Clariant AG

Thank you. Ladies and gentlemen, good afternoon or good morning.

My name is Anja Pomrehn, and I welcome you to Clariant's full year 2018 results conference call and live webcast. Joining me are Ernesto Occhiello, the CEO of Clariant; and Patrick Jany, the CFO of Clariant.

As a reminder, this conference call is being recorded. [Operator Instructions] There will be a Q&A session later.

The slides for today's presentation, they can be found on our website, along with our media release and financial review. And I would like to remind the participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties.

Listeners and readers are therefore strongly encouraged to refer to the disclaimer, which is part of today's presentation. Let me now hand over to Ernesto to go through the highlights of 2018 on Slide number 3.

Afterwards, Patrick will discuss the results in more detail. And Ernesto will then finish the presentation with some Clariant insights and the outlook.

Ernesto, please.

Thank you, Anja. Ladies and gentlemen, good day.

It is my pleasure to welcome you to Clariant's 2018 Full Year Results Conference Call. In the year 2018, Clariant achieved its guidance for 2018 and delivered a good sales delta and a higher profitability in comparison to the previous year.

Furthermore, our operating cash flow rose significantly versus last year's figure, and we achieved a very strong step up in net income in the full year 2018. Let us go through the highlights of 2018 together.

For the full year, Clariant continued to grow sales organically by 5% in local currency year-on-year. The sales growth was driven by increases in all business areas, particularly Catalysis.

This increase was driven by both higher volumes and prices. The absolute EBITDA before exceptional items increased by 5% in Swiss francs to exceed CHF 1 billion, the highest result since 2004.

This positive development was primarily attributable to Care Chemicals, Catalysis and Plastics & Coatings. The corresponding EBITDA margin before exceptional items advanced for the ninth consecutive year, reaching 15.4% for full year 2018.

The net income again rose in double-digits, namely by 18% to CHF 356 million, while the operating cash flow grew by a noteworthy 24% to CHF 530 million. Based on these solid results, the Board of Directors decided to propose an increased dividend of CHF 0.55 per share, which is 10% above the previous year.

The distribution is proposed to be made from the capital contribution reserves. I will now hand over to Patrick for the discussion of the results in more detail.

Thank you, Ernesto. Ladies and gentlemen, good afternoon.

Let us move on to Slide number 4. In the full year 2018, Clariant's 5% organic sales growth in local currency was driven by higher sales delivered by all business areas.

Increased volumes contributed 2% to the advancement, while price improvements positively impacted sales by 3%. Given the negative 1% currency impact, full year sales growth in 2018 was 4% in Swiss francs.

In the fourth quarter of 2018, sales increased by 3% in local currency, with a positive contribution from pricing of 4% and a negative volume contribution of 1%. The sales growth in local currency was mainly driven by Catalysis and Natural Resources.

Sales declined by 3% in Swiss francs, due to the unfavorable currency fluctuations of 6% in this quarter. On Slide 5, we see that all regions reported positive sales growth in local currency in the full year 2018.

Latin America delivered double-digit growth of 12%. This very robust performance was followed by Asia-Pacific, where sales grew by 7%, largely due to China and India, and despite the challenging comparison base in the previous year.

Sales in North America increased by 5%, while both Europe and the Middle East & Africa reported sales growth by a solid 2%. In the fourth quarter of 2018, the Middle East & Africa region reflected a significant sales expansion of 15%, driven mainly by Catalysis, while sales in Latin America rose by a robust 9%, supported by Oil & Mining Services.

Sales in North America grew by a solid 3%, while Asia-Pacific only grew by 2% due to a slowing in China. In Europe, sales actually decreased by 2%, due in part to the strong comparison base in the same period of the previous year and the softening in Germany, which started in the third quarter.

Reviewing the figures of the business areas for the full year 2018 in more detail. Starting with Care Chemicals on Slide 6.

In Care Chemicals, full year 2018 sales growth was about our expectations at 7% in local currency year-on-year. This progress was achieved by advancement in both Consumer Care and Industrial Application.

The Consumer Care business delivered attractive sales growth with progressive contributions from all 3 business liens: Personal Care, Home Care as well as Crop Solutions. While Home Care sales grew at a double-digit rate, both Personal Care and Crop delivered good high single-digit sales growth.

Industrial Applications sales grew in the mid single digits. In the fourth quarter of 2018, sales in Care Chemicals increased by 1% in local currency and decreased by 4% in Swiss francs, due to unfavorable currency fluctuations.

