Clariant profitable after restructuring16 February 2011
Clariant, the international specialty chemicals company, announced on February 16, 2010 sales totaling CHF 7.120 billion ($7.3 billion), compared to CHF 6.614 billion ($6.81 billion) in 2009. This represents an increase of 13% in local currency and 8% in Swiss francs. Sales in the Leather Services Business Unit were down compared with the previous year although the operating margin was up thanks to cost savings and restructuring.
The double-digit sales growth in local currency was the result of the robust global economic growth supported by restocking activities in parts of the portfolio in the first half of the year. All regions reported double-digit sales growth in local currencies. In the course of the year, demand returned to normal seasonal patterns, with lighter demand during the summer months and a slowdown in industrial production towards the end of the year.
Lower idle facility costs, successful price management and lower production costs resulting from the benefits of the restructuring program pushed the gross margin from 23.5% in the year-ago period to 27.9%.
Hariolf Kottmann, CEO commented: ‘2010 marks a milestone in Clariant’s history. The extensive restructuring program of the last two years has been successfully completed. All targets defined at the beginning of the restructuring period have been achieved. Today Clariant is a specialty chemicals company characterised by an above sector average return on invested capital, a good cash flow generation and a strong balance sheet. Based on this solid platform, we will now move forward by sustaining these achievements while at the same time driving profitable growth to create further value.’
Leather Services BU
Leather Services Business Unit sales declined compared to the previous year period due to a strong base effect. Underlying demand from the premium car segment remained good. In the upholstery and shoe segment, growth was softer due to higher prices of raw hides. From a
regional standpoint, demand was strongest in Europe, Middle East & Africa and in particular in Latin America, the latter partially as a result of market share gains.
The Leather Services business unit was able to improve the operating margin before exceptional items compared to the 2009 figure, due to an improved cost structure and the ability to offset higher raw material costs by increasing sales prices. The business unit expects volume growth in 2011, driven by continued strong demand from the automotive segment and from emerging countries. Additional mid-term growth is expected through the successful introduction of new technologies, such as EasyWhite Tan, a recently launched innovative technology for chrome-free tanning.
During the reporting period, Clariant continued to focus on reducing its Selling, General & Administration (SG&A) costs. As a percentage of sales, SG&A costs made further progress and decreased substantially from 17.6% to 16.5% in comparison to prior year period. As a
result of the improved gross margin and the lower cost base, operating income (EBIT) before exceptional items increased to CHF 696 million ($717 million), compared to CHF 270 million ($278 million) in the previous year. The corresponding margin rose from 4.1% in 2009 to 9.8%.
This year marked the end of the restructuring program, with all business units contributing to the strong operating profits by reducing their cost levels and optimising their structures and processes. Restructuring and impairment costs amounted to CHF 331 million ($341 million), mainly in connection with site closures within the global asset network optimisation program (GANO), and a further reduction in headcount. The number of job positions was reduced from 17,536 at year-end 2009 to 16,176. In the reporting period, Clariant returned to a net income of CHF 191 million ($196 million) compared to a net loss of CHF 194 million (-$200 million) in the previous year.
Clariant Q4 2010 performance
Clariant reported 8% sales growth in local currency in the fourth quarter. Sales volume increased by 4%, and sales prices were up 4% year-on-year. Sequentially, sales prices increased by 1% while raw material costs remained unchanged. Most business units experienced solid underlying demand for their products and services. At a regional level, the highest growth rates were in Europe and North America. Due to the higher comparable base, Asia/Pacific and Latin America grew slower, but still at single digit rates.
The return to normal seasonal patterns in 2010, namely a slowdown in industrial production in the fourth quarter, was amplified by a strong focus on inventory reduction.
The EBIT margin before exceptional items climbed to 7.1%, from 6.3% in the already– strong fourth quarter of 2009, despite higher non-recurring corporate costs related to the restructuring program ‘Project Clariant’ and a non-recurring payment for pension plans.
Having completed the 2009/10 restructuring program at the end of 2010, Clariant will invest in profitable growth in the years ahead. The Board of Directors will therefore recommend to Clariant’s 16th General Assembly on March 31, 2011 to refrain from paying dividends, grants or payouts to shareholders for 2010.
Starting 2011, Clariant shifted its focus on continuous improvement and profitable growth after restructuring has been completed in 2010. While the continuous improvement initiative ‘Clariant Excellence’ launched in 2009 will make the lower cost basis sustainable, the company now focuses on creating value by investing in future profitable growth.
For 2011, Clariant expects global economic growth to continue but at a slower pace than in 2010. Exchange rates of the most important currencies are expected to remain volatile. Growth will mainly come from the emerging markets in Asia/Pacific and Latin America.
After remaining momentarily stable in the second half of 2010, commodity prices are expected to rise again in 2011. Clariant expect raw material costs to increase in the high single-digit range. Clariant also expect 2011 sales growth in local currencies in the low single-digit range.
Additional benefits from the restructuring measures taken during the last two years will improve the company’s cost position, resulting in a positive impact on the operating result.
The EBITDA margin before exceptional items is therefore expected to rise above 2010 level.