CLARIANT PERFORMANCE WELL ON TARGET AFTER SOLID THIRD QUARTER Mittwoch, 30. Oktober 2013 - 07:01

• Sales from continuing operations in Q3 2013 grew 2% in local currencies and were 3% lower in Swiss francs, at CHF 1.443 billion, down from CHF 1.489 billion in the same period last year.
• EBITDA margin before exceptional items amounted to 14.1% compared to 12.0% in Q3 2012.
• Net result from continuing operations rose to CHF 129 million from CHF 47 million in Q3 2012.
• Operating cash flow improved to CHF 267 million from CHF 181 million in Q3 2012.
• For full-year 2013, Clariant expects further progress in sales and profitability compared to 2012 by focusing on innovation, growth and continuous cost efficiency.

Muttenz, October 30 2013 - Clariant, a world leader in specialty chemicals, today announced third quarter 2013 sales from continuing operations of CHF 1.443 billion compared to CHF 1.489 billion in the prior-year period. This corresponds to a 2% sales growth in local currencies that was almost entirely the result of higher sales volumes. In Swiss francs, sales decreased 3%, due to the pronounced weakness of the Brazilian real, the Japanese yen and the Indian rupee against the Swiss franc.

The economic environment remained challenging and basically unchanged compared to the first six months. In this environment, all Business Areas with the exception of Catalysis & Energy achieved local currency sales growth in the low to mid single-digit range. Care Chemicals outperformed the other Business Areas, adding 5% in sales year-on-year, with all segments and regions contributing to growth. Natural Resources managed to increase sales by 3%. Good growth in Adsorbents, Mining Services and Refinery Services outweighed a weaker Water Treatment and a temporarily softer Oil Services business. In Catalysis & Energy, Catalysts experienced some delays in the realization of new customer projects, mainly in Asia. The situation is expected to gradually improve during the fourth quarter. The startup business Energy Storage did not improve compared to the previous quarters. Sales in Plastics & Coatings recovered from the weak prior-year period, achieving 4% growth.

On a regional basis, local currency sales growth in Latin America continued at a high level with an 11% increase year-on-year. A heterogeneous development has been observed in the other regions. North America and Europe grew 2% in local currencies while Asia/Pacific lost 2%. Robust growth of 2% in China was more than offset by weakness in India and Japan. Middle East & Africa continued at a low level.

The gross margin improved to 28.1% from 27.6% in the prior-year period. An improved volume/mix effect and a stable sales price development were the main causes for the higher gross margin. Compared to the third quarter of 2012, sales prices were unchanged while raw material costs were 1% higher. Sequentially, i.e. compared to the second quarter of 2013, sales prices were equally flat and raw material costs were 1% lower.

Year-on-year, the EBITDA before exceptional items from continuing operations improved 24% in local currencies and 14% in Swiss francs to CHF 203 million from CHF 178 million. Lower SG&A costs and a one-time gain related to the valuation of acquired assets over-compensated the currency impact on EBITDA. The EBITDA margin rose to 14.1% compared to 12.0% for the continuing operations in the previous-year period.

Exceptional items were positive at CHF 19 million mainly attributable to a one-time gain from the joint venture transaction with Wilmar. This compares to exceptional items of CHF -14 million one year ago. As a result of a higher EBITDA and a positive tax income of CHF 20 million, the net result from continuing operations significantly improved to CHF 129 million from CHF 47 million a year ago.

Operating cash flow was CHF 267 million versus CHF 181 million in Q3 2012. As expected, the cash outflow from the first two quarters 2013 has been for the most part reversed as the operating result improved and net working capital followed the normal seasonal pattern. For the remainder of the year, cash generation continues to be a priority of the Group with a further improvement in the fourth quarter expected.

Capital expenditure increased compared to the previous year, reaching CHF 92 million compared to CHF 67 million. The increase is related to investments into the new Clariant Innovation Center in Frankfurt, Germany, and expansion projects to drive profitable growth.

