Industry News

Clariant Reports Rise in Sales / Cash Flow Improves, Gross Margin Maintained

Published on 2006-08-07. Author : SpecialChem

MUTTENZ, Switzerland -- Clariant posted a rise in sales in the first half of 2006, with organic growth of 4% in local currency terms and 8% in Swiss franc terms compared with the first half of 2005.

A combination of higher costs for raw materials, energy and logistics as well as unchanged average selling prices weighed on results. Net income from continuing operations declined to CHF 109 million from CHF 144 million in the corresponding period last year mainly due to higher restructuring charges. Operating cash flow rose to CHF 53 million compared to a negative CHF 43 million in the first half of 2005.

Jan Secher, Chief Executive of Clariant said: "Our top-line growth is good and the majority of businesses are performing well, but overall profitability is unsatisfactory. The company has already made a lot of progress in our Transformation Program although there is much more work to be done. We have to increase our focus on implementation and execution to achieve our goal of strong and sustainable profitability."

Raw materials rose 1% year-on-year, while energy increased 17% over the same period. Nevertheless, the gross margin was maintained around last year's level, at 30.8%, partially benefiting from the Clariant Performance Improvement Program delivering cost savings across the Group of approximately CHF 130 million. The EBIT (earnings before interest and tax) margin before exceptional items declined to 6.8%, from 7.2%. This margin decrease was driven mainly by higher costs in two areas: selling, general and administrative expenses, which were incurred because of continued investment in improving the supply chain, and higher volumes.

Good Growth Across the Group

Solid demand drove good growth across most businesses. Masterbatches delivered excellent results, particularly in the United States. Pigments & Additives grew strongly in volumes and showed very good performance with increased demand across all business areas, especially plastics. Textile, Leather & Paper posted solid sales growth compared to the previous year with strong growth in paper and encouraging developments in leather and textiles.

Functional Chemicals achieved strong volumes, but results were affected by a significant downturn in the agro industry and unsatisfactory results for detergents. A reduction in the cost base in detergents was initiated during the Second Quarter, including the closure of a plant in Knapsack, Germany.

In the Life Science Chemicals Division, Specialty Fine Chemicals (SFC) continued to experience very difficult market conditions, particularly in the crop protection area. The company recently appointed an investment bank to explore strategic options for the SFC business unit.

Pharmaceutical Fine Chemicals, which is qualified during the period as discontinued operations recorded excellent growth, continuing the positive trend since the start of the year. The business was sold to TowerBrook Capital Partners, effective June 30.

Looking at the regional picture during the first half of the year, organic sales growth in Asia was 4%, including 14% in China. In the Americas, sales grew 5%, including 7% in the United States, while in Europe sales increased 3%, including 3% in Germany.

Sharper Focus

"Delivering shareholder value is and will remain our absolute priority, meaning that all of Clariant's activities are ultimately aimed at increasing return on invested capital," Mr. Secher said. "An important way for us to achieve this goal is to continue reducing costs on a permanent basis."

"Previous forecasts underestimated the persistence of high raw material prices, the amount of change required to transform Clariant as well as the rate we would be able to achieve that change," Mr. Secher added. "We are dedicated to fully delivering the potential of the Transformation Program, but more time is needed."

"Many measures to increase efficiency and productivity are already in place, but the speed at which the results are coming through is not yet satisfactory," Mr. Secher said. "We must strengthen the focus and drive harder to make sure that we have sufficient improvements on an ongoing basis." The company is currently engaged in a review of its operational effectiveness and strategic focus, the results of which will be presented in November.

Pigments Facility Opens in China

A new facility to produce high performance red and yellow pigments opened in the Second Quarter in Hangzhou, southwest of Shanghai. The facility is the result of a joint venture between Clariant's Pigments & Additives Division and Hangzhou Baihe Chemical Co. Ltd, a privately owned company with a turnover of approximately USD 60 million. Production will meet growing demand from both international customers with facilities in China and local Chinese customers.

The Second Quarter also saw the opening of a ColorWorks center in Merate, near the international design capital Milan. The center, part of the Masterbatches Division, is the seventh of its type, specializing in integrating color into early design stages, accelerating new products to market and encouraging more effective use of color to increase customers' brand recognition. There are other ColorWorks centers in New York, São Paulo and Singapore.

Value-Based Pricing Initiatives Launched

In the Second Quarter, the company began wide-ranging initiatives to improve its pricing capabilities. These initiatives will be implemented over the next 16 months, with positive results expected over the medium- to long-term. The company is also preparing to launch the Clariant Academy, a dedicated center in Switzerland focused on leadership development and building excellence across the company in the areas of sales, marketing and continuous improvement processes.

Outlook for 2006

Taking into account a broadly stable macro-economic environment, the company anticipates for its continuing operations for the full year: Good sales growth in local currency terms; a total of CHF 250 million in cost base reductions; raw material and energy prices to remain at high levels; an improvement of approximately CHF 60 million in operating income before exceptionals, from CHF 100 million expected previously, and a satisfactory net income.

Source: Clariant

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