08 May 2007 17:11 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Clariant’s transition to a more focused specialties player will be tough – and take time.
There is some frustration, and concern, that the Muttenz, Switzerland-based company can’t step up gear fast enough to keep pace with a rapidly changing operating environment.
It is not simply the fact that certain businesses are moving to ?xml:namespace>
Along with every other business, Clariant has to cut deeper to keep pace. Streamlining is one thing – and appears to have begun in earnest. Capturing new product and business growth is another.
It is as if Clariant management will always be criticised for not doing what needs to be done fast enough. The company has only just finished the first quarter of its latest nine-quarter transition, but financial analysts and the market have hardly been enamoured with performance.
Clariant is growing. Volumes are stronger and overall there has been an upward (1%) movement in price. But profits have not grown as expected. Costs are weighing the company down – particularly so in the first quarter in the important plastics & additives business which also was under heavy price pressure.
The first quarter was a “working quarter”, says chief financial officer Patrick Jany, and, in his words, “quite an OK start to the year”.
But Clariant has to do more to inspire greater confidence that it can finally overcome the, in hindsight, misplaced costly purchase in 2000 of fine chemicals producer BTP. The more pressured parts of that business are being closed and divested.
The latest transition for Clariant will see 12 sites closed, the headcount cut by 2,200 and a cut in the product portfolio of 25%. The plan is to move the annual operating profit (EBIT – earnings before interest and tax) margin up from 7% to 9%.
The deep worry is that Clariant did not manage to keep any of the Swfr400m ($330m/€240m) in cost savings planned in its most recent cost cutting programme. Raw material prices rose too high, too fast and the company could not hold on to price.
The latest programme needs to be different as well as more aggressive.
Clariant has agreed to sell its custom manufacturing business – to the relatively new player WeylChem – just six months after a strategic review of the options for its former life science chemicals division.
Having acquired Ciba Specialty chemicals’ masterbatches business, one site has been closed in
Textiles dyes research laboratories have been closed in
A big shift on the product front is not so apparent but a step up in performance for Clariant rests on how it can get new products to market faster and increase what it calls its “front-end focus”.
The cost game will be difficult to win but has to be played nevertheless. A producer like Clariant can be more astute in the way it plays to the strengths inherent in its technical and market expertise.
It is unfortunate for Clariant that the 2007 outlook is lacklustre – improved local currency sales and stable margins.
The focus is very much on improving cashflow. The business is expanding and there have been some positive price movements but profitability has not developed as it might.
Clariant needs to perform better over the coming months if it is to catch the attention. Unfortunately 2007 looks as though it can only be a year of work in progress and there are clear risks associated with that.
($1 = Swfr1.21/€1 = Swfr1.64)
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