Reshaped Clariant Increases Profitability in the Fourth Quarter
- Repositioning of portfolio well underway with an agreement to divest three businesses already signed.
- Continuing operations with full-year sales growth of 8% to CHF 6.04 billion and an EBITDA* margin of 13.3% on solid development in the core businesses.
- Net result from continuing operations of CHF 211 million due to strong fourth quarter.
- Dividend increase of 10% to CHF 0.33 per share proposed.
- For full-year 2013, Clariant expects a further progress in sales and profitability compared to 2012 by focusing on growth and continuous cost efficiency.
CEO Hariolf Kottmann: “Clariant achieved solid results in a demanding year, with the majority of businesses performing well. In most regions the company continued on a robust growth path. In Europe, the economic weakness affected some of the more cyclical businesses. Concerning the repositioning of Clariant, the company has made good progress. Five businesses have been reclassified as discontinued operations and an agreement to divest three of those businesses has already been signed. The focus in 2013 will now be on growing the remaining seven core businesses. Combined with continuous cost efficiency, the reshaped Clariant is well positioned to achieve its 2015 targets.”
Full-Year 2012 Performance
Muttenz, February 14, 2013 – Clariant, a world leader in specialty chemicals, today announced full-year sales 2012 from continuing operations of CHF 6.038 billion compared to CHF 5.571 billion in the previous-year period. This corresponds to an increase of 8% in local currencies and in Swiss francs. The 8% increase was driven by the acquisition of Süd-Chemie, while organic growth was flat with 2% higher prices offsetting lower volumes.
Sales development in 2012 was heterogeneous across all regions and businesses. From a regional perspective, all regions except Europe grew double-digit. Europe declined 2% while growth dynamics in Asia/Pacific remained robust during the year. The pronounced weakness in southern Europe has spread across the continent in the second half-year. However, with roughly two thirds of sales generated outside of Europe, the impact of the European crisis on Clariant was offset by growth in the other regions. In the fourth quarter no further deterioration of the business environment from third quarter levels has been observed.
In an overall demanding market environment, there was strength in the Catalysis & Energy and Oil & Mining Services Business Units (BU), both growing double-digit in a year-on-year comparison. Industrial & Consumer Specialties and Functional Materials held up well due to their limited exposure to the economic cycle. While Masterbatches managed to resist the weakness in Europe, the Pigments and Additives BUs were impacted by the severe downturn in some end-markets – mainly in Coatings, Printing and Electronics – and primarily in Europe.
At 28.9%, the gross margin improved from 27.5% recorded in the previous year. The improvement was the result of a positive volume/mix effect and a stringent margin management which over-compensated higher costs for the underutilization of production capacities. Year-on-year, prices increased by 2% while raw material costs remained stable.
The EBITDA before exceptional items from continuing operations was 4% lower year-on-year, contracting to CHF 802 million from CHF 835 million. EBITDA margin before exceptionals stood at 13.3% compared to 15.0% for the continuing operations in the previous-year period.
On the EBITDA line, exceptional items including restructuring and impairment costs were lower at CHF 127 million versus CHF 192 million in full-year 2011 and were mostly related to the integration of Süd-Chemie. Net result from continuing operations was 4% lower at CHF 211 million compared to CHF 220 million in the same period one year ago. Lower taxes could not fully offset the impact from a lower operating income and somewhat higher financing costs.
Full-year operating cash flow was strong with CHF 468 million compared to CHF 314 million one year ago, following the normal seasonality with a build-up in inventories in the first half of the year followed by a reduction in inventories and therefore cash flow generation in the second half-year.
Net debt stood at CHF 1.789 billion and was therefore lower compared to the CHF 1.934 billion recorded at the end of the third quarter 2012, but close to the CHF 1.740 billion reported at year-end 2011. Consequently, the gearing, reflecting net financial debt in relation to equity, improved to 59% from 64% at the end of the third quarter 2012, and was only marginally higher compared to the 58% recorded at year-end 2011.
Event Subsequent to FY 2012: Early Redemption of Convertible Bond
Clariant has decided on February 6, 2013, to early redeem the 3% Convertible Bond 2009-2014 of CHF 300 million with conversion rights into Clariant registered shares with a nominal value of CHF 3.70 based on the terms of the bond. As far as the conversion rights are exercised, Clariant will reduce its net debt and increase its equity.
