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Clariant delivers solid Q2 with improved profitability and cash flow

  • Second quarter 2015 sales from continuing operations remained stable in local currencies. In Swiss francs, sales decreased 8 % to CHF 1.406 billion from CHF 1.531 billion compared to last year
  • EBITDA margin before exceptional items improved significantly to 15.0 % from 14.0 %
  • Cash flow clearly improved to CHF 51 million compared to CHF -62 million in second quarter 2014
  • Net result from continuing operations at CHF 56 million compared to CHF 83 million
  • 2015 outlook confirmed
"Clariant continued the strong development of the first into the second quarter," said CEO Hariolf Kottmann. "We have significantly improved our operating profitability and our cash flow. This is in-line with our objectives for 2015 and we expect cash generation to continue to increase in the second half of the year. Clariant is well on track to achieve its growth and profitability targets, despite a continued mixed economic environment particularly in Asia and very volatile currencies."

Second quarter 2015 –Significantly improved EBITDA margin and better cash flow

Muttenz, 30 July 2015 – Clariant, a world leader in specialty chemicals, today announced second quarter 2015 sales from continuing operations of CHF 1.406 billion compared to CHF 1.531 billion in the second quarter of 2014. This corresponds to a flat growth in local currencies, influenced by 1 % lower volumes and 1 % higher prices.

Given the continuing strong volatility of currencies in the second quarter of 2015, in particular the year-on-year weaknesses of the euro, Brazilian real, and the Japanese yen, the flat sales development in local currencies translated into an 8 % sales reduction in Swiss francs.

Growth was focused in the Americas with Clariant posting strong local currency sales growth of 16 % in Latin America and 7 % in North America, the latter led by strong demand in Catalysis as well as continued growth in Oil & Mining Services. Europe was 2 % lower in local currencies but basically continued to be flat if the reduction of the exposure to the low-margin base products business is taken into account.

The lower growth was mostly due to the regions Asia/Pacific and Middle East & Africa. In Asia/Pacific sales in local currencies decreased by 5 %. The decline was due to weak demand in China and to a high base in the Catalyst business, where in addition second quarter orders were shifted into the first quarter of 2015. The strong development in smaller economies in Asia could not compensate for this base effect. In the Middle East & Africa region, sales were 21 % lower year-on-year in local currencies, because of a higher basis in the second quarter of 2014, which still included sales from the Water Treatment business, which was divested in July 2014.

The three high margin Business Areas, Care Chemicals, Catalysis, and Natural Resources experienced strong underlying demand and are all on track to reach their respective yearly guidance. Care Chemicals recorded a like-for-like growth of 9 %. Reported growth was 3 %, exclusively due to the reduction of exposure to the low-margin base products in 2014. Sales in Catalysis decreased by 9 % in local currencies as expected, due to a high base in the second quarter of 2014 and the shift of orders from the second into the first quarter of 2015. Natural Resources revenues increased by 1 % with an underlying growth of 6 % in local currencies when accounting for the sale of the Water Treatment business. Growth continued to be driven by Oil & Mining Services. In Plastics & Coatings, however, sales remained flat, as stable growth in the Masterbatches business could not compensate for the weakness in Pigments.

At 30.7 %, the gross margin was above previous year's level (29.5 %) benefitting from higher pricing. The increased gross margin was the main driver for the strong EBITDA margin before exceptional items improvement. The EBITDA before exceptional items from continuing operations rose 9 % in local currencies and reached CHF 211 million, compared to CHF 214 million recorded in the previous year. The corresponding EBITDA margin of 15.0 % was clearly above the previous year's level of 14.0 %.

Care Chemicals, Natural Resources, as well as Plastics & Coatings substantially improved EBITDA margins in the second quarter of 2015 in comparison to the previous year. Catalysis delivered a solid 23.9 % EBITDA margin, which was lower than in the previous year, when the comparable base was uncommonly high due to portfolio mix effects.

Exceptional items including restructuring, impairment, and transaction-related costs decreased significantly to CHF 16 million compared to CHF 23 million in the second quarter of 2014. This was due to lower restructuring costs in the second quarter of 2015.

Net income from continuing operations amounted to CHF 56 million compared to CHF 83 million in the previous year. This decline was basically due to extraordinarily low tax expenses in the second quarter of 2014 that were driven by one-time events.

Operating cash flow improved to CHF 51 million versus CHF -62 million one year ago, on lower build-up of net working capital. This is a clear reflection on Clariant's priority to increase cash flow in 2015. Cash generation is expected to continue to increase in the second half of the year.

Net debt was CHF 1.347 billion compared to CHF 1.263 billion recorded at year-end 2014. The gearing, reflecting net financial debt in relation to total equity rose to 58 % from 46 % at the end of 2014.

Separate subsidiary for Business Area Plastics & Coatings to be established
Clariant intends to establish a subsidiary for the Business Area Plastics & Coatings comprised of the Business Units Masterbatches, Additives and Pigments, in order to fully leverage their value creation potential for the company. This will enable Plastics & Coatings to be steered towards higher absolute profitability and cash generation. The new subsidiaries across the world will be fully owned by Clariant and will start operating as of 1 January 2016.

"In the last few years our Business Units Masterbatches, Pigments and Additives have established themselves as leaders in their respective markets in terms of profitability and market share. The new Plastics & Coatings subsidiary will further enable differentiated business steering with a clear focus on absolute profitability and cash generation to further safeguard and improve competiveness in already mature markets. This set up will further increase value creation for the Group. That is why, the entity will remain a vital part of the Group," said CEO Hariolf Kottmann. "This step will also enable us to make appropriate investments in our growth areas", he added.

The existing business unit structure with Masterbatches, Additives and Pigments, will be maintained with all approximately 7'000 employees, all assets and liabilities. Sales of the Business Area Plastics & Coatings were CHF 2.6 billion in 2014; the reported EBITDA margin before exceptional items was 14.0 %.

Outlook 2015 confirmed – Further progress in sales, profitability and cash
Clariant expects the challenging environment characterized by an increased volatility in commodity prices and currencies, to continue.

In emerging markets, the economic environment is expected to remain favorable, but at a lower level and with increased volatility. Moderate growth should continue in the United States. However, growth in Europe is expected to remain weak.

The combined effect of the appreciation of the Swiss franc with the weakening of the euro will impact Clariant's sales and profitability in absolute terms, but it will continue to be fairly neutral in terms of relative margins.

In 2015, Clariant is continuing to improve its operational efficiency by implementing a lean service organization; it is further improving its marketing excellence and continues to launch innovations that generate value for its customers.

For 2015, Clariant expects low to mid-single digit sales growth in local currencies. The company will further increase its EBITDA margin before exceptional items above full-year 2014 and increase cash flow generation.

Clariant confirms its mid-term target to achieve a position in the top tier of the specialty chemicals industry. This corresponds to an EBITDA margin before exceptional items in the range of 16 % to 19 % and a return on invested capital (ROIC) above the peer group average.

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