03 February 2004 09:41 [Source: ICIS news]
ZURICH, Switzerland (CNI)--Swiss specialty chemicals company Ciba forecast on Tuesday an improvement in profits and sales this year after announcing a 28% (14% in local currencies) slump to SF571m ($453m/Euro365m) in 2003 operating profits.
Earnings before income tax, depreciation and amortisation (EBITDA) fell 20% (9%) last year to SF937m on sales down 6% (flat) at SF6.65bn. The EBITDA margin fell to 14.1% from 16.6% in 2002, while net income was down 15% to SF344m.
Ciba blamed the lower earnings on adverse currency effects and the costs of temporary plant closures. However, it predicted that 2004 sales in local currencies, the EBITDA margin and net income in Swiss francs would exceed last year’s levels assuming business conditions are at least comparable to 2003 and currency levels do not deteriorate.
Although Ciba did not immediately quantify the expected improvements, it said that should a sustainable economic recovery take shape, it would expect “a rapid and substantial improvement in net income and margins”.
Ciba cautioned, however, that it saw no signs of a sustainable improvement in global business conditions and only the first indications of an upturn in several of its customers’ industries. Therefore, it would continue with firm measures to control costs globally as well as restrict hiring in lower-growth markets specifically.
Chairman and chief executive Armin Mayer described the company’s cost-cutting initiatives and their impact on profitability as “an acceptable, one-time price to pay to reduce net current assets and net debt.”
He added: “We will now focus on holding net current assets at these lower ratios, while again strengthening profitability. We used the last three years to lower our cost base and make our balanced sheet leaner, so when a sustainable economic recovery begins the company will be able to quickly leverage these improvements into substantially higher net income and profitability margins.”
Ciba said it made a concerted effort to cut operating assets, particularly inventories, in the fourth quarter last year. Although this helped boost free cash flow, it hit operating profits by SF60m. Fourth quarter operating income plunged by 46% (47% in local currencies) to SF87m on sales down 3% (1%) to SF1.62bn.
EBITDA in the three months to 31 December slumped by 30% (29%) to SF180m and the EBITDA margin tumbled to 11.1% from 15.3% in Q4 2002. Net income was slashed by 55% to SF43m.
Over the full 12 months last year, Ciba suffered substantial declines in operating profits from all business divisions, with plastic additives and textile effects especially hard hit.
Sales in Swiss francs were also down for all business segments, although up slightly or flat in local currencies apart from textile effects which suffered a 3% decline.
Ciba blamed the overall sales decline last year on volatile market conditions and a sluggish global economy which kept volume gains to 3%. Price reductions totalled 3%. Ciba explained that volume growth was unable to offset negative currency effects and lower sales prices.
However, it noted some improvement towards the end of the fourth quarter in sales to customers in early cyclical industries. It also noted that raw material price rises, particularly for the plastic additives and water and paper treatment segments, had subsided by the year end.
Unsurprisingly, Asia Pacific was the main sales growth region, with revenues up 5% in local currencies but down 3% in Swiss francs. Sales in Europe fell 1% in local currencies and were flat in Swiss francs. In the Americas, sales fell 3% in local currencies and, due to the weak dollar, tumbled by 16% in Swiss francs.
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