Clariant AG

SIX:CLN

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, good afternoon. Welcome to the Clariant First Quarter 2018 Figures Conference Call. I'm Sarah, the Chorus Call operator. [Operator Instructions]The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mrs. Anja Pomrehn, Head of Group of Investor Relations. Please go ahead.

[Anja Pomrehn, Head of Investor Relations]

Thank you. Ladies and gentlemen, good afternoon. My name is Anja Pomrehn, and it's my pleasure to welcome you to Clariant's First Quarter 2018 Conference Call and Live Webcast.Joining me today is Patrick Jany, the CFO of Clariant.The slides for today's presentation, they can be found on our website, along with our media releaseI would like to remind the participants that the presentation includes forward-looking statements which are subject to risks and uncertainties. Listeners and readers are, therefore, strongly encouraged to refer to the disclaimer on Slide 2 of our presentation. The replay of the call will be available on the Clariant website for 30 days. And with that, I would like to hand over to Patrick to begin the presentation.

[Patrick Jany, Chief Financial Officer]

Thank you, Anja. Ladies and gentlemen, good afternoon. It is my pleasure to have you join our First Quarter 2018 Conference Call. Let us start with the highlights.As you can see on Slide 4, in the first quarter 2018, Clariant again delivered a strong performance not only in terms of sales growth, but also in terms of EBITDA improvement. Sales rose by 7% in local currency. Organic sales advanced by 5% in local currency. EBITDA before exceptional items also increased by 7% in Swiss francs to CHF 268 million.The upswings, particularly in Catalysis, but also in Care Chemicals and Plastic & Coatings led to the profitability enhancement. This corresponds to an EBITDA margin before exceptional items of 15.6%, which mirrors the previous year's prior level.Slide 5 shows that in the first quarter 2018, organic sales rose by 5% in local currency, with good volume growth across all regions. Sales were driven by 4% volume growth, by 2% consolidation effect, and by a supportive pricing development of a good 1%. This resulted in sales of CHF 1.7 billion for the group.Sales growth was most pronounced in Asia and Latin America. Sales in Asia grew by 15%, driven by substantial expansion in China, particularly due to Catalysis, while in Latin America sales rose by 11% as a result of the recovering macroeconomic environment.In North America, sales advanced by 5%, in the Middle East and Africa by 4%, and in Europe by a solid 2% despite a very strong comparable base.Looking at the figures of the business areas in more detail starting with Care Chemicals on Slide 6. Care Chemicals reported excellent sales growth of 9% in local currency, against a strong comparable base, bolstered by good growth in Consumer Care and a strong Aviation business mainly in North America attributable to favorable weather conditions.From a geographic perspective, most regions progressed with very solid local currency growth, particularly North America as well as Latin America where the economic environment improved as anticipated, reported double-digit sales growth.The EBITDA margin before exceptional items in Care Chemicals advanced to 18.4% from 18.2% a year ago as a result from the improved product mix and the reduction of ramp-up costs, while the Aviation business was not accretive to the margin.On Slide 7, we see that sales in Catalysis soared by 36% in local currency. Organic sales growth, excluding the fully consolidated Sud-Chemie India Pvt. Ltd. joint venture was 19% in local currency and was driven by an improved demand across the business lines.From a regional perspective, the robust sales expansion was largely attributable to the continued volume growth seen in China and the ongoing strength in the Middle East and Africa.The EBITDA margin before exceptional items improved to 19.8% from 19%, driven by the acceleration in demand. However, the margin was slightly dampened by the proportionately higher sales growth contribution from Syngas.Let us now move to Slide 8. Natural Resources sales grew by 2% in local currency. Sales in the Oil and Mining Services business grew in single digit, lifted by the improving demand in Oil Services in the last month of the quarter, offsetting a temporarily softer mining business.Sales in Functional Minerals decreased slightly in local currency against a very strong comparable base. The positive development in the Foundry business could not fully compensate the slight softness in the edible oil business which is subject to the quality of the respective crops and, hence, the weather conditions. However, we expect Functional Minerals to return to a slight growth on the full year basis.EBITDA margin before exceptional items declined to 15.2%, burdened by the continued price consciousness of the oil market. This, however, should improve throughout the year due to the sales pipeline of the business and a generally improving market in the Oil and Mining Services business.Moving to Slide 9. Sales in Plastics & Coatings increased by 2% in local currency, with growth in all 3 businesses and against a strong previous year.Expansion in Greater China underpinned the continued improvement in Masterbatches and Pigments, while sales growth in Additives surpassed the very strong first quarter 2017, mainly due to higher demand in Europe and the Middle East and Africa.The EBITDA before exceptional items continued to advance and increased to CHF 114 million. The main foundation of this development included volume growth as well as pricing measures undertaken in all 3 business units.Moving on to the overview on Slide 10, and summarizing the first quarter 2018. We delivered sales growth of 7% local currency and organic sales growth of 5%. This growth was supported by all business areas, in particular Catalysis and Care Chemicals.The EBITDA before exceptional items also rose by 7% to CHF 268 million, compared to CHF 250 million in the previous year. This was driven by the expansion, particularly in Catalysis, but also in Care Chemicals as well as Plastics & Coatings. The corresponding EBITDA margin before exceptional items was a good 15.6%.I now come to the economic outline 2018 on Slide 12. The outlook 2018 remains unchanged from our communication for the full year 2017 results. For 2018, Clariant expects the good economic environment in mature markets, which represent a high comparable base, to continue.We also anticipate that the emerging markets will be supportive, especially in Asia, and are more confident that Latin America might improve as there are signs of a recovery.As to our outlook, please move to Slide 13. 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 exceptional items.We confirm our target for the midterm to reach a position in the top tier of the specialty chemicals industry. This corresponds to an EBITDA margin before exceptional items in the range of 16% to 19% and a return on invested capital above the peer group average.With that, I hand back to Anja.

