Clariant AG

Anja Pomrehn - Head of Investor Relations Hariolf Kottmann - Chief Executive Officer Patrick Jany - Chief Financial Officer

Patrick Lambert - Raymond James Theodora Joseph - Goldman Sachs Christian Faitz - Kepler Cheuvreux Daniel Buchta - MainFirst Thomas Wrigglesworth - Citi Investment Research Markus Mayer - Baader-Helvea

Thank you. Ladies and gentlemen, good afternoon.

My name is Anja Pomrehn. And it is my pleasure to welcome you to Clariant's half-year 2018 results conference call and live webcast.

Joining me today are Hariolf Kottmann, CEO of Clariant; and Patrick Jany, CFO of Clariant. And as a reminder, this conference call is being recorded [Operator Instructions] A copy of the media release announcing the half-year and the second quarter 2018 results and the related Investor Relations presentation and financial review are available on the Clariant website, clariant.com.

I would like to remind the participants that this presentation includes forward-looking statements, which are subject to risks and uncertainties. Therefore, listeners and readers are strongly encouraged to refer to the disclaimer on Slide 2 of the presentation.

The replay of the call will be available later on the Clariant web page for about 30 days. And now I would like to hand over to Clariant's CEO to begin the presentation.

Yes. Thank you, Anja.

Ladies and gentlemen, good afternoon. Let us start with the highlights on Slide 4 of the presentation.

In the first half of 2018, Clariant, again, delivered a strong performance not only in terms of sales growth but also in terms of profitability improvement. Sales rose by 7% in local currency and reached CHF 3.4 billion for the group.

Organic sales advanced by 6% in local currency. All business areas, in particular Catalysis and Chemicals, contributed to this growth.

EBITDA before exceptionals increased by 9% to CHF 524 million. This progress was mainly supported by the good performance in Care Chemicals, Catalysis and Plastics & Coatings.

This in turn translates into an improvement of the EBITDA margin before exceptionals to 15.5%. Net income increased by 38% to CHF 211 million on the back of the higher EBITDA before exceptionals as well as the significantly lower exceptional items.

Operating cash flow decreased to CHF 102 million from CHF 116 million in the same period last year. However, before tax, cash flow from operating activities increased by 57% to CHF 263 million.

Slide 5 shows that in the first half of 2018, group sales were up 7% in local currency. The sales were mainly driven by volume growth of 4% and the supportive pricing development of 2%.

Most regions contributed to the good sales growth. Sales in Asia advanced by an excellent 12% in local currency, driven by substantial expansion in China.

In Latin America, sales also grew by 12% reflecting the recovery of the macroeconomic environment in this region. Sales in North America were up 7% and by 3% in Europe.

Looking at the figures of the business areas for the first half 2018 in more details starting with Care Chemicals on Slide 6. Care Chemicals reported excellent sales growth of 9% in local currency.

Both Consumer Care and Industrial Applications delivered robust growth, which was partially supported by a strong aviation business in North America and the good development in consumer care. From a geographic perspective, most regions contributed to the notable sales development.

Both Asia as well as North America delivered double-digit sales growth while Latin America sales grew in high single-digits. Europe also progressed solidly despite the challenging comparison base.

The EBITDA margin before exceptional items in Care Chemicals advanced to 18.4% from 17.5% a year-ago as a result of an improved product mix and the elimination of ramp-up costs. Catalysis sales climbed by 22% in local currency with growth contributions from most of the business lines.

The excellent organic sales expansion of 15% was mainly attributable to Syngas and Specialty Catalyst. From a geographic perspective, most regions added to the robust sales momentum.

Growth in Asia, in particular, advanced strongly as a result of the excellent demand in China. The EBITDA margin before exceptional items decreased from 23.7% to 21.8% in the same period of the previous year.

This decline was due to the change in product mix. On Slide 7, we see that Natural Resources sales grew by 4% in local currency.

