23 October 2003 12:30 [Source: ICIS news]
LONDON (CNI)--Ciba confirmed Thursday its downgraded outlook for full year profits while unveiling a slump in third quarter earnings before interest, tax, depreciation and amortisation (EBITDA).
The Swiss specialty chemicals firm reported a 15% decline to SF250m ($187m/Euro161m) in EBITDA for the three months to 30 September. Measured in local currencies, the decline was 13%. The EBITDA margin fell to 15.2% from 17% in Q3 last year.
Operating profts slid 22% (21%) to SF157m although the effects of cost-cutting pushed net income up 23% to SF108m, beating most analysts' expectations. The operating income margin, however, declined to 9.6% from 11.6%.
Sales fell 5% (down 3% in local currencies) to SF1.64bn, with revenues in July and August substantially lower than the corresponding months last year. Revenues in September were up strongly but not enough to offset the slow start to the quarter, leaving Ciba with the burden of a poor Q3 on top of sales down in the first half.
The third quarter also saw Ciba book a net one-time gain of SF23m in after tax earnings from the combined effect of US accounting changes and resolution of a longstanding tax issue.
Ciba said market conditions and customer order patterns remained "volatile" and there were no confirmed signals of an economic recovery.
In the first nine months, Ciba posted pre-tax profits before minority interests down 16% to SF387m on net revenues 7% lower (flat in local currencies) at SF5.02bn.
In confirming its downgraded outlook for the full year, Ciba said the EBITDA margin in Swiss francs was expected to be "somewhat weaker" than the 16.6% in 2002, but sales revenues in local currencies terms were expected to be up on last time. It noted that the strength of the franc appeared to have stabilised recently against the dollar but hedging was being used to help offset the currency impacts. The downgrade issued in August also included the expectation of free cash flow of around SF500m.
A spokesman for Ciba said it planned in the short term to continue with its rolling programme of temporary production plant shutdowns of approximately two weeks throughout its portfolio, which has helped it to better manage inventories and led to a "substantial" generation of free cash flow in Q3. No details were available on the reduction in inventories.
He added: "In the meantime, we maintain our strong focus on costs and cash flow, which brought substantial results in the third quarter, and we continue to invest in the future with our 'Managing for Growth' projects."
The revenue increases due from the 'Managing for Growth' projects are expected to kick-in during 2004, but a Ciba spokesman declined to say when the first benefits may be seen.
He added that Ciba was continuing to assess the possibility of small to medium-sized acquisitions of businesses up to about SF200m in turnover. Key criteria were strategic fit and positive contributions to net earnings from the second year. He declined to comment on any progress or talks underway. However, he noted that areas of interest included securing complementary technology for its plastic additives and coating effects activities.
For the nine months to September, Ciba said its portfolio proved resilient to changing market conditions and in three divisions new products were launched, helping to increase sales in local currency terms. However, the overall picture was lower results in Swiss francs in all measures - EBITDA, operating earnings and net revenues - with performances in some divisions being particularly hard hit.
The coating effects division saw EBITDA improve 4% in local currency terms but fall 10% after currency translation to SF309m. The EBITDA margin decreased from 23.2% to 22.6%. Operating earnings were down 11% (up 4% in local currencies) to SF237m and margins were down from 18.1% to 17.3%. Net revenues for the division fell 7% (down 1%) to SF1.37bn. Further information on how the divisions performed was not given.
The next largest division by sales, plastic additives, posted EBITDA down 20% (down 10%) to SF223m with the margin falling from 20.2% to 17.2%. The operating result nose-dived 25% (down 14%) to SF153m and the margin fell from 14.7% to 11.7%. Net sales were down 6% (up 1%) to SF1.3bn.
Ciba's water and paper treatment division posted EBITDA down 9% (down7%) to SF134m and the margin fell slightly from 13.9% to 13.2%. At the operating level, the result fell 12% (down 14%) to SF73m while the margin decreased from 7.7% to 7.2%. Net sales dropped 5% (up 2%) to SF1.01bn.
The textile effects division suffered a fall of 29% (down 4%) at the EBITDA level and the margin dropped from 12.7% to 10%. The unit's operating profits slumped 39% (down 5%) to SF62m and the margin was down from 8.6% to 5.8%. Net revenues lost 10% (down 2%) to just under SF1.1bn.
The group's fifth division, home and personal care, posted EBITDA down 24% (up 8%) to SF46m, and the margin fell from 20.1% to 16.8%. Operating profits plunged 34% (up 11%) to SF27m. The operating margin fell from 13.5% to 9.8%. Net sales were down 9% (up 2%) to SF274m.
Regionally, China and Japan helped to push nine months sales 5% higher in Asia-Pacific in local currency terms but revenues in Swiss francs were down 4%. Sales in Europe were flat in both local currencies and Swiss francs. Sales in the Americas were down 2% in local currencies and 17% lower in Swiss francs.
Ciba added that so far it has repurchased about 0.5% of its shares as part of the plan to buyback up to 10% of the company's stock. The spokesman said that the firm had found many institutional investors wanted to hold on to the stock. The buyback programme will be reviewed in late February 2004 at a shareholders' meeting.
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