Cognis first quarter 2010 results: best ever operating result, sales volumes back on 2008 level
In the first quarter of 2010, specialty chemicals supplier Cognis recorded excellent results, significantly exceeding the first quarter of 2009. Sales increased by 10.6 percent to 728 million euros due to a strong recovery in actual demand, and supported by customer restocking. Sales volumes across all business units were up by 14.2 percent, and reached similar levels to the first quarter of 2008. This volume growth offset lower selling prices, and was at its strongest in March. Europe in particular saw a remarkable recovery in demand, and Cognis’ sales in this region increased by 10.1 percent. Sales in Asia-Pacific were 29.8 percent higher than in the previous year, reflecting that this region remains on track for growth, as well as Central and South America, where sales grew by 4.0 percent. In North America, sales increased by 2.0 percent.
Cognis’ operating result (Adjusted EBITDA) of 131 million euros was the best in the company’s history. This represents an increase of 58 million euros (79.6 percent) on the previous year. Return on sales (Adjusted EBITDA as a percentage of sales) improved by 6.9 percentage points to 17.9 percent. This development was driven by higher sales volumes, better capacity utilization and the continuous shift of the portfolio towards high value specialties. In addition, the company benefited from the cost management activities initiated in 2008 and 2009.
Earnings before interest and taxes (EBIT) increased by 68 million euros to 103 million euros. Net profit for the period also increased significantly driven by the strong operating performance, and stood at 47 million euros compared to a net loss of 33 million euros in the first quarter of 2009. Additional contributing factors in this excellent development were the ending of step-up depreciations, lower interest payments due to lower base lending rates, and lower restructuring costs.
Operating cash flow generation was still strong at 58 million euros, although it decreased by 43 million euros because business activity and related investments in working capital increased substantially. At the same time, lower interest payments led to an increase in cash reserves. Cognis’ cash position improved to 338 million euros in the first quarter of 2010.
Net debt of the Cognis Group (including Cognis Holding GmbH) was impacted by unfavorable euro/US-dollar exchange rate developments but remained stable at 1,880 million euros at the end of the first quarter. Due to Cognis’ improved operating result the leverage ratio (ratio of net debt to Adjusted EBITDA) for the whole group including Cognis Holding GmbH fell from 5.1 in December 2009 to 4.5.
Comments Cognis CEO Antonio Trius: “All our business units and regions delivered very strong results in the first quarter of 2010. With our innovative products aligned with the wellness and sustainability trends we were extremely well positioned to benefit from improved business conditions. Our company has been able to deliver excellent performance due to our improved product mix, significantly higher capacity utilization and lower operating costs.”
Outlook for 2010
“With the global pickup in demand in the first quarter 2010 and the strong momentum continuing in April, there are clear signs that global economic conditions continue to recover,” says Trius. “We remain cautiously optimistic and expect that the recovery in Europe will continue and that Asia-Pacific and other emerging markets will remain on track for growth. By continuing to focus on green specialties, product innovations and particularly emerging markets, we expect to further participate in market growth. However, overall visibility remains limited and trading conditions are still uncertain.”
Sales by strategic business unit
Care Chemicals recorded sales of 407 million euros, an increase of 10.0 percent compared to the first quarter of 2009 (up 9.0 percent on an organic basis). This can be attributed to higher sales in the home and personal care markets, with demand increasing in nearly all regions and across the entire product portfolio. Business segments with industrial applications also recorded sales above previous year, mainly due to higher sales volumes for premium products. The Adjusted EBITDA of Care Chemicals rose significantly by 82.3 percent to 75 million euros.
Nutrition & Health saw its sales increase by 5.2 percent to 88 million euros (up 3.9 percent on an organic basis) due to higher demand in the food, nutrition and pharma market segments. Sales in Asia-Pacific were significantly above previous year’s level across most of the product portfolio, as a result of increased sales volumes. Sales in Europe were also higher, driven primarily by strong demand from the food and pharma industries. Adjusted EBITDA rose by 29.5 percent to 19 million euros, reflecting both higher sales volumes and lower costs.
Functional Products achieved sales of 229 million euros, representing an increase of 14.1 percent (up 14.3 percent on an organic basis). This positive development was driven particularly by the coatings and lubricants businesses, recording higher demand in all regions. Some of the key markets, including the automotive, housing and mechanical engineering sectors, have rebounded well since 2009. Adjusted EBITDA rose strongly by 129.4 percent to 39 million euros, due to both increased sales and reduced costs.
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