The oil and mining services business reported mid-single-digit sales growth in local currency lifted by a demand improvement in the industry. Sales growth in Functional Minerals was positive in local currency despite a strong comparable base.

Excellent growth in the Foundry business outperformed the temporary softness in the edible oil purification business, which is subjected to the quality of the respective crops as a result of the weather conditions. The EBITDA margin before exceptional items declined to 12.6% hampered by the persisting price consciousness of the oil market and the lower contribution from the Functional Minerals purification business compared to the previous year.

Sales in Plastics & Coatings increased by 3% in local currency with growth in all three business units. The continued expansion in Greater China underpins the growth in Masterbatches and Pigments while sales growth in Additives was mainly driven by a strong growth in North America, China and Europe.

The EBITDA before exceptional items rose by 7% to CHF 236 million. This positive development was attributable to both increased volumes as well as pricing measures.

I will skip Slide 8, which just summarizes, again, the first half year 2018 and hand over to Patrick for the discussion of the financials in the first half of 2018 and the second quarter results.

Thank you, Hariolf. Good afternoon, ladies and gentlemen.

Let us then move to Slide number 10. Looking at the financial of the first half of 2018, the gross profit margin decreased by 29.9% because of a less favorable product mix and higher raw material costs.

However, I would like to point out that in the second quarter, the gross margin started to pick up as a result of price increases. As already mentioned by Hariolf earlier, we could increase the EBITDA before exceptional items by 9% to CHF 524 million.

This improvement was mainly driven by the strong performance in Care Chemicals, Catalysis and Plastics & Coatings. The EBITDA margin before exceptional items rose above the previous year's level to 15.5%.

This increase is primarily due to the profitable improvement in Care Chemicals. Moving on to Slide 11.

Net income grew significantly by 38% to an excellent result of CHF 211 million. This expansion was supported by the higher EBITDA, significantly lower exceptional items and an improved foreign exchange result.

The operating cash flow decreased to CHF 102 million. A one-off tax settlement of CHF 83 million in Germany essentially offset the improvement in EBITDA before exceptional items.

Yet, before tax, cash flow from operating activities jumped by 57% from CHF 168 million to CHF 263 million. Net debt increased to CHF 1.7 billion, which reflects the usual seasonal development in the first half of the year.

Let us now move on to our Q2 figures on Slide 13. In the second quarter, sales and EBITDA growth continues to accelerate year-on-year.

Sales rose by 7% in local currency to CHF 1.67 billion. Again, all business areas contributed to the strong organic growth, while the positive development in Care Chemicals and Catalysis were particularly noteworthy.

EBITDA before exceptional items increased by 10% to CHF 256 million, primarily supported by the strong contribution from Care Chemicals and Plastics & Coatings. The corresponding EBITDA margin before exceptional items advanced by 20 basis points to 15.4%.

Slide 14 shows that in the second quarter of 2018, group sales were up 7% in local currency, driven by 4% volume growth and by a supportive price development of 3%. Almost all geographic regions added to the growth.

Sales in Asia were up by 10% in local currency with a continuing strong development in both China and India. Latin America improved by 13% and North America by 9%.

In Europe, sales advanced by a robust 5%. Only the Middle East and Africa, the smallest region reported a negative sales development with a decrease of 10%.

For the next few minutes, I will focus on the development of the businesses in the second quarter, starting with Care Chemicals and Catalysis on Slide 15. Sales in Care Chemicals increased by 10% in local currency.

The group sales development was supported by growth mainly in Consumer Care, but also in Industrial Applications. Sales rose significantly in almost all regions with double-digit growth in Asia and in North America.

EBITDA margin before exceptional items advanced to 18.5% from 16.6% due to a more favorable product mix and the non-reoccurrence of ramp-up costs and maintenance shutdowns. In Catalysis, sales increased by 11% in local currency.

The growth was driven by superior demand in Asia and by higher Syngas and Specialty Catalyst sales. The EBITDA margin before exceptional items decreased to 23.7% from 27.4% due to a product mix effect with a proportionally higher sales contribution from Syngas.

