Leather sales decline as Clariant improve profitability20 February 2012
Clariant, the specialty chemicals maker, announced on February 15, full-year 2011 sales of CHF 7.370 billion, compared to CHF 7.120 billion in 2010. Sales grew 16% in local currencies and 4% in Swiss francs. The lower growth in Swiss francs was a result of the significant appreciation of the Swiss franc against most major currencies on a year-on-year basis.Clariant also announced their fourth quarter results, which saw a 17% decline in sales in their Leather Services Business Unit.
Q4 sales in Clariant’s Leather Services Business Unit declined 17% in local currencies and 24% in Swiss francs compared to the previous-year period. Sales were negatively impacted by destocking activities and continuously high raw hide prices say the company. Customers postponed production in anticipation of lower input costs in 2012. Demand from the luxury goods and the automotive industries remained robust. However, in the upholstery sector the trend towards using alternative materials instead of leather continued.
From a regional standpoint, sales in local currencies were up in North America/Mexico. Asia Pacific, particularly China was very weak. Europe was only slightly negative as the market environment for the automotive and luxury segments has proven to be resilient against the economic softening so far.
The EBITDA margin declined compared to the previous year as lower volumes over-compensated the benefits from an improved cost structure. The Business Unit was still affected by adverse currency effects, although to a lesser extent compared to the previous quarters. Leather Services continued to be successful in compensating rising raw material costs by increasing sales prices.
Leather Services expects a sequential improvement of results during 2012 as destocking will end. In addition, continuing good demand from the luxury segment and from North America is expected to support the business. During the year, diminishing currency changes and stabilising raw material costs will also lead to an improvement. As a leading producer of more environmentally friendly leather chemicals, Leather Services is receiving more and more requests for sustainable products from customers working for high-end sports brands. This supports the strategy of the BU. The business will continue to focus on innovation, high value segments, and the introduction of new services and value-added and eco-friendly products such as the new chromium-free tanning technology (Easy WhiteTan).
Full year results
Due to the acquisition of Süd-Chemie and the strength of the Business Unit Catalysis & Energy in the third and fourth quarters, sales were higher in the second half-year than in the first six months, despite a significant slowdown in some businesses towards year-end. In addition to Catalysis & Energy, which had another record-year, the non-cyclical Business Units Additives, Functional Materials, Industrial & Consumer Specialties, and Oil & Mining Services contributed significantly to the sales increase in 2011. Those non-cyclical businesses account for more than 50% of Group sales. In contrast, the cyclical Business Units Pigments and Masterbatches suffered from a slow-down in industrial production that started at the beginning of the second half-year and resulted in destocking activities along the value chain. All regions grew at a double-digit rate in local currencies.
The double-digit increase in sales was driven by year-on-year sales price increases of 7% and by acquisitions, which contributed 14% to sales growth. Volumes were 5% lower, reflecting the lower demand in the second half-year and the deliberate loss of sales that did not meet Clariant’s profitability targets.
The gross margin decreased to 26.7% from 27.9% in full-year 2010.
Raw material costs increased 14% compared to the previous year. Sales price increases of 7% fully compensated the higher raw material costs, leading to a slightly positive contribution to the gross margin.
EBITDA before exceptional items increased to CHF 975 million (margin 13.2%) from CHF 901 million (margin 12.7%) a year ago. A strong fourth quarter in Catalysis & Energy and a diminishing negative impact from currencies toward the end of the year pushed the margin higher.
Clariant Q4 2011 performance
Clariant reported 21% sales growth in local currencies in the fourth quarter. In Swiss francs, sales were 13% higher, at CHF 1.918 billion compared to CHF 1.700 billion a year ago. Sales prices increased 9% year-on-year, while volumes were 12% lower and raw material costs rose 10%. Sequentially, sales prices rose slightly while raw material costs fell 1%. Catalysis & Energy had an excellent quarter, leading the good performance of the non-cyclical businesses. Masterbatches and Pigments were negatively affected by the softening demand from the plastics industry and the related destocking activities. The structurally challenged mature businesses Textile Chemicals, Leather Services, and Paper Specialties continued to suffer from the poor business conditions in their respective end-markets. Organic sales growth in North and Latin America was double-digit, while sales in Asia/Pacific decreased. Europe suffered from the debt crisis, with a double-digit decrease in sales. Including acquisitions, all regions showed double-digit sales growth.
Clariant will continue to systematically implement the next steps in its transformation process with a focus on the integration of Süd-Chemie, on completing the restructuring measures initiated in 2009-2010, and on portfolio management. In this context, Clariant is evaluating strategic options for the Business Units Textile Chemicals, Paper Specialties, and Emulsions, Detergents & Intermediates, with the goal of realisation in the mid- to long-term.
An accurate forecast for 2012 is difficult given the current level of economic uncertainty. Raw material costs are expected to rise in the mid-single-digit range while exchange rates should remain stable compared to the beginning of the year. In its base case scenario, Clariant expects that after a weak start to 2012, the global economy will progressively strengthen in the course of the year. Therefore, results for the first half-year are expected to be lower compared to the high base of the first half of 2011, with an improvement in the second half-year 2012. For full-year 2012, Clariant expects further sales growth in local currencies and sustained profitability.
In the last three years, the restructuring program as well as portfolio management measures have brought Clariant’s operating performance to a sustainably higher level. The Board of Directors will therefore propose to the AGM a payout of CHF 0.30 per share through a reduction of the nominal value of the shares to CHF 3.70 from CHF 4.00.
Sales in Industrial & Consumer Specialties (ICS) rose 5% in local currencies and declined 4% in Swiss francs versus the same period in 2010. Demand in Personal Care was exceptionally strong, more than compensating for a weak de-icing business due to mild weather conditions in the United States and Europe. Demand in most other business lines was good. All geographical regions except Europe contributed to growth, with particular strength in North and Latin America.
The Business Unit was able to significantly increase the EBITDA margin before exceptional items compared to the previous year’s level despite a continuing substantial adverse currency effect. As in the previous quarters, the margin increase was the result of an improved mix effect with a higher sales contribution from Personal Care, an improved cost structure and better sales prices that fully compensated for higher raw material costs.
Clariant CEO, Hariolf Kottmann commented: ‘In 2011, we started to transform Clariant into a highly profitable specialty chemicals company, based on a strong technology base and a solid financial position. The acquisition of Süd-Chemie marked a milestone in this process. In addition, Clariant continued to invest in its growth businesses and supported the mature businesses in improving their profitability. This is reflected in a better performance despite challenging and volatile business conditions. In 2012, we will intensify the efforts to sustainably increase the quality and performance of the portfolio.’