Clariant AG

SIX:CLN

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the Clariant First Quarter 2020 Reporting Conference Call. I am Andre, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ms. Maria Ivek, Deputy Head of Investor Relations. Please go ahead.

[Maria Ivek, Senior Investor Relations Officer]

Ladies and gentlemen, good afternoon. My name is Maria Ivek, and I welcome you to Clariant's First Quarter 2020 Results Conference Call and Live Webcast. Joining me are Hariolf Kottmann, Executive Chairman of Clariant; and Stefan Stephan Lynen, CFO of Clariant. As a reminder, this conference call is being recorded. [Operator Instructions] The slides for today's presentation can be found on our website along with our media release. I would like to remind all participants that the presentation includes forward-looking statements which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. A replay of this call will be made available on the Clariant website. Stephan will initially go through the first quarter 2020 results and Hariolf will finish the presentation with Clariant's outlook going forward. Let me now hand over to Stephan to begin the presentation.

[Stephan Lynen]

Thank you, Maria. Ladies and gentlemen, good afternoon. It is my pleasure to welcome you to Clariant's 2020 First Quarter Results Conference Call. Please not that all figures discussed refer to continuing operations unless specifically noted otherwise. Also, please be aware that the numbers, which we previously referred to as EBITDA after exception items are now simply called EBITDA and will be always the first focus when discussing profitability.As you can see on Slide 3, in the first quarter of 2020, Clariant's sales declined by 6% in local currency in a difficult environment. This development was due to a mild winter season, the timing of catalyst sales, and a weaker global demand in the context of the COVID-19 pandemic. The sales development was supported by stronger sales in the business area, Natural Resources, while Care Chemicals and Catalysis sales weakened in the first quarter of 2020.Looking at profitability, the EBITDA margin remains resilient at 16.4%, due to our core portfolio and rapid and efficient cost control measures. And the absolute EBITDA reached CHF 157 million. Clariant, like the entire chemical industry, is facing an unprecedented situation with the COVID-19 pandemic. Yet, I can confirm that all efforts to minimize the impact are fully in place at Clariant. These measures are backed by our strong balance sheet and liquidity position, which is based on our solid conservative financing approach. We continue to assure employee's safety first, while concurrently running business continuity programs and implementing cash measures. Let us take a closer look at the first quarter sales by moving onto Slide 4. In the first quarter 2020, Clariant generated group sales of CHF 1 billion. Sales softened by 6% in local currency in a weaker global environment amidst the impact of the COVID-19 pandemic and versus a high comparison base in the previous year.Sales increased in the Natural Resources business area, while Care Chemicals was hampered by weak aviation conditions and the timing of Catalysis sales, which weighed on the topline. The sales development in local currency was attributable to 1% higher prices and 7% lower volumes.In Swiss francs, the sales development was 12% lower as the very unfavorable foreign currency development negatively impacted Clariant sales by 6%. Slide 5 reflects the region sales development for the first quarter of the current year. The sales development in Asia was fundamentally robust, despite a 1% contraction in local currency, which was driven by the COVID-19 pandemic in China, and the prolonged Chinese New Year. In Latin America, as well as in the Middle East and Africa, sales increased the most strongly at 10% each in local currency, a development which was also affected by the devaluation of major currency in Latin America.Sales in North America decreased only slightly, by 5% in local currency. This was again due to the mild winter and the negative impact, which COVID-19 has on aviation, while the other businesses grew. Europe weakened by 17% in local currency also due to the substantially softer aviation and [indiscernible] business. Let's review the business area figures in more details, beginning with Care Chemicals on Slide 6. In Care Chemicals, first quarter 2020 sales declined by 14% in local currency. The development in Consumer Care reflected a slight low single digit decline with a progression in Personal Care but a small decline in Home Care and Crop Solutions. Industrial Application Sales developed less favorably, primarily due to the significantly softer aviation business, which was driven by the particularly mild winter and