The sales growth was reported by the Consumer Care business, while Industrial Applications had a slightly negative growth. The full year 2018 Care Chemical EBITDA margin before exceptional items increased to 19% from 18.4% in 2017 to, therefore, reach the upper range of our 2018 margin guidance of 18% to 19% for the business area.

This positive development was primarily the result of the good top line growth, operating leverage and an improved product mix. In the fourth quarter of 2018, the EBITDA margin before exceptional items softened to 17.7%.

This margin reduction was mainly attributable to the decline of the Aviation business in Europe during this period as well as some temporary capacity outages in Asia. Moving on to Catalysis on Slide 7.

Sales in the business area Catalysis expanded by 11% in local currency in the full year 2018. Organic sales, excluding the fully consolidated SUd-Chemie India joint venture, as of the second quarter of 2017, rose by a good 8% in local currency, primarily due to the very strong demand in Syngas and a good progression in Specialty Catalysts, while Petrochemicals sales remained flat year-on-year.

This sales development benefited from robust demand in Asia, primarily attributable to China as well as in the Middle East & Africa and Latin America. In the fourth quarter of 2018, Catalysis saw a pick-up in demand for Petrochemicals, Catalysts and some forward product shifts from the first quarter 2019, which underpinned the 9% sales growth in local currency.

The full year 2018 EBITDA margin before exceptional items developed as anticipated and this reached to 23.1% from 25.8% in the previous year. This was mainly due to the product mix, which remained largely unchanged throughout 2018.

The proportionally higher sales from Syngas compared to the last year as well as a negative contribution from the new business line Biofuels & Derivatives, lowered the EBITDA before exceptional items, hence resulting in a margin which was moderately below our guidance of the year. Adjusting for Biofuels & Derivatives, the EBITDA margin would have actually been within our guidance range.

In the fourth quarter of 2018, the more favorable product mix towards the end of the year with a higher percentage of sales contribution from Petrochemical catalysts, results in increased EBITDA margin before exceptional items to an excellent 29.1%. On Slide 8, we see that sales in Natural Resources rose by 8% in local currency in the full year 2018, reflecting accelerating sales growth in the second half of the year.

The Oil & Mining Service business reported double-digit sales growth for the full year in a slowly improving market environment. The business units saw a large demand recovery, particularly in Latin America and Asia.

Functional Minerals delivered single-digit sales growth in local currency, primarily driven by Foundry. From a geographic perspective, the positive development in Functional Minerals was most pronounced in Europe and in Asia.

For the fourth quarter of 2018, sales in Natural Resources climbed a strong 11% in local currency and remained unchanged in Swiss francs due to unfavorable currency fluctuations. Both the Oil & Mining Services as well as the Functional Minerals businesses contributed to the growth, double-digit and single-digit, respectively.

In the full year 2018, the EBITDA margin before exceptional items lessened to 12.8% from 15.3% in the previous year, due to the unabated price consciousness in the oil market and the lower contribution from Functional Minerals' Purification business compared to the previous year. In the fourth quarter of 2018, the EBITDA margin before exceptional items decreased to 12.9%, amid an ongoing competitive environment in the oil industry and a strong comparable fourth quarter last year.

The Oil & Mining Services has finished strong and has improved its cost base. Hence, as anticipated, the second half of the year already showed an improvement in the margin versus the first half.

Slide 9 reflects the development in Plastics & Coatings, where sales grew by 1% in local currency for the full year of 2018 against a very strong comparison base. In Masterbatches, the sales growth in local currency was underpinned by increased demand in Latin America and Asia.

Sales rose mainly in Consumer Goods and Automotive. Moreover, Healthcare Packaging reported an attractive sales development in 2018.

Sales in Pigments remained flat, but still grew in Latin America and Asia, driven by China and Japan. On a business line level, Coatings and Plastics reported continued sales growth.

Additive sales remained very strong, supported by all business lines and by solid demand in almost all regions, North America, China and Europe in particular. In the fourth quarter of 2018, sales in Plastics & Coatings were 3% lower in local currency and 8% lower in Swiss francs due to unfavorable currency fluctuations.

The softening in Asia and Europe, already witnessed in the first quarter of 2018, was the main reason for the slowdown in the fourth quarter. The full year 2018 EBITDA before exceptional items in Plastics & Coatings grew by another 6% in Swiss francs to CHF 412 million year-on-year, despite a strong previous year.