Q4 2012 Performance
In the fourth quarter, Clariant reported 2% sales growth in local currencies on the back of 3% higher volumes and 1% lower prices. In Swiss francs, sales were 1% higher, at CHF 1.509 billion compared to CHF 1.491 billion a year ago. Compared to the third quarter of 2012, both sales prices and raw material costs decreased 1%. Sales growth in the fourth quarter was driven by strength in Oil & Mining Services and Catalysis & Energy with growth of 15% respectively 9%. While Functional Materials, Industrial & Consumer Specialties, Masterbatches and Pigments developed stable year-on-year, Additives was adversely impacted by the ongoing weakness in the electronics industry. At the regional level, Latin America grew double-digit in local currencies while North America and Asia/Pacific were slightly above previous-year’s level. EMEA was flat with good growth in the Middle East compensating for the weakness in Europe.
The gross margin was higher year-on-year, at 29.3% compared to 27.0% in the previous-year period. This was mainly due to stringent margin management and lower idle facility costs year-on-year. The EBITDA margin before exceptional items climbed to 14.9% from 14.3% in the fourth quarter of 2011 as a result of almost stable or better margins in five of the seven Business Units.
Operating cash flow picked-up significantly and amounted to CHF 284 million compared to CHF 200 million in the fourth quarter 2011.
In 2012 Clariant announced it would be looking for strategic options for the four BUs 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. Subject to regulatory approvals, the transaction is expected to close by the end of Q2/2013. In a second phase, strategic options are currently evaluated for Leather Services and Detergents & Intermediates. Therefore all four BUs are reported as “discontinued operations”, starting with 2012 full-year results.
For information purposes, the Group’s figures for full year and Q4, before reclassifying in continuing and discontinued operations, would have been as follows:
Driven by the acquisition of Süd-Chemie, full-year 2012 sales including discontinued operations amounted to CHF 7.782 billion, a 6% increase from the CHF 7.370 billion recorded in 2011. In local currencies sales were also 6% higher. EBITDA before exceptional items fell 4% to CHF 934 million (margin 12.0%) from CHF 975 million (margin 13.2%) in full-year 2011. Fourth quarter 2012 sales including discontinued operations rose 2% in local currency and 1% in Swiss francs to CHF 1.936 billion from 1.918 billion in the previous-year period. The EBITDA before exceptionals was 9% higher at CHF 264 million (margin 13.6%) compared to CHF 241 million (margin 12.6%) in the fourth quarter 2011.
The repositioning of the portfolio in 2011 and 2012 has brought Clariant to a sustainably higher level of profitability and net income. The Board of Directors will therefore propose to the AGM an increased distribution of CHF 0.33 per share (+10%). The distribution is proposed to be made from the capital contribution reserve that is exempt from Swiss withholding tax.
For 2013, Clariant expects a persisting soft macroeconomic environment characterized by high volatility. While solid growth in the emerging markets is most likely, no significant growth impulses are expected from the European and the North American economies.
In this scenario, Clariant will focus on growing the seven core businesses and a continuous cost discipline. 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 peer group average.
Sales in the Industrial & Consumer Specialties (ICS) Business Unit rose 1% in local currencies and were flat in Swiss francs compared to the same period one year ago. In Asia/Pacific, Europe and North America sales growth was robust while Latin America and Middle East & Africa reported a sales decline due to negative one-time effects. Apart from these effects, the business environment in these regions remained stable.
In the fourth quarter, ICS experienced the usual seasonal tailwind from the de-icing business in Europe while sales in North America declined year-on-year due to the mild weather in this region. In most other businesses, demand remained stable, although the seasonal weakness was more pronounced than normal as customers de-stocked towards year-end. However, this de-stocking effect was more than compensated by strong growth in Crop Protection across all regions, resulting from the introduction of new products and market share gains. Strong sales growth has also been achieved in Construction Chemicals and in Paints & Coatings.
Sales in the Business Line Base Products were weaker year-on-year. The recently announced JV with Wilmar for the production and sale of amines will improve the competitiveness of ICS in this area. The creation of the JV is on schedule, with operations expected to start in the first half of 2013.
The EBITDA margin before exceptional items improved compared to the prior-year period, driven by a positive mix effect as the sales contribution from high-margin businesses increased.
For 2013, ICS expects demand growth in Personal Care and Crop Protection to continue. In the first quarter, de-icing sales will benefit from a new contract signed with a major airline in December 2012. To meet strong demand growth in North America and Latin America, ICS has recently inaugurated an expansion of its production plant in Coatzacoalcos, Mexico.
In the Masterbatches Business Unit, sales were 1% lower in local currencies and flat in Swiss francs compared to the same period one year ago. Sales were higher in Latin America and unchanged in Europe where weakness persisted in Germany and southern Europe, partially offset with solid growth in the United Kingdom, Poland, and the Nordic countries. In contrast to the other regions, Asia/Pacific, North America, and Middle East & Africa experienced a slight year-on-year decline in the fourth quarter. Although the market environment was stable overall, Masterbatches noticed a more pronounced seasonal weakness than usual at the end of 2012.
