Clariant AG

SIX:CLN

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, welcome to the Clariant Third Quarter 9 Months Figures 2021 Conference Call and Live Webcast. I am Sandra, 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 Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir.

[Andreas Schwarzwaelder, Head of Investor Relations]

Thank you, Sandra. Ladies and gentlemen, good afternoon. This is Andreas Schwarzwaelder speaking. And it's my pleasure to welcome you to Clariant's Third Quarter 2021 Results Conference Call and live webcast. Joining me today are Conrad Keijzer, CEO; and Stephan Lynen, CFO of Clariant. Conrad will start the review, followed by Stephan, who will guide you through the detailed results and provide a short-term outlook for the group. Conrad will then conclude with the comments on the Clariant's full year 2021 outlook. As mentioned, there will be a Q&A session following our presentation. [Operator Instructions]. The slides for today's presentation can be found on our website, along with our Q3 media release.I would like to remind you that all participants -- this 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. As a reminder, this conference call is being recorded, and a replay of the call will be made available on the Clariant website. As a final housekeeping comment, please note that all figures discussed refer to continuing operations unless specifically noted otherwise. Let me now hand over to Conrad to begin the presentation.

[Conrad Keijzer, Chief Executive Officer]

Thank you, Andreas. Good afternoon, everyone. Welcome to our third quarter 2021 results conference call. As you can see on Slide 3, Clariant delivered strong sales growth in the third quarter of 2021, with an increase of 23% in both local currency and Swiss francs. Our volumes increased by 14%, and our overall pricing increased by 9%. We are pleased with our sequential improvement in our selling prices with a positive 2% impact in the first quarter, 5% impact in the second quarter and 9% impact in the third quarter. Our 9% continued sequential improvement in pricing reflects our ability to effectively address changes in raw materials and other costs through our true specialty chemicals portfolio.Clariant saw a broad demand recovery across all businesses and across all of our large regions. The group benefited from the strong industrial recovery which continued in the third quarter, as well as from robust consumer demand and a return to growth in our Oil Services business. Breaking this development down by business area, our Care Chemicals sales increased by 31% in local currency in the third quarter, supported by double-digit expansion in Industrial Applications and Consumer Care as well as the consolidation of our joint venture CISC with India Glycols as of the 1st of July 2021.Catalysis sales rose by 5% in local currency as a result of strong sales in Syngas and our emission control catalyst business in India, more than offsetting the weaker developments in petrochemicals. Natural Resources sales increased by 25% in local currency due to strong growth in Additives and Functional Minerals due to the strong demand in electronics markets and foundry. Oil & Mining Services reported a year-on-year improvement attributable to demand recovery from a much lower comparison basis. Our third quarter sales ended up approximately 5% above pre-COVID-19 pandemic levels on a currency-adjusted basis.Slide 4 shows that our profitability improved strongly in the third quarter. Our EBITDA increased by 42% to CHF 180 million. The corresponding margin rose by 220 basis points to 16.4%, positively influenced by strong volume expansion, improving operating leverage together with pricing measures and the continued successful execution of Clariant's efficiency programs.We continued our focus on cost and efficiency with a total of CHF 8 million cost savings generated in the third quarter. Our overall price increase of 9% has partly compensated for the unprecedented increase of around 25% in our overall raw material costs and year-on-year energy and logistics cost increases. We will continue to raise our selling prices, and it remains our objective to fully recover the significant increases in raw material and energy costs.The government control of energy and power supply in China led to numerous plant shutdowns and new raw material shortages. A lack of phosphorus supply from China represented challenges for our Flame Retardant business. Our procurement and sourcing teams have done a great job of limiting potential impacts to our customers. We are pleased with the progress of our pricing actions, which will continue to facilitate our ability to partially offset the impact of the raw material cost inflation. Our global production network and the agile execution of the business continuity programs by our colleagues help to diminish the impact of disruptions in supply chain.Overall, we are pleased with our business performance in the third quarter under a challenging inflationary environment. Our Q3 2021 reported profitability of 16.4% was above pre-COVID-19 levels with a Q3 2019 EBITDA margin of 14.5% on a comparable basis.On Slide 5, we are highlighting our progress against our strategic priorities. During the third quarter, we completed the construction of our sunliquid cellulosic ethanol production plants in Podari, Romania. This is the world's first commercial plant for the production of second-generation bioethanol, which represents a milestone for our industry. We have now started the ramp-up of this plant, and we expect to produce our first bioethanol in the beginning of 2022. The plant will process approximately 250,000 tons of straw to produce approximately 50,000 tons of cellulosic ethanol per annum.Another key achievement has been the acquisition of the remaining 70% stake in our Brazilian Personal Care company, Beraca, which was completed on the 25th of October. We have strengthened our Personal Care business with Beraca's broad portfolio of natural ingredients, which will meet our customers' growing demand for sustainable and ethically sourced materials.As we announced in the second quarter, we have signed definitive agreements to divest our Pigments business, which is a critical step in our portfolio transformation program. We are pleased with our progress, and we expect closing to take place in the beginning of 2022, earlier than originally anticipated.Our performance programs, also the efficiency programs in discontinued operations and the rightsizing program remain all well on track. We delivered strong top line growth and improved profitability in the third quarter. The positive factors mentioned have allowed us to increase our full year 2021 sales guidance.With that, I would now like to hand over to our CFO, Stephan Lynen, who will provide further details on the quarterly results.

