Value Creation at the Group Level
Clariant not only concluded its announced divestment program, but also generated markedly higher organic sales growth with a profitability level in 2021 well above 2019 pre-COVID-19 pandemic levels. The Company was able to successfully manage the challenges from unprecedented developments in raw materials, as well as energy and logistics cost. These results positively reflect the attractiveness of the Group’s higher-value specialty portfolio and provide tangible proof of the continued effective execution of cost discipline and the efficiency improvement programs.
In the full year 2021, continuing operations sales were CHF 4 372 billion, compared to CHF 3 860 billion in the full year 2020. This corresponds to an increase of 15 % in local currency and 13 % in Swiss francs. Both pricing and volume growth had a positive impact on the Group of 8 % and 7 %, respectively.
In the full year 2021, sales rose in almost all geographic regions. The developments in Europe, the Middle East and Africa, Asia-Pacific, including China, and Latin America were particularly robust with sales expansion in the range of 16 % to 20 %. The sales gap in North America continued to dwindle, and the region ended the year unchanged versus the previous year levels due to the ongoing recovery in Oil and Mining Services.
Care Chemicals sales rose by 22 % in local currency in the full year 2021 with a double-digit organic sales increase in both Industrial Applications and Consumer Care. In Catalysis, the top-line was up by 5 % in local currency, supported by Syngas, Specialty Catalysts, and emission-control catalyst demand. Oil and Mining Services, Functional Minerals, and particularly Additives all contributed to the 14 % local currency sales growth reported in Natural Resources.
The continuing operations EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. increased to CHF 708 million as the Group improved profitability on the back of notable sales expansion, operating leverage together with the continued successful pricing measures largely offsetting raw material price increases of approximately 21 %, and the execution of the performance improvement programs, which resulted in additional cost savings of CHF 41 million in the full year 2021. Clariant recognized a CHF 33 million net VAT-related credit over the full year 2021, which was offset by exceptional cost, largely related to the performance improvement programs. The EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin increased to 16.2 % from 15.5 % in the previous year due to the profitability improvement in Care Chemicals and Natural Resources and the continued cost discipline across the Group.
In 2021, the total Group net result was CHF 373 million versus CHF 825 million in the previous year, CHF 102 million excluding the gain on the MasterbatchesMasterbatchesThese are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic. disposals. The 2021 net result was positively affected by the strong business performance of the continuing operations and the corresponding margin improvement. In 2020, the gain on the disposal of the MasterbatchesMasterbatchesThese are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic. business of CHF 723 million and the partial reversal of CHF 50 million of the EU fine provision had an extraordinary positive impact on the result.
Operating cash flow for the total Group was CHF 363 million, just slightly below the previous year level of CHF 369 million, despite a growth-driven cash outflow in net working capital of CHF 221 million, which resulted from the marked sales increase as well as supply chain uncertainties. The restructuring cash payments of CHF 38 million also negatively impacted the cash flow development.
Net debt for the total Group increased to CHF 1 535 billion versus CHF 1 040 billion recorded at the end of 2020. This development is attributable to a growth-driven increase in working capital, higher investments into property, plant, and equipment as well as acquisitions.
The Board of Directors recommends a regular distribution of CHF 0.40 per share to the Annual General Meeting on 24 June 2022, based on the strong performance in 2021. This distribution represents an attractive pay-out ratio of 49 % of continuing operations earnings per share (EPS: CHF 0.81) and is proposed to be made through capital reduction by way of par value reduction.
Clariant aims to grow above the market to achieve higher profitability through sustainability and innovation. The Group has concluded its significant portfolio transformation program by divesting Healthcare Packaging in 2019, MasterbatchesMasterbatchesThese are plastic additives in the form of granules with dyestuffs or other additives used to dye or alter the properties of natural plastic. in 2020, and PigmentsPigmentsPigments are substances used for coloring; they are used in a technical manner, for example in the manufacture of dyes, varnishes, and plastics. In 2020, Clariant launched the divestment process of its Pigments business, which was completed on 3 January 2022. in January of 2022. Clariant is now truly a specialty chemical company.
For the full year 2022, Clariant expects strong growth in local currency for the Group driven by a particularly strong first half of 2022. The current high level of uncertainty as a result of the geopolitical conflicts, suspension of business in Russia and the resurgence of COVID-19 in China are expected to impact global economic growth and consumer demand in the second half of the year. Clariant expects the high inflationary environment with regard to raw material, energy and logistic cost as well as supply chain challenges to persist in the second half of 2022. Clariant aims to improve its year-on-year Group EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin levels via solid volume growth, continued cost discipline, and pricing in an overall increasingly challenging economic environment.
Q&A
Stephan Lynen
Chief Financial Officer (CFO)
At the recent Capital Markets Day, Clariant announced a new purpose as well as new financial targets. What is the relationship between this purpose and Clariant’s financial performance?
Performance builds on the execution of our purpose-led strategy. Our purpose, »Greater chemistry – between people and planet,« defines our strategy: We focus on our customers, deliver innovative chemistry, expand our leading position in sustainability, and engage our people. The execution of this strategy in combination with our specialty portfolio will enable us to meet our new 2025 financial targets.
Can Clariant achieve these targets even under unfavorable economic conditions?
Our core portfolio has again proven its specialty DNA by the strong performance improvement in 2021. This focused, high-quality portfolio is positioned in attractive, growing end markets. That is why it is more resilient – and less volatile – compared to our pretransformation portfolio. Our investments in sustainability, innovation, and regions like China will further support sales growth. I am convinced that this growth and the savings from the execution of our performance program will assure the successful execution to reach these targets.
And how are shareholders going to profit from this course of action?
At Clariant, we are committed to increasing value for our shareholders. Thanks to our return to revenue growth, the corresponding higher operating margin, lower nonoperating cost, and improving capital return, we were able to achieve a strong improvement in return on invested capital in 2021. The Management team is committed to further increasing this return on invested capital. This is how Clariant can create value and provide superior capital returns in the form of reliable, sustainably growing dividends.