Ciba stands firm

02 June 2003 00:00  [Source: ICB]

In spite of a slowdown in the speciality chemicals sector, Ciba is actively pursuing its 'managing for growth' programme and achieving satisfying results. Mark Whitfield reviews the company's progress

In February, Ciba Specialty Chemicals announced annual results including higher sales, up 3%, and improved operating income (up 25%) in local currencies. Despite these increases in local currencies, sales dropped by 4% to SFr7.1bn (E4.7bn/ $5.2bn) in 2002 mainly because of the appreciation of the Swiss franc against the US dollar and sterling, taking the shine off what, in local currency terms, were enviable results.

The upward trend continued in local currencies in the first quarter of 2003 - Ebitda was up 11% with a margin of 15.4% of sales. The result posted showed a 14% decline in Ebitda to SF259m.

At Ciba's agm in March, chief executive officer Armin Meyer described the company as standing 'like a rock in a stormy sea' and put the increase in company's earnings down primarily to rigorous cost management and aggressive marketing.

The global speciality chemicals business has been in the doldrums for the past two years and the upbeat attitude of Ciba contrasts with the cautious approach from many in the market. Meyer has managed the restructuring and simplification of his company and believes that it is well placed to take advantage of any upturn in demand. At the agm Meyer said that: 'Growth is the driving force for the whole company. For this reason we started our "managing for growth" programme.'

The programme involves both organic growth and identified and controlled acquisition.Meyer says: 'The aim of the managing for growth programme is to seek every opportunity to grow and to become one of the best companies in creatively pursuing and creating growth opportunities. We have identified four key areas for achieving this growth: Cross-segment synergies (re-application of technologies); geographic opportunities (new markets); services and solutions; innovation (new technologies).'

For acquisitions the company has set two key criteria: An acquisition must provide a meaningful extension of its business and it must provide earnings profit contributions by the second year. Ciba is looking at small to medium acquisitions that have complementary technologies to strengthen its plastic additives and coatings effects segments and which will expand the market position and market share of its water and paper treatment and home and personal care segments.

Organic growth is also important. Meyer continues: 'We have a number of interesting developments throughout the company. We are looking at innovative solutions and new technologies for our customers across all segments. Of particular interest is R&D in oxidation catalysts. We expect to launch our first catalyst for use in detergents, Tinocat, in the autumn.' The product is designed to bleach out stains at very low temperatures and inhibit transfer of dyes in the wash liquor, meaning that whites and pale colours are protected from greying.

Ciba is currently working in the area of liquid crystal screens (LCS) - nearly all LCSs utilise Ciba's red pigment as a filter. The company is developing green and blue filters to improve colour and picture quality

Meyer says:'We have product and services launches in all segments planned for 2003. The driver of our new product launches is identified market need. At the moment new products (under five years old) make up 20% of sales. We wish to increase this share in the mid-term to 33%.'

Looking to the east, China has become Ciba's third largest market and Meyer considers growth in China and India as an important part of the managing for growth programme: 'The chemical industry faces in some areas, such as textiles, a significant shift of its customer base to Asia and at the same time non-traditional competition, from India to China, is growing rapidly,' he says, 'It's key to be where the growth is, to serve the growing customer bases and also to leverage these regions as production bases. Ciba already has achieved global balance with about 27% of sales in Asia-Pacific, but our vision is to have one-third in Asia-Pacific, one-third in the Americas and one-third in Europe.'

The war in Iraq did not have a major impact on Ciba's business, says Meyer. The conflict was, however, one of several global factors to contribute towards the difficult economic climate we are now experiencing. He adds: 'As most of our raw materials are several value added steps from crude oil, an oil price hike would affect us only after a longer period of time and then in diluted form. As a global company we aim to keep prices in check through a flexible purchasing policy - that is buying at the best prices worldwide.'

As a further step towards creating efficiencies, Ciba started in the second half of 2002 to plan the rationalisation of its three supply chains around the world into one. These measures are designed to provide the benefits of time and cost efficiencies to both Ciba and its customers.

Meyer says: 'The reorganisation of our order desks into one harmonised order desk per country has been completed, as has global replenishment and inventory planning (GRIP). A single global business data warehouse has been created to fulfil all our needs for detailed business analysis.

As a separate step, Ciba appointed Danzas, the logistics business of Deutsche Post World Net, as its global lead logistics provider. Danzas will manage transport, goods tracking and performance measurement. The integration is proceeding throughout 2003.

The managing for growth programme is achieving results and Meyer aims to continue to meet the target of 6% average annual growth until 2005 and an Ebitda margin of 20% by that year. The final aim is to achieve a free cash flow exceeding SF1bn in the same year.

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