This profitability improvement was primarily attributable to Additives and Masterbatches and some income from Stahl. In the fourth quarter of 2018, the EBITDA before exceptional items of CHF 71 million was at a comparable level versus the same period of last year.

Let us now move on for the discussion of the financials on Slide 10. In the full year 2018, the EBITDA before exceptional items of the group rose 5% in Swiss francs to exceed CHF 1 billion, the highest result since 2004.

The absolute profitability improvement was attributable to the positive contributions from Care Chemicals, Catalysis and Plastics & Coatings. The corresponding EBITDA margin before exceptional items advanced to 15.4%.

This represents a margin expansion for 9 years in succession. Moving on to Slide 11.

In the fourth quarter of 2018, the EBITDA before exceptional items decreased by 2% in Swiss francs to CHF 253 million as a result of a slowdown in China and Europe. The corresponding EBITDA margin before exceptional items advanced to 15.5% from 15.3% due to the excellent profitability in Catalysis, which more than compensated for the profitability softness in Care Chemicals and Natural Resources.

The EBITDA in the fourth quarter was impacted by various effects, which largely offset each other, including those of a new sales recognition process, high inflation adjustments in Latin America, devaluation of inventories, particularly in Care Chemicals and Natural Resources, and Stahl. The excellent net income expansion can be seen on Slide 12.

Net income climbed 18% to CHF 356 million in 2018, primarily as a result of the improvement in absolute EBITDA below our one-off costs as well as a lower effective tax rate. Clariant's net income has increased on average by more than 13% per annum between 2014 and 2018.

Please turn to Slide 13 for the discussion of the operating cash flow development in 2018. The operating cash flow increased significantly to CHF 530 million.

This represents a 24% increase versus the previous year, due to the progression in absolute EBITDA and a significantly improved net working capital management. This strong development in particular, is particularly noteworthy given the one-off tax settlement amounting to CHF 83 million paid in the first half of 2018.

Adjusted for this tax settlement, 2018 operating cash flow would have totaled CHF 613 million, almost reaching the level attained in 2016. I will focus on Clariant's dividend development since 2014 and the proposed dividend in '19 on Slide 14.

The continued improvement in performance allows the Board of Directors to propose a dividend of CHF 0.55 per share to the Annual General Meeting to be held on the 1st of April 2019. This reflects an increase of 10% compared to the previous year and an increase of approximately 9% per annum since 2014.

This distribution is proposed to be made from the capital contribution reserves, which is exempt from Swiss withholding tax. Going forward, Clariant's dividend policy remains unchanged, and that is to increase or at least maintain the absolute dividend in Swiss francs.

With this, I hand back to Ernesto.

Thank you, Patrick. Ladies and gentlemen, after going through the financials of last year, I would like to focus a bit more on the future.

On September 18, 2018, Clariant announced a step change into higher-value specialties by not only announcing the collaboration opportunity between Clariant and SABIC, which will lead to the creation of a new business area of high-performance material and the divestment of the remaining Plastics & Coatings business area, but also by announcing an updated strategy for the various Clariant businesses. Therefore, I want to explain to you what Clariant will further address to foster the progression.

For this, let us move to Slide 16. Clariant is a focused and innovative specialty chemical company, and our aim is to provide more than just customer-oriented products.

We strive to provide the best customer experience and fast, reliable customer fulfillment within the industry by setting the right priorities, because it is our aspiration to make the customers more successful. Starting with today, I will always provide you with an example of how Clariant addresses customer experience and fast, reliable, customer fulfillment, which is a step beyond of us being customer-oriented.

So let me start by giving you the first example from Personal Care, which reflect how we address customer experience. Therefore, please move to Slide 17.

One of the essential requirement to be successful in Personal Care is the ability to identify natural and renewable ingredients, which match the trend of naturality, health and safety. Many of our customers try to follow this trend.

However, the reality is that whenever an existing synthetic ingredient is exchanged with a natural one, often the entire formulation of the respective product must be adapted. You might read silicon-free on a bottle, but in effect, by exchanging one ingredient for another, it is often necessary to add another synthetic ingredient due to the formulation change in order to achieve the same performance, the same texture as well as a comparable feel of the end product.

Consequently, at the conclusion of the process, one synthetic ingredient was exchanged for a natural one. However, in order to achieve an equivalent texture and feel of the newly formulated end product, it was necessary to compensate with one or even more additional synthetic ingredients.

As a result, there is often no decline in the number of synthetic ingredients in the end product. With the example of Genadvance, we have made an effort to identify one of the next outstanding concept in advance of our customers.

