Clariant stung by custom synthesis woes

26 February 2003 18:11  [Source: ICIS news]

Clariant must get on with its restructuring programme but there is little confidence that the disposals and cutbacks it clearly needs can be made in time to have any significant impact in 2003.

And the Swiss specialty chemicals company only confuses with the suggestion that it might in the near future make a capital increase. It is not surprising that the shares hit a new low yesterday (24 February).

Writing down the remaining goodwill from BTP, the UK-based fine chemicals producer bought in the late 1990s, drove home on release of the detailed 2002 financial results yesterday the downside of that acquisition, which has been recognised for years as having been made at too high a price.

Clariant has decided it needs to prune hard in the life sciences and electronics (LSE) division and downgrade its strategic importance and there are some suggestions that widespread LSE disposals are on the cards.  

Recent forward planning has sounded the alarm bells, prompted the massive writedown at BTP and subsequent group loss of SF648m ($477m/Euro441m) for 2002. Clariant recognises now, it says, that the non-regulated custom synthesis business is not going to improve soon and prospects are much worse than they were just late last year.

As a result, Clariant is going to have to close more production sites. Its options are limited and it has not decided yet whether to shut down one large or two smaller operations.

 Clariant’s ‘action plan’ for 2003 reflects the fact that even though debt was driven down by as much as SF800m last year, much more needs to be done now. The company’s dilemma is that current debts of SF3.5bn compare with a market capitalisation of under SF2bn. In 2003 it wants a debt cut to SF2.5bn which management says is achievable with disposals, tighter capital control and an equity injection.

The Basel-based major yesterday caused confusion when it talked about the possibility of a SF600m capital increase but then seemed to say that it didn’t need one. It also signalled that it would create separate legal entities for the electronic materials, pharmaceuticals, custom synthesis and masterbatches businesses but said only that it would consider an outright sale or joint venture in electronic materials, which is part of LSE. Clariant wants to sell non-core businesses representing about 7% of sales. The new legal entities and the lower strategic importance being put on life science businesses give it greater strategic flexibility, it says.

Clariant has been caught by the widespread downturn in specialty chemicals and the poor state of the fine chemicals business. The pharma side of fine chemicals is bad enough but the company has been surprised by the fact that agrochemicals producers are sourcing even new product ingredients from China. Competitive intensity across the LSE division has increased markedly.

In 2002, Clariant's top three divisions by sales - textiles, leather and paper chemicals, pigments and additives and functional chemicals - all reported falls in earnings before interest, tax, deprecation and amortisation (EBITDA). Group EBITDA was 2.4% lower at SF1.1bn. Sales were down 3.3% at SF9.3bn and the net loss SF648m compared with the 2001 loss of SF1.2bn. It indicated yesterday that its core businesses were pigments and additives, functional chemicals, textile, leather and paper chemicals and masterbatches.

By: Nigel Davis
+44 20 8652 3214

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