Net debt decreased to CHF 1.691 billion from CHF 1.945 billion at the end of the second quarter 2013. This was mainly due to a first cash inflow from proceeds of the disposal of Textile Chemicals, Paper Specialties and Emulsions that closed by the end of September. At year-end 2012, net debt was CHF 1.789 billion.

Gearing (net financial debt in relation to equity) improved and stood at 62% compared to 67% at year-end 2012.

The repositioning of the portfolio in 2011 and 2012 has lifted Clariant to a sustainably higher level of profitability, reflected in an increase in EBITDA margin in the first nine months of the year and the third quarter of 2013 compared to the corresponding previous-year periods.

The environment in which Clariant operates has not significantly changed over the past few months. Although a further stabilization has been observed in the mature markets, a broad-based economic recovery is not expected. In addition, uncertainties remain high in the emerging economies. Going into the fourth quarter, Clariant expects an overall stable but mixed business environment.

In this scenario, Clariant will focus on innovation, growth and cost efficiency. This will lead to further top-line growth in local currencies and an improved profitability in 2013. For the mid-term, Clariant confirms its 2015 targets of an EBITDA margin of above 17% and a return on invested capital (ROIC) above the peer-group average.

Effective 1 January 2013, Clariant has regrouped its seven Business Units for reporting purposes into four Business Areas: Care Chemicals (BU ICS), Catalysis & Energy (BU Catalysts, Energy Storage business), Natural Resources (BU Oil & Mining Services, BU Functional Minerals), and Plastics & Coatings (BU Additives, BU Masterbatches, BU Pigments). In addition, the Medical Specialties business has been reallocated from BU Functional Minerals to BU Masterbatches. Restatements for 2012 have been made accordingly.

At Group level the introduction of IAS 19 (revised) (pension accounting) as of 1 January 2013, is reflected in restated figures for the period. For the third quarter of 2012 including discontinued operations, IAS 19 had a positive impact of CHF 4 million on EBITDA and EBIT, while net income decreased by CHF 2 million. For the full-year 2012, the positive impact of IAS 19 on EBITDA and EBIT was CHF 18 million, while net income declined by CHF 10 million.

In 2012, Clariant announced it would be looking for strategic options for the five businesses Textile Chemicals, Paper Specialties, Emulsions, Detergents & Intermediates and Leather Services. In a first phase, Clariant announced on 27 December 2012 an agreement to sell its Textile Chemicals, Paper Specialties and Emulsions businesses to SK Capital, a US-based investment firm. The transaction was closed on 30 September 2013. On 15 October 2013, the disposal of Detergents & Intermediates to International Chemical Investors Group (ICIG), a privately owned industrial holding company focusing on mid-sized chemicals and pharmaceutical businesses, was announced. The plan to sell the Leather Services business to Stahl has been announced on 30 October 2013. Hence, all five businesses have been reported as “discontinued operations” from full-year results 2012.

In the third quarter of 2013, discontinued operations generated sales of CHF 443 million compared to CHF 434 million in Q3 2012 and a net result of CHF –333 million compared to zero income in Q3 2012. The net result from discontinued operations includes book losses, project and separation costs, and currency translation adjustments, related to the divestment of Textile Chemicals, Paper Specialties, Emulsions, and impairment recorded for Detergents & Intermediates.

BUSINESS DISCUSSION THIRD QUARTER

Third quarter 2013 sales in the Care Chemicals Business Area rose 5% in local currencies and remained unchanged in Swiss francs. On a comparable basis, i.e. including sales of the non-consolidated amines business transferred into the joint venture with Wilmar as of early July 2013, local currency growth would have been at 8%. The 50/50 joint venture with Wilmar called “The Global Amines Company” successfully started operations in the third quarter.

Most regions achieved local currency sales growth well above prior-year. Latin America recorded a double-digit sales increase while North America and Asia/Pacific grew single-digit, the latter driven by good demand in China and Indonesia whereas Japan remained difficult. Underlying demand in Europe was good but sales were negatively impacted by the deconsolidation of the amines business.

