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Report | September 2017

Huntsman-Clariant merger on track

Huntsman-Clariant’s position as a leading global speciality chemicals company will further benefit from complementary R&D and technological expertise.

Clariant and Huntsman Corporation presented a first update on the planned merger of equals to keep their shareholders informed. The preparations to create HuntsmanClariant, a leading global speciality chemicals company, are showing continued strong progress and are proceeding as planned with an unchanged closing targeted for December 2017/January 2018.

Clariant and Huntsman have agreed on a joint strategic direction for near- and long-term value creation based on continued focus on higher growth and higher margin businesses, expansion of existing strong downstream presence, reaping benefits of complementary product portfolios and breadth of reach to deliver an additional organic sales revenue growth of around 2 per cent per annum at About 20 per cent EBITDA margin and delivering synergies in excess of $400 million as well as the $25 million tax savings.

The merger brings together two strong speciality chemicals businesses with similar EBITDA margins at 17.2 per cent (including synergies). It will reap complementarity benefits between Performance Products, Care Chemicals and Natural Resources, which represent approximately 35 per cent of HuntsmanClariant combined sales and hold a comprehensive surfactants portfolio in high-end niche markets globally. It will have meaningful opportunities for growth including cross-selling potential and new product applications. The complementary assets and geographic fit provide significant commercial opportunities and more global reach within established routes to market. Furthermore, HuntsmanClariant will take advantage of its broad asset base while continuing to move downstream into specialties and more differentiated applications. As a result of these complementary product portfolios and structures, additional organic sales revenues of around 2 per cent per annum at approximately 20 per cent EBITDA margin have been identified.

Huntsman-Clariant’s position as a leading global speciality chemicals company will further benefit from complementary R&D and technological expertise as well as shared knowledge in sustainability and cross-fertilisation in innovation and technology capabilities.

The portfolio management principles and capital allocation plans of the new company are fully aligned. There is a clear joint understanding of the combined company’s future core segments and the direct majority of investments will be directed to growth areas and growth regions. The current downstream presence will be expanded by targeting formulation- and application-based segment niches as well as high-end composites, bespoke polyurethane (PU) systems, and costumer oriented and co-developed products. The existing presence in the adaptive chemical methylene diphenyl diisocyanate (MDI) and in chemical building blocks such as ethylene oxide (EO) and propylene oxide (PO) is to be further advanced in downstream urethane systems as well as downstream applications such as surfactants. The portfolio will be simplified. Complexity will be reduced while utilising significant strategic flexibility to consider value creating add-on acquisitions and divestments. Plastics and coatings and textile effects will be managed for cash and turnaround while all other businesses will be managed for growth and margins.

The project team is progressing very well in terms of joint synergy implementation and has high confidence in meeting the synergy target in excess of $400 million as well as the $25 million tax saving target. Key regulatory filings are submitted, including in the US, EU and China. No regulatory roadblocks are expected to closing the deal. A preliminary CFIUS filing has also been submitted.

The joint senior management team is committed to making HuntsmanClariant a success from day 1. It is a unique opportunity to combine the best of two cultures – Huntsman’s entrepreneurship and efficiency and Clariant’s innovation and business excellence. Both CEOs and executive teams are fully involved in post-merger integration planning and the great working spirit confirms the cultural fit between both organisations.

All in all, the merger will create value for all stakeholders via a stronger balance sheet, higher cash flow, increased stakeholder returns and lower financing costs and will allocate capital for organic growth and value creating portfolio management.

The Venator standalone debt financing of $750 million is secured. The IPO roadshow is now underway. It will provide significant de-leveraging of HuntsmanClariant balance sheet.

Clariant sales rise by 9% to CHF 3.132 billion

“Clariant delivered excellent top-line growth and further expansion in profitability in the first half of the year,” said CEO Hariolf Kottmann. “Our good business performance was primarily achieved by the recovery in Catalysis and the ongoing impact of the differentiated steering in Plastics & Coatings. For 2017, we are confident that we will achieve our targets, i.e. growth in local currency, progression in operating cash flow, absolute EBITDA and EBITDA margin before exceptional items in spite of a temporarily weaker cash flow in the first half.”

Clariant, a world leader in specialty chemicals, today announced first half 2017 sales of CHF 3.132 billion compared to CHF 2.899 billion in 2016. This corresponds to 9 per cent growth in local currency driven by double-digit expansion in Catalysis and Natural Resources. Organic growth amounted to 5 per cent, driven by higher volumes.

Growth was most pronounced in Europe, Asia and North America. Sales in Europe rose by 8 per cent while the 11 per cent advance in Asia was supported by the strong sales development in China. Sales in North America increased by 14 per cent. Latin American sales were 3 per cent lower against a strong comparable base and also reflect the macroeconomic environment which remains challenging.

Care Chemicals and Catalysis both reported strong expansion. Sales in Care Chemicals rose by 8 per cent in local currency helped in particular by the Industrial Application business. Catalysis sales improved by 11 per cent, supported by organic growth of 6 per cent.

Natural Resources sales soared by 19 per cent, lifted mainly by the Kel-Tech and X-Chem acquisitions in North America in 2016. Underlying sales in Natural Resources improved likewise, driven by the solid growth in Functional Minerals. In Plastics & Coatings, sales grew by 4 per cent with continuing strong sales expansion in Additives as well as in China.