Genadvance addresses naturality and identifies specific formulations and product formats, which allow us to effectively remove and/or reduce the number of synthetic ingredients present in a product and exchange them for natural ingredients without adding other synthetic ingredient. With our outstanding formulation know-how, we can actually reduce the number of synthetic ingredients and exchange them exclusively with the natural ingredients without compromising on performance or even improving it.

Concurrently, Genadvance has a superior ecological and sustainability profile, which I will elaborate in more detail on the next slide, Slide 18. Genadvance Hydra, for example, is a natural moisturizer with an exceptional improved after-feel, especially on damaged hair.

It is 100% naturally derived, silicon-free, and it is biodegradable within only 10 days. It's biodegradability is therefore 2 to 3x faster versus traditional products for this application.

Furthermore, while a traditional conditioner consists of up to 95% water, a Genadvance conditioner soap bar barely contains any water. Hence, there is a significantly lower water requirement during the production process.

With that you can create formulation and formats that meet unusual needs. This formulation innovations and the advantages that the products not only require significantly less water during the production process, but the new formats, such as bars and powders, also reduce the volume and packaging needed.

This is particularly convenient for customers who travel, given the reduced packaging size, the lighter weight and the fact that the end product is no longer in liquid form, thus the product can be taken in your hand luggage when boarding a plane. On Slide 19, you can again see the significantly enhanced performance of another Genadvance project line, Genadvance Repair, as well as our formulation expertise using natural ingredients.

With the application of our technology expertise, the performance of the original formulation was exceeded while using 20% less active ingredients. Overall, this can lead to up to 25% cost saving in a production process, and hence, making it financially and also ecologically very attractive.

Remaining with the topic of Personal Care, I've just now elaborated on one example of customer experience by which we strive to identify and capture the next bestseller concept which will provide our customers with a competitive advantage. However, we also want to accompany our customers into the next business cycle by being a step ahead of the market developments and demand requirement.

Let me explain to you why we think that we are going to be successful on this topic. Firstly, we try to put ourselves into the shoes of our customers to anticipate what they are looking for and what requirements they intend or need to fulfill with their own customers.

Secondly, we maintain a regional organization within Personal Care which examines and anticipates a requirement at the respective regional level. Thus, we have more people in the market at a regional level who are keeping their eyes and ears open to identify potential customer needs.

The records will allow us to translate future trends into products at much faster rate. This leads me to the second example of customer experience, which I would like to share with you now.

Agility and the ability to facilitate a fast market introduction of rewarding, innovative and quality products with first-class reputation and capabilities. To discuss this topic in more detail, please turn to Slide 20.

Agility and the ability to facilitate a fast market introduction is a key concept when operating in the area of Personal Care. It's a market that is driven by customer pulsation.

Therefore, it is imperative to reduce development of formulation time. Rather than waiting until we receive a mandate from a customer and then start formulating, we already have various product formulations available under Essence by Clariant.

We have detected a trend towards transparency within the industry and we, therefore, delineated an entire platform development which we can provide to certain end-users of our products, the vloggers. These vloggers are increasingly being used by our customers as a proof point to determine if a product formulation or even format is going to be successful as these channels are widely used by our customers and consumers.

We are on one of the first, if not the first, ingredient supplier to use these social channels to establish the value proposition of several of our products as they reflect our formulation experience and capabilities. The impact and the reach of such vlogger messages is fast.

Where, when our customers see such positive feedback from the vloggers, they will approach us wanting to have a product very quickly as time and speediness is vital for their business. As we already do have different formulation and formats available prior to the posting of the vlogs on social media, we are in position to provide a specific product formulation very quickly.

In addition, we already have different product formats available which will not only provide our customer with a competitive advantage, but will also help us to generate value for ourselves as well as to our customers. If you are interested in watching some of these V-log videos, please click on the links at the bottom right of this slide to access some of these videos, or alternatively, type in Essence by Clariant.

Now let us progress to our outlook. For this, please move on to Slide 22.

As just elaborated, Clariant is a focused and an 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 stronger cash generation.

With that, I turn the call back over to Anja.

Thank you, Ernesto. Thank you, Patrick, for taking us through the achievements and the progression of the full year 2018 and the fourth quarter results as well as for providing us with some exciting insights to Clariant's way forward, which offer great opportunities and excellent possibilities for the years ahead.

We therefore would now go into the Q&A session. Operator?

A couple of questions from my side, please. First of all, your de-icing activities in Q4 were hampered by weather obviously.