reduced air traffic amid the COVID-19 pandemic. The weak economic environment also resulted in lower base product demand although paint and coating sales grew.Excluding the seasonal and COVID-19 impact from the aviation business, Care Chemical sales were only very slightly weaker versus a strong first quarter in 2019. As a matter of fact, the aviation grounding made up for 80% of the decline in growth in local currency. The lower sales also affected the Care Chemicals EBITDA margin in the first quarter of 2020. This declined to 17.8% from 19.6% in the same period of 2019. This development was mainly attributable to the explained weak aviation business in Europe as well as in North America amidst the COVID-19 pandemic.The lower sales volume also had a negative impact on the cost coverage. In terms of the short-term outlook, we anticipate a stronger negative COVID-19 impact in Care Chemicals in the second quarter of 2020 versus the second quarter of 2019, despite the resilience of the consumer care part of the portfolio in particular. This development is likely to result in lower sales and margins in the second quarter. Let's move onto Catalysis on Slide 7. Sales in the business area, Catalysis, decreased by 6% in local currency in the first quarter of 2020. This development is partially attributable to the previously communicated forward sales shift from the first quarter of 2020 into the fourth quarter of 2019. As also anticipated, sales in Syngas were significantly lower in the first quarter of 2020 due to the large amount of project business in the first quarter of the previous year. This sales development was primarily observed in Europe, the Middle East, and Africa, which accounted a particularly difficult previous year comparison base, while Asia and Latin America, as well as North America, demonstrated a resilience in its development.The first quarter 2020 EBITDA margin of Catalysis declined to 13.2% from 21.7% in the previous year, as a result of the lower demand, the shift of timing of sales, and an unfavorable product mix effect. The mix effect made up for approximately 50% of the decline in EBITDA margin, while the other half was related to the timing of the sales. Though margins can fluctuate significantly over a quarter of a calendar year, the fundamentals for Catalysis remain positive based on the present order pipeline, our portfolio strength, and our innovation capabilities.In the second quarter of 2020, we anticipate improved sales at Catalysis versus the first quarter of 2020. While it will still be a little bit lower than the second quarter of 2019. As yet, improved margins with a [ fading ] mix effect.On Slide 8, we see that the first quarter of 2020 sales in Natural Resources rose by 2% in local currency. Oil and Mining Services reported low double-digit sales growth in local currency for the first quarter with higher sales in all 3 business lines and across all regions. Functional Mineral sales declined slightly at low single digit rates in local currency due to the weakness in Foundry, primarily attributable to the shutdown of the European automotive industry in mid-March as a result of the COVID-19 pandemic. The Growth and Purification was unable to entirely compensate for the weakness in Foundry.Sales in the Additives business decreased at a high single digit rate in local currency. The softer demand resulted from a persistent weakness in electrical and electronic sectors, as well as the lagging automotive market, which could not be compensated by new sustainability offerings.The EBITDA margin rose to 19.1% from 15.6% as Oil and Mining Services sales grew in accretive application, while Functional Minerals and Additives successfully defended their EBITDA margins, despite the weaker topline development. Looking forward, in the second quarter of 2020, we expect Natural Resources sales to slow due to our expectations for a weaker economic environment amid the COVID-19 pandemic, paired with the low oil demand. Let us continue to discuss the financials on Slide 9. On an absolute basis, the group EBITDA decreased by 40% in Swiss francs to CHF 157 million. Impacted by the sales evolution in the first quarter of 2020. I repeat especially by the weak Aviation business and Care, and the softer profitability in Catalysis due to sales timing and sales mix, as well as particularly negative FX effects translating into Swiss francs.The group EBITDA though, margin, remains robust at 15.4% versus 15.7% in the first quarter of 2019. The EBITDA before exception items was reported at 16%. This resilience in EBITDA margin reflected by these results was underpinned by the strength of our core portfolio and the implementation of rapid and efficient cost control measures amid COVID-19.With this, I would like to hand over to Hariolf to discuss Clariant's outlook.

