Interview with the CEO
2023 was a challenging year for the chemical industry. Does this mean that, for Clariant, 2023 was characterized by negative rather than positive influences?
No, there were a lot of positive developments worth mentioning. Firstly, we significantly improved key metrics like safety, customer satisfaction, and employee engagement, helped by the successful implementation of our new operating model. Safety is our number one priority, and I am very happy to see that accidents, measured by »Days Away, Restricted, or Transferred« (DART), decreased by over 46 % in 2023, which places us in the top quartile of the chemical industry. Our overall Customer Net Promoter Score improved from 42 to 45 in 2023, placing us eight points above the chemical and gas industry average. We have reduced hierarchies to empower our employees, expediting decision-making and enhancing agility. It’s great to see that our employees recognize this positive development, as our employee engagement scores have improved significantly. Our Employee Net Promoter Score increased by more than 20 points in 2023.Secondly, our performance improvement programs show very good progress, with 80 % of the programs implemented: We already achieved CHF 135 million savings out of our CHF 170 million commitment.
Thirdly, we completed the divestment of our Quats business and the sale of the North American Land Oil business to realign our portfolio. By the same token, the proposed acquisition of Lucas Meyer Cosmetics will further strengthen our position as a true specialty chemical company. And finally, we continued to invest in growth projects and celebrated the opening of two new facilities in China, which are contributing to the success of our »in China, for China« strategy, positioning us for more resilient local growth in this important market.
How do you assess the development of the whole sector?
2023 was a year marked by geopolitical tensions and a slowing global economy. GDP growth was at 2.7 %, according to Oxford Economics, but demand for durable goods was rather weak, which led to lower industrial activity. We also saw continued elevated energy prices, rising interest rates, and global inflation of 6.0 %. On top of that, the vulnerability in global supply chains was amplified by the war on Ukraine and the conflicts in the Middle East. Taken together, these were difficult conditions for the entire chemical industry, which increased its production by only 2 % globally. The situation in Europe is especially concerning: The capacity utilization is at about 75 %, and production declined by 8 % in 2023.
» Innovation is the decisive driver for the sustainability transition. By offering innovative solutions for our customers’ sustainability challenges, we bring about real change. «
Conrad Keijzer
Chief Executive Officer (CEO)
How much did these conditions affect Clariant’s performance?
We have a resilient business model characterized by a strong focus on innovation, sustainability, and our customers. Our business is less affected by energy prices, and we do not use natural gas as a raw material. The fact that we had already implemented our new customer-focused operating model in 2022 helped us to continue to support our customers with a strong flow of new products. However, the difficult business environment and the weak demand from customers in 2023 left their mark on our financial results: While we were able to defend pricing, volumes sold decreased by 7 %. Our EBITDA declined to CHF 607 million, as did our EBITDA margin, which now stands at 13.9 %, compared to 15.6 % last year, as profitability was negatively impacted by operational losses and costs related to sunliquid®. Net operating cash flow is CHF 421 million, compared to CHF 502 million last year. Our free cash flow conversion rate, however, remained stable at 36 % compared to last year.As part of the new operating model, Clariant now reports in the three Business Units Care Chemicals, Catalysts, and Adsorbents & Additives. How did they perform?
For the full year 2023, sales in Care Chemicals decreased by 9 % organically in local currency1 and by 15 % including scope in local currency (21 % in Swiss francs). Volumes were down 7 %, excluding the divestment impact, while pricing was down by 2 %. Oil Services grew organically, while the prolonged destocking cycle and lower demand negatively impacted sales in the other segments. The Care Chemicals EBITDA margin increased to 19.9 % from 19.5 %, positively impacted by the gain from the Quats disposal, offsetting lower volumes and prices.In Catalysts, sales increased strongly by 9 % in local currency (1 % in Swiss francs). This increase was balanced between positive pricing (4 %) and volume growth (5 %), while at a segment level, Propylene and Syngas & Fuels were particularly strong. The 2023 EBITDA margin increased to 10.3 % from 9.4 %, despite the significant negative sunliquid® impact, as a result of positive pricing, higher volumes, and positive business mix effects. This strong turnaround of the Catalysts business is reflected in a 640-basis-point improvement in the EBITDA margin before exceptional items to 16.3 %. Excluding operational and exceptional effects related to sunliquid®, the Catalysts underlying EBITDA margin in full year 2023 was 20.8 %, compared to 13.8 % in full year 2022.