I would also like to remind you that, at this point, that last year's figures included the one-off full consolidation step-up effect of the Süd-Chemie India joint venture. Excluding this step-up effect, the EBITDA margin rose year-on-year.

Moving on to Slide 16. Sales in Natural Resources increased by 6% in local currency.

And this growth was supported by both the Oil & Mining Services and Functional Minerals businesses. Sales in the Oil & Mining Services business reflected mid-single-digit growth in local currency as a result of a significantly improving demand environment in the oil market.

Nevertheless, mining services were temporarily negatively impacted by a customer's facility failure, which trimmed their demand. In the course of 2018, [Technical Difficulty] were commenting on the Oil & Mining Services and the billing implemented in 2018.

Functional Minerals exhibited good sales growth in local currency, primarily driven by the Foundry business. The positive sales development was seen in most regions, yet particularly in Europe.

The EBITDA margin before exceptional items fell to 10% in the second quarter of 2018. The margin was negatively influenced by higher raw material costs and the time lag in implementing corresponding price increases.

The slowing of the purification business in Functional Minerals also impacted the margin. Despite the profitability softness of Natural Resources in the second quarter, we strongly believe that we have seen the trough in profitability.

Starting into third quarter, we have confirmation of significant sales increases as well as the price increases can be implemented with new contracts and tender negotiations. Therefore, we are confident that the margin will sequentially start to improve in the second half of this year.

Second quarter sales in the Plastics & Coatings business advanced by 4% in local currency. Sales grew in all three business lines, Flame Retardants in Additives, but also Masterbatches contributed, in particular, to the growth in the second quarter.

The sales progress in pigments was mainly supported by price increases. From a regional perspective, sales growth was most pronounced in Greater China and North America.

EBITDA before exceptional items rose by a significant 10% to CHF 122 million, despite a strong comparable base. Moving on to the overview on Slide 17 and summarizing the second quarter of 2018.

We increased sales by 7% in local currency, supported by contributions from all business areas. EBITDA before exceptional items grew by 10% to CHF 256 million, primarily driven by the strong contribution from Care Chemicals and Plastics & Coatings.

The corresponding EBITDA margin before exceptional items improved by 20 basis points to 15.4% at the group level. With this, I hand over to Hariolf to take you through our outlook for 2018.

Yes. Thank you, Patrick.

Ladies and gentlemen, the first half of 2018 was characterized by higher sales and increasing profitability at Clariant. We continued to progress along our path to becoming an even more profitable specialty chemical company.

This momentum was achieved as a result of our adherence to our five-pillar strategy. We will continue to focus on innovation and sustainability for portfolio advancement, leading to further progress in growth and profitability.

I now come to the economic outlook for 2018 on Slide 19. The general economic outlook for 2018 remains unchanged from our first quarter 2018 results communication.

For 2018, Clariant expects the good economic environment in mature markets, which represents a high comparable base to continue. We also anticipate that the emerging markets will remain supportive, especially in Asia.

We are more confident in the improvement we continue to see in Latin America. As to the outlook for Clariant, please move to Slide 20.

For the full-year 2018, we are confident to be able to achieve growth in local currency, to progress operating cash flow and to further improve absolute EBITDA as well as EBITDA margin before exceptionals. We confirm our target to reach a position in the top tier of the specialty chemicals industry.

This corresponds to an EBITDA margin before exceptionals in the range of 16% to 19% and a return on invested capital above peer group average. With that, I hand back to Anja.

Thank you, Hariolf and Patrick for taking us through the half year 2018 results, which, despite the temporarily weak profitability in Natural Resources, represents another step forward towards the Clariant group targets. And we will open the lines for questions now.

Good afternoon, everybody. Thanks for taking my three questions.

The first one, again, focused on oil and gas margins and the development. I think I heard the comments that pricing were starting to be a bit more positive in terms of negotiations.