[Anja Pomrehn, Head of Investor Relations]

Thank you, Patrick, for taking us through the numbers of the first quarter 2018. We will now open the line for questions.

[Operator]

[Operator Instructions] The first question is from Thomas Wrigglesworth from Citi.

[Thomas P Wrigglesworth]

A couple of questions, if I may. Firstly, obviously, you've held EBITDA margins very well in the quarter. And I'm guessing that there was underlying raw material inflation that you've mitigated in that achievement. Could you detail what raw material inflation you're seeing at the moment? And a second question would be on Catalysis. I think we're expecting -- in previous conversations, you talked about how Syngas would have a bit of a margin dilution effect. But I definitely haven't seen that either in the first quarter. So were you previously too conservative and you think that actually is there a chance now that the mix effects, and could you, if you could, detail those mix effects through Catalysis over the next 12 months, are actually going to possibly lead to a better margin outlook than maybe previously thought. Thank you.

[Patrick Jany, Chief Financial Officer]

Starting with your first quarter and the whole group on the EBITDA margin, I think we, indeed, held it at a good level compared to quite a strong first quarter in the previous year. And since then, we have been faced with quite a significant price increase last year, which you know we had difficulties in the first and second quarter in some areas to offset, which we improved in the third and fourth quarter. So indeed, the comparison since a year ago was a bit of a tough base as margin in some areas have deteriorated, but they're bouncing back, to your point. We're increasing price by 1%. Actually, it's probably a bit more than 1%. To be totally frank, we have to round down the figures without decimals. So we are a bit higher than 1% in price increase. And we are able as a company to offset the raw material push, but not in all the businesses. And we look forward to offsetting the effect on the whole year basis, where we still expect further raw material increases. We typically would expect a 3% to 4% price increase on raw materials this year, which would imply a price increase in the direction of 2% over the year to compensate for the current increase in raw materials. So we are on it. All business units have very swiftly this year increased prices and are pushing them through. So in that element, I think we are much faster than we were last year and look forward to, therefore, of not a major hit in the margin but to be able to compensate this raw material. Looking at the Catalysis, indeed, we actually sold quite a lot of Syngas in China. You can see that with our geographical mix. The plus 36% in China are really driven by an excellent figure in Catalysis. So it's the phenomenon we talked about quite a long time ago which is now taking place. So that's according to plan. Therefore, I would say with such a volume increase, the margin could have been higher. But given that the mix is a bit disfavorable for the margin, we still could manage to have a positive effect. But if it would have all been petrochemicals, the margin would have been obviously higher than the 19.8%. But I think it's in accordance with our guidance; so from that point of view, not a real surprise. The order book looks good. We more or less know the mix for the year and are looking into 2019 as far as demand is concerned, so we can confirm a good demand environment for 2018 and '19. And from the margin, I think we will stick to our guidance to the 24% to 26%, with a bit of volatility in there depending on the full year basis, clearly, with a bit of volatility depending on the actual mix, which we will be able to [indiscernible] in those years.