Do you see a better performance in this quarter from what you can say so far? Second of all, with respect to China, what are your salespeople in the field saying about the order book after the end of the New Year celebrations?

Because I guess, for you, China has been rather exceptionally weak, December, January into the New Year celebrations. And then a third question, in Catalysis.

I would not expect that your core margin will be sustainable. But looking at your current business set-up, is a more sustainable margin somewhere in between the Q4 and the full year margin?

Thank you very much, Christian. I'll take your questions in the order.

Indeed, I think the de-icing business in Q4 was a bit weaker, particularly in Europe. It's actually quite good in the U.S.

But as you know, the margins typically are high in Europe, and therefore, we had a, compared to the previous year, this favorable EBITDA effect, although sales were more or less at the same level. If you look now into Q1, obviously, we don't guide on Q1.

And it's not over yet, so we still hope for a lot of cold weather going forward. But I would say, it hasn't started bad.

And that the Q1 last year, 2018 was actually very good, so we have a high previous year basis, but for now, I think there is no reason to believe that we would be substantially deviating from that. Now looking at China.

Obviously, we had a negative sales evolution in Q4 2018, minus 3% in a single quarter, which is a stark contrast of the quite high growth which we had at the beginning of the year. But as you remember, they were mainly driven by Syngas, accumulation of Syngas sales which came into Q1 and Q2 in terms of deliveries.

So it was a bit too high, I would say, in the first half and then consequently came down in Q3, Q4. Looking at 2019.

I think we have to wait until life restarts in China after New Year. It just finished down.

Basically, you need a few weeks for the industry to restart and that level of demand after restarting, after Chinese New Year will be determining really the pace of the year in China. So it is, for us, not totally clear in terms of numbers.

We'll have to wait. Typically, you have to wait until end of February, early March to get the pace, and we'll have to wait for that.

But I would not think that we will see a major disruption here. We had seen in Q4, if you refer more to what we know, a slowdown in some industries, automotive-related and construction, but it was not an overall general winding down of business, yes.

And then we'll be able to tell you more in Q1, but I think it won't be a major disruption. Now looking at then Catalysts and its level of profitability.

You know that Q4 is the highest level of profitability for Catalyst during the year. Q4 is the peak in sales and profitability.

This was even enhanced this year by some Petrochemicals orders being pushed forward into '18, so that helped a bit Catalyst by the end of the year. But overall, we totally maintain our guidance, as you know, for the Catalyst business, on its own of 24% to 26%.

And if you look at our 2021 guidance, further progress in innovation and the new biofuel derivatives that we have in margin guidance, which is then between 26% and 30%, yes. So from that point of view, we will look forward the next few years of further margin improvement in Catalyst.

I'll also take 3 questions, please, if I may. The first one would be on the corporate costs in Q4, which were very low compared to the previous quarter's run rate.

Can you explain a bit what happened here and if anything changed on the underlying run rate going forward? Second question, around cash flow and net working capital.

I would have expected a bigger reversal after the massive outflow in net working capital 2017. Is that all?

Is that a result in line with your plan or would you have hoped to see a bit more as well and how do you think about 2019? And last question, around Catalysis, actually around the licensing income for your second-generation bioethanol.

Is there anything happening in terms of contract activity or revenues that were recorded in 2018 and Q4?

Thank you, Patrick. So starting with the corporate costs.

I think corporate costs in Q4 particularly were a bit lower than usual indeed. However, on the yearly level, we have the CHF 90 million we actually guided for.

So you know that, in 2018, for the first time, we have transferred the costs of our second-generation biofuel operations away from corporate, research and corporate cost and moved them as an activity now within Catalysis. That explains that we come down from the CHF 100 million, above CHF 100 million levels to the CHF 90 million levels we're in today.

So on the full year, we are totally in our guidance. Q4 has always some, here and there, some little one-offs, so it was a bit lower may be than you would have expected.

I wouldn't take the Q4 as a run rate, but I would take the yearly figure as a run rate, right? Q4 had a bit of income from Stahl and other elements, so I would take the full year figure as a solid figure looking forward.

Looking at the cash flow. Well, actually, we're quite happy about our cash flow, frankly speaking.

It is in terms of net working capital in percent of sales, a 17.3% level which is the best in many years. So from that point of view, we are quite happy about the effort that the businesses did to revert from the quite dismal December 2017.

