In 2020, Clariant delivered robust performance and successfully mitigated the negative impact of the COVID-19 pandemic.

1.1. Business performance summary for 2020

Clariant reported continuing operations sales of CHF 3.860 billion in 2020 compared to CHF 4.399 billion in 2019. This corresponds to a decrease of 5% in local currency and 12% in Swiss francs due to depreciating currencies versus the Swiss franc. Pricing had a positive impact on the Group. However, the modest sales increase in Business Area Catalysis could not offset the lower volumes in Care Chemicals and Natural Resources.

For the full year, Asia remained resilient, growing sales by 4%, with notable growth in India while China increased sales by 6% in local currencies. Latin America also increased revenues by 7% in local currency. Sales in Europe declined by 8%, followed by the Middle East & Africa, where sales were down 13%. The 14% slowdown in North America was attributable to lower demand in the Aviation business and Oil Services.

Continuing operations EBITDA reached CHF 578 million due to the weaker sales in COVID-19 exposed segments, but also due to the particularly difficult environment in Aviation and Oil. This development, amplified by weakening currencies, contributed to the absolute EBITDA contraction, resulting in an EBITDA margin decline to 15.0% from 15.7% (reported 10.5%) in the previous year when excluding the one-off CHF 231 million provision, which was booked in the second quarter of 2019.

In Care Chemicals, profitability improved due to growth in Consumer Care in tandem with stringent margin and cost management. The EBITDA margin in Catalysis declined as a result of the less favorable product mix, particularly in the first and the fourth quarter, and the efficiency program provision. Natural Resources profitability weakened as a result of the challenging environment but was close to the prior year on an underlying basis.

In 2020, operating cash flow for the Group declined to CHF 369 million from CHF 509 million in the previous year due to the payment of a fine of CHF 166 million issued by the European Commission and due to the absolute contraction from adverse currencies and demand decline. Excluding the payment of this fine, the operating cash flow for the Group rose to CHF 535 million based on a high cash conversion driven by the execution of the performance measures.

1.1.1. Clariant’s 2020 robust results due to its focused specialty chemicals portfolio and execution of performance programs

In 2020, continuing operations sales decreased by 5% in local currency and by 12% in Swiss francs to CHF 3.860 billion (2019: CHF 4.399 billion). The sales development was underpinned by 7% lower volumes and by 2% higher prices.

001 SALES BY REGION in CHF m

¹ Middle East & Africa

002 GLOBAL COST DISTRIBUTION

¹ LC = Local currency

Catalysis reported slight sales growth of 1% in local currency, reflecting a sequential improvement throughout 2020 after a slow start in the first quarter. Resilient Petrochemicals sales and a significantly increased contribution from emission-control catalysts in India contributed positively. Excluding the feeble Aviation business in the first and fourth quarter, Care Chemicals sales reflected a positive development (reported –5%). The 8% sales decrease in Natural Resources is attributable in particular to lower volumes in oil and in the industrial applications amid softer demand during the COVID-19 pandemic.

1.1.2. Resilient EBITDA development throughout 2020

In an unprecedentedly weak environment marked by COVID-19, oil oversupply, and adverse currency volatility, the full year 2020 results exhibited a notable robustness. The 15.0% EBITDA margin in full year 2020 was slightly above the nine-month 2020 average of 14.8%, as anticipated. These results therefore clearly reflect the superiority of Clariant’s specialty portfolio as well as the effectiveness of Clariant’s business continuity programs and performance measures.

Full year 2020 continuing operations EBITDA increased 25% to reach CHF 578 million. Excluding the one-off CHF 231 million provision booked in the second quarter of 2019 for the European Commission competition law investigation the EBITDA decreased 16%.

The lower EBITDA primarily reflects volume declines in the three Business Areas, amplified by weakening currencies, with a 5% EBITDA contraction in Care Chemicals, followed by a 21% decrease in Catalysis and 29% in Natural Resources.

Correspondingly, the absolute EBITDA contraction resulted in an EBITDA margin decline to 15.0% from 15.7% (reported 10.5%) in the previous year when excluding the one-off CHF 231 million provision.

