Clariant AG

SIX:CLN

Earnings Call Analysis

Clariant Focuses on Growth and Efficiency

In 2023, Clariant continued its trajectory of operational and customer-focused improvement, with the Customer Net Promoter Score rising to 45 and the Employee Net Promoter Score jumping from 3 to 25. Safety performance also saw a striking enhancement, placing Clariant in the upper echelon of the industry. Although there was a 10% decline in local currency sales, the company maintained stable pricing. Remarkably, savings amounting to CHF 135 million were accomplished, with continued targets to realize CHF 170 million. For 2024, Clariant targets a low single-digit sales increase with an approximate 15% EBITDA margin, possibly achieving around 16% when excluding some operational and exceptional impacts. Long-term goals remain ambitious, aiming for a Compound Annual Growth Rate (CAGR) of 46% and a 19-21% EBITDA margin by 2025.

Resilience Amidst Challenges: A Year of Steady Performance for Clariant

Clariant demonstrated a steady performance in a challenging year, marked by uncertainties in the macroeconomic environment and geopolitical tensions. Despite a 7% organic sales decline, the company was able to exhibit strong operational discipline and maintain pricing power, coupled with delivering savings of CHF 14 million in the fourth quarter of 2023. These savings contribute to a trajectory towards a 2025 savings target of CHF 170 million, with 80% achieved by year-end 2023. The operational resilience was underlined by modest quarter-on-quarter revenue growth and maintaining a robust underlying margin of 14.9% despite exceptional costs from restructuring.

Strategic Shifts and New Horizons

Clariant continued to streamline operations, halting its bioethanol arm and acquiring Lucas Meyer Cosmetics—a strategic move to strengthen its position as a specialty chemicals leader. These activities align with Clariant's vision and are fortified by dynamic structural changes, such as introducing a new operating model that has reaped benefits such as improved safety, customer satisfaction, and employee engagement.

Financial Performance and Market Conditions: A Balancing Act

Clariant faced a 14% year-on-year revenue decline in local currency in the fourth quarter. As for the total sales volume, a decrease of 6% was influenced by the catalysts segment and weak demand in key Additives end markets. The Americas experienced a 21% decrease in sales, predominantly due to divestments, while Europe, Middle East and Africa, and Asia Pacific regions also witnessed sales declines. Global market conditions, including an 8% contraction in the EU's chemical output and a subdued 1.1% decline in U.S. chemical output, posed additional headwinds for the company.

Looking Ahead: Modest Growth and Margin Expansion on the Horizon

For 2024, Clariant sets its sights on low single-digit percentage sales growth in local currency and a reported EBITDA margin of around 15%. This anticipated growth is expected to be driven by Care Chemicals, propelled by the end of destocking and synergies from the Lucas Meyer Cosmetics acquisition. Despite a sluggish start, the company aims for a reported EBITDA margin of 17% to 18% by 2025 by leveraging self-help actions and capitalizing on end market recovery.

Sustainable Achievements and Future Promise

The company reported a 13% reduction in Scope 1 and Scope 2 greenhouse gas emissions, achieving a milestone in sustainability by establishing net-zero-emissions at its sites in India. Clariant's commitment to environmental stewardship extends to a targeted 40% free cash flow conversion, anticipated by 2025, indicating a balance between growth and responsible operations.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, welcome to Clariant's Fourth Quarter Full Year Results 2023 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir.

[Andreas Schwarzwaelder, executive]

Thank you, Sandra. Ladies and gentlemen, good afternoon. My name is Andreas Schwarzwaelder it's my pleasure to welcome you to this call. Joining me today are Conrad Keijzer, Clariant's CEO; and Bill Collins, Clariant's, CFO. Conrad will start today's call by providing a summary of the 2023 fourth quarter and full year development, followed by Bill, who will guide us through the group's financials for both periods. Conrad will then conclude with the outlook for the 2024 as well as our 2025 and medium-term strategic targets. There will be a Q&A session following our presentation.At this time, all participants are in listen-only mode. 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. As a reminder, this conference call is being recorded. A replay and a transcript of this call will be available on the Investor Relations section of the Clariant website.Let me now hand over to Conrad to begin the presentation.

[Conrad Keijzer, executive]