[Operator]

Next question is from Peter Clark, Societe Generale.

[Peter Anthony John Clark, Senior Analyst, Chemicals]

Just two, please. First of all, on the Care Chemicals again. It's coming back on the margin question, actually. I was a bit surprised it was only up 20 basis points, and in the commentary about Aviation, actually, not contributing because I thought that was a pretty high margin business. I don't know there's a regional impact in that business. And I'm just wondering if there was a little bit of raw material pressure there, because you made it quite clear not all the divisions are offsetting. So maybe that [ build ] again with the costs going up. And then the second question is around, I guess the Natural Resources division, and you're pointing to getting some price traction with the oil customers as you go through the year. Just wondering how long do we potentially have to wait for that? Essentially it's happening into the second quarter? Or is this really going to be a second half thing where you see the margins start to [ coil ] back? Thank you.

[Patrick Jany, Chief Financial Officer]

Referring to Care Chemicals, indeed, I think we had a significant growth, a 9% growth in local currency. But obviously, the Aviation business helped, which didn't do last year. But this year was actually quite a good year, particularly in the U.S. in comparison, which we normally have lower margin in that business compared to Europe. But generally speaking, I would say that the Aviation business overall did not contribute to the margin; probably, in fact, eroded the margin in the first quarter. Because we, on the one hand, it's a geographical mix, U.S. stronger, but it is also the fact that this business typically works on a mechanism the way you do the contracts and you fix the prices in the summer for the next season, which was done. And in the meantime, obviously, [ F&N ] and so on, have increased a little bit since last summer, and, therefore, the margin was more compressed when we actually delivered those products than what was the original plan when the contracts were made back in summer. So that's a seasonal risk. Some years you win. Some years you lose a bit. This year was probably a year where the margins were not at their highest to put [indiscernible] in Aviation. But I would say from the growth pattern, it certainly helped. Overall what I would say, that our Consumer Care business, so talking about our Personal Care, about Crop, has an excellent growth, pretty close, actually, to the 9% as well. So from that point of view, I think we are progressing the right mix, and you will see this progression of the mix apparent as we go forward in the year, which means when the Aviation effect recedes. Looking at Natural Resources, indeed, that was part of the one sector which is still on the way to come up, but not really showing it in the numbers. But from the contract point of view, new contract signed, price increases passed. I think it looks good for the next quarters. But we are still in a phase where, particularly in the U.S., the so-called land business in the U.S. was a bit depressed in the first quarter. I think you can see that in all the competitors' numbers as well, which actually are sequentially down in the U.S., all the 3 major ones. Sequentially, we are slightly up. So we didn't fare too bad. But the Q1 was not the best for chemical business, service business in the shale. That will pop up during the year. And we expect both volume to increase and margins to increase as new contracts come into play as the year progresses quarter-on-quarter. So you will see probably already an improvement in the second quarter to your specific timing question. But overall the effect will improve quarter-on-quarter. So it will be a better picture in the second half than the first half. But definitely I would say the order pattern, the contract signed, and the pricing levels we are talking about now, not always invoicing, but at least talking about, are definitely better than the previous quarters.

[Operator]

Next question is from Patrick Rafaisz from UBS.

[Patrick Rafaisz, Director and Chemical Research Analyst]

Three questions, please, from my side. The Natural Resources business and the Functional Minerals, can you talk a bit more about the impact of the harvest and the crops and which crops are really driving the lower business here year-on-year? That's not a topic that's come up often in recent first quarters. Then on Care Chemicals, you mentioned that -- and Consumer Care group is close to 9%. Can you break that down also into the individual components, Personal Care, Crop Care, et cetera? And lastly, one of the -- clearly, you're not showing them for the first quarter. But can you confirm that you're on track for your guidance with the one-offs so far incurred in the first quarter after we overshot the bid last year?

