'Trading environment remains highly uncertain & volatile' - Cognis CEO
In the first three months of 2009, in what was an extremely difficult market environment, global specialty chemicals supplier Cognis saw its sales volumes decline by about 18 percent in comparison to the first quarter of 2008. Compared with the fourth quarter of last year, volumes actually increased by 5 percent, driven by growth in North America and Asia.
Lower volumes were partially offset by increased selling prices, and as a result, the total net external sales figure of 659 million euros represents a fall of 13.8 percent compared to the first quarter of 2008. On an organic basis (excluding foreign currency effects and the effects of acquisitions and divestments), sales fell by 13.9 percent. These falls were largely attributable to lower demand and destocking by Cognis' customers, especially in Europe (down 23.5 percent).
Cognis' operating result (Adjusted EBITDA) fell by 19.3 percent to 73 million euros. In response to the sharp decline in sales volumes, the company implemented a comprehensive cost optimization program, with a savings target of 70 million euros in 2009. Cognis is also taking action to increase efficiency and improve process speed across all business areas. At the same time, it expects to benefit from lower energy and transportation prices.
Return on sales (Adjusted EBITDA as a percentage of sales) for the first quarter was 11.0 percent. Earnings before interest and taxes (EBIT) decreased by 21 million euros to 35 million euros. The company made a net loss including exceptional items of 33 million euros for the period (minus 43 million euros). This was due to the lower EBIT and a higher net financial result (minus 24 million euros).The higher net financial result is mainly due to book losses on our interest derivative arrangements, resulting from the reduction of market interest rates and to foreign exchange losses.
Operating cash flow in the period improved significantly and was up by 95 million euros to 101 million euros, primarily due to a positive change in working capital. The main cash generating drivers were a lower inventory position due to decreased prices and quantities as well as lower trade receivables in line with sales. Overall, Cognis' cash position increased substantially, to 241 million euros. The company also has a revolving credit facility of which 219 million euros were unused at the end of the quarter.
Cognis took advantage of the current conditions in capital markets to buy back PIK loans. As of today, PIK loans with a face value of 187 million euros have been purchased in a series of open-market transactions (thereof 112 million euros as of March 31). As a result the Cognis Group, including Cognis Holding GmbH, was able to improve its financing costs, equity position and net debt, which was cut by 176 million euros to 2.155 billion euros compared to March 31, 2008.
Cognis CEO Antonio Trius comments: “Cognis is responding to this dramatic economic downturn in a determined and proactive way. Our comprehensive cost reduction program is gathering momentum, and will help us counteract the effect of falling volumes.