Clariant's Q1 results reflect lower demand
06/05/2009
Specialty chemicals provider Clariant has announced that sales reached CHF 1.6 billion in the first quarter of 2009 compared to CHF 2.1 billion in the same period a year earlier, a decline of 19% in local currencies and 24% in Swiss francs.
The company said the quarter was "characterised by a steep decline in demand".
Customers of leather chemicals, specifically, along with customers of textile, and paper chemicals (part of the same division), as well as customers of the pigments and additives divisions, continued to destock their inventories, Clariant said, leading to "a significant capacity underutilisation and, therefore, to an operating loss before exceptionals in both divisions".
Overall, volumes fell 25%, resulting in "extremely low capacity utilisations", which the company said were accentuated by its focus on cash-flow generation by reducing inventories. The substantial reduction of inventories was achieved by lowering production volumes below sales volumes. The resulting strong operating cash flow came at the expense of a lower gross margin and a negative operating margin.
Margins were also negatively influenced by a substantial inventory devaluation resulting from a fast decline in raw material costs during the quarter. Compared to the fourth quarter of 2008, raw material prices fell 15% on average and 2% compared to the same period one year ago. It said it expected this effect to become negligible once raw material price volatility decreases, which Clariant expects to take place during the second quarter of this year.
In the short term, Clariant said it would focus its restructuring efforts on the unprofitable divisions. It explained: "The pigments and additives division will continue to implement cost saving measures and optimise production in order to adjust its capacity to the lower demand. In order to sustainably improve the operating performance of the textile, leather and paper chemicals division, the three business units will be separated by the end of the year (see leatherbiz, March 19, 2009). This will enhance the operational and strategic flexibility to tackle the performance issues according to the individual needs of the particular business unit."
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