[Patrick Jany, Chief Financial Officer]

Sure. So coming with Natural Resources, indeed, Functional Minerals have our customers to have a very good number. So we typically don't talk about it when the numbers are very good. I think they're performing at an excellent level. They have now achieved 17%-plus EBITDA, consequently. Nevertheless, in terms of growth, the first quarter was a bit of a reduction compared to the high base of the previous year, particularly because of the edible oil business. The edible oil business is, what you use is bentonite clay to actually do the filtration of vegetable oils before they are bottled and delivered to the customers. And that then, the amount of bentonite used depends on the quality of the original crops. So that can be soy. It can be canola oil, for instance, in the U.S. And the crop has improved in 2017, not the quantity, but the quality. And therefore, for the filtration process, you just need less bentonite than you used a year ago. That's a sequential issue. I think the new crop will have a new level of quality coming into the second half of the year. So again, it is open for the second half. And we are confident that Functional Minerals will not be dragging growth down, so it will return to growth on the full year picture.

[Patrick Rafaisz, Director and Chemical Research Analyst]

So will you say soy and canola are the main crops here relevant for Functional Minerals?

[Patrick Jany, Chief Financial Officer]

Yes, all the different crops for edible oils, the quality in Latin America was particularly improved in the end of 2017. North America is particularly Latin America in that effect. And therefore, there was less consumption by all the oil processors in Latin America of bentonite clay. I think it's a small deviation, I think. If you look at Natural Resources, you have to look at the fundamental driver which oil. We just talked about it before, that will significantly progress in the course of the year. I think we're past the low. The low was probably somewhere in Q4 and early Q1. March as a single month, look good already. And I think we see those numbers ramp up, as we had forecasted for the year. We said for '18, '19, the main driver improvement of the EBITDA margin will be oil, which has depressed everything and it will actually then pull everything in the coming quarters. So from that point of view, that's the major delta. In Q1 specifically, also, mining was not particularly good. We have a pipeline which is not running from a major customer that will use consumption. So you have a few single effects which in additional to Functional Mineral we just talked about, yes, didn't -- I didn't really look [indiscernible] counter affected the actual improvement of oil. That's a temporary measure. Now, sorry. Long answer. Going to your Care Chemicals question. I think Consumer Care in general is pretty close to [indiscernible] side; so higher than 5% and lower than 9%. And it is driven by Personal Care, but in particular in Q1 by Crop where we had another very good progression there, yes. And then on the third question on the one-offs, where clearly we overshot last year due to different reasons - environmental and/or the project costs. Our guidance this year is that we will stick and reach plus 1% of sales. And that is certainly what we are in the rhythm to achieve in terms of cash and guidance, which implicitly comes there along. I would say is important to see that we have also -- or we will have in the second half an impact of a tax penalty we have to pay in Germany. And that will be quite a significant one, double-digit tax impact in Q2. But overall, I would say it's not a P&L impact, it's a cash impact. So we have provisions for that. But that will be, I guess, the only biggest one-off we talk about.

[Patrick Rafaisz, Director and Chemical Research Analyst]

Great. Can I ask you one fourth, small question? Just reading here on the Bloomberg, the headline, Clariant's September strategy could have add-on boost from SABIC. What do you mean by that?

[Patrick Jany, Chief Financial Officer]

I think it's sort of in line with what we have said in full year and in the months since then. We have 2 processes this year; one is clearly the new strategy we are doing. You know that 2018 is the last year of our strategic plan. And therefore, independently of any additional ideas, all the [ beavers ] are working on the new strategy, designing their go-to market and results for the next few years, say horizon 2021, 2022. That will be ready by early autumn, which is really the new step for the group for the next few years, revised guidance. On top of that, as you know already, we are currently looking at a few projects with SABIC going into -- we have a detail on the [ way ], kind of actually created value for both groups, with new business ideas, given that we can have a bit of maybe better cooperation between the groups in the diverse areas where we can have common businesses. That is still a preliminary level. As you know, we are still antitrust phase, by way of SABIC has first [ order ] to acquire the shares after having the antitrust approvals. That will take us in June, July. Never really know when the whole process is finished. But will then allow us to actually share more information. For now the amount of information shared is very, very limited because out of legal reasons, we cannot share too many detail information. So by, I would say the same early autumn, we will then have 2 aspects, the fundamental new BU strategy for every single business unit and, as we have guided for, a few concrete ideas of where the corporation with SABIC can deliver added value to our shareholders by concrete business opportunities which will then add up to the [ normal ] strategy. That's what's meant by that.