So from that point of view, quite happy, particularly in the work in receivables, which is a good level of control, particularly when you know that the economy in some areas is slowing down a bit with a bit of uncertainty. It's in my view very important to collect your outstandings swiftly, that's what the people have done, so it's a nice measure and nice effort.

Are we at the best in returning capital? No, certainly not.

But I would say that having your net working capital reduction in absolute numbers in a year where you grow the group by 5.3% is actually quite nice. So we have overabsorbed the growth, which would have led to an increase, and we have actually overreversed this with a reduction.

So really would like to stress, it's actually quite a nice result. Now looking forward, we probably will have a growth in net working capital according to sales.

I think we, however, we can still be better particularly, I would say, in inventory, a lot of work in some of our businesses is still and will be focusing even more on supply chain, particularly inventory management. So I wouldn't say, we're at the end and our net working capital management is optimum, but I wouldn't understate the achievement that the people there did in the end of 2018, but more to come.

Now when you look at the Catalyst business, and on the license income, particularly you were mentioning, there hasn't been too much income, basically nothing I think in 2018 in terms of licenses. We are, however, very actively looking at diverse prospects.

So if you look at 2018, you really have the cost element shifting down from corporate costs and therefore, pushing a bit down Catalysis in terms of ratios because there wasn't too much income in 2018. Looking forward, we expect to probably have some success in signing some licenses before the plant is operating by mid- 2020.

So there could be something this year. And more importantly, I think we have a strong, strong feedback from the market, that once the plant is operating, there is a real demand for this.

So we will see how much can be shifted or signed before we can actually show the first-of-its-kind plant operating. But I think we are very optimistic in terms of actual demand for the development of the business plan post 2020 when we are onstream in the market.

The first question I heard what you said on Aviation, and I'm looking at the first quarter comp, and you pointed out, obviously, you had a strong quarter, but a lot of that was U.S. which you again alluded to was lower margin than Europe.

So I'm just wondering the Consumer Care margin, given you had other issues in Q4, how you see that develop as we start the year? And then secondly, on the working capital, again, hearing the comments on working capital.

But on the cash itself, the inflow, the operating cash inflow, I think post financing in the second half last year was actually pretty much where you targeted, actually it was very similar to the second half of 2016. And looking at 2019, bearing in mind what you're saying on working capital, there might be more to go, how you see the operating cash flow to sales ratio?

Is it going to be something that's going to be much more like '16 and '18, so you can still develop on that number?

Yes. Thanks for the question, Peter.

So the Aviation business and it was strong in Q1 of 2018. You're absolutely right, it was particularly strong more on the U.S.

side, so helped the sales, the margins. We'll have to see obviously how Q1 finalizes.

As I mentioned the start of the season and which means now Q4 we are reporting on was effectively in the same pattern that the U.S. was stronger than Europe and therefore, not favorable to our margins.

You should also see in the slight lowering of the margin in Care Chemicals in Q4. I wouldn't guide now on Q1 margin of Care Chemicals, we will wait how the quarter goes.

But I would say that, we don't have a reason to be particularly alarmed, the Care Chemical business is, as you know, driven as well by Personal Care, by Crop Solutions, which have had a finance advance in 2018. And we look forward to actually continue with this growth of those businesses.

I think we guided or we reported on high single-digit growth in 2018, both for the Personal Care and the Crop Solutions segments, which, as you know, are margin-intensifying. So I think Care Chemicals will have a natural progression of its margin also in 2019.

And the exact impact of Aviation, we'll have to see when the season is over. When we now look at the cash pattern.

Indeed, I think the cash '17 is an anomaly and the second half as we reported on. And if you take the 2016 and now the 2018, you have a good view on the cash post seasonality, first half, second half, it comes more so on the second half of the year.

And we look forward to how those level of cash generation looking forward. We're not at the end of the journey, as I was mentioning before.

But cash generation has to come to 2 improvements, one is absolute EBITDA and the other one is further improving the working capital, particularly in inventory. But certainly, the pattern of '16 and '18 is a more, or is a good base to extrapolate your simulations for the years to come, and we're optimistically can increase the cash flow going forward as well.

Three, if I may. So the first is, I was wondering if you could potentially quantify the impact of the outage of some of the plants you had in care chem.

And my second question is on industrial specialties and care chems again. It seems that in the fourth quarter, you had negative growth.

So now coming into the first quarter, I'm wondering if you're seeing any trends that's changing or is it becoming worse? And my last question is actually an update on your, I think it's your PDH plant in the Catalysis division.

Is that still ramping up? And should we expect that to contribute to growth in 2019?