But how could we see the shape of the margin improvement going forward, especially in the second half versus the second half last year which was very strong, especially in Q4. And also, any quantification of the mining problems and margins impact on Q2?

That's for the first question. The second question, we got pricing [indiscernible] for the whole company, is there any breakdown of this [indiscernible] by division, a bit closer to explain the 10% growth in Care Chemicals, how much pricing was there?

And is there any pricing, actually, in oil and gas, would be interesting later to get. And the last one on Care Chemicals margin.

Is there any one-offs in the Q2 margins in terms of shutdowns or in-plant issues there? Just because I was expecting a bit more in terms of operating leverage margin there, but if you could comment on that?

Thank you.

Thanks very much, Patrick, for your questions. I'll take them in their order, starting with the oil and gas margin.

Indeed, we were commenting in the speech that we see that the dynamics in the environment of the oil business is changing, that demand is up of their previous dimension as well. Our customers are starting to have a higher profitability reflecting the oil prices.

Therefore, the activity is up. Nonetheless, I think the price consciousness is still very active in that industry.

And you can see it as well in the results from our competitors. It is a bit of a bumpy start between sales growth on the one hand, a bit up and down, and profitability as well.

What we can certainly say is that we have currently, probably have reached the trough in terms of profitability in the second quarter. We have contracts which we have signed in last two to three years at the level of where the industry was low in terms of demand, where price pressure was high.

And therefore, we do not have the highest of profitability. As the business turns around and we gain more new businesses, more new contracts where we [indiscernible] new prices and new services as well, indicating that the quarters to come will be better.

You will first see an improvement in sales dynamics. Already now, actually, in the second quarter, oil was actually quite okay in the high single-digits level already.

A bit offset by the mining, which was affected by this closure we'll discuss in the second point. But already you can see that oil is coming back and you'll see probably one or two quarters of higher sales growth coming through in the oil business and a sequential increase in profitability quarter-to-quarter, indicating high levels of profitability towards the end of the year and then for 2019.

That's what we can see today. As the new contracts ramp up and the old contracts with lower margins progressively decrease in the importance of our sales mix.

Now referring to your mining question, indeed, we have a shutdown of a quite a significant customer in Latin America, where we do service their pipeline. And that was affecting both sales and profitability negatively in the second quarter, which is why the sales growth was a bit diluted and profitability as well.

Any quantification?

No, we don't quantify on specific contracts, sorry. But it didn't really help, yes.

Right, now, if you look at the 3% price increase in the second quarter, we do have a good, broad price increase across the businesses. I would particularly mention, as you correctly say, that, as usual, Care Chemicals is quite dynamic in adapting its price to the marginal base.

You would expect some parts of the Plastics & Coatings as well, like the Additive business, to be quite dynamic. Where, on the opposite side, Catalysts operate in different environments.

From product mix topic, there's not too much pricing dynamics here. And oil, as previously said, is more contracting than being a month-to-month pricing approach.

So it was a bit mainly driven by Care Chemicals. But in Coatings, with a more stable situation in Catalyst and Natural Resources.

And that leads to your third question, towards the margin of Care Chemicals. Actually, we're not disappointed by the margin of Care Chemicals.

I think it's a pretty good margin. Last year, was, indeed, affected by some one-offs in Q2.

Particularly, you remember, we had some maintenance shutdowns and some one-offs there. That's why the margin at 16.6% was a bit low previous year.

Now we are back to 18.5%, which is not a bad figure for typically weak quarters like Q2 and Q3 are for this bit. So quite happy about that, driven by good demand in Crop and in Care Chemicals and [indiscernible].

So no one-offs to be mentioned, yes?

Not noteworthy. We do have an effect of a forced measure, which impacted late in the quarter, probably impacts a little bit more in Q3 in our main plants in Germany.

But I would not expect to have any substantial impact on the quarter itself.

Thank you, Patrick.

Hello. Hi, good afternoon.

Thanks for taking my questions. I'd like to step back into Natural Resources.

