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1st quarter of 2006: Clariant Delivers Good Sales Growth / Moderate Increase in Profitability

Published on 2006-05-09. Author : SpecialChem

MUTTENZ, Switzerland -- Clariant posted a solid performance in the first three months of the year, with organic growth increasing 6% in local currency terms and 11% in Swiss Franc terms versus the same period in 2005.

Good demand was seen across most businesses, while sales prices held at last year's level. Net income rose to CHF 94 million, from CHF 72 million, with the operating margin before exceptional items increasing to 7.2%, from 7.0%, aided by cost-cutting measures. Earnings continued to be affected by higher raw material, energy and logistics costs compared to the same period in 2005.

"Clariant has delivered satisfactory results," said Chief Executive Officer Jan Secher. "Strong sales growth together with an increase in the operating margin are very encouraging signs. Nevertheless, raw material costs have shifted to higher levels and accordingly I am placing top priority on increasing our ability to raise prices and further improving our operational efficiency."

Reinforcing Performance Improvements

The Clariant Transformation Program and the associated series of performance improvements made good progress in the period, with approximately CHF 60 million in cost reductions accomplished in the First Quarter. A total of CHF 250 million in savings are on track to be delivered for the Full Year 2006.

Mr. Secher said his focus over the coming months will be to reinforce the Transformation Program, move Clariant into a sustained process of continuous improvement and strengthen its marketing capabilities. Mr. Secher took over the chief executive role from Roland Loesser, who became Clariant's chairman on April 7. "Clariant is fundamentally in good shape and that is thanks to the excellent work Roland Loesser and his team accomplished in re-establishing a strong financial base, refocusing the portfolio and initiating numerous performance improvements," Mr. Secher said.

As reported last month, Clariant agreed to sell its Pharmaceutical Fine Chemicals business for a transaction value of CHF 110 million to TowerBrook Capital Partners. All assets and personnel will be transferred and the business managed on a stand-alone basis. The deal is expected to close in the second quarter, resulting in net cash proceeds of approximately CHF 40 million and a book loss of approximately CHF 80 million. The Pharmaceutical Fine Chemicals business was expected to contribute approximately CHF 250 million in sales and an operating profit in the range of CHF 13 to 18 million in 2006.

"Overall our portfolio is steadily shifting to one emphasizing color and surface effects with an increasing focus on value-added services," Mr. Secher said. "I am convinced we have excellent potential in these areas, enabling us to achieve our goal of becoming the world's leading specialty chemicals company."

Successful Bond Issue

The company also successfully entered the European Debt Capital Markets for the first time with the launch of a seven-year EUR 600 million Eurobond. The issue met a positive reception with investors and set a benchmark for Clariant, attracting a broad and diverse investor base. This step has allowed the company to improve its debt maturity profile, optimize long-term financing costs and ensure its strong financial position.

Good Growth Across All Divisions

All five divisions experienced good growth across most of their businesses, benefiting from the healthy state of the global economy.

Performance was notably robust in Masterbatches, where sales increased by 10%, boosted by strong demand from the plastics industry and recovery in U.S. markets.

Textile, Leather & Paper Chemicals posted moderate growth, with mixed developments across its businesses. In the paper area, sales of optical brighteners were excellent.

Pigments & Additives had a strong quarter, with substantial increases in pigments and good sales for additives, including recently launched ranges of waxes and flame retardants.

Functional Chemicals performed positively, with personal care chemicals and oilfield services recording strong growth, while the crop protection area was weaker, in line with the agro industry.

In Life Science Chemicals, good demand was seen in Pharma as well as glyoxal and glyoxalic derivatives.

Looking at the regional picture, the Americas posted the strongest increase, with organic growth of 5% overall and 9% specifically in the United States. Asia grew by 3%, driven by a 13% rise in China, while Europe was up 6%, in which Germany posted organic growth of 6%.

Positive Outlook for Remainder of 2006

"Most signs point to a satisfactory rest of 2006," Mr. Secher said. "We expect strong results coming through from the performance improvements already in place. We should be able to largely offset higher raw material costs by increasing prices, further optimizing our sourcing and improving our operational efficiency."

Taking into account a broadly stable macro-economic environment, the company expects on a comparable basis for the full-year: Good sales growth in local currency terms; a total of CHF 250 million francs in cost base reductions; a higher EBIT margin; an improvement of at least CHF 120 million in operating income before exceptional items, and excellent growth in net income .

Source: Clariant


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