19 August 2008 10:42 [Source: ICIS news]
MUMBAI (ICIS news)--Switzerland-based Ciba posted a first-half net loss of Swiss francs (Swfr) 569m ($517.6m/€353.07m) compared with a profit of Swfr103m last year due to an impairment cost in its water and paper treatment segment, as the company said on Tuesday it was considering divesting its paper and pulication inks businesses.
Sales dropped 7% in the first half of 2008 to Swfr3.08bn and operating income fell 41% to Swfr161m year on year as margins were hit by a significant rise in raw material costs and negative currency effects, the chemicals company added.
“The half-year results were unquestionably disappointing. We experienced intense margin pressure from the escalation of raw material and energy costs, which went up 10% in the second quarter alone, with the heaviest impact in April and May,” CEO Brendan Cummins said.
Ciba said that in the first half it conducted a strategic review of the paper business and concluded that further strategic options were needed, as market dynamics had changed considerably over the last few years and previously forecast profitability levels would not be met.
This, in addition to higher interest rates and equity risk premiums which resulted in an increase in discount rates, triggered an impairment test and resulted in a Swfr595m non-cash goodwill impairment for the segment, Ciba said.
Around two-thirds of this related to the acquisition of Allied Colloids in 1998.
Water and paper treatment sales were slightly lower than the first half and the second quarter of 2007, with considerable weakening in demand in the European paper industry.
Ciba said it was not possible to fully offset cost increases before the end of the second quarter, resulting in an operating margin before restructuring of 0.6%, compared with 4.7% in the second quarter last year.
“We are taking significant action to reshape the portfolio and focus on areas of technological core strength in plastics, coatings and water. A number of options are being evaluated for the paper and publication inks businesses, which are not performing in line with our expectations and require additional strategic action to improve their market positions," said Cummins.
Plastic additives sales were 2% higher in local currencies than the first six months of 2007 and 2% higher in the second quarter, with profitability impacted by higher oil-based raw material costs.
Coating effects sales were flat in local currencies in the first half, with some weakening of demand in Europe and North America, related mainly to the automotive and construction industries, as well as the ongoing decline of the inks market.
Assuming that current market conditions continue throughout the year, in 2008 the company expected sales in local currencies to increase over 2007 levels, it said.
“Business conditions going into the second half clearly remain a challenge. We are experiencing a deterioration in some markets, particularly in Europe, however, we are also seeing continued robust growth in other regions, notably in Asia, where we have a strong market position," said Cummins.
($1 = €0.68/$1 = Swfr1.09)
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