Clariant progresses while global economy deteriorates further

CEO Hariolf Kottmann: “Given the further deterioration of the global economy, in which slower emerging markets growth could not offset anymore a weakening in Europe, Clariant achieved a solid performance in the last three months. This was driven by a stable development of most core businesses, manifesting the consequent execution of our profitable growth strategy. Although the short-term economic challenges are expected to persist, Clariant’s mid-term guidance until 2015 remains intact.”

Third Quarter Performance
Muttenz, October 31, 2012 - Clariant, a world leader in specialty chemicals, today announced sales of CHF 1.923 billion in the third quarter 2012, up 3% compared to CHF 1.865 billion in the previous-year period. In local currencies, sales were 3% lower.

In the third quarter, the global economy has not stabilized as expected. While Latin America continued on a solid growth path and North America remained stable, the downturn in Europe spread from the Southern countries across the continent. At the same time, the major economies in Asia/Pacific and Middle East & Africa started to soften.

At group level, volumes decreased 5% year-on-year. Although volume reductions affected most businesses, the Catalysis & Energy, Functional Materials, Industrial & Consumer Specialties and Masterbatches Business Units performed solidly in this environment and are on track to achieve their full-year targets. The Oil & Mining Services Business Unit continued to grow double-digit in local currencies. On the other hand, the particularly pronounced weakness in the electronics, coatings and increasingly in the automotive industries severely affected the Additives and Pigments Business Units. Leather Services, Textile Chemicals and Paper Specialties recovered from the low previous-year’s levels and posted robust single-digit sales growth in local currencies.

At 26.3%, the gross margin was higher than the previous year’s 26.1%. Sales prices decreased sequentially by 1% but raw material costs also weakened significantly. Year-on-year, prices increased by 2% while raw material costs decreased by 1%.

The positive contribution from pricing was partially offset by unabsorbed production costs due to lower volumes, and an unfavorable product mix development. In addition, the contribution from new production capacities for battery materials and flame retardants was much lower than expected earlier. Under the current economic conditions, a slower market adoption of these new innovative products and technologies has been observed, therefore leading to low capacity utilization rates in those two plants.

The EBITDA before exceptional items contracted to CHF 201 million from CHF 216 million in Q3 2012. Therefore the EBITDA margin before exceptionals stood at 10.5% compared to 11.6% in the previous-year period. While the underlying EBITDA of the Business Units was stable, the lower margin was the result of higher SG&A costs that were mainly related to the integration of Süd-Chemie, a lower positive contribution from one-time items and higher R&D costs, including start-up costs for the bioethanol plant near Munich. Restructuring and impairment costs were lower at CHF 9 million versus CHF 23 million in the third quarter 2011 and were mostly related to the integration of Süd-Chemie. Net income fell to CHF 49 million from CHF 81 million in the same period one year ago, mainly due to foreign exchange rate effects in the financial result and slightly higher financing costs.

Operating cash flow was strong with CHF 181 million in the quarter compared to CHF 127 million one year ago, following the normal seasonality with a build-up in inventories in the first half of the year followed by a reduction in inventories and therefore cash flow generation in the second half-year.

Net debt stood at CHF 1.934 billion and was therefore lower compared to the CHF 1.984 billion at the end of June 2012, but higher than the CHF 1.740 billion reported at year-end 2011. Consequently, the gearing, reflecting net financial debt in relation to equity, improved to 64% from 67% recorded at the end of the second quarter 2012, but increased from 58% at the end of 2011.

Outlook 2012
In the third quarter, the expected stabilization of the global economy did not materialize. The European economy deteriorated further, with the Southern European weakness spreading to other countries, affecting various industries. Unlike in the second quarter, growth in the rest of the world was not able to offset the decrease in Europe with growth dynamics slowing mainly in Asia/Pacific and Middle East & Africa. The further path of the global economy remains uncertain. In this economic scenario, raw material costs are expected to be unchanged in full-year 2012 versus full-year 2011, while exchange rates should remain at the levels of the beginning of the year.

Clariant remains committed to its mid-term targets 2015 despite a softening of the global economy and the short-term impact from a massive volume reduction in Europe. The confidence in achieving those targets is based on the growth and performance of the core Business Units, a disciplined pricing approach, the progress in the integration of Süd-Chemie, further cost benefits, and successful portfolio management.

For the full-year 2012, Clariant expects flat sales growth in local currencies and an EBITDA margin before exceptionals slightly ahead of the level after nine months.