And I was just wondering if some of the new contracts that you mentioned that were being signed and renewed towards second half of 2018. Are you able to pass on the retroactive kind of raw material price increases?

And also, that second part of the question is really on the length of the contracts. You talked about having signed it two to three years ago.

And at the end of 2016, I think, you increased your exposure to U.S onshore and that's much shorter cycle kind of production compared to your Brazil offshore exposure. So I'm just wondering if there is any change to the length of the contracts – and any change to the length of the contracts that you will be signing towards the second half, so that the lag between raw material price increases and actual passing on of the prices, the lag will not be so wide.

Yes, thank you very much for all your questions. So coming back to your first point.

I think, yes, we are, in terms of contracts, certainly seeing that we are able to reprice the services and the chemicals to be one new contract, which are not really renewals sometimes, they're just brand-new contracts. We also received some contracts where profitability is low and we don't feel that it's an appropriate level of margin.

And we focus on contracts that we, through higher value add, can just define our prices as well. So it's not always a renegotiation, per se, but it's also stepping out of contracts and choosing the battles that we want to fight.

And it's still quite a competitive environment in the industry right now. And I think you are right.

I think, typically contracts are between one and three years in that industry depending on where it is in the world, whether it's offshore or of shale. But a one to two year [Technical Difficulty] Sorry for that, ladies and gentlemen.

Maybe the first time in over a year, many, many years that we go those issue. All right, coming back, I didn't want to avoid the question.

So I'm coming back to the question on [indiscernible]. So coming back to that, the time of the contract is between one to two years.

What we see is that we are totally confident that the new contracts are at good levels of margins. I think, not only in the U.S., but also in Latin America, for instance [indiscernible] new contracts with very nice margins where we can really share value with our customers.

Now as you start the contract, you will need to employ the people, get them on the ground so that they see the sign, but overall, we can see that margins are improving in the sector. And therefore, I would not expect that it's really a question of passing on raw material costs because it is a service business mainly.

But it is also just withstanding the pressure on price from the customer point of view and showing the service level we can bring in terms of improved performance to the oil fields and also retracting from areas where we find that the margin is just too low to operate. So it's not only a matter of passing on raw materials.

Okay, very helpful. The second part of my question that actually relates to Care Chem.

So if I look at it on a sequential basis, if I remember correctly, I think the first quarter 2018 margins were strong, but it was impacted by kind of the diluted impact from some of your de-icing business. So actually I'd expected that – I was quite surprised that actually, in your second quarter, you didn't see a much bigger uptick in your profitability in Care Chems.

So I was just wondering, if there is any raw material impact in margins for the second quarter and if there are any plans to pass on any price increases? That's my second question.

And then I think my third and fourth question kind of relates to what the FT reported about your potential plans to shift Catalysis production out of the U.S.? Just wondering if this changes any of your views on CapEx that you previously talked about?

And my last part of the question is actually on the some of the recent news events that we have heard regarding Aramco and SABIC. Just wondering if you foresee any changes in terms of SABIC's independence and negotiating on the future plans of cooperation with Clariant?

Thank you.

I will answer the first question and leave Hariolf to answering the Aramco, SABIC question. So coming back on Care Chem.

Again, I think, we are quite, actually, happy that Care Chem had a good price increase, which is above the average of the group, logically, from the previous question. And therefore, they have increased quite well, the raw materials, you can always debate whether it's fast enough or not, but we are quite happy about development within the quarter.

And again, normally Q2 and Q3 are quite weaker quarters in terms of seasonality of that business. And therefore, I think, there's nothing to say too negatively on the margin of those businesses.

So I think what we can say is that we are growing in all segments quite well. And therefore, I would say both the Industrial part and the Consumer Care part are growing in the same proportion, which, from the mix, doesn't help the margin accretion because the lower margin and the higher margin businesses are growing at the same pace.

But overall, quite happy about that. And you see further margin improvement as we go on during the year.