[Patrick Rafaisz, Director and Chemical Research Analyst]

Understood.

[Operator]

Next question is from Theodora Joseph, Goldman Sachs.

[Theodora Lee Joseph, Equity Analyst]

My first question is actually in the Care Chems division, because if I'm looking at margins, it's roughly flattish year-on-year. And I'm just thinking in terms of contribution of one-off costs, it seems like it's must less this quarter. And you hinted in an earlier question that the Aviation impact was probably slightly dilutive in margins. Can you give some color on what the underlying margins for the division actually is, excluding the Aviation impact? And then maybe I can take up my question on Natural Resources later on in a second bit after you've answered it.

[Patrick Jany, Chief Financial Officer]

Well, I think as we've just talked about Care Chemicals, we do have a good fundamental evolution in Consumer Care, which is typically driving the margin up. I think in terms of volumes, we have gained quite a lot of commodity business during the last year to fill the capacities that we have put into place to fulfill the [indiscernible] until 2020, 2021. So I think we have created quite a few capacity as you may recall, back in 2016, which dragged a bit our profitability in '17, and we filled progressively during the year. But we filled them with products with lower margin. And now we are replacing those products with lower margin through higher value products, actually the products the plants were made for in the first place. So that is a switch, which [ great ] improvement of the portfolio which happen, and, therefore, we'll increase the margin of the Care Chemicals. I think last year we were at 18.2% margin. That gives you a point of reference because last year the [indiscernible] was not particularly big. It was accretive, but not particularly big. This year, you have a deterioration effect because Aviation is much bigger, but lower in margin. So that pulled us a bit down. And therefore, the progression that you see there is a bit diluted, I would say, by this dilution effect on Aviation. But there's a sequential improvement, a year-on-year improvement.

[Theodora Lee Joseph, Equity Analyst]

Yes, very clear. So is 4Q, I mean 4Q '17, kind of 19.4% margin, a good base to think about for the underlying business, excluding Aviation?

[Patrick Jany, Chief Financial Officer]

[Indiscernible] division. So Q1 and Q4 are always the biggest quarters for Care Chemicals. And therefore, I think you always have to have this view that you cannot compare, for instance, a Q2 with a Q4. I mean, that's always a different business. But on a quarterly basis, I think, yeah, you have good progression and we are marching towards a higher level of margin.

[Theodora Lee Joseph, Equity Analyst]

Okay, very good. And my second question actually is for the Natural Resources division. You mentioned that there was a temporary effect in the mining business. So I was just wondering if you can give us a good sense of what the underlying growth rate of the oil business actually is. And if we look at U.S. onshore oil versus the rest of your portfolio in oil, is there a huge difference in the growth rate?

[Patrick Jany, Chief Financial Officer]

Well, I think if you look at the oil, actual oil business without mining and so on, we actually have a mix of a higher single digit growth. So we are both at 5%, which is already good compared to previous evolution. So we are rebounding on that. The U.S., per se, had not contributed at all. It is rather flattish, slightly positive. It just really came back slightly in March, so there's an increasing dynamic in that figure. And that compares to what I was saying before, that if you, indeed, take a look at the press releases, our major competitors in the oil industry in the U.S. will actually find that they are sequentially Q1 versus Q4 decreasing in the actual oil shale business, the [ ever land ] business. We are slightly increasing, flattish to increasing. So we are certainly not doing worse. But the actual driver of oil growth for now has been mainly Latin America and Europe. And this is the time today we talked about, about first of all you have the drilling picking up, then you have the oil production picking up. But the new wells are typically wells we don't really need too many chemicals or too much chemical treatment, and then it's the deterioration of the yields, which increases the use of chemicals on a specific oil well. So the actual use of chemicals is slightly delayed compared to both the drilling and the ramp-up in production. But that is now coming. And in terms of, I would say contracts, so new fields which are being won or lost, we actually got a nice hit rate and there's quite a lot of new fields which means that people are earning money in that industry and investing to more production capacities so it actually looks pretty good if you look a few quarters ahead.

