Clariant AG

Ladies and gentlemen, good afternoon. My name is Maria Ivek, and I welcome you to Clariant's Half Year, Second Quarter 2020 Results Conference Call and Live Webcast.

Joining me are Hariolf Kottmann, Executive Chairman of Clariant; and Stephan Lynen, CFO of Clariant. As a reminder, this conference call is being recorded.

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

Listeners and readers are, therefore, encouraged to refer to the disclaimer on Slide 2 of today's presentation. A replay of this call will be made available on the Clariant website.

At first, Stephan will go through the results for the first half of 2020. Hariolf will then provide details on the group's strategic direction and the efforts Clariant is undertaking towards a more focused, high-value product portfolio.

Let me now hand over to Stephan to begin with the presentation.

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

It is my pleasure to welcome you to Clariant's 2020 First Half Year Results Conference Call. Please note again that all figures discussed refer to continuing operations, unless specifically noted otherwise.

Also, please be aware that the numbers, which we previously referred to as EBITDA after exceptional items are simply called EBITDA and will be always the first focus when we discuss profitability. In an environment marked by the COVID-19 pandemic, receding global demand and adverse currency trends, Clariant improved its EBITDA margins in spite of a sales decline, thereby demonstrating the resilience of our core portfolio.

As you can see on Slide 3, in the first half 2020, Clariant sales declined by 5% in local currency in a difficult environment. This development was attributable to significantly lower demand in several segments as a result of the COVID-19 pandemic and the weak Aviation business and the Care Chemicals business area in the first quarter.

As a matter of fact, excluding the effect from Aviation, Clariant sales decline would have been minus 2.5% local currency in the first half. In the second quarter 2020, sales decreased by 4% in local currency despite higher sales in Care Chemicals and a comparatively stable development at Catalysis.

Clariant, like the entire chemical industry, is facing an unprecedented situation with the COVID-19 pandemic. Therefore, and within this context, these results are particularly noteworthy and underpin the strong specialty character of our continuing portfolio and the fact that measures to minimize the effects of this pandemic are creating positive impact on Clariant's performance.

Based on a strong balance sheet and liquidity position, we continue to ensure the safety of our employees, our responsibility to our stakeholders and our planet, business continuity for our customers and improved performance to our shareholders. In this context, Clariant will resume its efficiency program, which was originally announced in February 2020.

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 businesses over the next 2 years. A corresponding provision totaling CHF 58 million was made in the continuing business areas in the second quarter 2020 for the costs associated with the execution of this program.

The second quarter results also include the 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 the EUR 156 million fines in July 2020. The EBITDA increased in the first half year 2020 to CHF 292 million despite the weaker top line development and the adverse currencies.

The EBITDA margin improved to 15% from 14.9% in the previous year when excluding the one-off CHF 231 million provisions, which was booked in the second quarter of 2019. Looking at profitability in the second quarter, the absolute EBITDA reached CHF 135 million.

The corresponding EBITDA margin improved to 14.6%, outperforming the 14% in the previous year by 60 basis points when excluding the one-off provision, CHF 231 million in 2019. The total group net result in the first half year 2020, including discontinued operations, was a profit of CHF 90 million versus a loss of CHF 101 million in the first half year 2019.

Our operating cash flow for the total group declined to CHF 89 million from CHF 113 million in the previous year due to the unfavorable currency development and seasonal working capital effects despite a strong contribution from our cash measures in the second quarter. Let's take a closer look at the sales results by moving on Slide#4.

In the first half year 2020, Clariant generated group sales of CHF 1.95 billion. Sales softened by 5% in local currency in a weaker global environment amidst the impact of the COVID-19 pandemic and versus a high comparison base.

The local currency sales development was mainly attributable to the market development, which is reflected by 6% lower volumes, while prices were kept 1% higher. In Swiss francs, the sales were 13% lower as the unfavorable foreign currency development negatively impacted Clariant sales by 8%.

Slide 5 reflects the regional sales development for the first half of the current year. The sales development in Asia as well as in the Middle East and Africa was fundamentally robust, despite a 1% contraction in local currency, with China though growing at 3%.

In Latin America, sales increased the most strongly at 11% in local currency, the development, which was also driven by the devaluation of major currencies in Latin America. Sales in North America decreased by 9% in local currency.