Thank you, Andreas. Good afternoon, everyone, and thank you all for joining this call. 2023 overall has been a year of continued challenges for the chemical industry, impacted by the uncertain macroeconomic and geopolitical environment with end markets remaining weak.In that context, Clariant showed a resilient performance in the fourth quarter, delivering sales of around CHF 1 billion. This represented a quarterly sequential increase of 4% in local currency, driven by volume growth as some end markets stabilized. On a year-on-year basis in local currency, revenue decreased by 14% or 10% organically against a very strong comparison base in Q4 2022 when Catalysts delivered record sales.Looking at the underlying performance of the businesses. EBITDA before exceptional items was CHF 158 million. This corresponded to a solid underlying margin of 14.9% before restructuring and exceptional costs related to the closure of the biofuels business.For the full year, we recorded sales of CHF 4.4 billion, reflecting a 7% organic decrease in local currency versus 2022. EBITDA before exceptional items was CHF 641 million, with a corresponding underlying margin of 14.6%. As mentioned, 2023 was a difficult year for the chemical industry. And while we see some demand stabilization in our key end markets, conditions remain challenging in most geographies.For 2023, the European Chemical Industry Council, Cefic, reported an 8% decline in the EU 27 chemical output. Cefic signals some signs of recovery and expects 2024 to show a gradual improvement in growth.In China, the largest chemical markets, chemical output increased by 7.7% in 2023 according to S&P Global. This is believed to be mainly attributable to COVID-related pent-up demand. For 2024, S&P Global expects chemical output in China to normalize with a 4.9% increase.The U.S. economy was impacted by global weakness and monetary tightening throughout the year. Chemical output declined by 1.1% in 2023, but there were signs for improvements in December with the chemical production regional index sequentially higher by 0.4% for the first time in 4 months, according to the American Chemistry Council.Given this backdrop, I'm particularly proud of our ability to defend pricing throughout 2023 and to deliver on our commitments relating to our performance improvement programs. I'm also pleased with our sustained improved level of cash conversion of 36%, which enables our Board of Directors to propose an unchanged distribution of [ THB 0.42 ] per share to our shareholders.Moving on to our strategic priorities. As announced in December, we made the decision to seize operations at our bioethanol sites in Podari and to downsize related activities in Germany. Bill will provide more detail on the financial impact of this decision later in the presentation.As I briefly mentioned, we continue to deliver on our performance improvement programs with CHF 14 million additional savings achieved in the fourth quarter. We remain on track to reach our 2025 savings target of CHF 170 million with EUR 135 million or almost 80% already achieved by the end of 2023.The acquisition of Lucas Meyer Cosmetics was announced on October 30 last year, and we expect completion as planned. This acquisition marks another significant step forward in our purpose-led strategy, further strengthening our position as a true specialty chemicals company.We are excited by the opportunities ahead as we combine our personal care ingredients portfolio with Lucas Meyer Cosmetics to become a leader in the high-value cosmetics ingredients space. We see this as one of the most attractive markets in specialty chemicals, both in terms of growth and profitability.Turning to our revenue development for the quarter. We recorded sales of CHF 1.062 billion. Currency had a negative 6% impact, including a 1% net impact from hyperinflation in Argentina and Turkey. While pricing was stable overall for the year, in the quarter, we reported a 4% decrease. This is on the back of a 13% pricing increase in the same period last year. In Q4 2023, a 3% increase in catalyst pricing was offset by Care Chemicals declining by 7%, primarily due to index-based contracts, while Absorbents and Additives was down 2%.Our priority remains to defend pricing in a deflationary environment. Volumes decreased by 6% as Catalysts experienced a decline due to both the project nature of the business and prolonged retail cycles against a record performance a year ago. In addition, we experienced weak demand in key Additives end markets.The Electrical and Electronics sector was impacted by continued weak consumer demands. The International Data Corporation expects global notebook and PC production to show a decline of 13% in 2023 compared to 2022, with demand experiencing a delayed recovery in the second half of 2024.Smartphone shipments grew sequentially in Q4 2023 by 14%, given holiday seasonality, while remaining negative at minus 3% on a full year basis. This latest data implies 2 years of sustained decline in these shipments.For Clariant in 20 -- for Clariant, in Q4, divestments and acquisitions had a net negative impact on sales of 4%. Excluding this impact, organic sales in local currency declined by 10%. As mentioned earlier, sequential revenues were up 4% in local currency compared to the third quarter of 2023.Moving on to the performance by geography. Sales in the Americas decreased by 21% in the quarter, predominantly due to the divestments of our North America Land Oil and Quats businesses. Organically, sales decreased by 11% due to lower volumes in Catalysts and Absorbents and Additives.In addition, Care Chemicals was impacted by formula-based pricing and the seasonal aviation business was also affected by less favorable weather conditions. In Europe, Middle East and Africa, sales were down 13% in local currency as Catalysts growth in the Middle East only partially offset lower sales in Care Chemicals and Absorbents and Additives. Sales in Asia Pacific were down 9% with a 22% decline in China due to catalyst sales in Propylene and Ethylene being below the very strong comparison base of prior year.In terms of profitability, EBITDA in the fourth quarter of 2023 was CHF 106 million, 31% lower year-on-year, resulting in a 10.0% EBITDA margin. Excluding restructuring charges and exceptional costs related to the closing of the biofuel business, EBITDA before exceptional items was CHF 158 million, resulting in a robust underlying margin of 14.9% versus 15.3% in 2022.Lower volumes compared to the prior year negatively impacted operating leverage. However, cost savings of CHF 14 million from our performance improvement programs contributed positively to offset inflation impacts.We have delivered significant improvements against our nonfinancial KPIs, including continued progress in reducing our greenhouse gas emissions. In 2023, Clariant's, Scope 1 and Scope 2, total greenhouse gas emissions fell by 13% compared to 2022, with businesses reducing their emissions by more than the overall volume decline. We improved the carbon intensity by 13% from 163 to 142 kilograms CO2 per ton of product. In 2023, we also reached another important milestone as our sites in Bonthapally, India became Clariant's first production sites to reach net 0 emissions.Scope 3.1 indirect greenhouse gases emissions decreased by 12% from the prior year. These results are also partly attributable to the lower purchasing volumes in 2023, while also demonstrating continued progress towards reaching our 2030 emission reduction targets. Around 40% of the net reduction in Scope 3.1 emissions was achieved through focused projects to advance decarbonization of our raw materials.In 2023, we successfully implemented our new operating model, which was designed to foster better customer orientation and decision-making, greater empowerment, more accountability and improve transparency. This operating model has enabled a significant improvement in our KPIs relating to safety, customer satisfaction and employee engagement.On safety, we aim to achieve a 0 accidents culture and be a leader in safety in the chemical industry. In 2023, we made significant progress in reducing the DART rate by 46%, which reflects both an increased safety awareness and the effectiveness of our safety training programs. This performance places Clariant now in the top quartile of the chemical industry.Clariant customers globally participated in the customer satisfaction survey for 2023 with our overall customer Net Promoter Score, NPS further improving from 42 to 45. 44% of respondents stated that their general perception of Clariant has improved in the last 12 months, and our improved score places Clariant 8 points above the chemical industry average.In January 2024, we invited all employees to participate in an engagement survey, and we saw an increase in participation rate from 75% in the prior year to 83% this year. We achieved significant progress in the Employee Net Promoter Score, ENPS, increasing from plus 3 in 2023 to plus 25 in 2024, moving Clariant up from the third to the second quartile compared to relevant industry peers. All of these achievements are linked as studies show a direct correlation between employee engagement on the one hand and both the company's safety performance as well as customer satisfaction levels on the other. Going forward, we remain firmly committed to drive further continuous improvements in these key metrics.I will now hand over to Bill for further details on our business performance in the fourth quarter.

