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Clariant Income Higher Despite Weak Economy

Published on 2002-08-23. Author : SpecialChem

Muttenz/Switzerland, August 22, 2002 - In the first six months of 2002, Clariant lifted net income by 18 percent compared with the first half of the previous year on a like-for-like basis. Sales in local currencies (LC) rose slightly (+1%) amidst sluggish economic trends. The restructuring efforts have therefore already paid off for the various divisions. Net debt was reduced by a further CHF 204 million in the first six months of the year. Personnel costs fell by 11 percent. Free cash flow increased significantly. Clariant remains optimistic that it can achieve three goals for the full year: a better operating result, higher net income and a reduction in net debt below CHF 4 billion.

Various special effects from 2001 were included to ensure better comparability of the key ratios: disposal of the PVA/PVB business, sale of the Cassella-Offenbach plant and of the stake in Harlow Chemicals Company Ltd (UK) plus a special amortization of goodwill in the first half of 2001. The data represent the results from ongoing businesses.

Sales rose by a gratifying 6% to CHF 4839 million compared with the weak second half of 2001 (CHF 4575 million). Compared with the first half of 2001, however, they fell by 5% in Swiss franc terms. The decline was due mainly to the impact of currency fluctuation (-5.6%). The decrease in some prices (-2.3%) was more than offset by the marked increase in sales volume (+3.2%). On balance, sales thus rose by just under 1% in local currencies.

The EBITA margin (8.6%) recovered in the first half of 2002 compared with the second half of 2001 (3.6%) and is now back at the same level as in the year-back period (8.6%). Compared with the first half of 2001, EBITA declined 4% to CHF 415 million (+2% in LC) on a like-for- like basis. A major factor in this decrease was a provision made for the delay in bringing a plant of the Functional Chemicals division on stream.

Currency fluctuations on basis of EBITA (Translation) amounted to CHF 28 million. Relatively speaking, Clariant's sales are in line with its costs in the various regions. For about 85% of all business, sales are generated in those regions where manufacturing costs are incurred. The European Monetary Union, for instance, accounts for 42% of sales and 50% of costs. 31% of sales are made in US dollars, compared with 25% of all costs. In the other regions, the relationship between sales and costs is even more balanced.

Free cash flow increased by CHF 87 million to CHF 167 million. The reasons for this 109% increase were lower investments on the one hand and one-time earnings from dividends on the other hand.

Net debt was reduced further and came to CHF 4078 million at the end of the first half (-32% from June 2000, -23% from June 2001), which is close to the target defined by Clariant for 2002 of bringing debt to below CHF 4 billion.

In Germany the extensive restructuring program has now been completed. Greater efficiency and durably lower costs were reflected in the first half of 2002 in higher margins. The negative effect of falling prices was more than offset by strong volume growth that was in excess of 5%. The overall result was sales growth of 1.6%, which was well above the average for the German chemical industry.

The optimization program evolved on the whole as planned and is making a positive contribution to the company's success. Globally, 60% of the program has already been implemented. In the current year, the cost-saving potential should amount to CHF 150 million, a figure that is set to grow to CHF 250 million next year.

Clariant will continue to focus on innovation-driven organic growth, on cash flow management and on cost savings. Even if the economic environment should remain weak and no recovery were to occur in the second half of the year, Clariant anticipates that for the full year operating profit and net income can be improved and net debt can be reduced to under CHF 4 billion.

Results by division

Textile, Leather & Paper Chemicals

In the Textile, Leather and Paper Chemicals division, sales in local currencies fell from CHF 1550 million to CHF 1428 million. The EBITDA margin rose from 11.7% to 14.1% owing to an optimized cost structure and lower commodity prices. The operational performance in Asia and Latin America was good, confirming our strategy of "following the markets". In the United States, business was stable at a low level, whereas in Europe the picture was mixed. On balance, the division improved its result amidst falling volumes.

Pigments & Additives

Sales in local currencies in the Pigments and Additives division were 0.2% above the year-back level, because the significant increase in sales volume was only just able to offset the downward pressure on prices. The division performed very well particularly in Asia and Latin America. The absolute result declined by 6% in Swiss francs, but the margin fortunately remained unaffected.

Masterbatches

The Masterbatches division lifted its sales in local currencies by 2.1%. The improved result was helped by stringent cost management, good capacity utilization and favorable commodity prices. Demand was very good in Asia and good in the US and Europe (with the exception of the UK, Benelux and Germany), while margins increased substantially.

Functional Chemicals

The sales in the Functional Chemicals division rose by 2.8% in local currencies. On the whole, the division reported good operating results in all its business units. The plants for surfactants, methyl cellulose and for ethoxylation were running at high capacity. The division brought new facilities for ethoxylation and for the Personal Care sector successfully on stream. Business in the United States did well, but EBITDA was weighed down by a significant provision for the delay in bringing a facility for bleach activators on stream. The result would have been higher without this provision.

Life Science & Electronic Chemicals

Sales in the Life Science and Electronic Chemicals division improved by 4.2% in local currencies. The Pharma sector has begun to shift the focus of its activities to intermediates that are at an advanced stage of synthesis ("late stage intermediates"). The Electronic Materials business unit reported marked growth in Asia and slight but steady improvement in the United States. The far-reaching restructuring of the division is proceeding according to plan. Important landmarks in the first half of 2002 included a new management team, a new organization and an extensive program to increase efficiency. Evaluation of the product portfolio and of several of the division's plants will be completed by the end of the year. One site has already been sold, and negotiations are underway for four others.

Clariant - Exactly your chemistry.

Clariant is a global leader in the production of fine and specialty chemicals with some 29,000 employees and annual sales of about CHF 10 billion. The Group operates worldwide with more than 100 companies on five continents. It is domiciled and headquartered in Muttenz near Basel/Switzerland. The products and services of the five divisions Textile, Leather & Paper Chemicals, Pigments & Additives, Masterbatches, Functional Chemicals and Life Science & Electronic Chemicals are based on innovative specialty chemicals. These play a decisive role in the clients' manufacturing processes, and upgrade their end-products. www.clariant.com


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