Adsorbents & Additives reported lower sales of -15 % organically in local currency and -13 % including scope in local currency (-17 % in Swiss francs). Volumes were down 17 % due to the weak demand for consumer electronics and durable goods in the Additives segments. Pricing increased by 2 %, while changes in scope contributed a further 2 %. The Adsorbents & Additives EBITDA margin decreased to 11.2 % from 21.7 % in 2022. Profitability levels were impacted by substantially lower volumes and reduction of inventory in Additives in particular, which resulted in lower operating leverage and fixed-cost absorption. Additional restructuring costs to further adapt to the low-volume environment also weighed on profitability. The relatively strong Adsorbents performance also led to a less favorable business mix.
In December 2023, Clariant’s Board of Directors decided to close the sunliquid® bioethanol plant in Podari, Romania, and to downsize related activities in Germany. Can you comment on this decision?
This was a hard but necessary decision to make. The plant began producing bioethanol in the second quarter of 2022, but it eventually became clear that it did not achieve Clariant’s targeted yields and other operational parameters on an industrial scale. The economics of the plant in Podari could not justify for Clariant to continue ramp up, which would have required significant additional capital expenditure. It is our responsibility to allocate capital to those projects that best support our sustainable growth strategy.Speaking of strategy, would you say that Clariant made good progress in 2023 to achieve its strategic objectives?
Yes. First of all, we continued our »in China, for China« strategy. In Daya Bay, China, we invested CHF 80 million in an ethoxylation plant for Care Chemicals and CHF 60 million for our new state-of-the-art plant for innovative halogen-free flame retardants, which will be followed by a CHF 40 million investment for a second production line. Considering that about 60 % of all electric cars in the world are produced in China, and that each electric car requires about one kilogram of flame retardants, this is an appealing market. We also invested CHF 80 million in a new high-tech production facility for our innovative CATOFIN® blockbuster catalysts in Jiaxing. CATOFIN® products have the highest performance for selective propane dehydrogenation to make propylene. This is used to produce polypropylene, which is needed for food packaging and to replace metal in cars. Another strategic milestone was our agreement to acquire Lucas Meyer Cosmetics, which will strengthen our exposure toward high-growth, high-value consumer end markets and our footprint in North America. By combining our own personal care ingredients portfolio with Lucas Meyer Cosmetics, we will become a market leader in the high-value cosmetic ingredients space, which is one of the most attractive specialty chemical markets in terms of growth and profitability. Let me also mention that Catalysts made significant progress in developing its portfolio to support the energy transition, winning the contract to supply the world’s largest e-methanol plant in Kasso, Denmark.The world has to become more sustainable and reduce carbon emissions. What can Clariant do to support this transition?
The sustainability transformation is a great opportunity for us as a specialty chemical player. Innovation is the decisive driver for this transition. By offering innovative solutions for our customers’ sustainability challenges, we bring about real change. After achieving our growth target for innovation sales in 2022, Clariant met expectations again in 2023 with an innovation sales growth of 3.5 %, despite the challenging and dynamic macroeconomic environment. These innovations help reduce carbon emissions in sectors that still rely heavily on fossil resources. We promote solutions based on renewable feedstock, and we foster a circular economy while accelerating the portfolio shift to safe and sustainable chemicals.
» Consumers increasingly care about how products are made, which benefits sustainability front-runners like Clariant. «
Conrad Keijzer
Chief Executive Officer (CEO)
Can Clariant also help transform the chemical industry itself?