[Bill Collins, executive]

Thank you, Conrad, and good afternoon, everyone. I will now discuss our fourth quarter development by business units, starting with Care Chemicals. Care Chemical sales decreased by 17% in local currency. While volumes declined slightly year-on-year, sequentially, volumes increased by 6% compared to the third quarter.Pricing was 7% lower due to the formula-based adjustments linked to raw material prices, while scope had a minus 9% impact due to the disposals of the North America Land Oil and Quats businesses. By segment, we recorded a strong performance in Oil Services and Mining Solutions, while Crop Solutions, Base Chemicals and Personal & Home Care declined.Care Chemicals EBITDA of CHF 110 million resulted in a 20% margin. Profitability was positively impacted by beneficial raw material developments, the impact from our performance improvement programs and positive rebate-related one-offs.Catalyst sales declined by 10% in local currency against a very strong comparison base. And as expected, the more even distribution of sales over both quarters in the second half of the year. Sequentially, sales were flat in local currency versus the third quarter. Given the record performance of last year, volumes were down 13% versus Q4 2022, whilst pricing continued to be positive, recording an increase of 3%.By segment, we recorded low single-digit growth in specialties, while all other segments declined by a mid-teen percentage rate. In the quarter, the reported EBITDA margin decreased to negative 3.9%, mainly due to the impact from costs associated with the shutdown of bioethanol production and the downsizing of related activities.EBITDA before exceptional items was CHF 41 million, resulting in a margin of 15.9% versus 12.6% in the prior year. The improvement was driven by positive pricing and deflation in raw material costs. Sequential underlying EBITDA decreased because of business mix effects, while excluding operational and exceptional effects relating to sunliquid, catalyst EBITDA margin in Q4 2023 was 20.5% compared to 18.1% in Q4 2022.Looking at the sunliquid impacts in more detail. This slide outlines both operational and exceptional effects for the fourth quarter and for the full year 2023. In the quarter, total exceptional items resulted in a negative impact of CHF 53 million. The operational impact of negative CHF 9 million improved from the $20 million impact recorded in Q4 2022.For the year, the total operational impact amounted to negative CHF 43 million, and total exceptionals resulted in negative impact of CHF 60 million. Following the announcement of our decision to cease operations, we recorded impairment charges of negative CHF 81 million. For 2024, we expect a negative operational impact of up to CHF 15 million and exceptional items of up to CHF 30 million. The cash impact related to the closure is expected to be in the range of $110 million to CHF 140 million.Moving to Absorbents and Additives. Sales decreased by 11% in local currency in the fourth quarter. This was driven by a 10% decline in volumes and slightly lower prices as very weak demand in key end markets continued in the Additive segments.Absorbance grew by a low single-digit percentage rate, driven by positive pricing and supported by scope impacts. Sequentially, sales increased by 5% in local currency, driven by a volume increase of 6% compared to the previous quarter.EBITDA margin decreased to 6.3% compared to 11.7% in the fourth quarter of 2022. Profitability was impacted by lower fixed cost absorption and negative operating leverage in Additives due to substantially lower production volumes, partly to reduce our inventories. We also recorded CHF 6 million restructuring charges for additional steps to align our cost base with the lower volume environment. Sequentially, EBITDA before exceptional items of CHF 21 million was below the CHF 30 million recorded in the prior quarter.We delivered cost savings of CHF 14 million in the fourth quarter from performance improvement programs, resulting in a total of CHF 50 million savings in 2023. We remain on track to achieve our total cost savings target of CHF 170 million against an original target of $110 million. Thus far, savings of CHF 135 million have been realized from efficiency and rightsizing measures, as well as the initial savings from the implementation of the new operating model.Now let's move to cover the full year results. In 2023, sales were CHF 4.377 billion corresponding to a year-on-year 10% decline in local currency, 7% of which was organic. As Conrad mentioned, we were able to defend pricing in a challenging operating environment, which remained stable year-on-year.Selling, general and administrative costs declined by 15% from the prior year due to disposal effects, currency movements and benefits from our performance improvement programs despite normalization of travel and event costs and general inflation.Reported EBITDA for 2023 decreased by 25% to CHF 607 million, resulting in a margin of 13.9%. Profitability was negatively impacted by the CHF 103 million of operational losses and exceptional items from Sunliquid. The negative CHF 11 million fair value adjustment of the Heubach Group participation in the first quarter and restructuring charges of CHF 64 million. Before exceptional items, EBITDA was CHF 641 million, resulting in a margin of 14.6%.The cash generated from operating activities for the group decreased by CHF 81 million to CHF 421 million due to the lower EBITDA in the year despite active working capital management. We recorded a resilient cash flow conversion rate of 36% for the full year of 2023. Group net debt of CHF 755 million was stable versus the prior year-end.And with this, I close my remarks and hand back to Conrad.

[Conrad Keijzer, executive]

