02 April 2008 17:29 [Source: ICB]
Despite the global credit crunch and soaring raw material costs, Ciba's personal care division is growing strongly, unlike its share price
CIBA'S HOME and personal care business may not be one of its biggest divisions, but it is among the most resilient.
Although the chemical industry, particularly specialties, continues to bear the brunt of record high feedstock costs and energy prices hovering at unprecedented levels, demand for personal care products is unwavering and remains a key market for the Swiss specialties firm.
"It's not one of the biggest businesses, but it's maybe one of the strongest from a growth perspective 2007 was a very good year for us," says Catherine Ehrenberger, global head of Ciba business line home and personal care.
"Historically, personal care has been pretty much immune from the ups and downs in the market. No matter what the economics are like out there, people still tend to spend their money on personal care products. Sometimes, they even spend more in times of economic pressure, simply because they can buy something small that makes them feel good. While they couldn't afford to buy a new car or furniture, they can instead buy a new lipstick or a skincare product."
Established only a decade ago, the home and personal care business line is still in its infancy, but remains a strong contributor to the growth and success of Ciba's plastic additives segment.
After a strong performance in 2007, Ehrenberger is still upbeat about the future. Double-digit growth rates are targeted and achievable, she says.
"We see the year ahead as one of decent growth. Even if the economics get tighter, we don't tend to be affected too much people may buy a less costly personal care product, but they will still buy a personal care product. As a raw material supplier, we're involved in a whole range of products, from high-end luxury to the mass-market alternatives."
Ciba's successful home and personal care business model is based on two core pillars: innovation and customer intimacy - a close relationship with consumers from research and development (R&D) all the way to the commercialization of the products.
A broad spectrum of innovative product offerings is key to withstanding the market pressures felt by the rest of the industry, says Ehrenberger. "We invest substantially in R&D and are constantly replenishing the pipeline. As a segment, our plastic additives group - of which our home and personal care is a business line - spends about 4.4% of sales in R&D. We invest above that average."
With such a technology base ranging from colorants to stabilizers, UV absorbers to polymers, and oxidation catalysts, the personal care business has effectively spread some of the risk associated with the rising raw material costs and economic pressures.
Ciba is a leading player in skincare and hair products, both of which are being fueled by demand from the older generation.
"The aging population in the developed world continues to drive the new technologies being brought into the market, while at the same time, the emerging markets [China and India] are adding new customers every day," says Ehrenberger. "Both dynamics support the medium and long-term success of the business."
Skincare is growing at a faster rate than hair care, largely because of the aging population and increased awareness about the importance of skin protection. However, hair care is growing in areas of segmentation, with formulations for colored, long and straight hair. These use different technologies and raw materials, and rely on innovation.
Sustainability has also become increasingly important for consumers, and companies are keen to show their energy-saving credentials. Using less energy is extremely important to the customer, says Ehrenberger. Ciba is therefore continually developing technologies to enhance the performance of its products, from polymers for skin care applications to new hair dyes, stabilizers and decorative colorings.
Another factor likely to affect the industry is the EU's Registration, Evaluation and Authorisation of Chemicals (Reach) legislation, which requires firms to ensure that harmful chemicals can be identified and replaced with safer alternatives. With the preregistration window open from June to December this year, all chemical firms will have to prove that their products are safe for consumers.
"Some products that have been in the industry for many years will be phased out with Reach," she says. "A real strength for Ciba is the fact that our portfolio is rather young and has a very sound testing base behind it. Ciba has always put a lot of effort and focus on having a very strong product safety and regulatory database behind its products."
Europe and the Americas remain key strongholds for the personal care sector, but there is significant potential in other regions such as Asia, where the economy is thriving and the population is starting to spend more freely on these types of products.
"There is tremendous growth potential in these developing markets because you're adding so many new consumers with an increasing disposable income so quickly. One of the first things that people buy when they have disposable income is personal care products. They are affordable and make them feel good about themselves that's why personal care products are so successful."
Looking ahead, Ehrenberger expects more of the same: decent growth and continued investment in innovation to meet customers' changing needs. "There are never drastic changes in the personal care market - it just continues to develop."
SHARES DOWN BUT CIBA UPBEAT
European specialty chemical companies, including Ciba, have had a torrid time over the past few years, suffering long-term declines in their share price following increased competition from Asia and the commoditization of their products.
In the past two years alone, Ciba's share price has plummeted from around Swiss franc (Swfr) 80 ($80, €51) to below Swfr40.
Ciba's CEO Brendan Cummins said at the firm's annual results conference in February that 2008 was also likely to be tough for specialty chemicals.
"It would be foolhardy for me to suggest that the implications of the slowdown in the US, and particularly the automotive and construction markets, don't have an effect," said Cummins.
"2008 will continue to be demanding. There is nothing that we see on the horizon that suggests that all the competitive pressures will ease in the chemical sector."
Nevertheless, he did say that Ciba anticipated continued growth in its personal care business. "The niche business in the plastics additives portfolio is expanding quite dramatically and we believe there's much more to come," he added.
Cummins pointed particularly to its robust product pipeline, and said a license for its new skin stabilization products was imminent.
The home and personal care segment continues to show consistently strong growth, contributing to the 3% year-on-year increase in sales of the firm's plastic additives business to Swfr2.16bn. Divisional earnings before interest and tax (EBIT) were also up by 3% on 2006 at Swfr323m.
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