The EBITDA margin was flat year-on-year as the effect of slightly lower volumes was compensated by cost savings and the execution of continuous improvement measures.
The Business Unit will open a new ColorWorks™ center in Chicago which is one of seven strategically located centers that will provide highly specialized services and resources to customers in consumer packaging.
Masterbatches plans to further expand in high-growth markets in Asia/Pacific, Middle East and Eastern Europe. For the first quarter of 2013, Masterbatches expects the ground-breaking of a new site in Poland that will also serve as an operational center for other Business Units.
For 2013 visibility is limited. Going forward, the BU will continue to improve its cost structure particularly in Europe and further shift its product portfolio towards high end applications.
Sales in the Pigments Business Unit were unchanged in local currencies and declined 1% in Swiss francs year-on-year. Higher sales in Latin America and North America were offset by weaker sales in Europe. Sales in Asia increased slightly as good growth in some emerging countries like India could compensate for weakness in Japan
Sales increased sharply in the Business Line Plastics, where strength in Asia/Pacific, Latin America and North America compensated the weakness in Europe. In the Coatings business, sales contracted further due to soft demand and further destocking in Europe in addition to the usual seasonality in the northern hemisphere. Strong growth was recorded in Latin America – where the early part of the fourth quarter is usually the seasonal peak for the decorative paint market.
Sales in the Printing segment increased slightly although Non-Impact Printing (NIP) was slightly lower due to ongoing soft demand and destocking by major customers. The traditional printing inks experienced the effects of a continued shift from printed publications to digital media.The EBITDA margin before exceptionals declined versus the same period of the previous year. Excluding a one-time gain from the sale of land in South Korea in the previous-year period, the margin remained basically constant.
The BU Pigments expects the challenging environment in Europe to continue with customers reporting poor visibility of business conditions. However, demand in North America and particularly in Latin America should continue to improve in 2013 and sales will be supported by new business gained in these regions. The Business Unit is confident to improve its market position also in Asia, where Pigments in 2013 will double the size of its marketing, sales and technical service organization in China, India and Indonesia. Additionally, a project to build a new pigments preparation plant in Indonesia, having double the capacity of the existing facility has been approved and commissioning should occur in early Q4 2013.
BU Functional Materials
In the Functional Materials Business Unit, sales contracted 2% in local currencies and 3% in Swiss francs compared to the same period of the previous year. Asia/Pacific, Latin America and North America experienced solid growth while sales in EMEA declined. On a comparable basis, Functional Materials sales were 1% lower in local currencies and 2% lower in Swiss francs.
Similar to the previous quarters, sales in the business line Adsorbents increased year-on-year. Robust demand for Food & Feed Additives more than compensated for weaker demand in the Foundry business (iron casting for automotive), as the latter felt the impact from the difficult economic situation in Europe and a more pronounced seasonal weakness than usual. Underlying demand in Performance Packaging was stable. Water Treatment sales further decreased but at a slower pace than in the previous quarters. The profitability in Water Treatment improved as the business line is benefitting from Clariant Excellence measures.
The EBITDA margin before exceptionals slightly declined compared to the same period one year ago. Lower volumes and some negative one-time items linked to the integration were responsible for the decline.In 2013, Functional Materials expects stable demand for the majority of its businesses and an improved profitability as cost savings from integration measures will start to contribute to the result.
BU Catalysis & Energy
Fourth quarter sales in Catalysis & Energy were up 9% in local currencies and in Swiss francs. Sales growth was driven by buoyant demand in Asia/Pacific and particularly in the Middle East & Africa. On a comparable basis, Catalysis & Energy sales were 10% higher in local currencies and 12% higher in Swiss francs.
Sales were particularly strong in the Petrochemicals segment. To build on the success of its Houdry catalysts, the Business Unit recently announced a capacity increase to be installed at the Louisville, Kentucky plant in the United States. These types of catalysts are used in the on-purpose production of C3 and C4 olefins from light paraffins. The announced capacity increase will go on stream in September 2013.
Sales growth in most other businesses, namely in Chemicals and Polyolefins remained strong. The business environment for Refinery was stable.
The start-up business Battery Materials was impacted by the weak demand for electric vehicles and stationary energy storage. Additionally, the business line had to absorb start-up costs from the plant opened in Canada in early 2012, which manufactures the highly innovative cathode material LFP (lithium iron phosphate). However, there are signs that demand for LFP is increasing. Some major customers in Asia have placed new orders for the material that is superior in quality and has an excellent safety profile compared to other commercially available cathode materials.
Year-on-year, the EBITDA margin before exceptionals improved as a result of higher sales volumes. The Catalysis & Energy BU is currently ahead of schedule in its integration roadmap as it has accelerated the implementation of Clariant Excellence measures.