This was due to the mild winter we had -- which had a negative influence on Aviation in the first quarter and also due to the weaker demand environment, especially in natural resources in the second quarter when the COVID-19 impact increased. Europe weakened by 13% in local currency, primarily due to the negative impact from COVID-19 pandemic lockdown measures.

Germany, which is the most significant country in the European region continued to be significantly affected by the weak demand environment. Let's review the business area figures in more detail, beginning with Care Chemicals on Slide 6.

In Care Chemicals, first half year 2020 sales declined by 6% in local currency. The development in Consumer Care reflected high single-digit range sales expansion, underpinned by double-digit growth in Personal Care and robust growth in Crop Solutions With the exception of paints and coatings, Industrial Applications sales were significantly lower, primarily due to the feeble demand environment in the wake of the COVID-19 pandemic and the particularly weak Aviation business in the first quarter, which was driven by mild weather and reduced air traffic amidst the COVID-19 pandemic.

The lackluster environment also resulted in lower construction chemicals, industrial lubricants and base product demand. Sales in the second quarter of 2019 [2020] increased by 3% in local currency, but were 6% lower in Swiss francs.

Consumer Care sales rose at a double-digit rate, strongly supported by increased demand for hygiene-related products. As expected, the Industrial Application sales were notably weaker because of the curb and, in some cases, ceased activities across many end markets due to the unprecedented COVID-19 lockdown measures.

The lower sales and the provision for the efficiency program affected the Care Chemical EBITDA margin in the first half of 2020. This declined to 16.3% from 17.6% in the same period of 2019.

Excluding the impact of the efficiency program provision, the underlying profitability of 18.1% was on par with the first half of 2019. The improvement to the underlying margin at Care Chemicals was even more significant in the second quarter with an increase of 200 basis points due to the growth of the more accretive Consumer Care business, stringent margin and cost management as well as the positive base effects stemming from the force majeure situation in the second quarter of the previous year.

In terms of the short-term outlook, we anticipate a stronger negative COVID-19 impact in Chemicals -- in Care Chemicals in the third quarter of 2020. Mitigation measures are in place to counterbalance the muted demand outlook.

Let's move on to Catalysis on Slide 7. Sales in the business area Catalysis decreased by 4% in local currency in the first half of 2020 against a strong comparison base.

The double-digit growth in Petrochemicals could not entirely compensate for the weaker sales in Syngas and Specialty Catalysts, which were impacted by the muted demand environment in the chemical industry. From a regional perspective, sales in North America and Asia were solid with an increase in China, while sales in Europe and the Middle East and Africa remained comparatively volatile throughout the first half 2020, reflecting the project nature of the business as well as negative COVID-19 pandemic impact.

As anticipated, sales in the second quarter of 2020 improved quarter-on-quarter while weakening slightly by 2% in local currency compared to a strong previous year Q2. Clariant's broad Specialty Catalysis portfolio, which makes it unique in the marketplace successfully, mitigated the negative impact from COVID-19 pandemic-related restrictions.

Strong sales expansion in Petrochemicals partially absorbed lower demand in Syngas and Specialty Catalysts. The first half year 2020 EBITDA margin declined to 17.3% from 19.4% in the previous year as a result of the efficiency program provision as well as lower volume and an unfavorable product mix effect in the first quarter, which could not be fully compensated for by the accretive growth in the second quarter.

In the second quarter, the EBITDA margin increased significantly to 21% from 17.5% due to a higher proportion of accretive petrochemical sales. In the third quarter of 2020, we anticipate a slightly weaker sales development at Catalysis versus the third quarter of 2019, due not only to the challenged economic environment but also due to the lost comparison base.

The fundamentals for Catalysis remain positive based on the present order pipeline, our portfolio strength and our innovation capability. On Slide 8, we see that the first half year of 2020 sales in Natural Resources declined by 5% in local currency.

Oil & Mining Services sales nearly reached the last year's level in local currency, whereby the strong growth in the first quarter was absorbed by the decline in the second. Oil Services sales were slightly weaker, while Mining Solutions and Refinery grew in mid-single digits in local currency.

The sales expansion was most pronounced in Europe and Latin America, supported by solid growth in Middle East and Africa and Asia. North America reported a contraction in the mid-teen range, driven by weaker Oil Services demand in the second quarter.