[Stephan Lynen, Executive VP & CFO]

Thank you, Conrad. Ladies and gentlemen, good afternoon, and welcome to today's call from my side. The overview provided on Slide 6 reflects additional details regarding the group's strong third quarter and 9 months results. The operating leverage driven by growth of 23% in local currencies and Swiss francs, the intensification of pricing measures by 9% and the stringent execution of our performance programs contributing CHF 8 million has elevated the EBITDA margin by 220 basis points to 16.4% in the third quarter of 2021.The growth contribution by region is explained on Slide 7. The lofty 27% local currency sales growth in Europe was supported by strong demand in industrial and consumer applications and by strong expansion in Care Chemicals and Natural Resources. Germany, which grew a resounding 40%, was boosted by Additives in particular. The strong 23% sales growth in Asia Pacific was driven by continued economic expansion across all business areas. While sales in China rose by 9% versus a strong comparison base due to an impressive increase in Care Chemicals and especially Additives.Sales growth in North America accelerated across all business areas and increased by 22%. The 27% higher sales in Latin America resulted from expansion in Care Chemicals and Natural Resources, driven by a particularly strong development in Brazil, where sales rose by a resounding 43%. In the Middle East and Africa, the sales development was flat.Let's review the third quarter 2021 business area figures in more detail, starting with Care Chemicals on Slide 8. Care Chemicals sales increased by a resounding 31% in local currency and by 32% in Swiss francs. Excluding the incremental sales contribution of CHF 29 million from the first time consolidation of CISC, the acquired joint venture with India Glycols, Care Chemicals organic sales rose by 21%, underpinned by 17% higher volumes and 14% increase in prices. Industrial Application sales rose in a double-digit range organically due to continued end market strength, especially in industrial lubricants, coatings and construction chemicals. Coatings continued to maintain its particularly strong growth trend, which Clariant has fostered throughout 2020 and thus far in 2021. Consumer Care also reported double-digit sales expansion in all 3 businesses. Personal Care advanced in all regions and increased innovation sales, for example, in the hair care business. Home Care grew in Asia and Europe, in particular.Crop Solutions sales grew notably in Latin America and Europe, in part as a result of the higher demand for specialty adjuvants caused by a rise in agricultural commodity prices. Sales increased in all regions in the double-digit range, especially in Asia due to the first-time consolidation of CISC, which contributed 10% local currency growth. The Care Chemicals' absolute EBITDA increased by 35%, which resulted in an improved margin development of 22.2%, leading to a 40 basis point EBITDA margin improvement year-on-year. This increase was attributable to strong volume expansion which buoyed operating leverage, intensified pricing measures and the successful execution of the efficiency programs, altogether, overcompensating for continued raw material cost inflation and logistic cost increase.Let's move on to Catalysis on Slide 9. In the third quarter of 2021, sales in the business area Catalysis grew by 5% in local currency and by 4% in Swiss franc, based on 4% higher prices as well as 1% higher volumes. Sales expansion in Syngas and the emission control catalyst business compensated for weaker development in petrochemicals with good prospects for CATOFIN solutions though.From a regional perspective, third quarter sales in the Americas were particularly strong, followed by Asia, which reported expansion in the low-teen range. Europe and the Middle East and Africa reported lower sales. The third quarter absolute EBITDA decreased by 38% to a margin of 12%, as a result of the less favorable product mix with lower petrochemical sales and a higher contribution from Syngas and the lower margin emission control catalyst business.Logistic constraints resulted in a delay of order completion and higher freight cost. Project effects related to the sunliquid production plant in Romania and lower license income year-on-year also impacted the result. Let me reemphasize the fact that due to the product nature of Catalysis business, we sometimes see normal significant profitability fluctuations. It is, therefore, important to note that the fundamentals of this business remain positive.On Slide 10, we see that in the third quarter of 2021, sales in Natural Resources rose by a notable 25% in local currency and in Swiss franc, with expansion in all 3 business units and regions. Oil & Mining Services sales grew in the mid-teen range in local currency. Oil Services sales reflected a strong year-on-year improvement despite the negative impact on the offshore business caused by Hurricane Ida. The expansion in Mining Solutions and Refinery Service even outpaced Oil Services growth in the third quarter. The strongest sales expansion in OMS took place in Europe.Functional Minerals sales rose in the high-teen range, bolstered by growth in all businesses, Foundry and Cargo & Device Protection in particular. This positive development was due in part to the lower comparison base in the third quarter and also the high trade and transportation volumes. The Purification business development also contributed positively to the overall strong improvement.Additive sales rose the most significantly amongst the 3 business units, with expansion in all regions and in all relevant end markets, especially in Flame Retardants and in applications such as consumer electronics and electrical solutions. This enables the business unit to also exceed the pre-COVID-19 pandemic levels reached in 2019.In the third quarter of 2021, the absolute EBITDA increased by an overproportional 77%, and the margin rose to 17.6%, reflecting a 520 basis point improvement in the EBITDA margin year-on-year. This development was driven by strong volume growth of 18% and the resulting operating leverage as well as the intensified execution of pricing measures of 7% and the mitigation of supply risks. Though these pricing adjustments provided some relief, the business was nevertheless impacted by continued higher raw material prices and exceptional freight costs, together with climbing energy cost.Let me conclude my review with our short-term outlook for the fourth quarter on Slide 12. In the fourth quarter of 2021 and in an unprecedented inflationary environment, we expect Clariant's continuing operations to generate strong local currency sales growth in a year-on-year comparison, underpinned by expansion in Care Chemicals and Natural Resources. We also aim to match the group EBITDA margin levels on a year-on-year basis via volume growth, intensified pricing actions to diminish inflation effects and cost discipline. However, the EBITDA margin development is likely to be slightly lower sequentially.The underlying assumption for the business areas in the fourth quarter of 2021 are as follows: In Care Chemicals, we anticipate strong year-on-year local currency sales growth attributable to normalizing growth in Industrial Applications and Consumer Care and the positive impact from the consolidation of the CISC acquisition. On a sequential basis, we expect the sales growth in the fourth quarter to be slightly lower. We aim to match the higher EBITDA margin level on a year-on-year basis and sequentially despite continued inflation of raw materials, logistics and energy costs.In Catalysis, we expect the sales growth to be flat in local currency from a year-on-year perspective, while stronger sequentially. We expect this to translate into an EBITDA margin below the previous year's fourth quarter due to project effects and product mix, but a sequential improvement. And finally, we anticipate that Natural Resources will continue to generate strong year-on-year local currency sales growth in the fourth quarter of 2021. Nevertheless, we expect the Business Area's sales growth to be slightly lower sequentially. The EBITDA margin should remain stable on a year-on-year basis, though it is likely to be lower sequentially due to a lagging effect from passing on raw material cost inflation, higher logistics and rising energy costs.Ladies and gentlemen, I would like to close my remarks with this positive short-term outlook in challenging times and hand back to Conrad.