Our innovative catalyst technologies are enabling about 35 million tons of carbon dioxide-equivalent emission reductions for our customers across various industries per year. This is equivalent to the emissions that a country the size of Switzerland produces in a year. Our Additives business eliminated all PFAS from its portfolio by launching PTFE-free additives for printing inks and coatings. As a result, Clariant’s portfolio is now completely PFAS-free, demonstrating our commitment to helping other industries become safer and more sustainable. We believe transparency around product safety and sustainability drives positive change. Over a decade ago, we pioneered our Portfolio Value Program to evaluate our portfolio against sustainability criteria. We shared this expertise in the World Business Council for Sustainable Development’s Portfolio Sustainability Assessment 2.0 project with other leading chemical companies to establish a common language and increase sustainability. Clariant has also actively contributed to the launch of three high-level global ambitions for 2030 by the International Council of Chemicals Associations, or ICCA, in the context of the UN-led Strategic Approach to International Chemical Management (SAICM) and the new UN Global Framework on Chemicals. These ambitions for the sound management of chemicals and waste start with transparency and are fully in line with our sustainability commitments.What about the transition at Clariant?
We are committed to our ambitious, science-based absolute targets for 2030 to reduce our greenhouse gas emissions and are aiming for net zero emissions for scope 1 and 2 by 2050. In 2023, our scope 1 and 2 total greenhouse gas emissions declined by 13 %, exceeding volume declines in Care Chemicals and Adsorbents & Additives, and more than offsetting the volume increase in Catalysts. Our 2023 scope 3 emissions for purchased goods and services also decreased by 12 % from 2022. While this is to an extent attributable to the lower sales volumes in 2023, focus projects advancing the decarbonization of raw materials achieved approximately 40 % of this net reduction. I think it is crucial that we are transparent about our greenhouse gas emissions – and we would need this to happen across the entire value chain.What about transparency in Clariant’s upstream activities?
We are among the few chemical companies to have adopted a scope 3 science-based target that helps us measure our suppliers’ performance in terms of emission reduction. Once this data is available across the entire value chain, it is possible to calculate the carbon footprint of a product. In addition to emissions, we also scrutinize other sustainability aspects, such as the protection of human rights and nature.Industry is facing unprecedented pressure to accelerate the transition to more sustainable operations, products, and value chains. How can Clariant show resilience, considering the present economic and geopolitical turbulences?
Our industry faces a historic transformation to become climate neutral, circular, and digital while transitioning to safe, sustainable chemicals. Despite uncertainty, higher sustainability ambitions driven by regulations, business commitments, and customer demand are here to stay. Consumers increasingly care about how products are made, which benefits sustainability front-runners like Clariant. Showing resilience by anticipating risks and opportunities while remaining committed to the transition is critical. In 2023, Clariant continued diligently working toward science-based climate targets, providing greater transparency than ever around product carbon footprints with our »CliMate« tool. Though challenging, the transformation brings opportunities.We are now almost three months into 2024. What is your outlook on the rest of the year?
The tragic geopolitical conflicts in the world – including in Ukraine and the Middle East – increase the existing macroeconomic risks. We do not see a significant economic recovery, but expect a moderation in general inflation, and for raw material and energy costs to ease. Interest rates are expected to remain at an elevated level despite an estimated easing of rates in the second half of 2024.And what would these developments mean for Clariant?
Clariant expects low single-digit sales growth in local currency in 2024 and an improvement in the reported EBITDA margin to around 15 %. Growth in Care Chemicals, including the impact of the proposed acquisition of Lucas Meyer Cosmetics, and in Adsorbents & Additives is expected to offset a temporary slowdown in Catalysts momentum. We will adopt an agile response as our end markets recover and growth normalizes over the next two to three years, since we remain committed to and resolute in our plans to achieve our medium-term targets in that period. Considering the continued challenging macroeconomic environment, we now expect 2025 to be a year of significant progress toward these targets with continued growth and substantial profitability improvement.1 All references to local currency growth, pricing, volumes, and scope exclude the impact from hyperinflation countries Argentina and Türkiye. All references to currency include a net impact from hyperinflation countries Argentina and Türkiye.