In Care Chemicals, profitability improved to 18.9% in 2020 from 17.6% in 2019 due to growth in Consumer Care and stringent margin and cost management. The EBITDA margin in Catalysis declined to 19.1% as a result of the less favorable product mix, particularly in the first and the fourth quarter, and the efficiency program provision. Natural Resources profitability weakened to 13.9% as a result of the challenging environment but was close to prior year on an underlying basis.

Clariant’s exceptional items for continuing operations in 2020 amounted to CHF 41 million (2019: CHF 279 million). Restructuring, impairment, and transaction-related costs (CHF 119 million) include restructuring expenses pertaining to its continuing operations in the amount of CHF 49 million, and transaction-related costs in the amount of CHF 59 million. Exceptional items include a gain from the disposal of activities not qualifying as discontinued operations of CHF 12 million (2019: CHF 2 million) as well as the partial reversal of the CHF 231 million provision booked for the European Commission competition law investigation in the amount of CHF 55 million.

In 2020, the continuing operations operating income (EBIT) increased to CHF 298 million (2019: CHF 165 million, CHF 396 million, excluding the CHF 231 million provision).

The net result for the total Group increased to CHF 799 million from CHF 38 million in 2019. The gain on the disposal of the Masterbatches business of CHF 723 million as well as the partial reversal of CHF 55 million of the EU fine provision had a positive impact. The net result was negatively affected by the volume-driven weaker absolute profit, negative currency effects as well as the expenses for the efficiency and rightsizing programs. The expenses of these performance improvement programs in 2020 are approximately CHF 141 million, which is broken down as CHF 49 million (efficiency) in the continuing operations and CHF 92 million (incl. CHF 68 million for rightsizing and CHF 24 million for efficiency) in the discontinued operations.

1.1.3. Business Areas

1.1.3.1. Care Chemicals

For the full year 2020, sales in the Care Chemicals Business Area reflected a positive development, excluding the Aviation business effect amid COVID-19, yet reported a 5% decrease in local currency and declined by 12% in Swiss francs due to depreciating currencies versus the Swiss franc. Consumer Care sales increased in a high single-digit range, attributable to double-digit sales expansion in Crop Solutions and a solid progression in Personal Care as well as Home Care. Industrial Applications sales developed less favorably, primarily due to a severe drop in the Aviation business in the first and fourth quarter given the curtailed air traffic situation.

Sales in Latin America and the Middle East & Africa reflected strong progress in local currency, while sales in Asia also grew slightly. The developments in North America and Europe were negatively impacted by the particularly weak Aviation business.

The EBITDA margin for the full year 2020 increased to 18.9% from 17.6%. The weaker top-line development was countered by rigorous margin and cost measures while a more attractive product mix with proportionally more sales in Consumer Care also elevated the margin.

For developments and achievements in 2020 concerning Care Chemicals, see the chapter on »How Care Chemicals Creates Value.«

1.1.3.2. Catalysis

For the full year 2020, sales in the Catalysis Business Area progressed by 1% in local currency, whereas depreciating currencies led to a 5% decline in Swiss francs. Most areas were negatively influenced by the generally weak demand environment in the chemical industry, though sales in Petrochemicals were resilient. In the second half of 2020, the sales contribution from emission-control catalysts in India for use with motorized scooters increased significantly due to the COVID-19 pandemic.

The sales development benefited from increased demand in Asia, India in particular and China as well. Catalysis saw solid growth in Europe and Latin America, which compensated for declines in North America and the Middle East & Africa.

The EBITDA margin for the full year 2020 decreased to 19.1% from 22.9% as a result of the product mix effects in the first and the fourth quarter of 2020, as well as the efficiency program provision.

For developments and achievements in 2020 concerning Catalysis, see the chapter on »How Catalysis Creates Value«.

1.1.3.3. Natural Resources

For the full year 2020, sales in the Business Area Natural Resources decreased by 8% in local currency as a result of the challenging environment attributable to the oversupply in the oil market and the COVID-19 pandemic, and by 16% in Swiss francs due to depreciating currencies versus the Swiss franc.

The Oil and Mining Services business reported a low double-digit sales decline in local currency. Mining Solutions reflected positive expansion; however, the development in Oil Services and Refinery weakened more significantly. Sales in Functional Minerals decreased slightly in local currency as lower demand in the automotive sector negatively impacted Foundry. Sales in Additives decreased at a mid-single-digit rate in local currency as the business faced lower demand in automotive, coatings, and fiber markets amid the COVID-19 pandemic.