[Theodora Lee Joseph, Equity Analyst]

I see, okay. So correct me if I'm wrong. The impression I'm getting is that within the U.S. oil itself, it seems that it's pricing that's partially offsetting any early increments in volume. So as we move on to the next few quarters, as pricing recovers, you should see more volume improvement as well as the like impact kind of dissipate. Am I right?

[Patrick Jany, Chief Financial Officer]

I mean, it's not really the pricing. It is that we are locked in with contracts which have typically have been done the last 2, 3 years, because the contract says has a duration of life of 1, 2, 3 years, normally, and, therefore, the sales we're having today are the consequence of contracts we signed 2, 3 years ago in the midst of the crisis. So I'm not saying the prices are going down, but we are locked in into a rather low level. And that is now improving when you gain new contracts at new pricing levels.

[Theodora Lee Joseph, Equity Analyst]

I see very clear.

[Operator]

Next question is from Patrick Lambert, Raymond James.

[Patrick Gerard Jean Lambert, Research Analyst]

Three questions for me. First, regarding [indiscernible] just to -- a quick [indiscernible] in Catalyst, if any contribution there. Second, staying on Catalyst, the margin, could you tell us about the dilution of the bioethanol, if any, in Q1, and how you see that for a full year since you integrated that into the division? And finally, effects on margin profit, was there a -- with the acquisition in the U.S., that may have changed a bit. But if you could help us update our sensitivity in terms of cash costs and how long you are in euros versus Swiss francs and other currencies that matters - U.S. dollar, euro, and I guess Swiss francs, yes. Thank you, Patrick.

[Patrick Jany, Chief Financial Officer]

Yes. So starting with Catalyst, I think, indeed, the PP plant is now running. I would say it has had no significant impact in terms of sales. It is still probably costing us more than it earns because of the ramp-up of capacity. So we'll see, obviously, the effect diminish over the year. But it still remains a business which is in the startup phase. Looking at the margin of Catalysis, per se, indeed, there's a slight dilution there, you're absolutely right, from the new activity of the business line. Also [indiscernible] of bioethanol, I think at the time we have guided for quite a good portion of the central R&D costs being allocated to that. So we talk about between CHF 15 million to CHF 20 million, more or less, order of magnitude, which over the year are now under Catalysis and are no more under corporate costs. And that is, consequentially, the cost burden, without too much sales right now, because we are, obviously, working still [indiscernible] licenses and more 1x effect. So I think there will be a ramp-up effect here, but for the first quarter there was no really sales associated with that activity. And then on the currency positions and the potential erosion in gains, I think you have 2 effects there. First of all, we are still long in dollars, 400 million to 500 million long position is still valid. And therefore, we are certainly living better with a strong dollar, which is not exactly the case right now. And we are short in euro, having more costs in euro than sales. So the recent appreciation of the euro has certainly not, I'd say totally played to our advantage. But at the end of the day, it is an evolution which you have to offset by pricing and is currently in the proportions not a major [ imprint ]. It doesn't help. Yes, compared to previous year, it's probably one element of margin dilution. But I think it's something which over the year you have to be able to compensate. If it stays in those order of magnitudes, today it shouldn't have a major impact on the yearly results.

[Operator]

Next question is from Daniel Buchta, MainFirst.

[Daniel Buchta, Vice President]

Thank you very much for taking my 2 remaining questions. The first one would be on Catalysis. I mean, obviously, a very good quarter, especially in terms of organic growth of 19%. You mentioned before that you have a quite good order book visibility. I mean, is this 19% in 2018 kind of a new normal, as I would say? Or is there, like in Q3 and Q4 last year, a bit of order pattern that is to have in mind? So how can we see that? And then in Plastics & Coatings, I mean, we have seen a sequential slowdown. I mean, you mentioned a higher comparison base and if we see what the 6% in Q1 last year, obviously, it is higher. Do you see any underlying negative trends here? And how was pricing versus volume in Plastics & Coatings, because especially I think the pigments part is having significantly higher from titanium dioxide and other raw materials? Just to understand here. Thank you very much.