Solid growth has been achieved in the Consumer Care and Industrial Applications businesses. Similar to the first half-year, growth in Industrial Applications was mainly driven by the Paints & Construction business.

The EBITDA margin before exceptional items increased as the effect of higher volumes and an improved mix more than offset an unfavorable currency impact, lower margins in the Base business and some start-up costs related to the The Global Amines Company.

Going forward Care Chemicals expects growth to continue as innovations and new products particularly in Personal Care and Crop Solutions will drive growth. In September 2013 Clariant has launched Nipaguard® Zero for the preservation of cosmetics. Nipaguard® Zero is a paraben-free alternative based on 100% renewable Velsan® SC synergistic booster. This new solution is safe and effective. It will serve the strong growing demand for alternatives to parabens.

Sales in the Catalysis & Energy Business Area decreased 14% in local currencies and 17% in Swiss francs as a result of delays in several customer projects, predominantly in China and South East Asia and the postponement of one large order at the end of the quarter. Additionally, as in the previous quarter, lower base metal and rare earth prices impacted sales while margins remained unaffected. At the regional level, sales in local currencies grew double-digit in Europe and increased mid-single digit in North America. All other geographies experienced lower sales.

Sales in Specialty Catalysts were strong but could not compensate for the continuing softer demand in the Middle East in Petrochemicals and project shifts in Syngas. However, the underlying drivers for the most important Syngas segments Ammonia and Methanol remain solid.

Sales in the start-up business Energy Storage were below previous year’s level as the business is influenced by the lower than anticipated demand for electric vehicles and stationary energy storage solutions.

The EBITDA margin in the Business Area declined in a year-on-year comparison, mainly due to lower volumes and the highly dilutive impact from the Energy business which overcompensated for a better mix effect and integration savings.

Going forward, the Business Area is confident to achieve a fourth quarter performance similar to the previous-year period. Mid-term the underlying demand for most catalysts is expected to remain solid. Further growth will be secured by several new cooperation contracts, capacity extensions and tightened governmental regulations.

In August 2013, Catalysts signed a long-term cooperation agreement with CB&I’s Lummus Novolen Technology business. The two companies will jointly invest about CHF 65 million in a new state of-the-art polypropylene catalyst production line at Clariant’s catalyst production hub in Louisville, Kentucky, USA. The plant is expected to be on stream end of 2015. In October 2013, the new expanded production plant for Houdry dehydrogenation catalysts went into operation at its Louisville/Kentucky site. This plant captures opportunities driven by shale gas development that creates significant need for on-purpose olefin production.

Sales in the Natural Resources Business Area grew 3% in local currencies and declined 4% in Swiss francs year-on-year. Growth was driven by strength in the Functional Minerals, Refinery and Mining businesses.

In Oil & Mining Services (OMS), sales remained flat in local currencies. Solid growth has been achieved in Refinery Services and in Mining Services with the latter impacted by the delayed award of a key project in Africa which is expected in the fourth quarter 2013. In Oil Services, all regions with the exception of Latin America were somewhat weaker. Maintenance shutdowns on platforms particularly in the North Sea led to a temporary softening in demand in the respective regions. This effect will not be carried into the fourth quarter.

Year-on-year local currency sales in the Functional Minerals business increased in all regions. Strength in Adsorbents, Cargo & Device Protection and Foundry Additives more than offset the continuing weakness in Water Treatment. On a positive note, Water Treatment sales stabilized at the level recorded in the second quarter 2013.

The EBITDA margin before exceptionals of Natural Resources improved compared to Q3 2012. This was the result of higher volumes and a better mix effect in Functional Minerals as well as a constant underlying margin in OMS, supported by a one-time gain from the valuation of the acquired deep-water assets in the Gulf of Mexico; the EBITDA margin increase has been partly offset by a weaker contribution from the ASK joint venture, proportionate income of which is reported under Functional Minerals.