In 2020, the EBITDA margin declined to 13.9% from 16.3% as a result of lower volumes attributable to the weaker demand environment resulting from the COVID-19 pandemic and also the efficiency program provision, which was booked in the second quarter of 2020. When excluding exceptional items, the underlying margin was in the range of the previous year’s level due to the strong cost reduction in 2020.

For developments and achievements in 2020 concerning Natural Resources, see the chapter on »How Natural Resources Creates Value.«

1.1.3.4. Discontinued Operations

As part of Clariant’s portfolio optimization, the Business Units Pigments and Masterbatches and the Business Line Healthcare Packaging, which operated as a part of the Business Unit Masterbatches, have been reclassified to discontinued operations since 30 June 2019.

On 31 October 2019, Clariant sold its Healthcare Packaging business to Arsenal Capital Partners. The sale of Clariant’s Masterbatches business to Avient (formerly PolyOne) was completed on 1 July 2020.

In the full year 2020, sales in discontinued operations decreased by 32% in local currency and by 37% in Swiss francs. On a like-for-like basis, excluding Healthcare Packaging sales from the full year 2019 as well as the Masterbatches sales from the second half of 2019, sales in local currency decreased only slightly by 3% as a result of the difficult economic environment amid the COVID-19 pandemic.

For the full year 2020, the EBITDA margin was positively impacted by the gain of CHF 765 million (before taxes) on the disposal of the Masterbatches business in the third quarter of 2020.

1.2. Balance sheet, liability structure, liquidity, and cash flow

1.2.1. Continued solid balance sheet

As of 31 December 2020, total assets decreased to CHF 6.933 billion from CHF 7.979 billion at the end of 2019 mainly due to the disposal of the Business Unit Masterbatches and the subsequent distribution from equity in the amount of CHF 989 million.

Assets held for sale and liabilities directly associated with assets held for sale amounted to CHF 797 million and CHF 263 million, respectively, as of 31 December 2020. This mainly pertains to the Business Unit Pigments, which continues to be classified as discontinued operations. Additionally, one shareholding valued at equity was reclassified as »assets held for sale«.

Net debt decreased to CHF 1.040 billion at the end of December 2020, compared to CHF 1.372 billion at the end of 2019. This figure includes current and non-current financial debts, lease liabilities, cash and cash equivalents, short-term deposits and financial instruments with positive fair values reported under other current assets, including the part reported under liabilities directly associated with »assets held for sale.«

1.2.2. Long-term structured maturity profile secures solid liquidity structure

In the year 2020, Clariant’s financing structure persisted at a very sound level. The Group maintains a broadly diversified maturity structure of financial liabilities with a long-term focus reaching until 2028. This funding has been secured on favorable terms.

Non-current financial debts decreased to CHF 1.424 billion at the end of December 2020 from CHF 1.485 billion at the end of December 2019 and current financial debts decreased to CHF 398 million at the end of December 2020 from CHF 587 million at the end of December 2019. The decrease in non-current financial debts and in current financial debts are mainly due to the combined effect of several transactions and reclassifications. There were the repayments of the EUR 150 million certificates of indebtedness maturing on 17 April 2020 and of the EUR 212 million certificates of indebtedness maturing on 26 October 2020. New certificates of indebtedness totaling CHF 272 million were launched in May 2020. Certificates of indebtedness in the amount of EUR 55 million and USD 277 million will mature in 2021 and were therefore reclassified from non-current to current financial debts.

003 DEBT MATURITY PROFILE PER 31 DECEMBER 2020 in CHF m

¹ Financial derivatives with positive fair values reported under other current assets

1.2.3. Operating cash flow impacted by payment of European Commission fine

Cash flow from operating activities before changes in net working capital and provisions for 2020 increased to CHF 541 million, compared to CHF 534 million for 2019.

Net working capital, including provisions increased by CHF 57 million in 2020, compared to a decrease of CHF 96 million in 2019. Changes in provisions were marked by the payment of the fine to the European Commission in the amount of CHF 166 million in the fourth quarter of 2020.