Functional Minerals sales declined at a mid-single-digit range in local currency as a result of the weaker Foundry business. This decline was primarily due to the shutdown of the European automotive industry and reduced levels of construction activity amidst the COVID-19 pandemic.

Additive sales decreased at a high single-digit rate in local currency in the first half year 2020. This decline was largely due to the continually weak automotive and fibers market paired with the curtailed industrial coating sector demand, which was attributable to the pandemic-induced economic downturn.

In the second quarter, sales in Natural Resources declined by 11% in local currency. As anticipated, oil and mining sales were hampered by the lower consumption of oil and oil-derived products given the global COVID-19 pandemic-related lockdown.

Functional Minerals was confronted with a continued weakness in the Foundry business. Despite the demand pickup in Asia in the second quarter, Additive sales decreased due to the weaker end markets, which were impacted by the COVID-19 pandemic.

In the first half 2020, the EBITDA margin of Natural Resources decreased to 14.2% from 15.6% year-on-year. Excluding the efficiency program provision, the underlying profitability of 16.8% reflected a substantial improvement in excess of 100 basis points, which was mainly due to higher sales and value-added applications in oil and mining and stringent cost management in all 3 business units.

In the second quarter, the EBITDA margin fell to 8.1% from 15.7% due to the efficiency program provision and lower volumes, which resulted from the weaker demand environment and could not be fully compensated by internal measures. The underlying EBITDA was recorded at 14.1% in the second quarter.

Looking forward, in the third quarter of 2020, we expect Natural Resources to be more hampered by a weaker economic environment, which will be heavily impacted by the COVID-19 pandemic. On an absolute basis in the first half 2020, the EBITDA, as you can see on Slide 9, increased to CHF 292 million, and the business successfully defended underlying margins despite a weaker top line development.

The EBITDA margin improved to 15% from 14.9% in the previous year including the impact of the provision of the efficiency program and the partial reversal of the provision for the competition law investigation. The EBITDA margin improvement was driven by Care Chemicals and Natural Resources, while Catalysis slightly declined as the result of lower volumes due to the project timing, which developed more positively in the second quarter.

Similarly, Slide 10 reflects that in the second quarter 2020, the Clariant EBITDA increased to CHF 135 million on a corresponding margin of 14.6%, outperforming the 14% in the previous year, including the impact of the provision for the efficiency program and the partial reversal of the provision for the competition law investigation. This 60 basis point margin improvement is attributable to strong development in Care Chemicals and also in Catalysis as well as the strong margin and cost program management.

On Slide 11, we can see the development of our net result as well as the operating cash flow. The first half 2020 net result for the total group, including discontinued operations, decreased -- increased to CHF 90 million from a profit -- from a CHF 100 -- sorry, increased to a CHF 90 million profit from a CHF 101 million loss in the first half 2019.

Excluding the CHF 231 million provisions booked in 2019, the net result in the first half of 2020 was 31% lower in Swiss francs 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 adverse currency developments and the timing of net working capital adjustment driven by our cash program. With this, I would like to hand over to Hariolf to discuss Clariant's outlook.

Thank you. Ladies and gentlemen, now that we have come through the half year and the second quarter figures, I would like to move to Slide 13, to explain to you what we are doing to continue to lift Clariant's performance going forward.

Clariant's first half year 2020 results clearly reflect the resilience as well as the potential of our 3 core business areas in the current, particularly turbulent environment on a stand-alone basis and also in comparison to the chemical industry. Although sales declined by 5% in local currency in the first half, we nevertheless succeeded in lifting the operating EBITDA margin above last year's levels.

Our fully implemented measures show our ability to mitigate the effects of the COVID-19 pandemic. We continue to ensure employee safety first while concurrently running business continuity programs for our customers and implementing cash as well as cost measures.

In addition, we decided to resume our efficiency program to deliver savings in excess of CHF 50 million for the continuing business over the next 2 years. In terms of Clariant's transformation program, let me express our delight regarding the completion of the Masterbatches' divestment to Avient, the former PolyOne, which took place this month as expected.

As you know, this divestment was executed according to the originally negotiated conditions and as promised. Clariant used a part of the proceeds to pay out an extraordinary cash distribution of CHF 3 per share to our shareholders on 8th of July, approximately CHF 990 million in total.

Clariant's transformation program remains our priority. And we will continue with the Pigments divestment process as part of our portfolio upgrade.