[Conrad Keijzer, Chief Executive Officer]

Thank you, Stephan. For the full year 2021, we expect Clariant to achieve local currency sales growth in continuing operations within a range of 9% to 11% based on our higher selling prices. Previously, our expectation was for a sales growth range of 7% to 9%. Despite rising inflation and continued supply risks, we confirm our expectation or a step-up in the EBITDA margin to a range of 16% to 17% on the back of sales growth, the positive impact of pricing measures, continued cost controls and the successful execution of our performance improvement programs.Achieving these results will bring Clariant to above the 2019 pre-COVID-19 pandemic profitability level on a like-for-like basis. We consider that the challenges, which we, as well as the entire industry are facing regarding raw materials, logistics and energy cost developments will remain. Our forecast is based on the assumption of a continued economic recovery, while uncertainty remains high.In summary, we do see Clariant as being well positioned to continue to grow profitably, and we are committed to taking the next steps in further improving our performance. I would like to remind you of Clariant's upcoming virtual Capital Markets Day, which will be held on the 23rd of November. We are very much looking forward to presenting Clariant's strategy of debt and financial ambitions to you. With that, I turn the call back over to Andreas.

[Andreas Schwarzwaelder, Head of Investor Relations]

Thank you, Conrad, and thank you, Stephan. [Operator Instructions] We will now open the line for questions. Operator, please go ahead.

[Operator]

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

[Christian Faitz, Equity Analyst]

Two questions, please, starting with your Catalyst business. Would the assumption be correct that your Petrochemical customers were running full steam in Q3 and currently still are? And as such, there was simply not enough downtime in petrochemical assets to trigger Catalyst demand?And then second, looking at the current situation, i.e., after Q3, and perhaps into 2022, are there any noteworthy logistical or supply challenges that you face for your production and/or products?

