.
The Group was confronted by a significantly lower demand environment in several segments in the first half year 2020 as a result of the COVID-19 pandemic. Therefore, these results are noteworthy and underpin the fact that measures to minimize the impact of this pandemic are fully in place based on a strong balance sheet and liquidity position. Clariant continues to ensure employee safety first while concurrently running business continuity programs and implementing cash as well as cost measures.
In the first half year, the Middle East & Africa as well as Asia remained resilient, with China and Southeast Asia demonstrating solid growth. Sales in Latin America increased in local currency, while Europe and North America weakened more significantly due to demand declines across all Business Areas.
In the first half 2020, Care Chemicals sales declined by 6 % in local currency due to weather-related weak Aviation demand in the first quarter, which could not be compensated for by the strong expansion in Consumer Care in the second quarter. The Catalysis Business Area’s top line declined by 4 % in local currency amid the temporarily muted demand environment in the chemical industry, whereas the second quarter improved over the first. Natural Resources was impacted by the weakening end-market demand and pressure on volumes in Oil and Mining Services in the second quarter in particular. This resulted in a sales decline of 5 % in local currency in the first half of 2020.
As a consequence of this economic development, Clariant will resume its efficiency program, originally announced in February 2020. As previously disclosed, these measures will lead to a workforce reduction of approximately 600 positions and a cost base reduction in excess of CHF 50 million for the continuing business over the next two years. A corresponding provision totaling CHF 58 million was made in the continuing Business Areas in the second quarter 2020 for the cost associated with the execution of this program. The second quarter results also include a provision reversal of CHF 55 million at the Corporate level for the reversal of the excess of the CHF 231 million provision set up in 2019 for the competition law investigation by the European Commission as Clariant received a EUR 156 million fine in July 2020.
The continuing operations EBITDA increased to CHF 292 million and the businesses successfully defended underlying margins despite a weaker top-line development. The EBITDA margin improved to 15.0 % from 14.9 % (reported 4.6 %) in the previous year when excluding the one-off CHF 231 million provision, which was booked in the second quarter of 2019. Excluding the provision for the efficiency program, the underlying profitability in Care Chemicals advanced due to a higher proportion of Consumer Care sales while underlying margins in Natural Resources improved as a result of the stringent implementation of cost control measures in all three Business Units. The EBITDA margin in Catalysis declined as the result of lower volumes due to project timing, which developed more positively in the second quarter.
The net result for the total Group increased to CHF 90 million profit versus a CHF 101 million loss in the first half of 2019. Excluding the above-mentioned one-off provision of CHF 231 million, the net result in the first half of 2020 was 31 % lower than the previous year due to volume-driven weaker absolute profit and negative currency effects.
Operating cash flow for the total Group, which is typically lower in the first half of the year, declined to CHF 89 million from CHF 113 million in the previous year despite a considerable improvement in the second quarter. This is mainly due to the timing of net working capital adjustments in the course of the COVID-19 development.
Net debt for the total Group increased to CHF 1.426 billion versus CHF 1.372 billion as of the end of 2019 following the normal seasonal cash flow pattern.
Second Quarter 2020 – Notable improvement in underlying profitability despite weaker top-line development
In the second quarter 2020, sales from continuing operations decreased by 4 % in local currency to CHF 926 million. This corresponds to a 13 % decline in Swiss francs due to unfavorable currency effects. Robust growth in Care Chemicals’ Consumer Care business partially compensated for weaker sales in Natural Resources.
On a regional basis, strong growth in China compensated for the decline in other subregions for an almost flat development in Asia. Latin America increased local currency sales in double digits. Sales in Europe declined in single digits, followed closely by the Middle East & Africa, while the more notable decrease in North America is largely attributable to lower volumes in Natural Resources.
In the second quarter, Care Chemicals increased sales by 3 % in local currency, supported by a double-digit expansion in Consumer Care. The sales development in Catalysis weakened only by a slight 2 % while exceeding the first quarter 2020 result. Natural Resources sales declined by 11 % in local currency, due to lower volumes in Oil Services and weakening demand in Functional Minerals and Additives.
The continuing operations EBITDA increased to CHF 135 million and a corresponding margin of 14.6 %, outperforming the 14.0 % in the previous year, excluding the above-mentioned effect of the one-off provision booked in the second quarter of 2019. Excluding the provision for the efficiency program, the underlying profitability advanced significantly in Care Chemicals due to strong margin management, based on strong top-line growth in Consumer Care and also in Catalysis as a result of a higher proportion of Petrochemical sales. In Natural Resources, the underlying margin reduction is attributable to lower volumes in especially COVID-19-exposed segments such as oil and automotive, which could not fully be compensated for by internal performance measures.
For the first half year 2020, sales in discontinued operations (Masterbatches and Pigments) declined by 9 % in local currency and by 15 % in Swiss francs. However, on a like-for-like basis, excluding Healthcare Packaging sales from the first half of 2019, as this business was divested in October 2019, sales weakened only by a slight 3 % in local currency. In the second quarter, like-for-like sales weakened by 4 % in local currency despite the weak economic environment and by 13 % in Swiss francs due to unfavorable currency fluctuations.
The EBITDA in the first half year 2020 as well as in the second quarter decreased in absolute value partly due to the sale of the Healthcare Packaging business and one-off costs for the efficiency program in Pigments as well as for the carve-out of the discontinued operations. The underlying operational performance, however, increased in both businesses as the result of effective cost management.
Outlook – Third quarter challenged by COVID-19 while performance measures lift portfolio to achieve above-market growth, higher profitability and stronger cash generation in the mid-term
Clariant anticipates a continued negative impact on sales and profitability from the COVID-19 pandemic in the third quarter of 2020. The Group has swiftly installed task forces focusing on employee safety, community support, assuring business continuity and cash generation. Clariant’s three core specialty Business Areas are executing performance programs to generate resilient results during these times and to achieve above-market growth, higher profitability and stronger cash generation in the mid-term.
In addition, the Group is significantly reshaping its portfolio through the divestment of Healthcare Packaging in October 2019, the sale of Masterbatches in July 2020 and is preparing the planned divestment of Pigments. The transformed Clariant will be a sustainable and innovative specialty chemical company that aims to grow above the market to achieve higher profitability based on its three core specialty Business Areas.