Thank you, Bill. Let me conclude with the outlook, starting with 2024. While we expect a continued easing of the inflationary environment, we see limited indications for an economic recovery in 2024 with uncertainties and risks remaining.Interest rates are expected to remain at elevated levels despite an anticipated easing in the second half of 2024. Global GDP is expected to slow from 2.7% to around 2.4% after underperforming in 2023 at 1.1%. Industrial production is expected to rebound in the second half of 2024 and in 2025, resulting in a forecast growth of 2.9% for 2024 and 3.4% in 2025.In 2024, we target low single digits percent sales growth in local currency and a reported EBITDA margin of around 15%. We expect growth in Care Chemicals, reflecting to the end of destocking in addition to the positive impact of the proposed acquisition of Lucas Meyer Cosmetics.Growth in Absorbents and additives is attributable to expected continued growth in Absorbents and a slight recovery in Additives. The performance of both business units is expected to offset the temporary slowdown in Catalysts momentum, given demand-driven, prolonged refill cycles and lower new build capacity additions.The margin guidance also includes the impact of Lucas Meyer Cosmetics, a sunliquid restructuring impact of up to CHF 30 million originally expected in the fourth quarter of 2023 and sunliquid operating losses of up to CHF 15 million. Excluding these operational and exceptional impacts, we expect an EBITDA margin of around 16% for the group in 2024. We will continue to focus on defending pricing in a deflationary environment and expect ongoing cost benefits from our performance improvement programs of CHF 25 million.Moving to our medium-term outlook. At our Capital Markets Day in November 2021, we set 2025 targets of profitable sales growth above our markets with a targeted 46% CAGR, a reported EBITDA margin between 19% and 21% and a free cash flow conversion of around 40%. Back in 2021, the targets were underpinned by the expectation that 2/3 of the EBITDA margin improvement would come from sales growth and 1/3 from performance improvement programs.While we have overdelivered on realizing the cost savings from the performance improvement programs, our sales growth has been impacted by weak market growth in the challenging macroeconomic environment. We remain committed to our medium-term targets as end markets recover and growth normalizes over the next 2 to 3 years.However, taking into account the continued challenging environment, we now expect 2025 to be a year of significant progress towards these targets with continued growth and substantial profitability improvement.In 2025, on the basis of an expected 3% to 5% improvement in key end market demand, we are targeting a group reported EBITDA margin of 17% to 18% and free cash flow conversion at the targeted level of around 40%. We provide a bridge on the slides to show you how we will achieve this significant progress in 2025. Notably, we expect around 75% of the improvement in EBITDA margin from our full year '24 guidance level to our full year '25 ambition to be a result of our self-help actions.As end markets recover and growth normalizes over the next 2 to 3 years we are well positioned and confident that we will deliver on our medium-term targets. We expect to realize the benefits of the Lucas Meyer Cosmetics acquisition, leverage our investments in China and take advantage of our well-filled innovation pipeline offering sustainability solutions to our customers.Ladies and gentlemen, to summarize and conclude, for the full year 2023, we reported a 7% organic sales decline in a challenging year for the chemical sector. We demonstrated our ability to maintain pricing and to execute our cost-saving initiatives.With the implementation of our new operating model, the strategic decisions regarding sunliquids and the proposed acquisition of Lucas Meyer Cosmetics, we have further prepared the company for growth and margin expansion in the coming years. We look forward to delivering against our short- and medium-term targets.With that, I now turn the call back over to you, Andreas.

[Andreas Schwarzwaelder, executive]

Thank you, Conrad, and thank you, Bill. Ladies and gentlemen, we will now take your questions. We will kindly ask that you please limit the number of questions to 2, thus providing more participants the opportunity to ask a question. Thank you for your understanding. We will now open the line for questions. Sandra, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from Christian Faitz from Kepler Cheuvreux. Please go ahead.

[Christian Faitz, analyst]

Yes. Good afternoon, good morning, everyone. Two questions from me, please. First of all, you saw muted demand trends for your agrochemical precursors in '23. With the recent dicamba rulings in the U.S., and I believe you are bit exposed to the herbicide, actually operating solution against drifting. Will this business also be impacted in '24?And the second question would be what are the key elements of the north of CHF 100 million cash outflow for the wind down of the sunliquid business that you expect in '24? Thank you very much.

[Conrad Keijzer, executive]

Okay, Christian. We couldn't entirely clearly hear the question. Sorry for that. I believe you're...

[Christian Faitz, analyst]

I'm sorry.

[Conrad Keijzer, executive]

Your first question was related to agrochemicals unit demand last year and if we expect that moving forward, correct?

[Christian Faitz, analyst]

Exactly. Also in the light of the recent dicamba ruling.

[Conrad Keijzer, executive]

Yes. Okay. And your second question was related to cash outflow, right?

[Christian Faitz, analyst]

For sunliquid north of EUR 100 million that you expect this year? What are the key elements?

[Conrad Keijzer, executive]

Yes, sure. Well, okay. Bill will obviously comment on the cash outflow. I will first make a few comments on agrochemicals. So what we actually -- this is a segment where the end demand last year was holding up quite well. It wasn't as good as 2022. 2022, as a reminder, we had record food prices and also the ideal conditions, let's say, for agrochemicals. But in 2023, demand was still relatively strong in terms of the demand from the farmers. And that's, in the end, obviously the most important here.What we did see, though, is a very significant destocking in agrochemicals last year. And it actually started a little bit later than in the other segments. So well, actually, at the start of the year was still okay. We saw the destocking really coming through in Q2, actually and so the remainder of the year, where now feedback from our customers is that they're still sitting on inventory. So what you're seeing is that the first half will still show a level of muted demand in agrochemicals. But the second half, we should really see a pickup. So yes, that's basically on agrochemicals. Bill, maybe you can comment on the cash flow.

[Bill Collins, executive]

Yes. On the cash piece, so like you mentioned that we have about CHF 100 million plus in cash out associated with the biofuels closure. A significant portion of this is what you might assume anyway. I mean it's the severance cost for employees. It's dismantling costs. The bulk that actually then relates to resolution of agreements that we have in the ongoing running of the plant, which for obvious reasons, I won't go into any great detail on that. But of the CHF 110 million, you probably have roughly 30%, 40%, that is the true restructuring part. And then the remainder is the resolution of the -- of these liabilities that we have with contractors.

[Christian Faitz, analyst]

Okay. Thank you very helpful.

[Bill Collins, executive]

Thank you.

[Operator]

The next question comes from Chetan Udeshi from JPMorgan. Please go ahead.

[Chetan Udeshi, analyst]

Yeah, hi. Thanks. First have to say thank you because your slide deck has all the key moving parts in terms of M&A and all the restructuring costs, cash out, so it's easy for us. So thanks for that. The question was just as you start the year because some companies are seeing still softer demand, some are seeing improvement. Where are you guys? Can you maybe talk about what you are seeing in terms of start of the year and trends post the Chinese New Year?And the second question was just looking on the catalyst business, I mean, it's a bit late-cycle business, so it's understandably weaker just now, but do you have any sense of your order book visibility in terms of when that might turn? Is it going to be some point this year? Or do we have to wait for that to turn at some point next year? Thank you.