[Conrad Keijzer, Chief Executive Officer]

Yes, Christian, thanks very much. So I'll comment briefly on logistics, supply and Catalyst, and I can actually hand it over for a bit more detail on Catalyst to Stephan after that. So you -- I'll start with your second question on logistics and supply constraints. So if you reflect back on the year, what you saw actually in the first half of the year is you did see some supply shortages very much linked to a steeper-than-expected recovery from corona, the so-called V-shaped recovery, which led to some lacking capacities for some key raw materials, particularly in petrochemicals, as you recall, ethylene, propylene have been tight.If you look at the current situation, in recent weeks, we have seen some new shortages, very much resulting from the energy shortages in China. Clariant has been affected by that. As you may be aware, the Chinese government has actually put a number of provinces on allocation and has actually shut down some of the higher energy intense industries. The mining sector got affected. And for Clariant, we saw an effect with our so-called P4 supply, which is yellow phosphorus. This is a core ingredient for our Flame Retardants business.I think we have managed this situation very successful. We have been able to keep our large and important clients up and running, and we see the situation easing as we speak. In terms of further shortages -- in terms of logistics, we are dealing with shortages. This actually was a more difficult situation in the third quarter than in the first half. There is clearly a shortages of containers for sea freight. There is a shortage also for land freights, not enough truck drivers right now, not just in the U.S., but also in some key countries in Europe. Here, again, we're dealing with this, I think, very effectively, and we haven't seen any shutdowns from this for important clients.As to your second question on Catalyst, in the third quarter, I think your speculation was our business is down because clients are running flat out and have no time for refills or maintenance activities. Yes, the business is strong in Petrochemicals, but not across the board. You may have actually seen this, for example, in ammonia. There have been some large plants being shut down because of the high energy prices, where actually clients, in this case, fertilizer buyers, are not willing or able to pay for the higher cost.So if you look [ underlying ], the key challenge in our Catalyst business was one of timing of orders in the Petrochemical space. We did see some delays there because of lack of availability of freight. So that actually should correct itself to some extent in the fourth quarter. But maybe, Stephan, you can provide some further insights on Catalyst and the volumes we saw in Q3.

[Stephan Lynen, Executive VP & CFO]

No, just to underpin what you just said at the end that on the Petrochemical catalyst side, it was really largely supply disruptions and availability of shipping, transportation vehicles, right? So this was the real shortage, which Conrad already explained. It is a big challenge, which we are managing very strongly, but it has an effect from crossing orders from Q3 into Q4.

[Operator]

The next question comes from Andrew Stott from UBS.

[Andrew Gregory Stott, Managing Director and Research Analyst]

So I just wanted to come back to Catalyst for the first question. And then I just had a quick question on the Indian JV as well. On Catalysts, what's the mid-term view here? I'm guessing I might be stealing some of your thunder from the 23rd of November, but given the contraction we've seen in margins over the last 2 or 3 years, how do you see the business improving? So just any thoughts really on the sort of mix side of things that you've referred to with Syngas, for example. Second question was, I think I'm right in saying that the acquisition contribution for Care Chems is bigger than your initial expectations, but you may want to correct me on that. But I certainly thought it would be near 8% than 10%. Is that to do with the ethylene glycol market being so tight in pricing? Or is it just running better than you thought? Or am I wrong?

[Conrad Keijzer, Chief Executive Officer]

Yes. So thanks for your 2 questions, Andrew. I'll comment briefly on Care Chemicals, and then I'll pass it on to Stephan for some more color on Catalysts. With regards to Care Chemicals, yes, you saw a very strong revenue increase in the third quarter year-on-year of 32%. Indeed, roughly 1/3 out of this is actually the effect of the first-time consolidation, CHF 29 million from our joint venture with India Glycols.Indeed, India Glycols is running at a higher rate than actually typical. So the business is actually performing strong, and we very much appreciate that. Just as a reminder, Indian Glycols is doing the ethoxylated products based on renewable -- basically based on bioethanol. It's not just in consumer care applications that they're active, it's also actually on the industrial side. Maybe, Stephan, I can pass on to you for the Catalyst question.

[Stephan Lynen, Executive VP & CFO]

Yes. Maybe just adding still on the joint venture acquisition in India. We also expect the seasonality here, where the fourth quarter is deemed to be lower than the third quarter. So the third quarter is overproportionally high, and that's why Andrew, your calculation x4 doesn't match the CHF 100 million, which we were guiding for.On Catalysis, yes, we will, of course, not give the spice away for the Capital Market Day, where we are grateful for you to go much more through the big projects and growth momentum of Catalyst, which we foresee. We have always a very good visibility, as you know, from the order outlook. And despite now the shortages or slowdown in ammonia, we see very good prospects still on particularly the PP cat arena, where we play. And you know we are commissioning a plant here also towards the end of the year in China as well as our ability to deliver from U.S. So the fundamentals for the business, as I said before, not only, but specifically for CATOFIN are very strong.