[Hariolf Kottmann, Interim CEO & Executive Chairman]

Thank you, Stephan. Ladies and gentlemen, after going through the first quarter 2020 figures, I would now like to move to Slide 11 so that I can explain to you what we are doing to enforce the Clariant performance going forward. Clariant first quarter 2020 results clearly reflect the resilience of our 3 core business areas in the current particularly difficult, turbulent I would say environment also in comparison to our peers.Also, sales declined by 6% in local currency in the first quarter. The EBITDA margin remains robust, near last year's levels. We have fully implemented measures to mitigate the impact of the COVID-19 pandemic that is on our strong balance sheet and our strong liquidity position. We continue to prioritize employee safety first while concurrently running business continuity programs and implementing very hands-on, let me say, cash measures. In terms of Clariant outlook, looking at 2020, we anticipate a negative impact on sales and profitability from the pandemic. In fact, the pandemic impact is expected to more strongly affect the second quarter of 2020, which is more than [ logic ]. Yet, the uncertainty regarding the impact of this unparalleled crisis remains high. Clariant has prepared different scenarios to generate resilient performance and continue its transformation program. Let me give you 2 examples.To generate resilient performance, we have shifted our focus on short and midterm cash generation. The efficiency program and corresponding workforce reduction, which we announced together with the full year 2019 results in February, has been put on hold to a large extent given our social responsibility amid the COVID-19 pandemic. Thus, the previously communicated CHF 50 million cost base reduction will be delayed for a few months. Also, we are still targeting to maximize the positive impact in 2021. There's no change in principal so far. In terms of transformation, let me comment on the Masterbatches divestment to PolyOne. As you know, the sales agreement was signed in December 2019. Together with PolyOne, we continue working together constructively on all working levels towards the closing of this transaction, which is expected by the third quarter of 2020, at the end of the second quarter at the earliest. The closing is subject to customary closing conditions and regulatory approvals, which are progressing very well. At Clariant, we continue to focus on the 3 core business areas -- Care Chemicals, Catalysis, and Natural Resources. In the midterm, and we really do hope that there is a life past the pandemic, Clariant expects its continuing businesses to achieve above market growth, higher profitability, and stronger cash generation based on our focused, high value specialty portfolio, the ongoing implementation of our corporate transformation process, as well as the ongoing implementation of our corporate strategy. With that, I'll turn the call back over to Maria.

[Maria Ivek, Senior Investor Relations Officer]

Thank you, Hariolf. Thank you Stephan for taking us through the achievements and progression achieved in the first quarter of 2020, as well as for providing us with some insights into Clariant's outlook. Before we go to the Q&A session, we would kindly ask that you limit the number of questions to 2, thus providing more participants with the opportunity to ask a question. Thank you for your understanding. We will now open the line for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Christian Faitz from Kepler Cheuvreux.

[Christian Faitz, Equity Analyst]

Two short questions please. Thanks for your comments on expected Q2 performance, Stephan. Just a bit of clarity on Catalysis please. Given that lots of your customers must have their plants in downtime, is that actually helping demand for refilling the Catalysis or do you not see that yet? And then second of all, can you remind us of your dependence on U.S. shale oil in Natural Resources? Thank you.

[Stephan Lynen]

Let me start with your question on Catalysis business. What we said with the Q4 result is that we have seen a peaking of the Syngas refilling cycle in 2019. We've seen also a [ preponement ] as I said from Q1 to Q4 in certain order and we've seen a certain rollover. But our outlook for Q2, as I said, versus Q1 is definitely higher and we have a very good visibility on the order pipeline from Catalysis. So those opportunities you refer to, we definitely see going forward in Q2, Q3, Q4, as well as the fading mix effect if you come to the profitability.On the Oil business, shale, we have today in the Oil business, basically, a split between offshore and land business of 50/50, 50% land and 50% offshore. And of course, what we see is now with the current oil situation, the demand or the warehouses filling and the demand declining. But this effects less the offshore business where we are quite strongly positioned compared to competition.

[Operator]

The next question comes from the line of Patrick Rafaisz from UBS.

[Patrick Rafaisz, Director and Chemical Research Analyst]

Thank you and good afternoon everyone. My 2 questions would be, firstly, can you update us on Clariant's liquidity position as of quarter end and thinking here about the undrawn credit facilities and cash on hand. And then secondly, on Natural Resources, a follow-up. Given the contract structure is 1 to 3 hours and given your production related exposure in this area, how much of a lag should we assume for natural resources, especially on the mining, to see the full extent of the oil price related downturn in oil production? Do we already see a big hit in the second quarter or could that actually drag out into Q3, Q4 maybe?

