Clariant achieves 8 % sales growth in a softening economic environment
Clariant announced third quarter 2014 sales of CHF 1.507 billion compared to CHF 1.443 billion in the third quarter of 2013. This corresponds to sales growth of 8 % in local currencies, driven by 7 % higher volumes and average sales price increases of 1 %. Growth in Swiss francs was 4 % as currency developments still had an adverse, albeit weaker, negative impact. Important trading currencies – predominantly the US dollar – strengthened against the Swiss franc during the reporting period, leading to a less pronounced effect of –4 percentage points on sales compared to – 7 percentage points in the first half-year of 2014.
Clariant achieved double-digit local currency sales growth in the emerging markets, led by Latin America with a 23 % sales increase followed by Asia/Pacific with 13 %. In Latin America, Brazil reported single-digit growth while sales in most of the other economies in the region grew double-digit. In Asia/Pacific strong sales growth was achieved in China with 12 % and in India with 38 % higher sales. In the mature markets, North America reached 3 % higher sales, outpacing Europe Middle East & Africa (EMEA), which grew 2 %. As in the first six months, the driver for growth in EMEA was the Middle East & Africa region which achieved growth of 15 %, in-line with other emerging markets. In contrast, growth was uneven across countries in Europe with good growth in the Nordic countries and in Eastern Europe, resulting in 0 % sales growth in the region.
With the exception of Care Chemicals, all Business Areas achieved mid single-digit to double-digit sales growth in local currencies in the third quarter. Care Chemicals reported 1 % lower sales resulting from a reduction of the exposure to lower margin products. Excluding this impact, Care Chemicals grew 5 % in local currencies, reflecting robust growth in Consumer Care, predominantly in Crop Solutions and Personal Care while Industrial Applications grew at a slower pace. Catalysis & Energy achieved 20 % higher sales, driven by a continuing strong growth in the Catalysts business but also due to a substantial improvement in sales in the start-up business Energy Storage. In Natural Resources, both the Oil & Mining Services and Functional Minerals businesses contributed to a 14 % sales increase. Plastics & Coatings sales grew 7 % on the back of a good sales performance of all three businesses: Additives, Masterbatches and Pigments.
At 28.8 %, the gross margin improved from the 28.1 % recorded in the prior-year period. Improved capacity utilization and slightly higher sales prices more than offset a negative currency impact.
EBITDA before exceptional items from continuing operations rose 8 % in local currencies, reaching CHF 211 million in Swiss francs compared to CHF 203 million in the third quarter of 2013. This was entirely due to higher volumes that more than compensated for the positive one-time effect from the acquisition of the deep-water assets in the Gulf of Mexico one-year ago. This one-time item together with higher volumes but an unfavorable mix and a still adverse currency impact resulted in a slightly lower EBITDA margin before exceptional items of 14.0 % versus 14.1 % in the year-ago period. The unfavorable mix was mainly due to the Plastics & Coatings Business Area in which Clariant has selectively put more emphasis on volumes and cash generation.
Exceptional items including restructuring, impairment, and transaction-related costs increased to CHF 17 million from CHF 4 million one year ago. Those items were primarily related to measures to streamline operations within the Group.
Net income from continuing operations of CHF 58 million was recorded, compared to CHF 129 million in the previous year. The decrease was entirely caused by higher tax charges compared to the year-ago period and a one-time gain from the joint venture transaction with Wilmar in the previous year.
Following the normal seasonal pattern, operating cash flow turned positive in the third quarter and reached CHF 126 million compared to CHF 153 million in the third quarter of 2013. After nine months, cash flow stood at CHF 13 million compared to CHF 40 million one year ago. A strong cash generation is expected in the fourth quarter.
Net debt stood at CHF 1.608 billion and was therefore higher than the CHF 1.500 billion recorded at year-end 2013. Gearing, reflecting net financial debt in relation to equity, rose to 60 % from 54 % at the end of 2013. Compared to the end of the first half-year of 2014, net debt and gearing were slightly lower at the end of the quarter.
Outlook 2014 – Focus on performance, growth and innovation
In the last few months the optimism in the market concerning the further path of the global economy has deteriorated, mainly with regard to the outlook for Europe.
Clariant expects the business environment to remain challenging with heterogeneous global economic developments and volatile currency markets. While the general economic environment in the emerging markets is expected to remain mixed but overall favorable, moderate growth should continue in the United States. In contrast, Europe is expected to remain flat at best. Hence, Clariant will focus on profitably growing the four Business Areas, cost efficiency and strengthening innovation.
For the full-year 2014, Clariant expects around mid single-digit sales growth in local currencies and an EBITDA margin before exceptional items above full-year 2013.
Clariant confirms its mid-term target of achieving 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 in 2015 and beyond.
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