Clariant reports strong cash flow despite continuing weak demand

31 Jul '09

5 min read

Clariant, a world leader in specialty chemicals, announced sales of CHF 1.609 billion in the second quarter of 2009, compared to CHF 2.121 billion in the same period of the previous year. This represents a 24% decline in Swiss Francs, and 21% in local currency.

CEO Hariolf Kottmann commented: “Our focus on generating cash, decreasing costs and reducing complexity has shown results, both in terms of cash flow that remained strong and operating income. However, we are still challenged by unprecedented low demand and don't expect a quick recovery. Hence, we are continuing with our efforts to reduce costs, generate cash and simplify our operating structure in order to close the performance gap to our peers and gain further operational and strategic flexibility.”

The second quarter was characterized by continuous weak demand in most businesses. Although volumes came down 23% year-on-year, the gross margin increased to 29.3% from 28.9% in the previous-year period as a result of successful margin management.

Compared to the first quarter of 2009, the gross margin was 5.7 percentage points higher as the measures to adjust capacity to lower demand levels have started to kick in. In addition, destocking along the value chains eased in some customer industries. As a consequence, Clariant has started to increase production output in some businesses with the effect of reduced costs for underutilization of capacities. Also, the stabilization of raw material costs has led to less devaluation of inventories.

The company's efforts on cost savings favorably impacted Sales, General & Administration (SG&A) costs, which decreased in absolute terms to CHF 371 million from CHF 434 million. However, due to the drop in sales, the SG&A ratio increased to 23.1% from 20.5%.

Based on higher capacity utilization, ongoing cost savings and a stabilizing raw material cost environment the operating income before exceptional items reached CHF 69 million in the second quarter, compared to CHF 143 million in the previous-year period. However the operating income before exceptional items improved from CHF -13 million in the first quarter.

All divisions contributed positively to operating income before exceptional items. The decisive cost-saving measures in the Textile, Leather & Paper Chemicals Division positively impacted the profitability of all three businesses. The Pigments & Additives Division significantly reduced its costs for the underutilization of capacity due to the fact that destocking had eased and order intake had stabilized. The Functional Chemicals Division continued to be the most resilient against the decline in demand. The Masterbatches Division further lowered its break-even point.

Net income remained negative (CHF –61 million) in the reporting period mainly due to the restructuring and impairment costs of CHF 74 million but also resulting from the weak operating income.

The previously announced reduction of 1350 job positions was already completed with 1423 job positions reduced. An additional 500 job positions to be made redundant in 2009 were identified and implementation has begun. Further reductions in 2009 and 2010 will follow in line with the company's goal to close the performance gap to its peers and to adjust the company's structure to the global recession.

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