[Stephan Lynen]

Thank you, Patrick. So I'll start with the liquidity, which is obviously, in these times, a core strength for us because we have been very conservatively financing over years in the past and continue to do so. So we do not disclose the details of our balance sheet and cash flow statements in the first quarter. But if you take it from the year-end, where we have published a very strong balance sheet, with a [ gearing ] approximately around 50%. And you've also seen that in March, then it of course repeated its very positive investment grade rating for Clariant on [ BB minus ] long-term and maybe better on short-term.Of course, the crisis will take its impact but we have an extremely and definitely over better than average industry start into that crisis from the liquidity and also balance sheet, cash on hand, and headroom position. And we had no major change or no change to that position as such in the course of the first quarter. If I come to your second question, the Natural Resources. Yes, I would say we're looking of course at the situation, which is not so typical. When you look at oil prices and forward prices turning into negative now for the second time. But maybe let me start to answer your question by saying that our improvement of the oil business was particularly homemade. So we have an excellent team, management team, with an excellent program, which is in excellent execution. And this was the main driver for growth and for profitability. And I would say more than the contracts, this give us the fundamental belief that we will steer very well through the crisis. But definitely, we will see also on the oil business, a negative impact already in the second quarter.

[Operator]

The next question comes from the line of David Symonds from JPMorgan.

[David Symonds, Analyst]

The drop through of the Catalysis decline into the EBITDA was 90% and [indiscernible] has driven margins [indiscernible] in a few years. I know you've said 50% of that was mix but mostly talked about lower Syngas contracts, which obviously would normally be margin accretive. So are you seeing any kind of pricing or raw materials pressure in that division and what is the business that's so dilutive to the margins to have brought those margins down to this level?Secondly, just any update on the timing of the special dividend? I know you said after the Masterbatches sale had closed but given the current sort of drive for conserving liquidity, is there any change around the messaging on that. Let me start with your first question on the Catalysis margin. No, we do not see any specific squeeze from raw material cost or pricing. Actually, the pricing performance also of Catalysis as you saw. And this is still an expression or it is an expression of the strength of our portfolio that we had even in these times the positive price increase in the first quarter by 1%. And also in the Catalysis, you saw a positive impact.So the erosion came really from mix effect and the mix effect came mainly, and this is quarter-over-quarter sometimes a little bit different, by a higher demand on Catalysis with a bigger share of precious metals, which just have, by the nature of how we provide them then, have a dilutive effect on the margin. It doesn't change anything on the cash generation but again, it has a dilutive margin effect and that's something, which can happen from one quarter to another from a mix position.For the specialty dividend, I will hand over to Hariolf.

[Hariolf Kottmann, Interim CEO & Executive Chairman]

In principle, you can approach your question from 2 sides. Number one, we had planned an AGM for April and we decided to shift it to June. Now, the new date is June 29. The recommendations and decisions are brought for the first AGM will now be, let me say, re-discussed in a board meeting middle of May to prepare usually the agenda and recommendations, and decisions for the AGM end of June. Therefore, I don't know how the board will decide in May regarding the dividend.And the dividend, we had 2 kinds of dividends to discuss. Number one is the regular dividend for the year 2019 and there is a decision and recommendation made by the board for the shareholders meeting needed. And in addition, the extra dividend we defined as CHF 3 per share after successfully closing the divestment of Masterbatches. And this is also up to the board to make this decision. I'm pretty sure that we do not challenge this decision in principle but it could well be, and this is now really theoretically spoken, it could well be that the board decides to pay out in 2020 just CHF 2 and reserve 1 CHF for the AGM in 2021. But in principle, we stick to the total amount of CHF 3 extra dividend based on the successful closing of the transaction.

[Operator]

The next question comes from the line of Markus Mayer from Baader Bank.

[Markus Mayer, Lead Analyst of Chemicals]

I have 2 questions as well. First one is on the Catalysis business as well. There has been already cancellations of refill orders, if I remember correctly, that was the business in the last financial crisis, which saw the impact first. And also in the Industrial business, have you already seen delay of projects? And then second question would be on the pigment divestment, should we expect a delay of this divestment as [indiscernible] might be not that easy to do due diligence and all the other stuff, which is needed, for the divestment.