Now looking at Catalyst and your questions on potential impact on tariffs. We have mentioned indeed that, I would say, the only concrete impact of the currently discussed tariffs on our own business is potentially some catalysts that people use the U.S.

which are strongly exported to China. They are indeed on the list, which is being under implementation or discussed currently.

If that situation really applies on a prolonged manner, we certainly can divert this topic by transferring production to China itself or India where we have facilities which are quite similar that would imply, indeed, a bit of CapEx, but I would not expect it to be a significant amount that would disturb our numbers, and it will not, in any case, impact our numbers for 2018. So the direct impact is fairly limited.

We will see, then, on a prolonged basis, what is the impact on different supply chains like the automotive industry and other customers industries. And for the last question?

Yes, regarding the Aramco, SABIC issues, from today's point of view, we don't see any kind of impact to the Clariant, SABIC relationship. We are not surprised about this move.

If you go back 10 to 15 years, you could see all large oil companies challenging their own involvement in basic chemicals and going downstream. Today, I would say ExxonMobil, BP, Shell, Total, they have all very well positioned basic and petrochemical activities, and downstream is very interesting to them.

And since one or two years, I think you can observe in the chemicals industry that the pure oil companies are trying to go downstream. Therefore, from an Aramco point of view, I think the step is logic and value creating, and we will see what will evolve.

But as I said, the Clariant, SABIC relationship will not be impacted by this discussion.

Okay, perfect, very clear. Thank you very much.

Yes. Good afternoon, gentlemen.

Two questions from my side, please. First of all, how much of your group operating cash flow comes from Plastics & Coatings in H1?

And then second of all, on that question, can you elucidate your anticipated cash flow development for the remainder of 2018? And then on Care Chemicals, can you please talk about current demand trends from agrochemicals.

What is the – in terms of demand out of European players and U.S. players?

Thank you.

Yes, first question on the cash flow. I think, Plastics & Coatings has a proportion of cash flow credit similar to the proportion of sales that I think is at 41% point something in the first half.

So it's quite a one-on-one there and situation after the first six months, given that we have different evolutions in timing as well of cash flow generation in the different businesses. The development until year-end will follow the same normal line where the majority of the cash flow is that we generated in the second half.

We had a decent progress in cash flow before taxes. We've guided for the one-off there.

We also have a bit of general higher tax expenses anyway. We'll have to see how that settles down by year-end.

But overall, I would say the cash flow per se from the operating activity base is increasing, and we would expect the good second half in terms of cash is a good one mainly focusing on inventory levels, supported by a higher EBITDA as well. And the main topics of receivables, which we had at the year-end 2017, has been basically solved and also with a good payment behavior of customers being reestablished as well.

So from that point of view, it is a matter of operational performance now to increase the EBITDA and reduce inventory until year-end. Now if we look at the agro demand, we had, actually, quite a nice half year in agro in order – the average now for the six-year in a row.

Also Crop growth has been around 12%. And I think in the first half for 2018, it is well in line with that and as [far] quite a sustained good demand, driven, as you probably remember, by our quite innovative product portfolio, which find good demand, replacing current competitor's products in existing formulations.

And therefore, we feel a little bit more independent from the actual agro evolution, which probably has nothing that positive up to now.

Great, thank you very much Patrick.

Yes, thank you very much guys for taking my three questions. The first one, I would like to come back to the cash generation.

If I remember correctly in your full-year of 2017 call, you elaborated that you think the operating cash flow in 2018 can be roughly in a similar magnitude as in 2016. Now we have seen the tax situation, but you also guided that the strong net working capital buildup we have seen in the late 2017 should kind of reverse.

Is this still valid? The second one on Functional Minerals, I mean, here you said that especially the, yes, bentonite business related to crop was rather soft in H1?

Do you have already indications on how the harvesting season is going to develop in H2? And the third one on Catalysis, obviously another very good quarter in terms of organic growth, you're guidance is 6% to 7% organic growth and you were sticking to that also for this year.

If see the comparison base in everything in the second half, then it's not changing too much. Is this too cautious for this year, because there is not much growth incrementally needed to reach the 6% to 7%?