Timing of the formal market kick-off was postponed in order to allow the business to focus on mitigation actions amid the COVID-19 pandemic and the implementation of its efficiency program. We expect the official launch of the divestment process to take place at the end of the third quarter of 2020.

In terms of Clariant's short-term outlook, looking at 2020, we anticipate a negative impact on sales and profitability from the COVID-19 pandemic. In fact, we expect this negative environment to have its strongest impact on the first quarter of 2020.

Although the uncertainty around this crisis remains high, Clariant will continue to generate resilient performance and continue its transformation program. Our midterm guidance for above-market growth, higher profitability and stronger cash generation remains unchanged.

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

Thank you, Hariolf, and thank you, Stephan, for taking us through the achievements and progression achieved in the first half year as well as providing us with some insights into Clariant's outlook. Before we go to the Q&A session, we would kindly ask that you please limit the number of questions to two, thus providing more participants with the opportunity to ask a question.

Thank you for your understanding. We will now open the line for questions.

Two questions, please, on cash flow. First of all, how do you see free cash flow evolving into the end of this year?

And then second question, can you please explain why there was such a significant delta in trade payables which weighed on operating cash flow in H1?

So to your first question about free cash flow, we are planning still for the payout of the new fine by December in the dimension I mentioned before of EUR 156 million, so from that regard, that will have an effect on the free cash flow. Other than that, we will have the second half a higher turn of operating cash flow from net working capital because, as I said in my speech, we started a couple of programs.

One was the cash program when in February, March, when it was still a Wuhan epidemic and not a pandemic, and we showed significant impact from that program already in Q2. But that's going to build further in the future because it takes some time until you have adjusted all the supply chains in the market to the new dimension.

And to your second question, that you can also actually see that in the payments. The payments reflect that we have -- assuming a weaker Q3 and a weaker July, we have adjusted our ordering also for direct spend for raw materials and feedstock, and that had a drastic reduction in the payables, but will pay off higher in the coming inventories and receivables.

Just a quick one on the trading update that you've seen in July. How have the volumes trended?

And could you provide some comments on how you see 3Q trending based on the trading patterns that you've seen in July? And my second question is around sunliquid.

I saw that there was a new contract signed. Could you please provide an update on the sunliquid project and just some thoughts around this contract win?

Yes. So let me start with the information on the trading outlook.

As I said, we will still not give a full year guidance, which would be still unprofessional in this kind of time of uncertainty. Keep in mind that we have, of course, the COVID-19 virus spreading in continuous ways, we have an oil demand decline and very adverse currency effect on Clariant, but still outperformed markets from a financial performance.

What we do is try to give you the best qualitative insight in the third quarter and the next quarter, so to say, and as we said here, we're going to see that from what we see today, Q3 will be the -- slightly weaker than the second quarter. It will be the biggest impacted quarter so far by COVID-19, and it will basically affect Care Chemicals to some extent in terms of also destocking behaviors, which you usually find around the European summertime, but more expressed in these times of low demand.

You will see a very slight effect in Catalysis, and then you will see a stronger effect in Natural Resources, because here, the -- you've probably also read about closure of rigs in the U.S. or all across the world.

The oil demand and oil production reducing so dramatically, plus the industrial demand for Functional Minerals and Additives and Foundry, even Purification partly and in fibers and automotive, E&E industries will have a strong impact on Natural Resources in the third quarter. And that's why we say Q3 is not going to be a drama, but it's going to be weaker than the second quarter.

That's what we assume. And this is also what we can see from our current July trading, it's just confirming what I just said about the third quarter.

And to your second question about the sunliquid. Yes, as you know, this is a big value-generation story for Clariant going forward.

We are proud that we are now, just this week on Monday, I think, was announced the fourth license, which we could sign with Eta Bio, a Bulgarian pharma -- huge pharma company own -- or owned company, which is, yes, our fourth license on the path and which is confirming our technology. It always consists of several elements.

If you sign such a license, it's, of course, an upfront. It's been a continuous royalty in enzyme provision, which is our normal course of business, which we engage to.

And some of the bigger payments only start when the licensee has commissioned or built and commissioned this plant which still takes a while. But yes, there will be some slight positive effect in the second half, but that's more of the upfront payments, which are not the big part when compared to what comes after when the plant is commissioned.

So it's our fourth license, and we see it as a strong confirmation on the technology which we have. And besides that, as an update, we, of course, have, besides our demonstration plant in Bavaria, also our construction in Romania of our own biofuel industrial scale plant is progressing well.