[Patrick Jany, Chief Financial Officer]

So the Catalyst growth rate, and we're at 19% organic growth. That is the strong first quarter we talked about back in Q4. I think is obviously not the guidance for the full year. You know that Q1 is typically the lowest quarter in Catalyst. Then you have normally a decent Q2, Q3, and the absolute margin and sales growth driver comes through Q4. So from that point of view, the 19% looks big in percentage, but over the year it will get diluted by just stronger quarters, in absolute numbers. But we confirm our guidance of good growth for 2018 and 2019, for the 2 years for Catalyst, in the range of our guidance, which is 6% to 7% for the business. And we'll see effectively then during Q3, Q4, function of deliveries, what gets invoiced this year or next year. Whether we are in this guidance or above, that will depend on the actual delivery schedule of the orders. But the orders are strong. And I think we are in for quite a couple of good years in Catalyst, and 2020, '21, don't look bad either. So from that point of view, I think it's a very regular evolution if you look at it on the year. On the quarter, you always have those effects up and down.

[Daniel Buchta, Vice President]

Yes. Of course, yes.

[Patrick Jany, Chief Financial Officer]

But that's normal. So from the Plastics & Coatings business, yes, indeed, we have achieved quite a good level of performance. In some businesses, so Additives is running extremely high level, probably quite full already, limiting a bit growth potential, but excellent profitability, while Pigments and Masterbatches are more in the mode of increasing prices, as you rightfully say. We're not looking too much at the volume there or whatever. What we want from them is an increased EBITDA and increased cash flow generation. So they certainly have the challenge of increasing prices. I think they have started strong, much better than last year where they lost a bit at Q1, Q2. I think that we are in the market with broad price increases across the board. I think in Masterbatches we start really first of January I think at 8% price increase, which is now coming progressively through the whole customer landscape in the different regions. And that is the business which has to offset increased components that we mention is a raw material for the white Masterbatch line. In terms of Pigments, evolutions are much slower. They're further down the value chain. So raw material increases are much smaller and are in between each other. So you have actually less dynamic on the raw material and pricing level in the Pigments area than you have to have in Masterbatch.

[Operator]

Next question is from Paul Walsh, Morgan Stanley.

[Paul Richard Walsh, Managing Director]

Just a couple of questions from me. Do you think you can get into the lower end of that EBITDA margin target range as you move through this year? Sounds to me like you start on a good footing and there are opportunities at the margin -- not at the margin, but for the margin to continue to make progress through the year, given that you had some headwinds in the first quarter. That's my first question. My second question is just I'm not sure I particularly understand the dynamics of the Natural Resources business, i.e., the lower margins because of the price conservatism in the oil market. Is it just simply a fact of weaker mix in the first quarter and Natural Resources driving that lower margin? Thank you.

[Patrick Jany, Chief Financial Officer]

So in terms of general EBITDA guidance, I think we maintain our guidance as we increase EBITDA in absolute terms in terms of margin. The question was how do we get to the 16% this year, will depend. I'll leave that open, I think, that the guidance is the guidance. I think, certainly, we have 2 elements [ that struck us ] down, as you know, in the previous couple of years, which was very low Latin America and oil business which was dragging us down in terms of reduced sales and reduced profitability, now reversing. So it will depend a little bit on the pace of the reversing. So if you look at the '18, '19 period, just to roll them up a few quarters more. I think certainly see, again, [ in speaking to ] oil imply an improved Natural Resources, which then will help to lift the group margin. So that is certainly something which can confirm today because it's what we see in the business. But the translation into actual figures and improved profitability will take a few quarters.

[Paul Richard Walsh, Managing Director]

It is also fair to say, though, Patrick, that your highest margin business is growing much faster than the other segments as well, which, at a group level, if that continues, that is constructive to the margin bridge as well, is it not?