[Hariolf Kottmann, Interim CEO & Executive Chairman]

Markus, let me start with your second question and Stephan then will respond to the Catalysis related divestment. When it comes to dividend, I think all of you know the entire story. We announcement divestment many years ago. We successfully carved out everything and put it up for sale. We sent out the prospect to strategic buyers as well as to private equity firms. We had a very strong response to that.We thought about having the first meetings with interested parties in May and now, we are in the middle of COVID-19, and as you rightly said, this is really not the ideal time for make divestments and acquisitions. And therefore, we decided to slow down the process. We are not in a rush. We will slow down it a few months. We wait until August, September so that we better understand the total environment in the market, the interest of the strategic or private equity buyers. And then we continue with the regular process in fall.

[Stephan Lynen]

So Markus, on Catalysis business, the answer is we have not seen any cancellation of refill on orders in the first quarter or as of to date. Let's keep in mind that the refill business is around 70% and the new project business around 30%. What I said is we have seen a certain peak of the refill business in 2019 and a little bit of a shift into the fourth quarter, which was exception. And really good. And we've seen or we are preparing that we would see a certain rollover of orders into Q2, Q3, Q4. That is something, which I would not be surprised to see. But as I said, from today's outlook, we already will see a stronger Q2 on the topline versus the first quarter of this year.

[Operator]

The next question comes from the line of Theodora Joseph from Goldman Sachs.

[Theodora Lee Joseph, Equity Analyst]

Just 2 questions. The first one was I was wondering if you were able to quantify kind of the net raw material tailwind you saw in the business for the first quarter. Because I note that the pricing was actually positive 1% on a group level. But obviously, the majority of the raw materials must have come off to date.So second question relates more to Care Chemicals. Can you remind us what percentage of Care Chemicals is the aviation business? And if you're able to give any color around the magnitude of decline that you saw this quarter? Also, if you're able to comment on the exit rate you saw for Care Chemicals in March and what you're seeing in April, that would be super helpful. Thank you.

[Stephan Lynen]

So let me start with the raw material piece. Actually, the first quarter of 2020 we did not have yet a huge impact from raw material deflation. It takes a little bit of a time to crude oil prices through NAFTA and to all the [indiscernible] properly have translated and impacted, and also the pricing for our feedstock.But we do expect that and as much as we have discussed already that the oil price and oil market situation has a little bit of a negative effect on the outlook on oil and mining businesses in the next 2 quarters. But we will see, of course, an advantage by the lowering raw material prices on olefins, ethylene, propylene, now forward looking into Q2 and Q3, particularly in the main uptake of those olefins in Care Chemicals as well as in additive part of the Natural Resources. They use quite a bit of those olefins.The second part of your question on the aviation business. I mean if you ask me about the weight, it could not be lower than in the first quarter. I think this is really with grounded airplanes worldwide and I guess you've seen in different geographies outside of the window and not seen too much snow. So if you take Q1, the ratio would be extremely slow.But the aviation, to already not, I mean, lower Q1 in the last year were still in the magnitude of minus 60%. And as I said that contributed to 80% of the decline of the whole Care business. And so it was really [ grounded bottoms ] business in the first quarter 2020 and taking a major effect on the Care business.

[Operator]

The next question comes from the line of Alex Stewart from Barclays.

[James Alexander Stewart, Chemicals Analyst]

Can I come back on your comment on the 50/50 mix between onshore and offshore in O&S? Can you confirm whether your onshore business is -- and is that a legacy, the remnant shale exposure you had to the 2 acquisitions in 2016? Because I was under the impression you had shifted a lot of that into more challenging, more difficult worlds? And then secondly, your Crop Care business declined, albeit slightly, for the first time in a while.And you also said that Home Care, which was slightly negative in the fourth quarter of last year, we shouldn't read into that. But it's negative again in the fourth quarter. Is there something going on in the Home and Crop Care business that implies or that suggests that growth and demand is going to be now structurally slower than it was in the past? Because that's been a very important growth driver for you. Thanks.