We foresee the commissioning in October 2021 on the autumn, fourth quarter, I would say, fourth quarter of 2021. So you can see maybe small pro rata effect in '21, but you see the majority of the effect of that sales and turnover after commissioning in 2022 going forward.

I have 2 questions, please. The first one would be around the adjusted Care Chemicals margin in the second quarter.

Can you explain to us a bit the bridge share, how much was the mix? And was there maybe raw materials or pricing to have any significant role?

And then the second question is around temporary cost savings on the group level. Is that something you can quantify just from variable fixed costs, less travel, et cetera, the common teams currently in the other season?

Any help on that will be appreciated.

Yes. So let me start with the Care Chemicals result.

I understand you're referring to the second quarter underlying profitability from that single -- sorry?

That's right, yes. That's right.

So from that angle, we could prove in the first half in totality resilience at 18.1%, and in the second quarter, as you said, and even a strong improvement of 200 basis points from 16.2% to 18.2%. The combination of the effects are here that we could demonstrate growth in the second quarter, which was driven by the consumer part of the portfolio, which is not only resilient to the COVID-19 situation but even demanded in these times when it comes to hygiene products.

So this has, in terms of, of course, top line growth and also utilization of assets as well as more accretiveness than some of the industrial portfolio, an impact on that margin development, number one. Number two is also our successful margin and cost management.

So margin management means that we had, of course, certain olefin or petro downstream intermediates, which we purchased at lower raw material feedstock costs in the second quarter. And as we have differentiation potential and different from our peers and competition, we were not -- we could defend our pricing position without the necessity to transfer that advantage into the market.

The third part is from the cost management, which I'll come back maybe later when I speak about the whole business, to your second question. And the fourth element is that we also had a force majeure effect in the second quarter of the last year, which had some impact while the, yes, the comparison base is a little bit low when we look year-on-year.

But 18.2% independent of the comparison base shows when the full year of 18.1%, how accretive our own performance development and how resilient the quality of the portfolio, not only of Care Chemicals but, particularly, of Care Chemicals in this in that moment is. And so your second question.

Yes, so in these COVID-19 times, we run a couple of programs. And the most important being our emergency management, looking for our people's safety, which is giving us the ability then for the second target to still be running business continuity to our customers.

But on the performance side, we have a couple of task forces. I already spoke about the cash management on the working capital, but I also would refer to the cost management.

What we are doing here is the quick effect programs such as spend avoidance; travel reduction, which obviously comes natural; but also operational flexibilization in certain areas where we can; reduction of overtime; reduction of holidays in these times of -- I mean, of outstanding holidays or taking those outstanding holidays, not reducing them. And that all, of course, has P&L and partially, to a big part, also cash effect and then as well as these cost takeouts.

Now this will be expanded, of course, with us resuming the efficiency program to deliver CHF 50 million savings. And this, to some extent, already ran in the first quarter, but we have just stopped it when we came in the lockdown situation because we did not feel responsible to execute the program and talk to people in lockdown situation about job losses.

Therefore, there were some effects already in the first half from those programs, which already went prior to the COVID-19 lockdown. And there are going to be more which accumulate to that CHF 50 million.

So both of that, the efficiency program and those COVID-19 mitigation measures, which I mentioned, contributed to the first quarter and -- sorry, to the second quarter and the first half. And the dimensioning was significant.

I cannot refer to a particular number. But it is accreting, of course, also to the profitability in the first half and one reason besides the specialty DNA of the continuing portfolio to deliver the results as we delivered them in the first half.

Basically, 2 questions. They have been addressed already, but I don't fully understand.

You're basically the only company, which sees the COVID impact mainly in Q3 and less so in Q2. And I'd like to understand this a little bit more.

For most of the companies, the -- simply the phase of the lockdown was an area where they could not make any business and where they saw orders coming down quickly. And that was, I mean, problem area and problem time.

And now the business in most of the charts of other companies on a monthly base show quite a pickup in June, not really much stronger in July and going into Q3, but with April and May being on a complete different level than what is in June. If you look on your business that is not much different to what other companies have.

So Care Chemicals, for example, or the oil and gas businesses, the other companies are also active, and they have a different pattern. Maybe you can elucidate a little bit more why oil and mining in the third quarter should be worse than in the second?