[Conrad Keijzer, executive]

Yes, Chetan, thanks for your two questions. But first, also, thank you for the compliment on our slide deck. That is our IR team who deserves here all the credits. So Andreas, thanks for that, and I entirely aligned with what Chetan was saying.Yes. So your question, Chetan, on the start of the year and what we're seeing right now in terms of current trading conditions. Maybe first, I should reflect back on the fourth quarter. I mentioned that we did see a sequential improvement of 4% in local currency in Q4 versus Q3. So that in and by itself, we saw as a positive.And then if you look at the first quarter at the start of the year, we actually were pleased with the start of the year. So we saw a positive growth in catalyst from prior year. We saw positive growth in chemicals compared to the prior year, also in absorbents. In additives, we still don't see the pickup in growth yet.Now if you look quarter-to-quarter, in recent years, our Q4 has been quite strong, primarily because we had actually typically strong Q4 on Catalyst. This year, that was much more balanced. So if you look now, sequentially, you actually may see some improvement even further into the first quarter.And your second question on catalyst and the performance, let's say, that we saw last year in catalyst and our outlook sort of for this year. So catalyst last year, yes, for the full year, was obviously very strong with a 9% growth, including 4% pricing. I will say a lot of that growth was new build. And after the new builds, the first fill, it does take a period of time for refill business to kick in. So you will see a slowdown actually from that perspective in catalyst this year.What you also will see this year is, if you look at the refill business that last year, especially in Europe, our customers were running at capacity levels of rather low, particularly in Europe, we saw levels at lower 60% to 70%. That does actually prolong the refill cycle. So what you see in catalyst is also in that refill business, a slowdown this year.So we're guiding for mid-single digit decline in Catalysts for the year that is in line with what our order book is now telling us. And as you know, we have typically a good visibility. The order book is roughly 6 to 9 months out. So you will see this pickup for next year, which we do expect for Catalyst, you'll see that reflected more towards Q3, Q4 of this year.

[Chetan Udeshi, analyst]

That's clear. Thank you.

[Operator]

The next question comes from Jaideep Pandya from Enfield Research. Please go ahead.

[Jaideep Pandya, analyst]

Yes. Thanks a lot. First question is on catalyst actually, just following on Chetan's question. Conrad, could you give us some color if I -- the minus sort of 5, if you're guiding for, how much of that is CATOFIN-related? So I just want to understand what are your expectations for CATOFIN versus the rest of the portfolio this year? Because if things improve, then syngas and petrochemical should actually grow. So -- and I at least count that there are two plant start-ups in China this year which use your technology. So just curious what is your expectation for CATOFIN this year? That's my first question.The second question is on Additives. Obviously, because of weaker electronics, you've suffered in this business. If volumes come back, say, 10% to 15%, what is the EBITDA swing here? Have you lost like CHF 50 million plus in Additives because of weaker volumes? Or am I being too exaggerated?And then one comment or rather request or hope, if I may use all these words. Would you ever think of splitting your Care Chemicals into a Personal Care business versus the nonpersonal care part? Because I find it very strange if I'm being very honest that Lucas Meyer is going to share the podium with oil and mining in one division. And now that you have the chance to tell your #1 peer that your margins are better than theirs in Personal Care. Thanks a lot.

[Conrad Keijzer, executive]

Okay, Jaideep. Yes, great questions. Three questions, if I picked it up correctly. So let me try to quickly go through them. I think your first question on Catalyst. Yes, as far as our mid-single-digit guide for declining business issue in Catalyst. Yes. Indeed, there is to quite some extent in CATOFIN, what you see is that we did have a lot of new builds for CATOFIN actually last year, and that was also related to our new China plant, which is running almost flat out right now. So you will see a slowdown there because what we saw in CATOFIN specifically is a lot of capacity expansions also in China, and there's even to some extent, a certain overcapacity right now that has been building. And like I said, the decline then is caused by the fact that new build is not coming back. And it does take -- there is a time lag before the refill business comes in.I further would comment that syngas was particularly strong last year as well. And yes, we basically see that syngas last year, we did gain some market share. We're going to hold on to it, but we don't expect further share gains in that business right now.Your second point on Additives and volume developments there, as well as the impact on EBITDA. I think for Additives, maybe it's good to high level, give the breakdown. So if you look at the Additives and particularly our flame retardants, they are tight, first of all, to the electronic markets. And what you saw last year for the whole year is still declines in that segment. Cellphones down 3% for the year in terms of production rates, laptops 13% down. The positive for this year is that there is an expectation for consumer electronics to grow at a 5% run rate this year based on S&P data.Secondly, automotive, we had a strong growth in electric vehicles last year, 36% reported. The challenge for us was it was sitting primarily with Chinese OEMs. And until recently, we did not have a local plant in China for flame retardants. We're bringing in the material from our Knapsack site. The good thing is that actually we started our new local plant in China in October. So we are actually now well positioned to capture our fair share of that ongoing growth for electric vehicles in particularly in China. The overall growth rate for electric vehicles, not as high as last year at 36%, but still 22%. So that's still solid growth.And then finally, what you see is when retardants being used in construction, switch panels, et cetera, that recovery still will take a bit longer. But as interest rates come down in the second half of this year, you will see also a pickup in construction activity at some point.So for volumes, we are confident that we will see a rebound. It is primarily tied to the rebounds in durable goods demand what we are expecting, particularly for next year. So what you then will see in Additives is a significant operating leverage because we have taken out costs, and we've been able to lower that cost base.In terms of pricing, we'll be very disciplined. So we've actually -- at a contribution margin were actually slightly up. So we're not able to capture some of that margin from the lower raw materials. So if and when I should say, when here, the demand comes back, you will see a significant operating leverage from Additives.Finally, to your question on Personal Care and oil and gas, we have implemented full segmentation in our Care Chemicals business. So we have a dedicated segment for Personal Care. We have a dedicated segment for oil and gas with dedicated sales reps, dedicated product development. I mean this has been really the big change from the past that we implemented. We have fully segmented this market very much around our customer base. So no worries here that a person on one day needs to go to an oil and gas customer and the next day to L'Oreal, that's not the case.