Cash flow from operating activities decreased to CHF 369 million compared to CHF 509 million in the previous year. Excluding the CHF 166 million payment of the European Commission fine, the operating cash flow for the Group rose to CHF 535 million in 2020 based on a high cash conversion driven by the execution of the performance measures.

004 TOTAL GROUP CASH FLOW 2020 in CHF m

Cash flow from investing activities increased to CHF 1.083 billion (2020: CHF –254 million). Capital expenditures increased to CHF 288 million (2019: CHF 273 million). Free cash flow, which equates to operating cash flow after capital expenditures and investments in intangible assets, decreased to CHF 70 million (2019: CHF 220 million). Net cash flow after investing and financing activities was positive at CHF 99 million (2019: CHF –195 million).

1.3. Outlook

1.3.1. Focus on specialty portfolio and performance improvement to achieve above-market growth, higher profitability, and stronger cash generation in the mid-term

Clariant anticipates that the COVID-19 pandemic will still negatively impact sales, especially in Natural Resources, in the first quarter of 2021 versus the pre-COVID-19 comparable base in the first quarter of 2020. Despite rising feedstock prices, Clariant aims to defend its margin levels in the first quarter of 2021 versus the prior year and will continue to focus on the safety of its employees, support to its communities, business continuity to its customers, and stringent execution of its performance programs. This will be the fundament for taking the next step in 2021 to achieve above-market growth, higher profitability, and stronger cash generation in the mid-term.

Clariant is executing the five-pillar strategy by focusing on innovation, adding value with sustainability, repositioning the portfolio, intensifying growth – particularly in Asia and China – and improving performance. The Group is strengthening its Environmental, Social, and Governance ambitions in order to lead through sustainability and innovation. This becomes particularly evident in the increased ambition of CO₂ reduction from base year 2019 until 2030 by 40% for Scope 1 and 2. In addition, Clariant is introducing the CO₂ reduction by 14% for Scope 3 as a new target. In addition to these targets, Clariant is launching solutions to improve the CO₂ footprint of its customers (handprint), such as the sunliquid® investment. Clariant is committed to reducing climate change and contributing to the United Nations Sustainable Development Goals.

1.4. Stock market 2020

1.4.1. Share price development 2020

In 2020, Clariant’s share price development was largely impacted by general market trends, political events, and implications caused by the COVID-19 pandemic as well as corporate announcements. At the beginning of the year, Clariant’s share price gradually retreated from its monthly high of CHF 22.40 on 22 January to CHF 21.75 on 31 January following news about the outbreak of the fast-spreading novel COVID-19 virus in China.

On 12 February, the share price remained largely unchanged at CHF 22.55 after Clariant announced that Mr. Stephan Lynen will be appointed CFO as of 1 April. A day later, on 13 February, Clariant released the full year 2019 results and confirmed the midterm guidance. The results exceeded market expectations due to higher profitability in the Catalysis and Natural Resources Business Areas. Consequently, Clariant’s share price reacted positively and rose to CHF 23.50 on reporting day and shortly thereafter reached its highest level in 2020 of CHF 23.80 on 17 February. On 20 February, Clariant’s Board of Directors proposed Mr. Nader Ibrahim Alwehibi and Mr. Thilo Mannhardt for election to the Board of Directors at its Annual General Meeting. The share price remained largely unchanged that day at CHF 23.40. Beginning in mid-February, news about the spread of the COVID-19 virus outside China dampened the general market sentiment given the uncertainty regarding possible repercussions on the economy. As a result, Clariant’s share price fell to CHF 20.30 on 28 February in line with the trend in the chemical sector.

In March, the COVID-19 epidemic developed into a full global pandemic and economies around the world went into lockdown mode. Consequently, the share price fell to CHF 15.60 on 18 March the day Clariant’s Board of Directors announced the postponement of Clariant’s Annual General Meeting in accordance with the federal regulations for public meetings in Switzerland. In view of the worsening pandemic situation, Clariant’s share price declined continuously until 23 March to CHF 14.40, its lowest level in 2020.

In April, declining COVID-19 infection numbers in tandem with the financial aid programs from governments and central banks helped to stabilize the economy, and global stock markets started to recover. The Clariant share price reacted positively and increased during this period to reach CHF 18.85 on 29 April. The same day, Clariant announced its Annual General meeting will take place on 29 June 2020. The first quarter 2020 results, published on 30 April, missed market expectations due to lower sales in Care Chemicals and Catalysis, resulting in a share price decrease to CHF 17.90 on reporting day.