And why if the Consumer Care products see some seasonal destocking in the third quarter, it is not offset by the industrial business? And also in the Foundry business, which goes to quite a degree to Automotive, I would also expect it to be sequentially better.

And the same is true for the mining business, where I would also expect to see some improvement in the third quarter. So why were these businesses not being so much different to what I hear from others?

Is your phasing unique?

Well, first of all, it's unique in a way, as we have shown in the already accounted for the second quarter and first half results that we have been performing better than many of the peers. So the DNA of quality or the quality of the portfolio is very, very strong and high.

But we don't just run by lockdown scenarios. We're looking at the secondary impacts, which come from huge unemployment rates registered in the U.S., from changed consumer behavior, from new discussions about tariff barriers.

We see, of course, FX effects in our results as well. But there is a lot of what we call a secondary wave or secondary impact besides the lockdown wave in terms of real economic behavior change and recession.

And that is what we have forecast to actually not end in the third quarter. We still believe that this is going to a company, the whole chemical industry into also the beginning of the next year, at least 2021.

And for us, what we see from the order outlook is that the third quarter will be the one affected most. And I already spoke, we are -- it's going to be hampered if we do a year-on-year comparison.

But I said that compared to Q2, it's slightly lower. So it's not exactly the same if you compare quarter-by-quarter or year-on-year.

And another reason why specific to us, we had a very strong, yes, business accretions or contract closures in oil and businesses, which helped us to grow up to -- into the first quarter and second quarter. And we also are more resilient than other service providers for the oil business with our good share of offshore business as opposed to land.

But if the oil demand is just low, then it will also spread into these more resilient areas. And that's why we do believe that at least oil and refining are more affected in the third quarter than in the first quarter.

And we see that trend already happening actually in the second quarter. While mining, I agree with you, I don't see anything there.

Our position is still very small from a market share, which would speak for a depressing mining business. So it is in Natural Resources, again, mainly the oil business, but with a strong exposure.

And it's the Additive and natural and Functional Minerals business with Automotive and Industrial Applications, where we do not see a pickup in mass automotive markets, maybe in niche luxury elements in China also you can see an uptake, but we do not see an uptake anywhere from our orders in industrial segments, in Additives, in Functional Minerals and also in the part of the care portfolio.

Understood. Maybe then a second question, net working capital, outflow you have already addressed.

On a full year base, do you think that with this lower business activity that you will have from net working capital an inflow and outflow this year?

Well, we have a better net working capital inflow than in the first half for sure. As I said before, you have a typical seasonality in the first quarter, and our businesses were not seeing what we see today.

And from that angle, we only started to really adjust the system at the end of the first quarter, which had a good impact in Q2. And again, also, if you look at the operating cash flow, don't forget the FX impact on that, that's going to stay, of course.

But from a networking capital standpoint, we already contributed strongly in Q2. But yes, it will be even more in the second half than what you have seen now in the first half report.

And then you might see a complete reversal of this outflow of CHF 200 million?

I will not comment on this because I cannot give you a Q4 outlook today. As I said, for full year guidance, you're asking about cash flow, and I even would not guide on the full sales yet for the full year.

It's just not, in my view, professional to do that at this stage, give you the visibility as much as we can in the third quarter and give you the assurance that besides our already outstanding EBITDA performance or margin performance, we will deliver more cash in the second half.

Two questions from my side as well. Firstly, on -- do you see already effects from potentially CapEx plans of your customers for the Catalysts business, where I assume there might be relatively quick effects for the refill business and maybe then delayed effects for the refill business.

The question is, do you -- are you seeing this go out in the present? Do you expect positive effects midterm for the Foundry business from the Queen Dukes ?

That's my first question. My second question is if you could give us an update on the finding process of a new CEO?

Okay. I will take the first one and Hariolf the second.

I will -- yes, to the CapEx or investment cycles, yes, we see effects here. We see the majority of orders pattern are different than normal years, which is -- which we can measure in Catalysts very well.

The outlook or the visibility into quarters ahead is very high. But the softness or the maturity of the orders once they're locked in or preordered or ordered, confirmed, and then also prepaid potentially, this pattern has changed.

This is also part when I spoke about Q3 that I said Catalysts is also slightly lower. This already assumes, and we have taken the assumption and that we see certain orders rolling from Q3 into Q4, and we might potentially see also orders rolling in from Q4 into Q1.