[Patrick Jany, Chief Financial Officer]

Absolutely. I think it's certainly not damaging, yes. But again, I think as we said, we do actually have Catalyst as we just talked before, we'll have actually a good run in '18, '19. '20, '21, don't look bad as far as we can judge it from now with interesting new contracts coming as well. So that is, I would say the most profitable business on a good track. And then we need to remove the underperformance of the last few years, which is why we are a little bit behind our plan, which was clearly oil from terms of business and Latin America in terms of regions. Now coming precisely back to Natural Resources. I think you just have there a few one-timers which then have masked a little bit the progress of the oil business. And that will be, I would say removed in next quarters. One, as we said, was Functional Minerals, which have extremely well performed the last few years at a good level, but now in Q1 have a bit of a consequence already of a different mix and, therefore, slight deterioration. Not substantial, but, still, it doesn't help. And then you had a mining temporary situation that will resolve itself, Latin America will. Customers will fix their pipeline. And volumes in [ principal ] and prices are good for iron ore and copper. So there's no, I would say structural issue there. And then coming to the oil itself. I think it's a matter of, as we just discussed, to really have both improving volumes from our customers, new contracts, and those new contracts being at higher margins of the contracts that we made at the worst of the crisis 2 or 3 years ago.

[Paul Richard Walsh, Managing Director]

But just to be clear, Functional Minerals and the Mining business are, by definition, slightly higher margin than today's Oil and Mining Services activity; that's the point, isn't it?

[Patrick Jany, Chief Financial Officer]

Absolutely. Yes, correct.

[Operator]

[Operator Instructions] The next question is from Chetan Udeshi, JP Morgan.

[Chetan Udeshi, Research Analyst]

Just maybe 2 question, one just follow-up to Paul's question. Without getting into numbers, within that range of 16% to 18%, 19% that you've given for the midterm, do you expect just a normal course of business in the sense Catalysis continue to grow over the next 2 years, delivering the margin that you aspire to have? Because some could argue that maybe in 2 years’ time, Catalysis might be at peak again. So you might achieve that level of margin only for 1 year or 2, other than sustainably so. What are the key drivers to get to that level on a sustainable basis was the question I had. And number two question is, are you seeing any material changes in the [indiscernible] transform from any of your end markets at this point, looking into 2Q versus, say Q1 or last 6 months? Thank you.

[Patrick Jany, Chief Financial Officer]

Yes, I think to reach the 16% to 19%, I think it is clearly as we've just discussed before, the improvement of the mix of the businesses or the relative weight, I would say, of the businesses within the total share of sales and share of EBITDA. So clearly Catalyst has to grow. It is the highest margin driver. And them getting above the 700 million, 800 million, going towards 900 million, is certainly something which improves the mix. And fundamentally, as you know, Natural Resources growth factor where we can differentiate ourselves, particularly in the oil business, the mining has a very good profitability. And those things, when they grow are naturally giving the group already at least the lower end of the margin on a very sustainable basis. What has happened the last 2 years, or last 3 years, actually, since 2015, was that oil, instead of progressing as was our plan, was obviously [ confronted ] to the whole crisis of the industry, which instead of having increased sales at higher profitability had slightly decreasing sales at slightly decreasing profitability, which is still much better than all the peers. But compared to where the group wants to be when we talk about the 16% to 19%, is a major deviation. So from that point of view, this is reversing. It cannot reverse in 1 or 2 quarters. The business just started to improve during Q4 as we talked about the business in the U.S., actually really just I would say in the last month of Q1, starting to recover. So it is progressively gathering speed and we need this to continue to really get then to this level. But then it is absolutely sustainable. I mean, there's no reason why with this portfolio we shouldn't be in that region at all. Now, looking at specific demand trends, I think we still see quite a good demand across the board. I think the plastic industry is still going strong. I think that at least in our case crop delivers a regular growth. The personal care markets have been supported for many years. And with innovation, I think there's still a lot more to come. That's where probably market and innovation are 2 factors. Sometimes the market is not as buoyant, but if you can replace competitors' products with better technology, your sales can still advance. And for that point of view, I would not see significant sign that there is a slowing down. I think geographically it is clear that Europe will grow less in 2018 than 2017. I think we're at 7% growth in Europe last year. You cannot grow in Europe 7% every year. It just doesn't really -- it's not possible from the market point of view. But on the other hand, there's a lot of room to grow in China. The U.S. is actually doing pretty okay. Latin America seems bouncing back. So you probably should see a shift in the regional mix. But overall, I would say markets remain supportive.

[Operator]

That was the last question.

[Anja Pomrehn, Head of Investor Relations]

Ladies and gentlemen, that then concludes today's conference call. If you have any further questions, please don't hesitate to contact the Clariant Investor Relations team. We are very happy to answer any questions that you still might have. And with that, once again, thanks for joining the call today, and bye-bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Good-bye.