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Clariant Posts Higher Net Income For 2005 / Positive Outlook for 2006

Published on 2006-03-01. Author : SpecialChem

MUTTENZ, Switzerland -- Clariant posted modest growth for the full year 2005, with sales totaling CHF 8.181 billion on a like-for-like basis, up 3% in Swiss francs and 1% in local currency terms compared to a strong 2004. Selling prices were increased on average by 1%.

The operating margin before exceptional items and amortization of goodwill declined to 6.3% from 7.6% a year earlier due to continued high costs of raw materials, energy and transportation. Operating income was 28% lower, at CHF 368 million because of higher Transformation Program costs than a year earlier -- as anticipated -- including an impairment charge in the Pharmaceutical Fine Chemical business.

Net income rose 29% to CHF 192 million, driven by lower interest charges, currency gains and lower taxes.

"We have taken tough measures in 2005 to put Clariant on a strong footing," said Chief Executive Roland Loesser. "The whole of 2005 was marked by the intense implementation of our Transformation Program, which resulted in several charges in the Fourth Quarter that lowered the results," Mr. Loesser said. "The measures now in place are positively affecting the company across-the-board."

The Transformation Program initiatives achieved a total of CHF 310 million in savings in 2005. Raw material prices, however, rose on average by 8 percent during the period. "The benefits are already present throughout Clariant, but the savings are masked by higher costs linked to the relatively high oil price," Mr. Loesser said. "We expect to see the benefits of the Transformation Program becoming increasingly apparent in 2006."

Fourth Quarter: Solid Growth, Further Restructuring Initiatives

In the Fourth Quarter, sales on a like-for-like basis grew 8% in Swiss francs and 2% in local currency terms, to CHF 2.087 billion compared to the same period a year earlier.

Operating income before exceptional items and amortization of goodwill declined 23% to CHF 89 million. The result was diminished by higher raw material costs -- which were approximately 6% higher -- and by the implementation of a new supply chain management system, resulting in higher non-recurring idle facility costs and higher other one-time expenses than in the same period of 2004, totalling approximately CHF 25 million. The company recorded an impairment charge in the Fourth Quarter of CHF 55 million in its Pharma business, as part of the Transformation Program.

As announced in December, the company prepaid its syndicated term loans. This move simplified the debt liability structure, increased issuing flexibility and reduced interest costs. Retiring this debt early incurred total one-time costs of CHF 30 million, down from the CHF 70 million estimate given on December 20th.

Several Divisions Launch Successful Products

For the Full Year 2005, most business lines achieved price increases. All divisions posted growth except for Life Science Chemicals. Functional Chemicals saw very strong demand throughout the year across all business lines and introduced liquid Texcare® detergents, a range of color-care chemicals that have been well received by the market. The Pigments & Additives Division saw good demand and was able to successfully launch the Exolit® range of halogen-free, environmentally friendly flame-retardants and the Licocene® range of high performance waxes for tailored applications.

The Masterbatches Division grew in challenging market conditions and successfully rolled out several ColorWorks™ design centers globally. Textile Leather & Paper Chemicals saw higher demand across all businesses with good developments in specialty dyes and new optical brighteners. Leather continued to face a market saturated by a strong 2004. Life Science Chemicals continued to experience very difficult market conditions in a year that included the sale of Clariant (Acetyl Building Blocks) GmbH & Co. KG (CABB) and the aforementioned impairment of the Pharma business.

Research and Development Further Strengthened

In the areas of coatings and new materials the company signed in the Third Quarter a strategic cooperation agreement with the U.S. group Starfire Systems Inc. to produce nano-structured surfaces for the automobile, aviation and electronics industries. Clariant recently purchased KiON Corporation, also of the U.S., which is the first company worldwide to sell Polysilazanes coatings that can be used for easy-to-clean, anti-corrosion and anti-scratch surfaces.

Key Appointments In Place

As announced at the end of last year, the Board of Directors made several key leadership appointments, including designating Mr. Loesser as new chairman, Jan Secher as new chief executive and appointing Patrick Jany chief financial officer. Mr. Loesser will assume his new role following the Annual General Meeting (AGM) on April 7th, taking over from the current chairman, Robert Raeber. Mr. Secher has been a member of Clariant’s Management Board since January 1st and will become chief executive after the AGM. Mr. Jany has been CFO since the beginning of the year.

The Board has also proposed Dr. Peter Chen, chemistry professor at the Swiss Federal Institute of Technology (ETH) in Zurich to replace board member Professor Dieter Seebach, who is due to retire. Dr. Chen, 45, is an expert in Physical Organic Chemistry and a U.S. citizen.

Clariant’s Board of Directors will propose at the AGM a payout of CHF 0.25 per share through a reduction of the nominal value of the shares to CHF 4.50, from CHF 4.75.

Positive Outlook for 2006

"All signs point to a satisfactory year ahead, which we expect will be highlighted by strong results coming through from the performance improvements put in place in 2005," Mr. Loesser said. "We do not anticipate any further negative effects from increases in raw material prices for 2006," he said.

"We are committed to driving better results through the successful implementation of the Transformation Program and beyond, taking out further costs and creating a company that is built on continuous improvement," Mr. Loesser said. "A lot of hard work is still ahead of us and we are looking forward to the challenge."

Assuming a broadly stable macro-economic environment, the company expects good growth in local currency terms, a further CHF 250 million francs in cost base reductions and an improvement of at least CHF 120 million of operating income before exceptional items and excellent growth in net income for the full year 2006.

Source: Clariant


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