Thank you for your questions. So yes, indeed, you have seen that Care Chemicals had a very good year in terms of margins, so we are now about 19%, which is nice.

But Q4 was a bit lower, driven, on the one hand, about the Aviation business, which was talked about in the earlier questions, but also by outages in Asia, particularly I would say, a standstill in our plant in China for Personal Care and Industrial Applications here specific for the Chinese market as we had an interruption from our supplier in terms of infrastructure, steam and energy, but we are now fully back up and it's running fine, but it didn't help really in, to have this happening in the Q4. Temporary, I would say it can always happen, but if you look at the last 3, 4 months, actually, we have quite a few outages in that part of the world, which didn't help.

And we look at that part as an upside for 2019 when you look forward to continued good demand as we feel it in China for consumer-related Personal Care products. Now where we have seen a decrease is not on the Personal Care and Crop Solutions side, but more on the Industrial Application, indeed, which are more GDP-dependent.

And as you've noted, we have reported a growth in our Consumer Care businesses, I was alluding before in high single-digit for Personal Care and Crop in particular. Home Care was actually even higher.

I think it was double-digit, so a very nice evolution there. But Industrial Application has, is more GDP-dependent, and therefore, in Q4, had a slight negative growth.

Aviation was lower from the margin, more or less same level of sales that really came from paintings, Plastics & Coatings, construction, lubricants, all the other areas where we have seen a softening of demand in Europe and in China in particular. I think looking forward, for China, we'll have to see how business rebounds or starts really after Chinese New Year.

It's a little bit too early to make a firm call, but we'll be happy to report on that on our first quarter results. But again, we see that probably more as a softening of the pace, but not as a general wind down, yes.

Compared to your third question on, it's actually on polypropylene plant, our new plant in Louisville for the Catalyst. I think we have now, as you know, solved the technical problems during 2018.

We still have negative impact from the EBITDA double-digit in Catalysis in 2018, and we look forward to erase that impact in 2019. And until 2021, it is one of the factors which contributes to the increased margin in Catalysis as we turn a cost block into actually decent sales with very good margins looking forward.

Okay. Should we be expecting that in 2019 or just sometime between '19 to 2021?

I think you'll see a positive effect on the P&L really in 2019, but the full potential will obviously take more than just 12 months, I would say, to fully impact the P&L. But hopefully, we won't be talking about negative impact in 2019.

It's Chetan Udeshi actually. Just a few questions.

One is on the pull forward of some demand from Q1 into Q4 that you talked about in Catalysis. Is that something we should be keeping in mind in terms of modeling Q1, in terms of materiality of that impact?

Just so we know. And the other question is, can you update us on the CapEx that you guys aim to spend in 2019?

I think you might have the first leg of the spending on the new Romanian plant? So that would be helpful.

Yes. So looking at Catalysis now, we, you know Catalysis is a lumpy business.

So if you look at it on the quarter review, you always have the advantage or the disadvantage of having some demand shifting from one month into the other. What happened in Q4, we actually had a few pull forward, which is always a good sign when the customer demands the product, it means that the underlying demand is not bad.

It certainly helped Catalysis, because there were more Petrochemicals orders, if I'm correct, therefore, helping us on the margin. If you now extrapolate that to 2019, I think we are confident that we will grow in 2019 as well.

How much those deliveries will ultimately impact the pace of growth in Catalysis? We'll have to come back to you and see how the order book develops during the year.

But I would say, we look forward to actually decent growth in Catalysis for 2019 as well as in other businesses as well. So from that point of view, I think it is fine.

Looking at the CapEx, yes, we had some, we expect to have some more significant CapEx in this year, because, as you rightly mentioned, the big investment now from our bioethanol plant is coming up for this year. We also have some different expansions in Care Chemicals.

And as you know already, our doubling of capacity in additives. So we are guiding on above CHF 300 million, we always guided CHF 300 million and CHF 350 million when we have big projects, so I would see that at the upper end of that range because we do have big projects in 2019.

And if I can follow-up with, you guys haven't given any data on the SABIC's high-performance material business. Can we get a sense of how it has been doing in general in Q4 and into 2019?

Because most of the peers in general have seen weaker end markets, so some of those margin numbers that you guys had given in 2017, 20%, is that realistic in the current environment? That will be helpful.

As you can imagine, we cannot comment on this because this is a SABIC business, and therefore, we are not privy to information or wherever we have some information, we are not allowed to share it.