[Operator]

The next question comes from Markus Mayer from Baader-Helvea.

[Markus Mayer, Lead Analyst of Chemicals]

I have a question firstly on your new sunliquid plant. Can you guide us on the ramp-up costs you had in Q3, but also what you expect for Q4 and the first half of next year? That would be my first question.And then the second question on your Additives business. You said there was this supply chain issue for yellow phosphorus. As such, there was a challenging supply environment. But the Additives business, when I look at least at your indications from the reporting, has recovered extremely strongly. And maybe you can help us if you should see then this kind of negative effect more in the fourth quarter, or if the overall environment was that favorable that you could really pass on prices, which then buffered this negative supply chain issue effect?

[Conrad Keijzer, Chief Executive Officer]

I'll briefly comment on the Additives business, and then I'll pass on the question about ramp-up costs in Podari to Stephan. So if you look at the Additives business, the performance in the third quarter. Yes, our business was affected by the shortage for yellow phosphorus, which is a key ingredient for our flame retardants. However, flame retardants still showed a very significant increase from prior year Q3 revenue. This is much more than a corona recovery. This is actually very much the underlying growth in the electronics markets and also in the demand for flame retardants in electrical wire and cables.So what you see is a significant pickup of the usage of flame retardants in automotive. Electric vehicles consume substantially more flame retardants than conventional cars. This basically means our products are used in connectors, in wire and cables, even in housing for batteries. So that explains part of the growth. The other part of the growth is actually explained by the electronics, which continues to be a very strong business. We are a key supplier to companies like Apple for all their devices, which also take off an increased level of these flame retardants. Stephan, maybe you can comment.

[Stephan Lynen, Executive VP & CFO]

Sure. So Markus, thank you for the question. Of course, there's another element then in the Catalysis business area, which is made of 2 things. I mentioned it already in my speech that year-on-year, we had license income in the last year. We didn't have it in this year, the third quarter. We have actually good still discussions on new licenses but, of course, people are looking now very much forward to see the plant being commissioned, and that's where our full focus is on also of our management team.And the second part is also correct. We have some building cost, ramp-up costs, so to say, which is the fixed cost, which we have to set partially -- one time partially recurring, which we need then to commercialize the biofuel plant. That's just a normal sequence, and it's not huge. We're talking about low single-digit millions. But that's the amount which also has to be borne now when we want to successfully ramp up the plant next year.

[Markus Mayer, Lead Analyst of Chemicals]

May I add on or squeeze in another question on the Additives part, again. You said strong electronics demand growth, understood. But you also see there any kind of negative effect from the chip shortage? I guess if the mobile phones do not have chips, then they might also not be produced and therefore, don't need flame retardants. Any kind of flavor here would be helpful.

[Conrad Keijzer, Chief Executive Officer]

Yes, it's a very interesting question. Ironically, the shortage for chips in the car industry reportedly is actually caused by the high demand in electronics. So Apple alone apparently consumes more chips than the whole automotive industry together. So that is actually one of the dynamics that we're seeing. More specific to your question, how is the chip shortage affecting our flame retardant sales in automotive? Interesting enough. If you look at automotive, the build rates are actually at a low level because of the shortages in chips. For example, in Europe, we're literally now down to the COVID year build rates in automotive overall. However, if you look at electronic vehicles, they actually show a significant pickup, and that is actually where the flame retardants really go. So no, we also see strong demand for automotive, specifically for electrical vehicles.

[Operator]

The next question comes from Rob Hales from Morningstar.

[Rob Hales, Equity Analyst]

Congrats on a nice quarter. Looking forward to the Investor Day. Two questions. One on the impact of CISC. You mentioned it applies to both the Consumer and Industrial side. But I'm thinking it's mostly on the Consumer Care side. And I'm wondering, if we take that out, what was the kind of rough growth for Consumer Care in the quarter? Is it still double digit or much less?And then on sunliquid, I know you have some licenses sold in Europe and China. But is there a market for this in the U.S.? I know they used to have targets for 2G. I don't know if they've completely given up on those. I'm just curious to see what your comments are on a potential in the U.S. market.

