Clariant AG: Record 2022 sales growth, EBITDA and cash conversion driven by strong operating performance; dividend increase proposed

AD HOC ANNOUNCEMENT PURSUANT TO ART. 53 LR

• Q4 2022: Sales grew by 12 % in local currency to CHF 1.323 billion, underpinned by strong pricing in a softening demand environment,
  EBITDA margin was 11.6 % (14.7 % excluding CHF 40 million restructuring charges related to the implementation of the new operating model)
• FY 2022: Sales increased by 24 % in local currency to CHF 5.198 billion,
  EBITDA margin was 15.6 % (16.4 % excluding CHF 40 million restructuring charges in
  Q4 2022 related to the implementation of the new operating model)
• FY 2022: Net result for total Group at CHF 116 million
• FY 2022: Net operating cash flow increased by 38 % to CHF 502 million,
  CHF 293 million free cash flow resulting in a 36 % free cash flow conversion
• FY 2022: Increased distribution of CHF 0.42 per share proposed to AGM on 4 April 2023
• Outlook 2023: Full year sales around CHF 5 billion with the aim to slightly improve the year-on-year reported Group EBITDA margin level in a challenging macro environment, which is expected to improve in H2 2023

"In the fourth quarter of 2022, pricing continued to have a significant positive impact on sales growth and EBITDA margin, despite softer end markets in some businesses. The hard work of all our colleagues enabled us to successfully increase year-on-year sales in all regions, including China,” said Conrad Keijzer, Chief Executive Officer of Clariant. "I am particularly proud of our continued strong operating performance and that our full year 16.4 % EBITDA margin (excluding restructuring charges of CHF 40 million related to the implementation of the new operating model) slightly exceeded the full year 2022 guidance we previously communicated. Our shareholders will participate in our strong operational performance with an increased distribution of CHF 0.42 per share. From a sustainability perspective, the magnitude of Clariant’s Scope 1 and 2 total greenhouse gas emission improvement in 2022 is positive proof that we have managed to decouple emissions from our 7 % volume growth.”

"In the full year 2022, we achieved above-market sales growth and a margin improvement in a challenging inflationary environment. We have set the company up for growth in the years ahead with the measures undertaken during the implementation of our new operating model. The benefits of our new model include better customer orientation, better and faster decision making, greater empowerment, more accountability, and improved transparency which will enable Clariant to achieve its 2025 targets,” Conrad Keijzer added.

Key Financial Group Figures

(1) Total Group, including discontinued operations
(2) Excl. impairment charges of CHF 453 million for the North American Land Oil divestment and the Podari plant; the ROIC was 10.6 %
(3) Pigments divested on 3 January 2022
(4) As of 31 December 2022
(5) As of 31 December 2021

Fourth Quarter 2022 – Continued sales growth with profitability impacted by restructuring charges

MUTTENZ, MARCH 2, 2023

Clariant, a focused, sustainable, and innovative specialty chemical company, today announced its fourth quarter and full year 2022 results. In the fourth quarter of 2022, continuing operations sales were CHF 1.323 billion, compared to CHF 1.242 billion in the fourth quarter of 2021. This corresponds to an increase of 12 % in local currency and 7 % in Swiss francs. Pricing positively impacted the Group sales result by 13 % while volumes declined by 1 %, with a currency impact of - 5 %. The strong sales growth in Catalysis and Natural Resources outpaced the anticipated muted development in Care Chemicals.

In the fourth quarter of 2022, sales grew solidly in all geographic regions. European sales grew by 6 % in local currency, as prices increased while volume growth slowed. Sales in Asia-Pacific also grew by 15 %, primarily propelled by China with 14 % sales growth. North American sales were 16 % higher, and Latin American sales grew 18 %. The robust advances in both regions were supported by volume growth in Catalysis and strong pricing in Natural Resources. The Middle East & Africa increased sales by 9 %.

In the fourth quarter of 2022, Care Chemicals increased sales by 4 % in local currency by maintaining pricing while volumes declined as expected. This progress was driven by double-digit growth in Consumer Care – Crop Solutions and Personal Care in particular – while Industrial Applications sales slowed slightly. Catalysis sales rose by 18 % in local currency, mainly driven by volume growth and primarily due to growth in Petrochemicals and Syngas. Natural Resources sales increased by 16 % in local currency due to increased pricing with growth attributable to all three Business Units, especially Oil and Mining Services.