Thank you very much.

Now thank you for your questions. So coming back to cash generation, yes, indeed I think we guided for an improving in cash flow generation after a rather weak and disappointing year in cash flow generation by the end of 2017, based on the reduction of net working capital level, which had reached quite a high level by year-end.

As I just mentioned, I think, we have progressed on the receivables side, which is good from a risk point of view as well. We still have to work on inventories, which we think will come down in different businesses as demand, as well, continues to be strong.

Therefore, I would maintain the guidance that we will be in the direction of 2016 cash flow by year-end, with the allowance of the tax payment, of course, which we take now in the first half. Now, looking at the Functional Minerals development, it was a bit of a weak start for the group purification business as we rightly mentioned, driven by better quality of crop, which reduces in the necessity of the use of bentonite to purify the edible oils.

Therefore, we will add a bit more the Foundry business, which was doing very well, but it's a bit less profitable in the first half. We will expect this mix to turn a little bit in second half and have more purification proportion in our sales, with a slight recovery of the purification business in the second half, which would indicate a bit of a higher growth for Functional Minerals and also a sequential increase in profitability.

When we look at Catalysts, indeed, I think we have guided for 6% to 7% growth, and we have to maintain this guidance for the year. We have an exceptional start into the year.

In Q1, as you remember, Q2 figures are, as well, extremely high, but you have, probably to consider that some orders of Q3 have probably been passed into Q2. And therefore, the 11% growth you see in Q2 is a bit high for – on a single-quarter basis.

And I would expect, therefore, that Q3 or Q4 do not provide a significant uptick compared to previous years. So we are fully confident on the 6% to 7% for the year.

And then it will always depend on last couple of deliveries by year-end whether you are in the early [indiscernible]. But as a rough guidance, I would say, 6%, 7% stays and that implies that the major majority of the sales deviation and progress has been achieved in the first half this year.

Okay, thank you much. That’s very helpful.

You bet.

Good afternoon, gentlemen. Two questions, if I may.

The first is a bit of – kind of a follow on from Daniel's question. Just on the innovation pipeline.

Can you just confirm that we now have a full contribution from Glucamide in Care Chemicals? And a full contribution from the polypropylene catalysts that you were selling on that basis, and outside of sunliquid, is there anything else that we should be thinking about in terms of that innovation pipeline and the delivery schedule over the next six to 12 months?

That would be very helpful. And lastly, I think, we talked about this at the last call, but single-use plastics, the additives that you use for single-use plastics, do you see that as an opportunity or is it a threat to the business in terms of your ability to either gain from the sustainability angle on the replacement of single-use plastics or loss of chemicals inputs?

Any thought there would be much appreciated.

All right. Yes, thanks for your question.

So on innovation pipeline, I think we still have a way to go in Glucamide and in polypropylene. So, I think [Technical Difficulty] All right.

So Thomas, it was again not to avoid your question. So coming back to the innovation pipeline, we're just mentioning that we still have a way to go in polypropylene.

We do have the plant running now. So the quality is outside and the capacity, which have taken place with the ramp up there.

But, I think, in the first half of 2018, they have not contributed too much and, therefore, it's more of a drain on the results, given the depreciation and costs of the plant itself. So that will be, looking ahead, certainly a factor which will further improve the results of Catalyst when we look ahead for the next few years.

And the same for take of Glucamide, I think we're having some significant success now with some main customers, but it is not fully loaded yet. And therefore, I think, some positive contribution to be expected as an improved mix in Care Chemicals in the next few years as well.

So from that point of view, further positive contributions to be coming from those. And the innovation pipeline continues to be very broad, I think we have increased our total pipeline for the group as well in the last two or three years.

And as you know, it's mainly smaller products. We don't have the CHF 100 million or CHF 200 million product by itself, but it's fairly well distributed through wide ranges of Care Chemicals, of Catalysts and also actually in Natural Resources and Additives, particularly.