[Stephan Lynen, Executive VP & CFO]

Yes. Let me maybe start with the CISC question. So as we disclosed also the Q3 growth in Care Chemicals, Consumer and Industrial is 31%. And the effect in that single quarter from CISC was 10%. So organically, we grew by 21%. And that's this CHF 23 million which we've made. But as I said, also seasonally, this is a little bit higher in Q3 than, for example, in Q4 to be expected. And on sunliquid, there are, of course, plenty of opportunities in the U.S., and I think it's, again, something which we can probably detail out in the Capital Markets Day.

[Conrad Keijzer, Chief Executive Officer]

yes, maybe one comment on it already. So in terms of the U.S., it is fair to say, Rob, that the bioethanol market, interesting enough in the U.S., is much more developed than it is in Europe. If you, for example, look at the mixing ratios of bioethanol in gasoline in Europe, you see an overall ratio of 6%, whereas actually in the U.S., you see a ratio of 10% right now. Yes, we see opportunities for second-generation technology in the U.S. And particularly, we see an opportunity where we can add with our technology additional output to current first-generation bioethanol plants. So yes, we definitely see potential for the U.S. for this technology as well.

[Operator]

The next question comes from Jaideep Pandya from On Field Research.

[Jaideep Mukesh Pandya, Analyst]

Two questions. Firstly, on Catalysis, sorry to go back to this topic, but I'm just trying to understand the moving parts this year because you obviously grabbed a lot of business in India and mobile catalysts. And your Syngas comments have been partly quite good. But despite that, volumes overall for the year have been well below the 6%, 7% that you normally do, even if I account for some delays from Q3 into Q4. So what has really happened in terms of growth this year? Where are the biggest sort of shortfalls, especially in light of the fact that you were supposed to ramp the polypropylene plant as well? So just want to understand like, what has sort of fallen short this year, which would come back potentially next year and the year after next year.And the second question is really around sunliquid, actually. Just to understand the revenue and the profit streams. Is it fair for us to think that there's a sort of revenue stream linked to the tonnage, the 50 kt that you have in the plant times the bioethanol price times the margin plus a little bit of revenues on the licensing you sell and then the enzymes that you're going to sell?And then with that, sort of longer term, are you in a position to sell ethylene or ethylene oxide catalyst to people who are actually making bioethanol, therefore, sort of focus on green ethylene really or green EO really? Is that sort of the old [indiscernible] dream, which will that come through in the next sort of couple of years?

[Conrad Keijzer, Chief Executive Officer]

Yes. Jaideep, thanks for your questions. On Catalyst, I think Stephan will make some further comments. As far as sunliquids, I can maybe take that question. So yes, first of all, in terms of sunliquids, the new plant in Podari, Romania, the 50,000 tons plant, the key objective for Clariant was to prove here the viability, the technical viability of our technology as well as the commercial viability. It is not our intent to build a whole series of bioethanol plants. So the way to really scale this technology is through a licensing model whereby indeed others will build these plants and we basically share in the value through a license arrangement. On the one hand, a royalty. On the other hand, the supply of enzymes to basically keep these plants up and running. Yes, Stephan, perhaps you could provide some more color on Catalyst.

[Stephan Lynen, Executive VP & CFO]

Yes. Jaideep, let's not forget that our Catalyst business grew last year, 1%. We didn't have that even V curve effect or dip effect. And if you remember, other catalyst players have seen partially significant decreases in 2020, of course, related to their heavyweight in refinery or emission control much more than ours. So we see these growth rates now not at the same level like we look at the other 2 business areas, which obviously have a huge research effect in the industrial part of their portfolios. That's one to consider.And the second one is, as I said, the outlook is very, very positive. We haven't commissioned or ramped up the Chinese plant yet. We're in the final stages. So there is impact to come, and there is a very strong order pipeline particularly, but not alone for the PP catalyst. And also, of course, then again on the Syngas area, when we look at hydrogen, methanol, ammonia, there is temporary reductions here, but we see that also stronger going forward to return. And more details on projects we can also give at the Capital Markets Day.

[Jaideep Mukesh Pandya, Analyst]

Sorry. Just on the polypropylene plant, is it like functioning now and EBITDA positive? Or is it still in this ramp-up phase?

[Stephan Lynen, Executive VP & CFO]

It is not commercial yet. It is in the finalization and ramp-up phase.

[Jaideep Mukesh Pandya, Analyst]

No, no, no. I'm talking about the U.S., Kentucky polypropylene catalyst plant.

[Stephan Lynen, Executive VP & CFO]

Okay. U.S. Catalysis plant is, of course, since a longer time operating and we are commercial out of that, yes.

[Operator]

The next question comes from Andreas Heine from Stifel.

