20 February 2007 17:42 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Clariant is notorious for producing nasty surprises and destroying value. It is no wonder then that the share price dropped on Tuesday following disappointing fourth quarter results and a muted 2007 outlook.
Clariant grew the top line in quarter – by 3% to Sfr2.01bn ($1.68bn/€1.26bn) – through organic growth. The world’s second largest specialty chemicals maker also lifted operating profits before depreciation, amortisation and exceptional items by 18% to Sfr202m. But it is clearly finding it difficult to pass on higher raw material costs and expects those costs to remain high in 2007.
On the positive side chief executive Jan Secher says 2007 is likely to be a good year for top line growth and that the company is committed to deliver on medium term financial targets.
The achievement of those goals, however, rest squarely on plans to cut overhead and further streamlining.
Clariant intends to spend Sfr500m on cost-saving initiatives, close 10% of its sites, reduce its product range by 25% and slash 2,200 jobs, in an attempt to drive the return on invested capital (ROIC) to 10% by 2009 from around 8%.
Business results in the fourth quarter hardly inspired with profits from the textile, leather & paper chemicals; pigments & additives life science chemicals divisions down.
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There is not a great deal left of the life science chemicals division since the divestment of the pharmaceutical fine chemicals and custom manufacturing businesses. But sales of the remaining silicone, glyoxal and glyoxylic acid derivates products fell 5% in the quarter as demand dropped away. Higher raw material costs depressed income.
The different product lines will be incorporated into the performance chemicals business, which is part of functional chemicals. The division continued to grow relatively strongly in the fourth quarter – sales were up 6% at Sfr604m.
The detergents, performance chemicals and process chemicals businesses all did well. In these businesses Clariant has some pricing power as it does in masterbatches another area of relative growth for the company both in sales and profits terms.
Clariant agreed to buy the masterbatches business of Swiss compatriot Ciba Specialty chemicals in the quarter and its integration will contribute to growth. It has begun rationalising production for the enhanced business in
Clariant has no option but to drive hard in areas where it can achieve growth and rapidly leave the past behind.
The sale of fine chemicals in 2006 to Towerbrook Capital was made at a multiple of just 0.5 times sales – or $89m. Clariant bought the UK-based fine chemicals producer BTP in 2000 for a multiple of three times sales (18 times EBITDA – earnings before interest, depreciation and amortisation) for $1.8bn.
Having been caught out in fine chemicals it is pressured to demonstrate how it can grow in key areas like masterbatches and functional – process and performance – chemicals.
The key challenge in 2007 will be to demonstrate that it can not only grow faster but achieve better value creation credentials
“We are fully committed to deliver on our medium term goals, with a clear focus in 2007 on improving cash flow,” chief executive Secher said on Tuesday.
“In 2006 we laid out clearly our long-term goals of reaching a top quartile ranking among our peers in value creation,” he added. “We are not working towards achieving broad, sustainable improvements across the business.”
Clariant shares were down 3.33% at Swfr20.35 at 16:19 GMT on Tuesday.
($1 = Swfr1.2/€1 = Swfr1.6)
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