And therefore, we are absolutely confident that innovation will contribute to further growth, we have the target of 2% extra growth through innovation products on a yearly basis. I think we'll see that contributing this year already and continue to contribute for the next few years.

But again, not a single product that makes CHF 100 million additional sales in the year. That is more the case for bioethanol, which we have guided for separately and is advancing according to plan, both in terms of additional license sales this year, but also the construction of the plant itself in Norway.

So a healthy pipeline, which will contribute to good sales, but also margin development in the years to come. On the plastic, additives on the topic of single-use plastics, I think our additives per se, as you know, are quite broad but more focused, as well, in the electronics part, if you look at our 20,000% and, therefore, not exactly in that market.

But overall, the topic itself is an interesting one, where we see that we can add value by switching from oil-based to renewable-based additives as well, particularly the area of waxes. And therefore, I think we can be part of the solution in this area.

And you see that in the midterm more than the [indiscernible].

Just let me make one comment to the last topic Patrick mentioned. That plastic in the ocean, micro plastic, single-use plastic is very high on the priority of the society of many companies.

We have already, one year-ago, launched a new technology platform for Clariant called recycling and circular economy, where we bring together the expertise in catalysis as well as in other R&D areas just to make business out of the problems we do have in the market. It is, from our point of view, a real contribution from the Clariant side when it comes to the circularity of the economy.

And therefore, as Patrick already mentioned, we see an opportunity, a business opportunity there.

Yes, good afternoon. Several questions are remaining.

Firstly, on the – yes, right now there are – from different sites, fears on the slowdown due to the trade [flow] impacts. On your Masterbatches, as you have a, basically, a good visibility or a kind of short-term visibility, you said immediately, what is the demand going into Q3?

That's my first question. And secondly, on Catalysis.

Maybe you can help us on the exposure to Syngas in the first half, whereas this – the Syngas project in your order book. And then lastly, on Care Chemicals, could you quantify the impact of the Gindorf and Diaby force majeures?

Maybe you have missed this, but that would be helpful. Thank you.

Hey, Marcus. Thanks you for your questions.

So, indeed, I think you've seen how, every day, some fear is spreading of the slowdown. And I think, in the midterm, it is clear that it is not helpful when tariffs are implemented for the overall growth prospect of the economy.

Nevertheless, in the short term, we do not see an impact right now. And this is why we confirm our guidance as well today because we look forward to quite a strong and robust environment in all geographies until year-end.

And Masterbatches, as you rightly say, is certainly more to the post over the year of the weekly evolution, and we have not registered there any variation of the patterns right now. So for 2018, I would say it looks good.

And then, obviously, we'll see what happens in 2019, 2020. And this is something which we all have to look at.

Now, if you look at Catalyst and the exposure of Syngas, our product mix in the first half was really geared towards Syngas, as we had mentioned. This is also the main growth driver we had been expecting for in the last couple of years when we said, back two years ago, that demand was building up in the bad year of 2016 for Catalyst.

We talked about an accumulation of demand in Syngas, which, at one point in time, would spur demand. This is what's happening now for the product mix is heavily turned towards Syngas.

We would expect that the second half of the year, probably, is a bit more balanced in terms of products with the higher deliveries of petrochemicals, but Syngas will remain quite a significant part of the portfolio this year. When you look at Care Chemicals, as I shortly mentioned before to a previous question, we did have an impact of a force majeure in Gindorf in Germany.

Particularly there – they were very small. But I would expect, first of all, the impact to be more Q3 than Q2, and overall the Q3 impact to be fairly small, and therefore not really relevant in terms of absolute dimension for our fourth quarter EBITDA.

Okay, helpful. Thank you.

End of Q&A

Ladies and gentlemen, this concludes today's conference call. I do apologies for the interruption of the lines today.

We will certainly fix that. Should you have any further questions, my colleagues from the Investor Relations team and myself, we are still available.

So once again, thank you for joining the call today. Have a good day, and bye-bye.