That is something which we cannot confirm today from our order pipeline. Q4 is very strong still in Catalysts as it usually is, always has a very strong finish, not exactly the same level like in maybe prior years, but still very strong.

But we've taken into account that we will see some orders in Catalysts also rolling from Q3 to Q4 and potentially from Q4 into Q1. And you're right that usually, our mix of refill 70% and first fill 30% is maybe a little bit shifting to a higher first fill or new fill ratio, but not substantially.

But it's also not too easy for companies who have planned, and a catalyst uses this activity level after certain usage time. So you still force at a certain time, you cannot extend that for a very long time.

So the fundamentals of the business remain, but the Q3, Q4 rollover, we have taken into account to some extent, to some little extent in Q4. Let's see when it's -- when we're closer to that, how we forecast for Q4.

Maybe another question. Have you already seen that large trusted project has been canceled.

Well, so far, this did not take a big dip because...

Cancellation is very, very little. I cannot see a major cancellation.

There has been some hold periods for certain investments when you can. When you can say, okay, if I really can save CapEx by holding a project for a couple of months or so, there, we have seen a few, and that's already taken into account into what I have been explaining before.

Talking about the update regarding the CEO searches, we put the process on hold, I think, beginning March due to corona. Now after travel and meeting back, we are, let me say, in the last quarter of the entire process.

And I'm sure that we can make some announcements within the next, let me say, 2 to 3 months.

Just a couple of questions. Firstly, can you help us understand what was the net cash inflow from the sale of Masterbatches business after tax payments?

Any adjustment that was done to the announced sale value? Because I think PolyOne was talking about different number after lease.

So I just wanted to confirm what was the tax inflow after tax and any other adjustment? That's the first question.

And second question is just on Catalysis. Does the mix between refill and new fill change the margin impact?

Or is there a margin impact from the change in mix of refill versus first fill?

So to your first question, as you know, we closed Masterbatches on 1st of July. And so we're still sorting out all the cash and debt equalization payments.

And there's -- I see different numbers there. And let's be crystal clear.

The price was what we always announced was the $1.56 billion, which translates to a lower Swiss franc amount just below CHF 1.5 billion, of course. Then you have cash and debt-like adjustment just as payments, and therefore, the actual payment growth was in the dimension of around CHF 1.4 billion.

And then if you deduct all the transaction costs, tax, and I would also now deduct the extraordinary dividend, which we paid out as promised on the 8th of July, then you come to a net amount of cash proceeds in July in the dimension of CHF 200 million to CHF 300 million. That's the net cash proceeds of all the transaction costs.

Now I might use the accumulate for even 2019 transaction costs. But no matter what, that's what the net lending will be and what we delivered basically on time in full, as we said before.

So CHF 200 million -- sorry, just to confirm, CHF 200 million to CHF 300 million is the net inflow post special dividend and all of the transaction costs and tax payments?

Absolutely. Yes.

And to your question about new and -- refill and new fill, as I said, 70-30 for refill is the ratio. The margin accretiveness, there is no -- I cannot say that, in general, new fill or refill is more margin accretive.

That depends actually more on even where you sell into, like Petrochemicals is more accretive than Syngas, for example. And then it depends really on each customer buy, whether refill or first fill.

We are selling here pure scientific savings at the end in the chemical reaction. And this can be different from setup to setup.

So it's a value-based business, and it would be wrong to differentiate refill and first fill into margin. It would not say anything.

So it's really more than the industry or the specific customer projects where you can see higher accretion or not.

Hariolf and Stephan, you mentioned in February when we had been able to gather that there would be a tax payment in the first quarter as you legally separated Masterbatches from Pigments. Could you possibly confirm whether that happened?

How much it was? And what line item it occurred in the cash flow statement?

I think at the time, you talked about something like CHF 100 million, which would then be the tax on capital gains with a hold of the discontinued items. And then secondly, there's been a bit of news about your polypropylene plant in the U.S.

Can you confirm if that's up and running? And whether it contributed a full quarter in Q2?

Or is it still gradually ramping up?

Sure. So let's start with the tax.

Maybe let me start also from a P&L point of view that you understand because, I guess, there might be questions to that as well. We have been disclosing taxes of CHF 31 million P&L effect in the first half.

