Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Clariant AG (CLZNF, Financial) reported sales of over CHF1 billion in Q2 2024, despite a 3% organic decrease in local currency.
- The company achieved a 15.7% EBITDA margin, excluding the CHF62 million gain from the Quats divestment, showing a strong underlying margin improvement of over 500 basis points.
- Improved cash generation in the first half of the year, with operating cash flow increasing to CHF112 million from CHF78 million in H1 2023.
- Successful integration of Lucas Meyer Cosmetics, contributing CHF23 million in sales in Q2 2024.
- Clariant AG (CLZNF) achieved cost savings of CHF9 million in Q2 from performance improvement programs, with a target of CHF175 million by 2025.
Negative Points
- Sales in the Catalysts segment declined by 18% in local currency, significantly impacting overall performance.
- Reported EBITDA in Q2 decreased by 5% year-on-year to CHF166 million, partly due to the absence of the CHF62 million gain from the Quats disposal.
- Sales in Asia Pacific were down 8% organically, with a 6% decline in China due to project cycle-driven declines in Catalysts.
- The European manufacturing PMI in July was 45.6%, indicating a weak outlook for industrial production in the region.
- Group net debt increased to CHF1.644 billion from CHF755 million at the end of 2023, largely due to the acquisition of Lucas Meyer Cosmetics.
Q & A Highlights
Q: You raised your reported margins outlook to 16% from 15%. Why did you increase margins targets this year but not for 2025?
A: We increased the reported EBITDA margin to 16% due to accelerated self-help measures and procurement benefits. The 2025 target remains unchanged at 17%-18% as the building blocks are consistent, and we expect further improvements from Lucas Meyer Cosmetics and the absence of biofuels impacts.
Q: Can you explain the sequential decline in additives margins despite better volumes and operating leverage?
A: The Q1 comparison was against a very strong prior year. Q2 saw a more realistic year-on-year comparison with a double-digit volume pickup, particularly in flame retardants. The decline in raw materials also contributed positively.
Q: Do you expect demand from agrochemical makers to recover in H2 as destocking ends?
A: We don't see an immediate recovery in crop and food prices, but destocking should be largely behind us, leading to some level of pickup in demand.
Q: What are your annualized interest rate expenses now that Lucas Meyer is acquired and financed?
A: We refinanced the acquisition at a blended rate of 3.8%, significantly lower than initially expected. Across the entire debt portfolio, we expect to be a little under 3%.
Q: Do you see catalysts volumes have bottomed in Q2, or do you expect more headwinds?
A: We expect a solid return of our refill business at some point, but new builds are not expected to pick up quickly. We are targeting growth in catalysts next year.
Q: Why did the corporate line edge up since Q1, and is this quarter representative for the rest of the year?
A: The increase is due to half-year result accrual updates. The Q2 figure is more representative moving forward than the Q1 figure, which was impacted by other adjustments.
Q: Can you explain the sequential decline in Care Chemicals' earnings despite a smaller revenue drop?
A: The decline is primarily due to the seasonal nature of the aviation business, which had a strong Q1 but goes away in Q2. The impact was mitigated by the inclusion of Lucas Meyer Cosmetics.
Q: What gives you confidence that catalysts will improve in 2025 despite current headwinds?
A: The refill business is delayed but will come back. We have visibility of six to nine months in our order book, and we expect a solid return of refill business and growth in catalysts next year.
Q: Why was the adsorbents business weaker this quarter, and what is the outlook for the second half?
A: The decline was due to a large renewable diesel client in the US being shut down for the entire quarter. The client is back up and running, and we expect a solid recovery in adsorbents.
Q: What drove the impressive step-up in cash conversion in Q2, and what are your leverage targets and preferred uses for cash?
A: Improved operational cash flow, better working capital management, and focused CapEx spending drove the cash conversion. We aim to deleverage below 2x and maintain ambition for bolt-on acquisitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