[Jaideep Pandya, analyst]

Sorry, just not to labor, but what I was wanting to ask was, would you ever split from a reporting point of view so that [ us Dom ] analyst can actually appreciate your personal...

[Conrad Keijzer, executive]

No, that I understand, obviously, from your perspective, and I understand very much your eagerness to see those numbers broken out. Here, there is clearly also some competitive reasons that we -- internally, absolutely, we're looking at it by segment. We're looking at growth by segment, profitability by segment. But externally, unfortunately, we're not in a position to break that down for competitive reasons. Sorry for that.

[Jaideep Pandya, analyst]

No worries. I keep hoping. Thank you.

[Operator]

The next question comes from Alex Stewart from Barclays. Please go ahead.

[Alex Stewart, analyst]

Hi, there. Thank you for taking my question. And thank you for the interesting discussion. It's possible that you covered it already, but I think the -- during the summer, you were suggesting that the EBITDA contribution in [ catalysis ] would be roughly similar Q3, Q4. Q4 obviously came in well below that. I'd be interested to know why the fourth quarter was lower than expected? And again, apologies if you've already said that.The second one is on your syngas catalyst business. There's a lot of discussion with some of your competitors about exploiting that position in renewable fuels and SAF and those new growth markets. And we don't often hear Clariant talk about that. Does that mean that it's not an avenue of business growth that you're exploring? Does it mean perhaps you're focusing attention elsewhere? I'd be very interested to get your views on that. Thanks.

[Conrad Keijzer, executive]

Okay. Thank you, Alex. Yes. So first, on your question around catalyst and margins. Yes, we commented last year that with all the actions in that business, we felt that we have achieved a turnaround and that the business now actually should achieve EBITDA margins around, structurally around 20%.Now that does not mean that, that will be the case in every quarter. So there is still a significant operating leverage in that business. So what you saw in Q4 is the effect of that. Also this year, there will be quarters where you're going to be under 20%. But there equally will be quarters that you will be over 20%. So for the year, for Catalyst, even though we guide for mid-single-digit declines in revenue, we are actually also guiding for EBITDA margins for the year, around 20% for Catalyst. But again, not for every quarter.Your second question on catalyst and the energy transition and syngas and your question on SAF, yes, I can only say that we are very well positioned for this energy transition in Europe. So if you look at, first of all, green hydrogen, we're actually not active with products in the production of green hydrogen. So we're not doing anything around the electrolysis, the splitting of water. But what we are doing is we have all the Catalysts to basically convert gas into liquids.So what you see is that the big outlets for green hydrogen are going to be green ammonia and also green methanol. Green ammonia has a huge promise because it will actually allow literally for climate-neutral fertilizers, that is a big breakthrough. And I can tell you, we are one of the leaders in ammonia -- for ammonia catalyst right now. And we, in fact, have the most selective, the most robust catalyst for ammonia production.The second big breakthrough that you will find is actually with what is referred to as e-methanol. So this is actually methanol made from CO2 based on biomass and then hydrogen, green hydrogen. The first plants in Europe at scale last year in the Nordics is exclusively supplied with catalysts from Clariant. So I will say that in the whole energy transition, particularly the green hydrogen economy, Clariant is extremely well positioned.And then finally, your comment on SAF, sustainable aviation fuel, but I would add here, biodiesel. Both of these, if you look at the hydrogenated vegetable oil route, they do require a purification step where we play a significant role with our Absorbents. And if you look at catalyst demand for SAF, there are two steps. There is the hydrogenation step where we're not participating. But these are really the refinery catalyst technologies that you need, and that's a segment we're not active in. But we are active also with our catalyst and products in the second stage, which is the isomerization step for SAF. So also there Clariant is actually very well positioned. And thank you, Alex, for your feedback. We will communicate more about it because we're actually very proud about our position here.

[Alex Stewart, analyst]

Great. So if I could loop back to this catalysis -- sorry, the catalyst question because I seem to remember at the second quarter conference call, you were suggesting or guiding that you would have a roughly equal EBITDA contribution in absolute terms, Q3 and Q4. And it looks like Q4 was quite a lot below. I'm just interested to know whether something changed there or perhaps I misinterpreted your guidance?

[Bill Collins, executive]

Yes, Alex, this is Bill. I think what we were trying to communicate is that we were seeing more balanced sales across the quarters because when we look at how we are able to work with our customers and when they need their materials. We can balance that better. And then also looking at how we balance the mix across the quarters as well.So it wasn't to imply at all that we expect the same EBITDA margins every single quarter, as Conrad mentioned earlier. But rather, we hope that we can see a less lumpy sequencing of catalyst sales across the quarters.

[Alex Stewart, analyst]

Got it. Thank you.

[Operator]

The next question comes from Matthew Yates from Bank of America. Please go ahead.

[Matthew Yates, analyst]

Hi. Afternoon, everyone. I'd like to focus a little bit on your Slide 19 and the medium-term targets. Firstly, it's a very helpful bridge in understanding your thinking about how you get to the 17% to 18%. But can you then take that one step further and talk about the bridge to getting the margins up to the 19% to 21% level you talk about. And I guess to understand your conviction and why you're reiterating these targets today, how much of the margin improvement is dependent on a market recovery that you can't control versus your innovation projects and your capacity investments that you can have some influence on.And are you prepared to put a time frame on what midterm now means. Obviously, you were explicit before that it was a 2025 target. Has this become '26, '27 or even later? Thank you.