On 14 May, after Clariant’s Board of Directors confirmed the extraordinary distribution of CHF 3.00 upon completion of the Masterbatches divestment while proposing to withhold the distribution of the regular dividend, the share price dropped to CHF 16.45. In June, the Clariant share price fluctuated between CHF 17.80 and CHF 19.30, reflecting the expectations of economic recovery as countries gradually reopened from the lockdowns. On 29 June, Clariant’s virtual Annual General Meeting took place, in which all proposed agenda items and resolutions were approved. Clariant’s share price reacted positively and climbed to CHF 18.60 on the day.

On 1 July, the announcement of the completion of the sale of Clariant’s Masterbatches business led to an increase in the share price to CHF 20.00. As expected, on 6 July, the ex-dividend day for the extraordinary payment of CHF 3.00, the share price declined to CHF 17.65. Following the European Commission’s decision on 14 July to impose a fine of EUR 155.8 million as a result of its investigation into the ethylene purchasing market, Clariant’s share price remained largely unchanged, as a provision covering this issue had already been made in 2019. On July 30, the results for the first half of 2020 exceeded market expectations in Care Chemicals and Catalysis and led the peer group. The Clariant share price closed lower at CHF 17.70 on reporting day due to the weaker market sentiment in light of the COVID-19 pandemic situation. A broad market recovery in conjunction with recurring M&A speculations temporarily lifted the Clariant share price to CHF 19.15 on 18 August.

In September, the resurgence of the COVID-19 virus in large parts of Europe and the U.S. negatively impacted the general market sentiment. Consequently, Clariant’s share price dropped to CHF 18.05 on 25 September. The renewed implementation of lockdown measures as a reaction to the resurgence of COVID-19 infection numbers put pressure on the general market sentiment towards the end of October. On 29 October, the third quarter results came in above market expectations in Care Chemicals and Natural Resources; nevertheless, Clariant’s share price dropped to CHF 15.70 on reporting day but recovered again shortly thereafter.

In November, the stock markets advanced across the board, reflecting expectations for a broad market recovery following news on the progress in the development of potential COVID-19 vaccines. Clariant’s share price reacted positively and rose to CHF 18.00 on 16 November. On 25 November, Clariant announced its plans to rightsize regional organizations and Service Units in order to avoid remnant cost following the closing of its divestiture program. Clariant’s share price declined to CHF 18.10, tracking the global stock market.

On 9 December, Clariant appointed Conrad Keijzer as Chief Executive Officer, effective as of 1 January 2021. The share price reacted positively and ended the day at CHF 18.30. On 28 December, Clariant announced that SABIC submitted agenda items for Clariant’s 26th Annual General Meeting to be held on 7 April 2021. The Clariant shares ended the year at CHF 18.80, down on the year similar to many in its peer group.

Clariant has also been part of several well-known sustainability indexes such as the MSCI World ESG Leaders Index. Clariant’s inclusion for the eighth consecutive year in the reputable Dow Jones Sustainability Index, which benchmarks the sustainability performance of leading companies in environmental, social, and economic terms is a proof point of Clariant’s best in class sustainability achievements in these fields. In 2020, Clariant was awarded the SAM Bronze Class award for the fifth consecutive year for its sustainability performance. The repeated listings in further recognized sustainability indices, such as the SXI Switzerland Sustainability 25 Index, FTSE4Good Index Series, and Euronext Vigeo Europe 120 Index reflect Clariant’s distinguished achievements and commitment to value creation in sustainability and innovation.

005 CLARIANT SHARE PRICE DEVELOPMENT 3 JANUARY – 30 DECEMBER 2020 in CHF

1.4.2. Distribution

The Board of Directors recommends a regular distribution of CHF 0.70 per share to the Annual General Meeting based on the Group’s solid combined performance in 2019 and 2020. This proposal should not be interpreted as a recurring distribution as the proposed amount takes into consideration the Group’s performance of the past two fiscal years, the withholding of the ordinary dividend in 2020 as well as all shareholder commitments. The distribution is proposed to be made from a share capital decrease by way of a par value reduction.