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Clariant Posts Satisfactory First Half Results Sales Momentum Regained in Second Quarter

Published on 2005-08-04. Author : SpecialChem

MUTTENZ, Switzerland -- Clariant International Ltd.:

  • Sales up 3% in local currency terms in the second quarter
  • Further positive pricing developments
  • High raw material costs continued to reduce margins
  • Transformation Program now fully in implementation phase
  • Net income up 30% to CHF 146 million

Clariant achieved satisfactory first half results, with momentum picking up in the second quarter. Sales were up 3% in local currency terms in the second quarter compared to the same period in 2004.

Net income rose 30% to CHF 146 million compared to CHF 112 million on a like-for-like basis compared to the first half of 2004. Additional price increases were achieved across all divisions and in most businesses, although the positive impact was more than offset by the negative effect of higher raw material costs.

"In the context of the prevailing market conditions, this was a satisfactory first half," said Chief Executive Roland Loesser. "Particularly encouraging was the stronger second quarter, which we expect to be able to sustain. The main area of uncertainty, of course, is the current volatility of raw material prices."

Gross profit declined to CHF 1.252 billion, from CHF 1.342 million a year earlier, affected by higher raw material costs. Operating income before exceptional items and amortization of goodwill on a like-for-like basis declined to CHF 282 million from CHF 358 million because of the aforementioned higher raw material prices and negative currency effects, which were partly offset by cost-cutting measures. Operating income fell to CHF 223 million, from CHF 292 million.

The majority of businesses that were able to raise prices above group average were in the Functional Chemicals, Textile, Leather & Paper Chemicals and Masterbatches divisions. Growth momentum was notable across all regions, with performance especially strong in Germany, Clariant's largest market.

Performance Improvements in Implementation Phase

Clariant's Performance Improvement Program (CPIP) has now reached its full implementation phase, meaning that all projects are operational and delivering positive results. The program is creating efficiencies throughout the organization and cutting costs. There are now some 5,500 measures identified, of which more than half are in process.

The program is on-track to create savings of more than 800 CHF million by the end of 2007. Cost savings of CHF 70 million were delivered in the second quarter on top of CHF 50 million in the first quarter, bringing the total savings generated by the program so far to CHF 270 million. These savings are being achieved amid overall sales growth.

The number of employees in the Clariant workforce has been reduced by 8% since the program began 18 months ago. This excludes employees transferred because of asset sales. The workforce now stands at some 24,000 at the end of the first half.

As an example of the complexity reducing benefits of CPIP, the number of warehouses used by the company has been sharply reduced worldwide, by more than half in Europe and by about one-fifth in Asia.

"The performance improvements are now a permanent part of Clariant and positively impacting every aspect of our business," Mr. Loesser said. "The next stage in our transformation is continually improving our processes and lifting our profitability."

Part of Clariant's transformation includes focusing on businesses where service and innovation are strong components of the business model and selling those that do not fit the profile. To that end, the company closed the sale - first announced in June - of Clariant (Acetyl Building Blocks) GmbH & Co. KG to the Gilde Buy-Out Fund for CHF 74 million on July 29.

Breakthrough in DVD Innovation

There were several positive developments during the first half of the year in areas where Clariant is a leader in innovation and service. Notably, Clariant achieved positive results in a joint venture with Toshiba Corporation to develop a new generation of high capacity DVDs. The breakthrough enables the manufacture of DVDs using organic dye-based dual layer with a storage capacity of 30GB.

Clariant also developed several innovative products in the functional textile area, including treatments that improve resistance to wind, odors and creasing. A further application using nano-particles is able to create extremely soft textiles. Tiny particles are embedded deep in the fabric and the hydrophylic properties of the application also create a comfortable feeling on the skin.

In addition, the company has strengthened its world-leading position in multi-functional coatings based on polysilazanes, in particular in ultra-thin coatings. Applications include the creation of coatings resistant to scratching and corrosion as well as coatings that are easy to clean. The coatings have been successfully applied, for example, to silver to prevent tarnishing.

Clariant Confirms Positive Outlook

Mr. Loesser confirmed the outlook for 2005 (first given in March), expecting solid growth in sales in local currency terms and improved operating margins before exceptional items.

Prices for the principal raw materials that Clariant uses are expected to decline over the remainder of the year, however the volatility of oil prices make accurate forecasting difficult. The negative effect of the relatively high raw material prices should be more than offset by organic sales growth, further price increases and the positive effect of performance improvements initiated over the past 18 months.

Clariant expects to reduce its cost base by some CHF 300 million compared to 2004. All factors considered, the company anticipates higher net income in 2005.

"Clariant is well underway in creating a leaner and more efficient company and I am confident this will ensure we achieve our goal of being among the leaders in the specialty chemical sector," Mr. Loesser said.

Clariant - Exactly your chemistry.

Clariant is a global leader in the field of specialty chemicals. Strong business relationships, commitment to outstanding service and wide-ranging application know-how make Clariant a preferred partner for its customers.

Clariant, which is represented on five continents with over 100 group companies, employs about 24,000 people. Headquartered in Muttenz near Basel, it generated sales of around CHF 8.5 billion in 2004.

Clariant's businesses are organized in five divisions: Textile, Leather & Paper Chemicals, Pigments & Additives, Functional Chemicals, Life Science Chemicals and Masterbatches.

Clariant is committed to sustainable growth springing from its own innovative strength. Clariant's innovative products play a key role in its customers' manufacturing and treatment processes or else add value to their end products. The company's success is based on the know-how of its people and their ability to identify new customer needs at an early stage and to work together with customers to develop innovative, efficient solutions.

Source: Clariant

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