The Business Unit expects solid growth in 2013 based on current order intake figures and a backlog greater than last year’s. However, the first half-year is currently expected somewhat below an exceptionally strong previous-year period.
BU Oil & Mining Services
In the Oil & Mining Services (OMS) Business Unit, sales grew 15% in local currencies and 14% in Swiss francs on a year-on-year comparison.
Regional growth was driven by strong demand in Asia/Pacific, in Europe and in Latin America. Underlying demand in North America remained strong but was impacted by some short-term overstocking by customers.
All business lines experienced double-digit growth. Demand for products from the Oil Services and Mining Services businesses remained at high levels. Refinery on the other hand benefitted from the seasonal peak in the fourth quarter despite a mild winter season in Europe and North America.
The EBITDA margin improved due to higher volumes, a positive mix effect from the refinery business and a stringent price management.
OMS will continue to focus on key markets by investing in strategic growth opportunities. It will be crucial for the Business Unit to remain innovative and focus on sustainable solutions, which will allow the company to continue to grow and develop industry-leading technologies. The innovation power of the business was recognized as the Clariant Oil Services’ Phasetreat suite of products received the “Best Production Chemicals” award by the World Oil magazine, a leading oil and gas trade journal, in October 2012. The Phasetreat products are recommended for separating emulsified oil and water, while ensuring that environmental regulatory compliance and sustainability targets are met.
Going forward, OMS expects continuing good growth. New contracts with mining companies signed in the second half of the year 2012 will bear fruition in late Q2/early Q3 2013, and the introduction of new technologies and services will continue to drive growth in 2013.
BU Additives – includes some smaller activities such as New Business Development, totaling sales of CHF 20 million.
Sales in Additives were 14% lower in local currencies and in Swiss francs compared to the previous-year period. Sales declined in all geographical regions except in North America.
Polymer Additives sales increased year-on-year as growth continued in Asia/Pacific and in Latin America. Demand for Waxes declined due to destocking effects at the end of the fourth quarter, overcompensating strong growth for new innovative solutions like Ceridust micronized specialty waxes and Licocene Performance Polymers.
The demand for flame retardants was weak due to underlying lower demand in the electronics industry, which was intensified by year-end destocking. However, the mid-term industry trend of replacing halogenated flame retardants by non-halogenated substitutes remains fully intact. As a result, the BU will extend its range of applications in the future by Exolit EP, which can be used for epoxy resins designed for printed circuit boards.
The EBITDA margin before exceptionals stood at 13.1% compared to 15.3% in the previous-year period. The lower profitability was mainly due to a negative impact from costs linked to the new plant for non-halogenated flame retardants in Knapsack, Germany.
For 2013, Additives expects an improvement in demand on a sequential basis driven by a recovery in the non-halogenated flame retardant business, which will be supported by new applications of this technology in the automotive sector. Additionally, the Business Unit will continue to improve its cost structure with Clariant Excellence measures without jeopardizing innovation strength and growth opportunities.
Discontinued Operations – Business Units Emulsions, Detergents & Intermediates, Leather Services, Paper Specialties, and Textile Chemicals
Sales in discontinued operations improved 2% in local currencies and remained flat in Swiss francs.
Sales in the Textile Chemicals Business Unit increased significantly. Robust sales growth in Asia/Pacific, North America, and the Middle East & Africa regions did not entirely compensate for the marked drop in demand in Europe. The Business Unit benefited from strong demand for chemicals for pre-treatment, printing, and cellulosic dyes. The EBITDA margin substantially improved as earnings are gradually being supported by the relocation to Asia.
The Paper Specialties Business Unit recorded a marginal increase in sales in Swiss francs, overall remaining stable against the previous year. Local currency sales in the Asia/Pacific and Latin America regions rose, but fell in Europe and North America. Profitability improved year-on-year, in part due to the relocation of production to Spain and disciplined price management.
Sales in the Leather Services Business Unit grew double-digit in a year-on-year comparison. All regions except EMEA made positive contributions to the solid performance. Demand was particularly high in North and Latin America as a result of structural improvements that increased market share. Europe was hit hard by the severe problems in southern EU Member States. Demand varied in the Business Unit’s end markets. Although the automotive sector demand for leather and luxury goods remained fairly strong, it did tail off somewhat at the end of the year. In contrast, the Shoe and Garments segments stabilized at a fairly low level. As a consequence the EBITDA margin increased slightly.
Sales in the Emulsions Business Line exceeded expectations thanks to strong demand in Latin America. Intense competition hit parts of the Detergents & Intermediates Business Line, notably the TAED business and intermediate products for use in agricultural chemicals.