Natural Resources expects solid growth in the fourth quarter, driven by sizeable new contracts in the Oil & Mining Services business and ongoing strong demand in Functional Minerals’ core businesses. Oil Services continues to expand its presence in the United States with the recent acquisition of the deep-water business in the Gulf of Mexico. In addition, Clariant has opened its new global headquarters for Oil & Mining Services in The Woodlands, Texas, in September 2013, which includes the global Oil Services Center of Excellence, a regional mining technology center and a customer and employee training facility to provide best-in-class service and solutions to North American customers.

Sales in the Plastics & Coatings Business Area increased by 4% in local currencies compared to the prior-year period, driven by substantial volume growth in all three businesses Pigments, Masterbatches and Additives. Due to unfavorable currency movements, sales in Swiss francs remained unchanged.

Pigments achieved strong growth in local currencies in Latin America and Asia/Pacific which more than compensated the ongoing weakness in the Japanese market. Europe grew as well but at a slower pace while North America slightly declined. Coatings, Plastics and Special Applications made good progress compared to the low sales level recorded in the previous-year quarter whereas Printing was again impacted by the weakness in the Japanese market.

Masterbatches sales increased in local currencies, led by mid-to high single-digit growth in Asia/Pacific, Latin America and North America. Sales in Europe and Middle East & Africa were softer, in part due to a weaker than expected performance of the Medical Specialties business. In order to adjust to the lower demand in Europe, Masterbatches has finalized its European Operational Excellence measures. Besides streamlining its production network, Masterbatches will now be able to offer its customers superior service capabilities.

In Additives, sales in the Flame Retardants business in the third quarter were for the first time in 2013 above the corresponding previous-year period. This was triggered by an improvement in the European electric industry while demand from the electronics industry in Asia remains subdued. Demand for Polymer Additives was strong whereas the Waxes business was stable versus prior-year.

The EBITDA margin was at previous-year’s level as substantially higher volumes and an improved mix effect compensated for the negative currency impact as well as the lower contribution from Japan.

Going forward the Plastics & Coatings Business Area continues to improve efficiency and adapt the cost base to the lower underlying demand in Europe and will shift resources to high growth regions and markets. Examples are the establishment of a joint venture in Masterbatches with Tasnee in Saudi Arabia, Pigments’ purchase of the organic pigment business of Jiangsu Multicolor and the investment in a world scale Pigment PV23 plant in Zhenjiang, Jiangsu Province, PRC.

Sales in discontinued operations increased 6% in local currencies and 2% in Swiss francs compared to a low base in the same period one year ago. While Textile Chemicals, Paper Specialties, Leather Services and Emulsions had a good quarter, Detergents & Intermediates achieved lower growth due to a difficult business environment especially in Detergents. Development in the regions was heterogeneous across the businesses.

The EBITDA margin also improved year-on-year, in particular in Textile Chemicals and Emulsions.

On 30 September 2013, the transaction to sell the businesses Textile Chemicals, Paper Specialties and Emulsions to SK Capital has been closed (media release published on 1 October 2013). Consequently those three businesses will therefore be deconsolidated from Clariant accounts as per end of September 2013.

The signing of an agreement to sell the Detergents & Intermediates business to International Chemical Investor Group (ICIG) was announced on 15 October 2013. Closing of the transaction is expected for the first quarter of 2014.

The divestment of these four businesses impacted EBIT and net income of discontinued operations, reflecting book losses, project and separation costs, as well as currency translation adjustments.

On 30 October 2013, Clariant announced that it plans to sell its Leather Services business to Stahl. Stahl Holdings B.V., majority owned by Wendel Group, is a Dutch company. In the proposed transaction, Clariant would receive 23% of the shares of Stahl and a cash payment of approximately CHF 85 million in exchange for the sale of its business to Stahl. Subject to the necessary regulatory approvals and employees consultations, the transaction could be finalized in 2014. Wendel would remain the principal shareholder of Stahl with approximately 70% of Stahl’s capital.