This is the continuing business. In the total business, this is more in the dimension of CHF 79 million, which includes then the Masterbatches and the Pigments carve-out effect.

The Pigments sale effect is not included there, but that's basically the delta. And that fits to what we have been guiding to you when we met you in February from a dimension point of view.

Now from a cash standpoint, it's a bit early because we closed in July. So you will have still little taxation effect on the cash side, which is yes, in the first half, 30th of June, where the business was not yet closed.

So we had some minor taxes paid out for the carve-out in the first quarter, but the cash effect we should discuss with the third quarter. And your second question was about the PP catalyst in the U.S.

Yes, the plant is up and running. It's commissioning.

It's producing and selling, inspect PP catalysts. And we also saw that we bought new ones out now, the phthalate-free, which we can produce there in the U.S.

or in China, so also new versions, unique in the market. What we still have is we still have some optimization from the plant in terms of also, yes, volume throughputs and process improvements in running.

And that's why I think we said also in February that we believe that we get to a breakeven point for that plant in the next year.

So can I just get back to the tax point because, I think, if I understood it correctly, the continuing business has paid cash taxes of CHF 31 million in the first half. And for the total Clariant group, it's CHF 79 million, which implies the difference is the operating tax payment in Masterbatches and Pigments plus the carve-out related tax.

Is that what you're saying?

Yes, but I spoke, with these 2 numbers, only about the P&L effect, not the cash effect. So I said that the CHF 31 -- CHF 30 million -- CHF 31 million is the P&L effect of the continuing business tax in the first half.

And the CHF 79 million is the total and the delta. You're totally right, it's the P&L effect of everything, which is fully accrued from Masterbatches.

It covers everything for Masterbatches plus more carve-out effect for Pigments.

So you haven't had a cash tax associated with the carve-outs of Masterbatches or Pigments in the first half?

I would tell you because we closed on 1st of July and not on 30th of June that we wait for that answer once we have concluded third quarter.

Okay. So sorry, I don't want to labor this point, but I think you said in February that there would be -- the cash -- the tax bill would be incurred at the beginning of 2020 when you legally carved out the divisions, and then there wouldn't be another tax bill when you actually got to the process of selling them.

Does that guidance now change?

No. I'm referring to the P&L effect.

The tax -- cash payment, I mean, is a definition, which we are dependent on the authorities and the closing of the deal. I think this momentum we might have also considered the closing still on 30th of June instead of 1st of July.

So the guidance should be understood as a P&L guidance and the cash guidance is, yes, we had, of course, the carve-out tax -- cash out already happened, and I don't expect a huge additional amount from the closing in Masterbatches, but, of course, Pigments has not been closed and will not be closed in this year. So I would still wait on the cash -- full cash description of the Masterbatches disposal once we have completed the third quarter, which is including the closing period.

Yes. There have been recent reports in the press in Switzerland about big M&A Clariant is pursuing, et cetera.

I think at the start of the year, the message was the current setup is the base case. Is that still the case?

Or are you guys considering something else right now?

Usually, we do not comment headlines or articles in the press, which are not based on an interview which can be impacted, influenced by our statements. Therefore, I cannot make any comments on that.

In principle, as everybody knows who followed Clariant during the last years, M&A portfolio management is an important lever of our upgrading of the portfolio. And even if we are now shrinking the company due to the divestments of Masterbatches and Pigments and trying to reorganize and adjust the setup of our global organization according to the new size called Clariant 2021, we still continue our ideas, our thoughts and our projects in the M&A area.

Therefore, there is no surprise that Clariant still try to make transactions, bolt-on acquisitions or even larger acquisitions if they are value-creating for the shareholders and if they are sensible for our strategic objectives at the end. But so far, very clear, you cannot expect any announcement regarding a transformational transactions short term or midterm, I don't think so.

One more. Maybe just one more on feedback to the colleague from Barclays.

I just did a double check. As you can see in the disclosure of the financial review, we showed also a tax cash out of CHF 78 million.

And that is very similar to what I said before that the P&L effect on total tax for Masterbatches and continuing of the first half is pretty much covered with the first half cash outflow. But again, the only final answer we can give you once we have the third quarter closing.

But it's pretty -- it's very consistent to what we have seen in February and today.

So ladies and gentlemen, this concludes today's conference call. The Investor Relations team remains available for any further questions you might have.

Once again, thank you for joining us on the call today, and goodbye.