[Andreas Heine, Managing Director]

Two questions, if I may, please. The first is coming back to Syngas. Quite a bit of the business, I think, is also linked to coal to chemicals, which might be less interesting in the current ambitions China has. Maybe you can confirm -- elaborate a little bit how dependent the Syngas business is on this coal to chemicals business.And the second in Care Chemicals, you have also some base chemicals and kind of upstream business. I just want to confirm what we see now in margin, that's something what you would say is consistent and sustainable and not driven by a short-term shortage in upstreams, which might see then elevated margins. These are my 2 questions.

[Conrad Keijzer, Chief Executive Officer]

Could you please repeat the last question, Andreas, because we didn't hear that well.

[Andreas Heine, Managing Director]

Sorry. So I think in the Care Chemicals business, you have also some kind of base chemicals business. And in these days, where the markets are tight, base chemicals react faster. I just want to confirm that the margin we see right now is something which is sustainable and not just driven by a short-term supply shortage in kind of upstream or base chemicals in that particular segment.

[Conrad Keijzer, Chief Executive Officer]

Sure. Okay. So yes, maybe I can comment first on your question on Syngas and sort of long-term perspectives for this. Also sort of from an environmental point of view. And then I think, Stephan, you can maybe make some comments on Care Chemicals.So if you look at our Syngas business, so the important lines are ammonia, methanol and hydrogen production. So yes, today, this is either fossil-based, so -- either naphtha-based or coal-based, but you will see indeed over time a transition. Now what is actually very interesting is if you, for instance, look at green ammonia, which would be ammonia manufacturing based on green hydrogen, you actually also do need a catalyst for that. And this is definitely -- these are things that we're very well positioned for.There is a different set of requirements for these catalysts, and we have actually various partnerships in place where we are ramping that up and where we are positioning Clariant as a player in the so-called green hydrogen economy. We will actually provide you some real life examples at our Capital Markets Day presentation on November 23. Yes, Stephan, on Care Chemicals.

[Stephan Lynen, Executive VP & CFO]

Yes. Andreas, already since a while and we've talked about this at other occasions, we are in the course with Care Chemicals that we actually are refocusing the portfolio more to the consumer space and secondary on the high specialty part in industrials here. The base business, which we have is basically an opportunistic business from an outflow of running certain reactors on a continuous basis. And we are actually reducing the weight of this base business continuously by shifting to the other portfolio parts and by other means, also technically avoiding the necessity to produce base chemical products.And therefore, even now, you see a shrinkage of the base chemical business in ICS in the first 9 months in Care Chemicals. So that doesn't play any role in terms of sustainability or nonsustainability of the growth. Let's not forget, of course -- I mean as much as we also would love to get used to 31% growth rate, that we see here a rebounding effect. I mean other than in Catalyst, we have a strong rebounding from the V curve in Q2, Q3 in Care Chemicals and with the inorganic factor. But other than that, when you talk about the margin, there is not an impact from base, which would be accretive, even which would be discontinuing.

[Operator]

The next question comes from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, Research Analyst]

A few questions. Can you remind me where we are with your de-icing business? Because I remember in Q1 this year, it had already recovered pretty sharply. And what do you see today in Q4 given that we are in some sort of a peak season for de-icing business. I think the question, frankly, is, you guys are guiding to Care Chemicals sequentially down on top line. And that's not been the usual seasonality for Clariant, especially considering the de-icing season. So can you maybe explain where we are with de-icing sales versus history from what you can see today? And why is Care Chemicals sequentially down? That's one.And second, I have to commend that clearly, the pricing curve for Clariant this time has been pretty much at full speed in terms of sort of offsetting the raw material inflation. Do you see there is an element of -- I don't know, maybe is it to some extent also a function of where the market dynamics are today in terms of the availability of the products, which is making it easier? Or do you think there is a structural element to what is also happening in terms of pricing at Clariant?

[Stephan Lynen, Executive VP & CFO]

Chetan, maybe let me start with the de-icing question, and then Conrad can give you a flavor on the quality of our portfolio and the pricing power. On the de-icing business, and let's not forget this plays a less vital role in the whole weight of Care Chemicals. We actually did already see -- Q3 is not usually a big sales month, but we had a few million sales because there was necessity also for restocking at airports and so on. So we had some good addition in Q3, but not relevant in the big picture to explain the growth, which we have demonstrated in the third quarter of Care Chemicals.For Q4, we see -- I mean I will not give you a precise weather forecast, but at the moment, it looks like, from many institutions, that we can look at a potentially decent winter. And then the second question will be the air transport. And that is a big unknown. We do believe, though, that there is a slight upside on a year-on-year basis when we look at the Q4 in the prior year versus Q4 in this year. But again, it will not be a huge growth momentum.And to your fundamental or final question then, why do we talk about sequentially slightly lower? We talk about growth here, not the absolute sales. So we still have the Q4 seasonality. But the growth will be low because the comparison build basis is higher. Q4 2020, even aviation was not yet at pre-COVID levels. But in all other businesses, the research in industrial already came much across in Q4. And that's what needs to be considered when you look at the midterm guide or the short-term outlook for Q4 in these businesses like Care and Natural Resources.