[Stephan Lynen]

Thank you, Alex. So that was 3 questions. I'll take them. The first question on the offshore/onshore share, you're totally right. Not only to the acquisitions but the part of the management team's execution, and strategy, and improving the results is of course shifting more to value accretive businesses and that means a shift from onshore to offshore and that is in progress, and that is deleveraging the fracking business, if you may. And that's part of the results, which you see already in the profitability in the first quarter of 2020.If I come to the crop business, yes, this was slightly below and basically, the whole deviation or the majority deviation crop came from Europe. And if you see also coming out of mild winter also very dry season in the first quarter of this year. We don't see any fundamental change to our growth potential and crop solutions, absolutely not. But yes, a weak start in Europe particularly, which led to a little bit decline on a Q1-Q1 comparison. Nothing fundamental.And on the Home care business, yes, also there we have seen a small decline. This had to do also with customer product mixes and in principle, is a business where you're totally right, we see also ongoing growth potential in the future. Specifically also as it addresses of course aspects like hygiene, which are of high importance these days.

[James Alexander Stewart, Chemicals Analyst]

Sorry, could I just clarify, on that onshore exposure, can you confirm that that's U.S. shale still or if there are other parts of the world where -- that feed into that? I'm just trying to gauge your exposure to the short cycle oil producers?

[Stephan Lynen]

There is a few parts of the world but by far, the biggest is of course the U.S.

[Operator]

The next question comes from the line of Daniel Buchta from Vontobel.

[Daniel Buchta;Vontobel;Analyst]

Two questions also from my side. Maybe the first one on your Masterbatches disposal. And you commented a little bit on this. Also earlier today, I read that you are not concerned that PolyOne may stop this disposal or may renegotiate it. If I read what the CEO of PolyOne in the Q1 conference call said, and also before, I mean he said they stick to the strategic idea rationale behind this deal but nonetheless, they confirmed that there is a probation breakup fee of $75 million. And they also said that they would have to look at it because the markets are as they are, and between the lines, they also said that as of today, they probably could get this asset cheaper than what they have agreed with you late last year. So could you please clarify a little bit, Mr. Kottmann, what makes you so sure that PolyOne is not maybe renegotiating the deal or is maybe even terminating it?And then the second one on your efficiency program. In the call, you confirmed that the CHF 50 million savings target of 500 million to 600 million people being laid off, this is still the case and maybe a little bit delayed, which is fair in this current difficult environment. But on the other side, you mentioned in the transcript or in the presentation, rapid and efficient implementation of cost control measures. What kind of cost control measures were there if these layoffs are at the moment delayed? And you also, Mr. Kottmann, stated today that the redundancy program is on hold. Maybe you can clarify in that regard a little bit and what you have done on the cost side so far?

[Hariolf Kottmann, Interim CEO & Executive Chairman]

Thank you, Daniel. Let us start with the second question. You have to distinguish between the, let's call it, [ sickness ] program for the Clariant business unit, which was started in the fourth quarter 2019 and prepared for implementation in the first, second, and third quarter 2020. And we announced it at our press conference I think February 14, 2020. It's only focusing on headcount reduction and efficiency, increased measurement in our business units.And here, we are talking about the CHF 50 million savings and round about let me say 500 to 600 positions worldwide. This program was put on hold 4 weeks ago and we decided that we'd discuss again about the further implementation in September when we hopefully better understand what kind of impact the pandemic had on our businesses and will have on our businesses in Q4 and maybe also in 2021.And what situation we are in, in the third quarter, regarding the overall COVID-19 development in principle. That's a separate issue. What we are talking now about short-term cost measures and cash management measures is that we have already started mid of January and end of January, when we recognized that we do have a Chinese problem and I think the entire industry in January recognized corona as a Chinese problem in Wuhan, with [indiscernible] and the shutdown of many factories. And there were only a few guys thinking about the possibility that this could go to Japan, or to Korea, or to the rest of Asia. Then suddenly, we saw, like all other colleagues, this coming up to Europe and to the U.S. And this then generates, on our side, the continuation of weekly cash and cost control calls of my 3 EC colleagues with all business people in the company, the business unit, the members of the management committee, in order to reduce costs in any form and shape and to generate additional cash by very traditional, hands-on, top down, networking cash management. That's what we are talking with short-term and midterm cost and cash measures. And this is ongoing and this will generate a significant additional contribution to the cash flow of the company and the reduction of the cost base now in the second and third quarter. Regarding Masterbatches, I can only repeat what I mentioned in the beginning of this call and what I said this morning to a few journalists. It is difficult for me to comment on the statements of Rob Patterson but Clariant and PolyOne are positively, constructively working on all working levels, in all working teams to make a successful closing happen. And we have zero indication that PolyOne is looking for any easy way out or renegotiating of price, and conditions, and what kind of details at the end.For the time being, it is a regular project and there is absolutely nothing today at the horizon that we can assume that there is any disturbance until we finally can close this transaction.