The absolute continuing operations EBITDA decreased by 24 % to CHF 154 million, and the corresponding 11.6 % margin was negatively impacted by restructuring expenses of CHF 40 million for the implementation of the new operating model. Excluding this one-time charge, the 14.7 % EBITDA margin was below the 16.3 % reported in the fourth quarter of the previous year, driven by a negative CHF 20 million EBITDA impact from project cost and higher operational cost for the sunliquid^® production plant in Romania and the expected lower volumes in Care Chemicals and Additives.

Full Year 2022 – ESG Update – Leading in sustainability

In the full year 2022, the Group’s Scope 1 and 2 total greenhouse gas emissions for continuing operations improved to 0.62 metric tons from 0.71 metric tons in 2021, a decline of 13 % compared to prior year. The total indirect greenhouse gas emissions for purchased goods and services (Scope 3) also decreased by 4 % to 2.58 metric tons from 2.70 metric tons in 2021.

These improvements were the result of increased energy efficiency measures at operating sites, an accelerated transition to renewables in our operations, as well as a higher share of green electricity purchased. For example, in Bonthapally, India, the replacement of coal with biomass derived from agricultural waste enables annual savings of 10 000 tons of CO₂ emissions. At Clariant’s sites in Indonesia, a ten-year purchase power agreement (PPA) has been in place since 2021, covering most of the electricity demand across all business units with a reduction of 21 000 tons of greenhouse gas emissions in 2022. These results and initiatives are positive proof that Clariant has been able to decouple its emissions from its increasing volume sales (+ 7 %) and demonstrate significant progress towards the Group’s emissions reduction targets.

The Group also marked a milestone in its continuous efforts to increase transparency for customers into greenhouse gas emissions associated with a product throughout its lifecycle. With the launch of its product carbon footprint (PCF) tool, ‘CliMate,’ Clariant offers selected product carbon footprint calculations across its portfolio, in line with the ISO 14067 standard.

Another highlight in 2022 was Clariant’s low-carbon, high-performing solutions that create value for customers. Clariant’s solution contributes to the catalytic abatement of nitrous oxide (N₂O) emitted during the production of nitric acid, which is a valuable base chemical primarily used in fertilizers. Through its global climate campaign, the Group enables ten nitric acid producers to reduce more than 4 million metric tons of CO₂ emissions annually. Clariant received the 2022 Sustainability Leadership Award from the American Chemistry Council for this achievement.
  

Full Year 2022 – Teamwork, pricing, and cost discipline underpinned higher sales, while restructuring charges impacted EBITDA

In the full year 2022, sales from continuing operations were CHF 5.198 billion, compared to CHF 4.372 billion in the full year 2021. This corresponds to an increase of 24 % in local currency and 19 % in Swiss francs. Both pricing and volume growth had a positive impact on the Group of 17 % and 7 %, respectively, while the currency impact was – 5 %.

In the full year 2022, sales growth exceeded 20 % in local currency in all geographic regions. Clariant’s performance was especially strong in North America, Latin America, and the Middle East & Africa.

Care Chemicals grew sales by 28 % in local currency in full year 2022 with double-digit sales growth in all key businesses. In Catalysis, the top line was up by 14 % in local currency, propelled by the Petrochemicals and Specialty Catalysts businesses. Oil and Mining Services, Functional Minerals, and Additives in particular, all contributed to the 25 % local currency sales growth reported at Natural Resources.

The continuing operations EBITDA increased by 14 % to CHF 810 million as the Group improved profitability on the back of sales growth. The EBITDA margin was 15.6 %, versus 16.2 % in the previous year. Adjusting for restructuring expenses of CHF 40 million related to the implementation of the new operating model booked in the fourth quarter of 2022, the 16.4 % EBITDA margin exceeded the previous year’s level. The adjusted profitability improvement was propelled by pricing measures that more than fully offset the high raw material cost increase (25 % year-on-year) and higher energy (+ 35 %) and logistics cost (+ 6 %). The Group’s ongoing cost discipline and the profitability improvement in Care Chemicals and Natural Resources more than offset the relative weakness in Catalysis, which includes a CHF 43 million negative impact from sunliquid^®.

The EBIT decreased to CHF 72 million in the full year 2022 from CHF 440 million in the previous year, mainly due to three impairments totaling CHF 462 million. A non-cash impairment in the amount of CHF 233 million was related to the sale of Clariant’s North American Land Oil business to Dorf Ketal, which is expected to close in the first quarter of 2023. A further impairment of CHF 220 million was booked for the sunliquid^® bioethanol plant in Romania based on the delayed ramp up and the plant’s current financial performance. A CHF 5 million impairment was also made on Clariant’s assets in Ukraine. Excluding these charges, the EBIT increased to CHF 534 million, 21 % above the full year 2021.