[Conrad Keijzer, executive]

Yes. Thanks, Matthew, for that question. I'll make a few comments, and then obviously, Bill will also chime in here. Yes, maybe just first to recap back to November 2021. What we said there, when we announced our 2025 targets was we're going to achieve a 46% growth, which was above market growth. And we at that moment in time that market growth will be 2.5%. We also said we're going to get up to an EBITDA margin of 19% to 21%. And finally, we said the cash conversion targets will be 40%.So if you look where we are right now and how we bridge to next year and then back to these midterm targets. First, if you look at what happens on these levers at the time November 2021, we said 2/3 of the improvement in EBITDA margins will have to come from growth. I mean you cannot only cost cut your way up to the 19% to 21%. So we said 2/3 will come from growth, 1/3 will come from cost. And that was the basis at the time for the EUR 110 million cost target that we have.Now meanwhile, we've increased that cost target from CHF 110 million to by now EUR 170 million targets. So we have over delivered on the existing targets, and we've added to this target. And what you'll see now is that actually, it's not -- it's more going to be like 2/3 in the end coming from cost. But that still means that we need growth, and we need normalized trading conditions.So if you look at our forecast, our outlook for next year that we gave, we said we're going to target a growth level there of 3% to 5%. We feel actually confident about that. So what you're seeing is the GDP slowing this year, but the economists are seeing a pickup in GDP next year. What is more important for us is that there are going to be a return in demand for durable goods. So as you know, services has been a big part of GDP last year. It still is a significant part this year, but you'll see a rebalancing. And certainly, as interest rates will come down and inflation comes down in the second half, next year, you really will see consumers to start spending again. We've talked about this many times in our conference calls that we are lacking durable goods demand. It's interesting because you now also see economists talking about it and projecting a return for durable goods demand in '25. And that's the basis for our 3% to 5% growth in '25. And actually, we do need then a normalization of trading conditions to really bridge from the 70% to 18% to the 19% to 21%. But Bill, if you want to add?

[Bill Collins, executive]

Yes, just a few things. I mean, Matt, one of the key things that we've talked about even today is just the overwhelming impact of these legacy topics like biofuels, I mean that has had a serious drag on our earnings for the last 2 years now. So by the end of 2024, all of that is out. So we'll really have a much cleaner EBITDA margin than what we've had historically.So when we start with the 17% to 18% that we're expecting in 2025, having all the legacy out helps, we've had very, very strong performance on our cost programs. Over the last year, as Conrad mentioned, we've really overachieved on that, which when the growth does come back, we're going to get much more operating leverage there than what we would have seen before. Plus, we are actually really good, I think, as a company in the continuous improvement element of making sure that we're continuing to look at cost opportunities and productivity to help offset inflation going forward.And then as Conrad mentioned, in addition to the market growth, we're going to see continued impact from our Lucas Meyer Cosmetics acquisition and the synergy growth that we expect there as well as additional leverage from our China investments that we've made over the past couple of years. So again, I mean, I really see a very clear line of sight not only through 2025, but into that 19% to 21% range in the very short term thereafter.

[Conrad Keijzer, executive]

Bill was just commenting. I think you were asking for timing. And what we basically here expect is that trading conditions will normalize in a 2- to 3-year time frame.

[Matthew Yates, analyst]

Okay. Thanks, Conrad.

[Conrad Keijzer, executive]

You're welcome.

[Operator]

Your next question comes from Tristan Lamotte from Deutsche Bank. Please go ahead.

[Tristan Lamotte, analyst]

Hi. Thanks for taking my questions and two, please. The first is, could you talk through your expectations for pricing in 2024 by segment. On a group level, you had pricing down 4% in Q4 versus 3% in Q3. I expect Consumer Care will continue to see more pricing pressure. Can you talk about where you will be able to retain pricing across the portfolio and where you'll have to give it back and the key factors there?And the second question is on the top line guide. On the 2024 top line guide for low single digit, I'm assuming low single digit means 1% to 3%, so let's say 2%. The M&A impact, if I'm not wrong, will be 0.5% negative. So that means your assumed top line growth ex FX is 2.5% for 2024. You've said catalyst down around 5% next year. Could you talk through your thinking behind the group sales guidance with regards to the other two divisions and what takes you to the top and bottom end of that low single-digit range of 1% to 3%? And could you confirm if there's an element of conservatism in those assumptions? Thank you.

[Conrad Keijzer, executive]

Yes. Thank you, Tristan. So let me first make some comments on pricing and also on the outlook and then probably Bill will also chime in with additional detail if needed. So if you look first at pricing, yes, we were extremely pleased actually with our overall pricing last year. So volumes, minus 7% pricing flat over the year. Now it's true that we saw some moving parts in the fourth quarter. We saw pricing down actually in Q4 in Care Chemicals by a 7% that was sitting primarily in the formula-based contracts. Keep in mind, roughly 40% of the business in Care Chemicals is formula-based. And we also actually have some of the deicing business formula-based, and that had actually negative pricing because of the low pricing for glycols. So if you look further in Q4, we saw a little bit a minus two on pricing in Additives and Absorbents, but we're not too worried about that.So moving forward, very much for this year also, it is going to be our ambition to defend our pricing. What you will see on the raw material side is last year, we saw a decline in our raw mats of 11%. This year, we're going to still see a mid-single year-on-year declines on raw mats. So where last year, we've been able to improve at a contribution margin level across the business, we have that same ambition this year to partly offset the volume coverage for plants and inflation.So then your question on the guide for '24 and I think Bill can make some comments about M&A effects. But keep in mind, there's also some negatives here because of the divestment from qua Quats and from North America Land Oil, which was later in the year last year.But if you just look at the business, the breakdown roughly would be mid-single-digit decline on catalysts, mid-single-digit positive, I would say, for Care Chemicals and then, let's say, a low single-digit positive for A&A and that then ends up in the low single digits based on the definition that you had for that. I think you said 1% to 3%. Bill, do you want to further comment on the breakdown of the low single-digit growth for the year, Lucas Meyer effect...