[Conrad Keijzer, Chief Executive Officer]

Yes, in terms of pricing, it's absolutely fair to say that we are having a very favorable environment for passing on increases to our clients. It's indeed significantly easier to raise prices when there is a strong demand pool, which we are facing across basically most of our businesses. I will say, though, that core strength right now for Clariant sits in the true specialty chemicals portfolio.So after the divestments of the more commodity type part of our businesses, we truly have a specialty portfolio with unique products based on differentiated technologies that adds true value to our clients. As long as we service our clients well, as long as we do add true values to our clients, it will always be possible for us actually to pass on raw material increases. We're very pleased with the performance. As mentioned, 2/3 of the raw material inflation we have already passed on, and we are continuing to plan price increases to pass on ultimately the full extent of the raw inflation that we're facing.

[Chetan Udeshi, Research Analyst]

Stephan, if you can clarify. So are you saying, in Care Chemicals the guidance is not that Q4 will be sequentially in absolute terms lower than Q3, but you are talking about year-on-year growth being lower in Q4 than in Q3? I thought it was the former.

[Stephan Lynen, Executive VP & CFO]

Our guidance relates to growth, but also in absolute terms, we will have some effect, as I said before, from the CISC joint venture, which will have less impact, so also on an absolute basis. But my guidance comment was mainly related to the growth momentum, but also could be extended, not at the same dimension to the absolute number.

[Operator]

We have a follow-up question from Andrew Stott from UBS.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Probably just a quick one for Stephan. Could you update me on your thoughts on CapEx for this year and for next year, please? And also, is there an update available on the 9-month cash flow?

[Stephan Lynen, Executive VP & CFO]

Andrew, as you know, we don't report cash flow numbers. So I can't give an update on the 9-month results. The CapEx, I can tell that we will be quite a bit below the CHF 400 million, which we've guided for this year, and we will give more insight also into the CapEx view in the coming years at the Capital Markets Day. So just bear with me and join us there, Andrew.

[Operator]

The next is also a follow-up question from Markus Mayer from Baader-Helvea.

[Markus Mayer, Lead Analyst of Chemicals]

Yes, I have two follow-ups. One is on power shortage and your effect and also the effect on potential competitors in China. And the second one is where we implicitly said something on this, but just to be sure, how is the backlog looking like at your Catalyst business? Has it significantly recovered now in the third quarter as it did at industrial gas companies? Or is this still lagging?

[Conrad Keijzer, Chief Executive Officer]

Yes. So as far as power shortage in China, how has it affected us, how has it affected our competitors? I think, first, just a recap. So what happened is actually China recovered strongly also from COVID. So a high energy demand. At the same time, there was this ban on coal imports from Australia. And certainly, China was facing this shortage on coal, which led then the central government to put a number of provinces on allocation and particularly the industries with a higher energy consumption got shut down or got ordered to reduce their production levels.If you look at Clariant, how we were affected. Our own sites in China were able to keep up and running. Just as a reminder, our own carbon footprint, and this is not just in China, but this is actually globally, is fairly limited. So we are not an energy-intense chemical company. We're all able to be up and running. Where we actually got affected was, on the one hand, in terms of raw material supplies, the most significant item here was the mentioned P4, the yellow phosphorus, affecting our Flame Retardant business. Where we also got affected was actually with some of our clients, particularly foundry customers in China also were ordered to reduce their activity level.In terms of competition, yes, I think, in this respect, we're all sort of in this together, if you like. If you look, for instance, in the business of flame retardants, we also saw some of our competitors struggling with similar items and challenges.In terms of backlog in Catalysis, there was indeed this sort of shipments to China for the catalyst for propane to propylene, the so-called CATOFIN business, which got delayed due to lack of availability of freight containers. This actually moved them into the fourth quarter. As Stephan already mentioned, next year, we will have our new CATOFIN plant up and running, and we will not be affected by these logistics challenges anymore.

[Andreas Schwarzwaelder, Head of Investor Relations]

Okay. This is Andreas speaking. Ladies and gentlemen, this concludes today's conference call. I apologize that we did not have the time to respond to all the follow-up questions in the queue. Obviously, the Investor Relations team remains available for any further questions you might have. We look forward to continue the dialogue with you on the upcoming Capital Markets Day on November 23. Let me remind you that the registration is open on our website as of today. And once again, thank you for joining our call today, and have a good afternoon or a morning when -- once you're in the U.S. Thank you very much, and have a good afternoon.

[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. Goodbye.