[Operator]

The next question comes from the line of Andreas Heine from MainFirst.

[Andreas Heine, Managing Director]

Two questions I have. The first is on Oil and Mining Services again. Going back to '14, '15, what you have seen there is that it was quite robust in the first place, as the volume was not affected. And that was explained in those days as the business not being linked to the exploration but only to the production. But visibility of 1 years to 1.5 years. There was price pressure with the renegotiations of the contract.Now, I learned that most of the recovery in earnings was homemade and rather from the price driven renegotiation of the contracts. But anyhow, do you see the risk as you have these contracts running out and have to be renegotiated? And as the profitability of your customers is very depressed that what we have seen in 2016-2017 will happen again? Or do you see this as highly unlikely due to the shift to offshore and due to the homemade work you did? That's the first.Second, on Care Chemicals, going into the second quarter, I would assume that Personal Care, Home Care should do reasonably well. Crop you said is more seasonal impact and that leaves you then with the Industrial business where you said that your overall -- that the main impact was from aviation, which basically doesn't do any business anyhow in the second quarter. And we should see the impact of lower raw materials.In the sequential trend from Q1 to Q2, how do you see there the business developing?

[Stephan Lynen]

Thank you for that question. So I'll take Oil [indiscernible] first. You're right, we will -- we are now coming into that momentum, which you described a couple of years ago, 5, 6 years ago, completely different. We come in with a strength and we have a strength of having a more cost adjusted organization, focused organization with more accretive contracts and a higher valuable position in our sales. And that's why I do believe and see that we have a different starting position when it comes to potential renegotiation of the contract. And that has to do with our highest share in offshore. It has to do that we have selective contracts, which are particularly value driven, where the exploration is particularly difficult and we are particularly good in the way we do business, and really improve efficiency and effectiveness. Have also actually a lot of innovation launched over the last couple of quarters in the way we explore.So I would say due to the demand drop and also the full warehouses, for sure, you will see an impact from the volume size. But I see us much more robust or much more prepared going into that phase than years ago. To Care Chemicals, yes, you're right. Our expectation on Personal Care remains high, also for throughout the whole year. But what we will see is that in the second quarter, we have a higher impact on the industrial side of the business. And that's not the aviation business, which I'm talking about because there is hardly any comparison basis in the second quarter. So there is no deviation possibility but we have construction business. We have the lubricant business. We have some base products and so on and so forth. And with certain industries being in a lockdown and you have delay affect, I mean, look at the unemployment rate or the registration for unemployment in certain geographies like the U.S., which has a delay affect. You will see this also in industries, which affect Care Chemicals. So from that side, we do see definitely a weaker second quarter in a Q2-Q2 comparison and even in a Q1 comparison, in a way, given both sectors. Yes, the raw material gives us some chance to improve the direct gross margins but again, the volume and the effect on utilization in the [indiscernible] business will make its mark also in the second quarter. So that's why we do not see a significant opportunity in the second quarter but more a sales-based decline effect in the second quarter given from the COVID-19 pandemic. Of course, taking away the aviation effect.

[Operator]

The next question comes from the line of [ Claudio Schuster ] from Credit Suisse. Please go ahead.

[Unknown Analyst]

I just have one. I know you said you wanted to strengthen your balance sheet and also support organic growth with the proceeds, but could you imagine to distribute maybe a share of the proceeds from the potential pigments disposal to shareholders as well? Or is this completely ruled out?

[Hariolf Kottmann, Interim CEO & Executive Chairman]

We always said when we described our intention regarding the divestment of pigments and the divestment of Masterbatches that with the successful closing of that Masterbatches divestment, we'd pay out an extra dividend of CHF 3 per share and with the successful closing of the pigments business, there is no extra dividend combined.

[Operator]

There are no more questions.

[Maria Ivek, Senior Investor Relations Officer]

Ladies and gentlemen, this concludes today's conference call. The investor relations team remains available for any further questions you may have. Once again, thank you for joining the call today and goodbye.

[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 liens. Goodbye.