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Ciba increases sales prices 6% in third quarter

06
Nov '08

Brendan Cummins, Chief Executive Officer comments:“The third quarter improved considerably over what had been a disappointing second quarter.Sales price increases took effect across the business, Coating Effects continued to maintain its high profitability levels and Water & Paper Treatment showed much better results. In Plastic Additives, however, demand started to drop significantly in August in a number of industries, notably automotive and construction, which severely impacted the results.“

“Looking ahead, we are experiencing the effects of the economic slowdown, particularly in Europe, where there was a sudden deterioration in demand in a number of customer industries in the third quarter.

In the Americas, we are not yet seeing the same extent of weakness, but we are expecting volumes to decline in the fourth quarter.We are also anticipating that growth in Asia will start to slow over the coming months as the economies in the region begin to be affected by the global downturn.”

Three Month Results Overview
Sales in the third quarter of CHF 1,549 million were 5 percent lower in Swiss francs and 1 percent higher in local currencies. Europe was 5 percent lower in local currencies, with weaker demand in construction and automotive impacting the coatings and plastics businesses.

Local currency sales in the Americas were 1 percent lower than the third quarter of 2007, with a similar pattern of construction and automotive weakness impacting NAFTA. Water & Paper Treatment, however, performed well. Central and South America showed good growth.

Asian sales for the quarter were 11 percent higher in local currencies, with a strong performance in China, particularly in the Water & Paper Treatment segment.

Gross profit margin of 26.5 percent (2007: 28.8 percent) was impacted by higher raw material prices and energy costs during the third quarter.

Sales prices increased 6 percent in the third quarter as a result of sustained efforts to offset the impact of higher raw material prices, which rose 18 percent in the quarter, as the effects of record high oil prices in July filtered through to downstream derivatives.

Raw material prices are expected to ease in the fourth quarter. Volume mix was 5 percent lower in the third quarter. Operating income (EBIT) before restructuring of CHF 113 million or a margin of 7.3 percent (2007: CHF 150 million, 9.2 percent) reflected lower profitability levels in Plastic Additives, where demand slowed in a number of customer industries, notably construction and automotive, and this intensified competitive pressure during the quarter.

There was also some impact from Hurricane Ike, where a number of customers in the US stopped ordering and declared 'force majeure' in contracts. Coating Effects profitability remained at high levels and Water & Paper Treatment increased profitability in the quarter.

Restructuring charges of CHF 26 million relating to the Operational Agenda program were incurred as expected in the third quarter.

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