[Bill Collins, executive]

Yes. No, I can do that. Actually one of the things I want to just briefly mentioned with regard to the pricing. It's one of the things really excited about is the fact that when we look at the pricing month-to-month over the last 6 months, it has been very, very stable. So I think we've really done a good job of defending prices, keeping it as high as we can, even in the midst of further raw material decline. So I feel pretty good about that going into next year.When we talk about the scope for next year, I mean, from a net scope impact, I mean, it's relatively small on sales, maybe only around CHF 20 million in total, which you got to keep in mind that we have 9 months of Lucas Meyer coming in, which has been largely offset by the divestments that we did earlier this year.

[Operator]

The next question comes from Andreas Heine from Stifel. Please go ahead.

[Andreas Heine, analyst]

Three, if I may. The first is actually within the business, you have also the foundry sand business, which has quite an exposure to automotive and within our automotive to the [ IS ] business, how has that performed in 2023? And how do you see that going forward over the next, let's say, couple of years?In the catalyst business, looking on your order book, while you addressed already that the capacity utilization across the industry is pretty low. With that, the appetite for capacity expansion or investments in new plants is not really high. And I can't see this changing during 2024. On your own [ said ] it was what you expect for 2024 is still a challenging environment. So probably the utilization rate will not improve too much. So what should change in the catalyst business from '24 to '25 in the investment appetite of the chemical industry?And then lastly, a question on the CapEx. It is now pretty low at CHF 220 million for the second year. How long do you think you can keep this rather low CapEx level?

[Conrad Keijzer, executive]

Yes, sure. Thanks for these great questions, Andreas. So first, your question on foundries and automotive and what we're seeing here happening in our Bentonite business, it's interesting. We actually did have a decent year in this segment for Bentonite last year.What you will see over time though is that in volumes this will come down because what you see is with the switch to electric vehicles that there is less of these metal casted parts, which require actually this binder scent. So in electives, there is just less large metal parts.Now they are more sophisticated. So if you have these electric vehicle parts engines, it's a lot of small parts, which means that the -- while the volume comes down, the specification actually for binders for what we said is actually going to go up. But overall, I think it's fair to say that the outlook is that this is not a growth business. And therefore, we are extremely pleased with our growth positioning for purification of biofuel with Bentonite products because that will more than offset some of the declines that may happen there in automotive over time.Then your second question on catalyst and the capacity utilization run rates right now at the moment in the chemical industry. I will say it is a bit of a mix by region. So we see low capacity utilization rates in Europe down to 60%, 70%. We see higher capacity utilization rates in the U.S., more like an 80% or even 85% or 90%. While actually, Asia is a bit of a mixed picture with some overcapacity in some segments and not in some other segments.I think we mentioned this because of the high new builds last year, we are guiding for mid-single decline this year, but we also see this pick up next year for the business. And this has to do with the refill cycle coming in, coming back in. So we are confident about the pickup. We're also very pleased with our positioning versus the energy transition and our catalyst offering for all those sectors. So yes, the net will be guidance mid-single down this year, but we're still confident about growth in the year ahead.And then finally, your question on CapEx. It's the second year, we're running at a low run rate, but we have a lot more discipline around cash flow. And we are scrutinizing projects much more than we did in the past. I don't know if you want to comment about it, Bill, but we will not sustain at this low level, but so for next year, it might be a bit more, but we're certainly not going to return to the historically high levels, but...

[Bill Collins, executive]

No, I would say from my perspective, I feel pretty good about a CapEx level in the low CHF 200 million level. I mean if you look at what we had spent 2019, 2021, there was a lot of investment in projects that, a, have not panned out as we expected, like biofuels, and we certainly learn lessons from that. And as well as investments in other projects that don't actually have a longer-term return either.So to Conrad's point, we do put a lot more scrutiny on CapEx than what we've typically done in the past. But at the same time, we're always on the lookout for good expansion and growth and efficiency projects. So we're not turning anything away either to keep it at a lower sustained level.

[Operator]

The last question for today's call comes from Sibylle Bischofberger from Vontobel. Please go ahead.

[Sibylle Bischofberger, analyst]

Thank you very much, gentlemen. And I had a question about the outlook 2024. The outlook is in local currencies. Could you give us an idea about the currency effects on sales and on EBITDA margins? How much would it be if the currency would stay the same as there now?And the second question is you mentioned Turkey and Argentina and the strong currency effect there. I expected that these two countries generate less than 2% of total sales. Could you say something about these two countries, please?

[Conrad Keijzer, executive]

Absolutely. Let me start with your first question. The overall currency. So if you look at the June forwards that we have today, we're looking at probably 5% appreciation of the Swiss franc relative to the euro, almost 6% on the U.S. dollar. So we would expect that to have roughly a similar magnitude on our sales running into 2024.Again, the caveat there is that there is so much volatility in exchange rates these days. And to be honest, it's kind of a game of which country is going to start reducing their interest rates first. And there's also the intervention of the Swiss National Bank, for example, like they did a few weeks ago. So that's our best estimate at this point in time.Now when you talk about Argentina and Turkey, those are the two hyperinflationary countries that we have to deal with. I mean, as you know, from a hyperinflationary accounting perspective, it forces us to revalue the entire year based on the most recent exchange rates, which has been a bit of a problem because you're right, I mean, Argentina is not a huge country for us, but the impact of this revaluation becomes disproportionate. So it has had an impact. So that's why we report in our Q4 figures that pure translation effects for those countries outside hyperinflation are about 5%. And then we have a 1% impact coming from the hyperinflationary accounting countries.

[Sibylle Bischofberger, analyst]

Thank you. And maybe the last thing is about the tax rate 2024. Could you say something about your expectations?

[Conrad Keijzer, executive]

Well, on the tax rate, yes, I mean, we typically, I think, planned for around a 26% rate. We expect it to be a little bit lower next year, probably in the low 20s.

[Sibylle Bischofberger, analyst]

Okay. Thank you very much.

[Operator]

Gentlemen, that was the last question. Back over to you for closing comments.

[Conrad Keijzer, executive]

Thank you very much. Ladies and gentlemen, this concludes today's conference call. A transcript of the call will be available on the Clariant website in due course. The Investor Relations team, obviously, is available for any further questions you might have. Once again, thank you for joining the call, and have a good afternoon.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Corus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.