Clariant reports operating income before exceptional items of CHF 107 million in 3Q 2009

MUTTENZ, Switzerland, Nov. 4, 2009 (Press Release) - Clariant, a world leader in specialty chemicals, today announced sales of CHF 1.691 billion in the third quarter, compared to CHF 2.094 billion during the same period in the previous year. This represents a 19% decline in Swiss Francs, and 14% in local currency.

Sales stabilized during the third quarter. Although there was a modest pick up in some businesses and regions, overall demand remained at low levels with no signs of a sustainable upward trend. Volumes declined by 11% and prices were 3% lower compared to the third quarter 2008. Raw material costs were 16% lower compared to the same period a year ago, but 1% higher compared to the second quarter 2009. The costs of capacity underutilization were lower than in the two previous quarters as a consequence of higher utilization rates, the shutting down of plants and a reduction in workrce - either temporarily or permanently.

Despite the pressure on volumes, Clariant maintained a stringent focus on managing its gross margin which increased to 30.1% from 29.4% in the previous-year period.

CFO Patrick Jany commented: "While we have mitigated the impact of the economic crisis on our gross profit, the risk of possible gross margin erosions in the months to come has risen due to increasing raw material costs. We will closely observe this unfavorable development and defend our margin. If necessary, we are ready to deal with potential volume impacts by further reducing production capacities."

Sales, General & Administration (SG&A) costs decreased to CHF 373 million from CHF 404 million a year ago, basically as restructuring efforts began to show a positive impact on the P&L. As a percentage of sales, SG&A remains high at 22% compared to 19.3% in the previous year period. Despite an improvement in SG&A costs, the lower gross profit led to an operating income before exceptional items of CHF 107 million compared to CHF 178 million in the previous year period. Compared to the second quarter 2009, the operating income before exceptional items further improved from CHF 69 million.

All Divisions contributed to the recovery in operating income before exceptional items over the last three quarters. The Masterbatches Division benefited from a demand recovery that was stronger than in the other Divisions. The Pigments & Additives Division also experienced some recovery of order intake but from an extremely low level in both the first and the second quarter. The stringent focus on restructuring as well as a slight recovery in demand - in particular in the Textiles and Leather businesses - led to an improved profitability of the Textiles, Leather & Paper Chemicals Division. The Functional Chemicals Division benefited from a satisfactory development in its Industrial & Consumer Care and Oil Services businesses.

During the quarter the company continued to invest in restructuring efforts. Overall 1,917 job positions have already been made redundant and a further 800 have been identified. The total headcount of the company by year-end is expected to be below 18,000 compared to 20,102 at the end of 2008.

Restructuring and impairment costs in the third quarter amounted to CHF 38 million and are expected to increase substantially in the remainder of the year. The net income was CHF 25 million, compared to a loss of CHF -61 million in the second quarter. Net income in the third quarter of 2008 was CHF 78 million.

Operating cash flow reached CHF 193 million up from CHF 147 million a year ago. The operating cash flow, accumulated for the first nine months, reached CHF 533 million compared to CHF 174 million in the same period last year. On the one hand, the company's strong cash flow resulted from a continuing focus on decreasing net working capital, mainly through tight inventory management. On the other hand the improvement of the operating income has increasingly contributed to cash generation and will help to make the achievements more sustainable.

Clariant has further strengthened its balance sheet by increasing its cash position to CHF 995 million, which includes the proceeds of the CHF 300 million convertible bond that was launched in July. Net debt was further reduced to CHF 751 million from CHF 1 209 million at the end of 2008. The company's gearing - net debt divided by equity - was at 38% at the end of the third quarter and vastly improved compared to the end of the year 2008 (61%).

Outlook

Clariant assumes that the global economy will only slowly recover. Consequently, Clariant sales in local currencies are predicted to remain weak until the end of the year, approximately in the range of 16-20% below the previous year.

The company will maintain its focus on cash generation by decreasing its net working capital. At the same time, the cost-saving and restructuring measures will continue to favorably impact operational performance, which will then also increasingly contribute to cash generation. In the traditionally weak fourth quarter, Clariant expects an improved operating income before exceptional items compared to the fourth quarter of 2008.

Going forward Clariant will continue its restructuring efforts with estimated restructuring costs of CHF 200-300 million in 2009 and further job reductions in 2009 and 2010.

For 2010, Clariant confirms its target of a sustainable above industry average return on invested capital (ROIC).

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