EBITDA before exceptional items increased by 9 per cent in Swiss francs and reached CHF 482 million, compared to CHF 444 million in the previous year. The absolute profitability improvement was mainly attributable to the positive developments in catalysis and plastics and coatings.

The corresponding 15.4 per cent EBITDA margin before exceptional items increased due to the continued realisation of benefits from the differentiated steering in Plastics & Coatings and the improvement in Catalysis partly supported by the full consolidation of the Süd-Chemie India Pvt Ltd. joint venture.

Net income soared by 20 per cent in Swiss francs to CHF 153 million from CHF 128 million in the previous year. This expansion was supported by the improvement in absolute EBITDA before exceptional items as well as lower finance costs.

Operating cash flow decreased to CHF 116 million against a strong comparable base of CHF 208 million in the previous year. Good growth dynamics in June and the expected favourable demand in the coming quarters led to higher net working capital. This factor together with changes in other current assets and liabilities offset the positive influence of the EBITDA improvement.

Net debt increased slightly to CHF 1.584 billion from CHF 1.540 billion recorded at year-end 2016. This development reflects the usual seasonal increase seen in the first half of the year.

In the second quarter of 2017, sales rose by 8 per cent in local currency to CHF 1.530 billion. Underlying sales growth excluding acquisition effects and the full consolidation of the Süd-Chemie India Pvt Ltd. joint venture was 4 per cent in local currency. This progress was driven by higher volumes.

EBITDA before exceptional items rose by 8 per cent in Swiss francs to CHF 232 million primarily lifted by the strong contribution from catalysis and plastics and coatings, which could more than offset the temporarily lower margins in care chemicals and natural resources. As a result, the EBITDA margin before exceptional items on Group level increased further to 15.2 per cent from 15.1 per cent in the previous year.

For 2017, in spite of a continued challenging economic environment, Clariant is confident to be able to achieve growth in local currency, as well as progression in operating cash flow, absolute EBITDA and EBITDA margin before exceptional items.

In the first half of 2017, sales in the Care Chemicals Business Area increased by 8 per cent in local currency and by 6 per cent in Swiss francs.

Most regions achieved very good sales growth. Asia, the Middle East & Africa and Europe rose with double-digit growth rates while North America was flat. Latin America showed a slightly negative sales evolution as the impact of the difficult economic environment became fully visible.

Consumer Care advanced with a mid single-digit growth rate despite a strong comparable base. The Industrial Application business also reported robust sales growth.

The EBITDA margin before exceptional items for the first half year decreased to 17.5 per cent from 19.7 per cent. The decline was due to the already communicated ramp up costs for new capacities as well as the maintenance shutdowns in various locations.

Sales in Care Chemicals increased by 8 per cent in local currency and by 5 per cent in Swiss francs. The good sales development was supported by the Industrial Application business and Crop Solutions.

Most regions continued to deliver good growth in local currency, especially in Asia where China and Southeast Asia performed in the high double-digits. Latin America was lower due to the more difficult macroeconomic environment and against a high comparable base in 2016.

The EBITDA margin before exceptional items declined to 16.6 per cent from 21.5 per cent in the same period last year. Profitability was temporarily negatively impacted by the ramp up costs. The anticipated maintenance shutdowns amounted to CHF 9 million and higher raw material costs also had a negative impact on margins due to a time lag in implementing corresponding price increases. This effect is expected to abate in the second half of 2017.

Clariant’s portfolio strength, innovation capability, global footprint and growing partnerships. Also, the full consolidation of Süd-Chemie India Pvt Ltd underlines its intensified focus on the attractive Asian market.

Functional Minerals reflected continued good sales growth in local currency, primarily supported by the edible oil purification and foundry business. The sales performance in the different regions remained solid. The Middle East & Africa in particular reported strong growth.

The EBITDA margin before exceptional items fell to 12.7 per cent against a particularly strong comparable base. The result was negatively influenced by weakness in Latin America coupled with some margin pressure and a softer demand in Refinery that was more pronounced in the second quarter due to an already weaker first quarter.

Functional Minerals expects to continue growing in emerging markets in particular while the industry dynamics influencing the Oil and Mining Services business are likely to remain unaltered in the short-term. In 2017, Oil and Mining Services will continue to focus on costs and technologies to improve customer efficiencies, and expects to extract synergies from its acquisitions.

Sales in the Plastics and Coatings Business Area increased by 4 per cent in local currency and by 3 per cent in Swiss francs in the first half of 2017.

In masterbatches, all regions showed strong sales growth apart from Latin America where sales were lower against a strong comparable base. The growth in masterbatches was primarily driven by Packaging.

Sales in the Plastics & Coatings Business Area stepped up by 1 per cent in local currency and in Swiss francs. In masterbatches, sales in Europe repeated the good performance already seen in the first quarter while demand in North America flattened year-on-year. Although solid sales growth in Asia was supported by China and Japan, overall Pigments sales declined slightly. Additives showed strong growth in all major regions.

In the second quarter, the EBITDA before exceptional items grew by 5 per cent in local currency to CHF 111 million despite a strong comparable base. Plastics & Coatings continues to develop solutions and products for the needs of its end markets.

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