CEO Hariolf Kottmann commented: “In the first half of 2011, business fundamentals were robust although global economic growth dampened compared to 2010. This is reflected in an improved underlying operating performance year-on-year. The results, however, have been adversely impacted by the massive appreciation of the Swiss franc. The recently acquired Süd-Chemie has met our expectations in the first two months of consolidation and the integration into Clariant is progressing as planned. These developments give us the confidence to confirm our targets for the full-year 2011.”
Clariant, a world leader in specialty chemicals, today announced sales of CHF 1.870 billion in the second quarter 2011, compared to CHF 1.894 billion in the previous year. This includes Süd-Chemie (SC) sales of CHF 216 million for May and June. In local currencies, sales growth amounted to 14%. Due to the massive appreciation of the Swiss franc against most major currencies, sales were 1% lower in Swiss francs year-on-year.
The softening demand compared to the previous year and the unusually high comparable basis of the second quarter 2010 is reflected in a 5% decrease in volumes. Local currency sales saw double-digit growth in the Business Units Additives, Industrial & Consumer Specialties and Oil & Mining Services. At the regional level, a mixed performance was achieved with double-digit sales growth in local currencies in Asia, Europe, North America and Middle East & Africa but slightly lower sales growth in Latin America.
Raw material costs increased by 14% compared to the previous-year period. A strict focus on margin management led to an improvement in sales prices of 7%, thereby fully compensating for the increased raw material costs. Sequentially, a 3% increase in sales prices therefore fully offset a 5% increase in raw material costs. Despite successful margin management, the gross margin fell to 27.5% from 28.9% a year ago. This is mainly due to lower volumes and an unfavorable currency development.
The second quarter was marked by weakness in demand in April and rather solid demand in the rest of the quarter, although first signs of a slowdown in demand have been observed in some businesses. The sovereign debt crisis in Europe, the slow economic recovery in the United States, higher inflation rates in the emerging markets and the ongoing unrests in North Africa and the Middle East have led to a certain market caution.
Year-on-year, SG&A costs were virtually unchanged in both absolute terms and in percentage of sales, with CHF 307 million in Q2 2011 (16.4% of sales) compared to CHF 309 million (16.3% of sales). Although costs remained under control, EBITDA before exceptional items decreased to CHF 241 million (margin 12.9%) from CHF 264 million (margin 13.9%) a year ago. The operating profit (EBIT) before exceptional items stood at CHF 178 million (margin 9.5%) compared to CHF 211 million (margin 11.1%) in the second quarter 2010.
At constant currencies, EBITDA and EBIT before exceptional items would have been CHF 69 million (1.4 percentage points) and CHF 62 million (1.6 percentage points) higher respectively, i.e. margins would be virtually unchanged compared to the second quarter of last year.
Net income rose to CHF 40 million from CHF 25 million in the year-ago period, illustrating the lower restructuring and impairment expenses after completion of the 2009/10 restructuring phase.
Due to the slight increase in inventories, the relocation of production to Asia (Textile Chemicals) and Spain (Paper Specialties), and the normal seasonality, the cash flow from operations was minus CHF 101 million, below last year’s CHF 33 million. Net Working Capital as a percentage of sales remained under control with 20.0% compared to 20.2% in the previous-year period.
The acquisition of Süd-Chemie led to an increase in net debt to CHF 1,791 million from CHF 126 million at year-end, resulting in a gearing (net debt divided by equity) of 62% at the end of the second quarter of 2011. With the issuance of two Swiss franc bonds totaling CHF 250 million, the debt maturity profile has been extended at favorable conditions until 2015/17. The size of the bond issue has been increased by another CHF 50 million in July.
Update on Süd-Chemie acquisition
On April 21, Clariant completed the purchase of 96.15% of the shares in Süd-Chemie from One Equity Partners and the family shareholders. A public offer to acquire the shares from Süd-Chemie minority shareholders expired on June 14. Clariant acquired an additional 2.49% of Süd-Chemie, bringing the total shares acquired to 98.64%. The squeeze-out procedure to acquire all of the remaining shares in Süd-Chemie AG from minority shareholders was initiated on June 24 and is expected to be completed in the first half of 2012.
The integration process got underway in April. All project teams are fully operational and the integration is progressing according to plan.
In the second quarter, the consolidation of Süd-Chemie for two months contributed CHF 216 million in sales, CHF 34 million in EBITDA and CHF 17 million in EBIT before exceptional items.
Outlook 2011
At the beginning of 2011, Clariant shifted its focus from restructuring to continuous improvement and profitable growth. While the continuous improvement initiative “Clariant Excellence” will make the competitive cost basis sustainable, the company is now focusing on creating value by investing in future profitable growth.
Clariant expects a more difficult but nevertheless solid business environment in H2 2011, characterized by a softening demand. Exchange rates for the major currencies are expected to remain volatile. Commodity prices look set to continue to rise in the second half-year 2011, leading to an increase in raw material costs in the mid-teens compared to 2010.
For 2011, Clariant – including eight months of consolidated Süd-Chemie figures – expects sales in the range of CHF 7.8 to 8.0 billion and an EBITDA margin before exceptional items of 13.5% to 14.5%.