Three questions as well. First of all, I'm coming back to the Care Chemicals and the oil and service, mining services business, there in terms of force majeure globally is for, in particular ethylene oxide-based value chain and they had lots of logistical issues in Europe in Q4.

Have you seen any kind of negative effect from the supply interruptions either from higher spot market prices and this higher raw material costs or supply issues? That's first question.

The second question is on, again, on this High Performance Materials, can you at least give a range where you might sign this compensation? Is this more of something we should expect for April, May or is it something for the third quarter?

And then lastly on, again, on Oil & Mining Services. You're stating ongoing competitive oil chem, ongoing competitive environment for the oil chemicals.

And then should we expect that this is changing? Because yes, of course, more long-term contracts, 1-year plus, so clearly we should see an improvement from higher product prices than the positive effect on the margins.

Is this a fair assumption that we really see this in the first half of 2019 or is this more back end loaded for the second half of this year?

So let me address the HPM question first, and the reply here is that we confirm our guidance, that is that we do expect to sign in, within Q2 of 2019. And I turn it to Patrick for the other 2 questions.

Thank you, Ernesto. So on your question on Care Chemicals and difficulties of supply, given the outages and so on.

I think the only outage we really saw was the one which we described earlier on in China because of the industrial parkway. And we haven't been affected by the Rhine water levels or other stuff.

I think, clearly, raw materials per se have risen during 2018. This was a common thread throughout the year, but we have been able to compensate that with price increases, so no real impact on the P&L.

And it has had sometimes some logistical difficulties. You had, for instance, in the U.S., increased logistical cost because there were various trucks on the road, that happens, but not a major disruption which really would have impacted too much our results from that point of view.

So looking forward, we would probably look at a more relaxed situation from that point of view, a smoothening out of eventual potential tightness here and there in the logistic chain and probably, a smoother 2019 than 2018 from that point of view. We already mentioned Oil & Mining, because that's certainly a business which is growing as we had guided it.

It has shown a very nice performance now in terms of growth in the second half of 2018. You know we had guided for it at the early of the year, 1 year ago.

And I think our guidance for 2019 is a continuation of growth in Oil & Mining with profitability, as guided before, ramping up on a 0.5-year basis. Even in 2018, actually, if you look at the second half, we are slightly more profitable than the first half.

I think around 50 basis points or something. And if you look forward to 2019, we would continue to guide as we have already that the first half of '19 should be more profit than the second half of '18, the second half of '19 will then be again more profitable, which allows us really to progress in terms of margin and to confirm our guidance in 2021 that we are back to this 16% to 17%, which is a level where we were and we, now we have to go back, so we are progressively, first of all, we saw the return of demand, new contracts with good margin being concluded.

And we see, therefore, progressively an improvement in the margins of that business as well because we restructured quite significantly actually the business which impacted the one-off costs, but also the margin of Natural Resources in the fourth quarter because we spent a bit of money in cleaning out here the business, particularly in the U.S., and that will favor our margins looking forward. So overall, Oil & Mining, on the path to recovery, driven by higher sales which progressively translate into higher margin.

So if you look at 2019, we'll have growth in Natural Resources. We just mentioned, we'll have growth in Care Chemicals as well and in Catalysis, as we previously described.

So overall, well, I would say we are looking forward for further year of progress in terms of sales, profitability and cash flow generation as well.

Might I ask a clarification question on the first one? And on the ethylene oxide-based value chain, I noted you are backward-integrated in Gindorf, but I suppose you are still buying on the spot market and spot market pricing here has been up quite substantially in the fourth quarter.

So, and therefore, I'm partly estimating and cannot reflect there and that you said you were able to pass on the higher raw material costs. But maybe you can clarify this for me.

Yes. We actually have almost 0 on the stock market.

You're actually right. In Gindorf, we are backward-integrated.

We do our own ethylene oxide, backward-integrated into a refinery which is not too far away from there. And then on the other places, Spain, Brazil, U.S., China, we have long-term contracts with local providers pretty close to our own plants, so the prices are typically multiyear contracts based on formula prices and move on a quarterly basis and do not reflect spikes in the spot market.

Noted.

To emphasize that as of next year, our investment in Gindorf will...

Will become active and therefore, we are going to have additional capacity of ethylene oxide locally.

Ladies and gentlemen, this concludes today's conference call. I do apologize that we do not have time to respond to all questions in the queue.

However, the Investor Relations team is available for additional questions that you may still have, and we will see many of you during, throughout the coming weeks. So many thanks again for joining the call today.

Have a good day, and bye-bye.