In the full year 2022, the total Group net result was CHF 116 million, versus CHF 373 million in the previous year. The net result was lifted by the net result from discontinued operations of CHF 217 million, mainly related to the gain on the Pigments disposal; the strong business performance of the continuing operations; and the corresponding margin improvement, while impairments had a negative impact of CHF 462 million.

Net operating cash flow for the total Group increased to CHF 502 million from CHF 363 million in the full year 2021. This development was mainly attributable to strong underlying earnings and net working capital management. The increased free cash flow of CHF 293 million compared to CHF 6 million in 2021 resulted in a conversion rate in 2022 of 36 %, versus 1 % a year ago and is attributable to the strong operating cash flow and disciplined capital expenditures.

Net debt for the total Group decreased to CHF 750 million, versus CHF 1.535 billion recorded at the end of 2021. This development is largely attributable to a significant reduction in current financial debt and an increase in short-term deposits due to proceeds received from the divestment of the Pigments business and the Scientific Design Company stake.

The Board of Directors recommends an increased regular distribution of CHF 0.42 per share to the Annual General Meeting (AGM) on 4 April 2023 based on the strong performance in 2022. This distribution is proposed to be made through a capital reduction by way of a par value reduction.

Outlook – Full Year 2023

Clariant aims to grow above the market to achieve higher profitability through sustainability and innovation. Clariant has become a true specialty chemical company and confirms its 2025 ambition to deliver profitable sales growth (4 – 6 % CAGR), a Group EBITDA margin between 19 – 21 %, and a free cash flow conversion of around 40 %.

As of 1 January 2023, Clariant will report in the Business Unit structure aligned with its new operating model. The Business Unit Care Chemicals includes the former Business Area Care Chemicals and the Business Unit Oil & Mining Services (previously part of the former Business Area Natural Resources). The Business Unit Catalysts is unchanged from the former Business Area Catalysis. The Business Unit Adsorbents & Additives is a combination of the former Business Units Functional Minerals and Additives (both previously part of the former Business Area Natural Resources).

From a macroeconomic perspective, Clariant anticipates a soft recessionary environment in the first half of 2023, compared to a very strong first half of 2022, and expects to see an economic recovery in the second half of 2023 while uncertainties and risks related to the economic environment remain. For the full year 2023, Clariant expects to achieve sales of around CHF 5 billion, including a net negative top line impact of around CHF 130 million from divestments and the bolt-on acquisition. Clariant aims to slightly improve its year-on-year reported EBITDA margin due to a continued recovery in Catalysts, which is expected to offset lower sales volumes in the other Business Units. Clariant expects an increasing negative annualized sunliquid^® impact and a continued inflationary environment given the current economic outlook, counterbalanced by savings benefits from the restructuring programs.

Q4/FY 2022 Media Release
FY 2022 Financial Review

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This media release contains certain statements that are neither reported financial results nor other historical information. This document also includes forward-looking statements. Because these forward-looking statements are subject to risks and uncertainties, actual future results may differ materially from those expressed in or implied by the statements. Many of these risks and uncertainties relate to factors that are beyond Clariant’s ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behavior of other market participants, the actions of governmental regulators and other risk factors such as: the timing and strength of new product offerings; pricing strategies of competitors; the Company’s ability to continue to receive adequate products from its vendors on acceptable terms, or at all, and to continue to obtain sufficient financing to meet its liquidity needs; and changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including currency fluctuations, Inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Clariant does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of these materials.

www.clariant.com

Clariant is a focused, sustainable, and innovative specialty chemical company based in Muttenz, near Basel/Switzerland. On 31 December 2022, Clariant totaled a staff number of 11 148 and recorded sales of CHF 5.198 billion in the fiscal year for its continuing businesses. The company reports in three Business Areas: Care Chemicals, Catalysis, and Natural Resources. As of January 2023, the Group conducts its business through the three newly formed Business Units Care Chemicals, Catalysts, and Adsorbents & Additives and will report accordingly as of the first quarter of 2023. Clariant’s corporate strategy is led by the overarching purpose of ‘Greater chemistry – between people and planet,’ and reflects the importance of connecting customer focus, innovation, sustainability, and people.