Clariant announced a widening of its net losses and a decrease in sales for the fourth quarter of 2008, and says it will launch a program to raise profitability and competitiveness to levels higher than the average of its peer group. Meanwhile, the company says it will likely cut more jobs than the 1,000 it announced last month.
Clariant reported a fourth-quarter net loss of SF207 million ($179 million), compared with a SF17-million loss a year earlier and deeper than analysts’ forecasts
of a SF110 million-
KOTTMANN: ‘Not yet where we want to be.’
SF200 million loss.
The net loss was mainly due to a previously announced one-off impairment charge of SF180 million in Clariant’s textile, leather, and paper chemicals business, as well as to deteriorating economic and market conditions across all of the company’s businesses. “We have reduced our expectation on sales, Ebit, and cash flow for 2009” in textile, leather, and paper chemicals, says Clariant CEO Hariolf Kottmann. Clariant’s fourth-quarter group sales declined to SF1.7 billion, from SF2.1 billion in the year-earlier period.
Announcing the results at a presentation in Zurich on February 17, Kottmann said that the company faces “the most uncertain and difficult economic environment the industry has seen for decades.” That has led to a “record low level of order intakes” and caused Clariant to reduce production drastically, he says. Demand so far in the first quarter of 2009 is at the same weak level as in the previous quarter, says Clariant CFO Patrick Jany. The company is “in price maintenance mode rather than price increase mode,” aiming to achieve higher margins over time as feedstock costs decline, Jany says. Lower sales are expected in the first six months of 2009.
Clariant is “not satisfied with our performance compared to our peers,” Kottmann says. “We are not yet where we want to be. Our cash generation is still not satisfactory, while our costs are too high and our organization is too complex,” he says. Clariant
will focus on cash generation, cost cutting, and complexity reduction in 2009-10. Previous, similar efforts failed to breach the performance gap between Clariant and its peer group, he adds. Clariant’s average return on investment capital (ROIC) was 9% in 2008, compared with a “peer group average” of 10.3% and lower than the ROIC of companies such as Rhodia, BASF, AkzoNobel, and Lanxess. Clariant’s Ebit margin fell to 2.4% in the fourth quarter of 2008, from 5.8% in the fourth quarter of 2007.
Clariant, as a result, will next month launch a program, dubbed Clariant Excellence, to bring all processes within the company under a lean sigma regime. Lean sigma is a combination of the established six sigma process and the lean management techniques developed by Japanese companies, Kottmann says. Clariant will train 100 “black belt” project leaders to oversee the initiative, which will be launched in the production, administration, and sales and marketing areas. The process requires a “complete cultural change” within Clariant, he says.
Meanwhile, improving cash generation at a time of decreasing sales volumes will require “strict discipline,” Kottmann says. Clariant virtually stopped capital spending in October 2008 to improve the company’s cash position and will likely not restart significant spending until May or June 2009, he says. The company has also reduced inventories to cut working capital. The Clariant board will recommend that the company pay no dividends, grants, or other payouts to shareholders for 2008, also with the aim of strengthening Clariant’s cash generation.
Clariant is streamlining its supply chain and purchasing processes as part of the company’s cost-cutting effort. It also plans to outsource the distribution of its products “in countries where Clariant’s own organizations cannot be maintained at reasonable costs,” Kottmann says.
The company will cut 1,350 jobs in 2009, of which 1,000 were announced last month and the rest form part of a separate restructuring that began in 2006. About 120 of this year’s job cuts will be in North America, 130 in Latin America, and 250 in Asia. A combined 850 jobs will be cut in Europe,
the Mideast, and Africa of which 300 will be in the U.K., 200 in Germany, and 150 in Switzerland. The measures will reduce Clariant’s workforce to below 19,000. “I would also like to make very clear that we are ready to take further steps in headcount reduction should the economic environment not improve, which in my personal opinion is very likely,” Kottmann says. The company expects restructuring costs of SF200 million-SF300 million in 2009.
Clariant may have to close several mas-terbatches production plants permanently this year, Kottmann says. “We’re waiting to see how the situation develops,” he adds. All of Clariant’s plants are currently “ under-utilized” due to the economic downturn with an unspecified number of units idled, he says.
Kottmann took over as Clariant CEO last October. “The four months I have been at this company have confirmed to me that we have the substance to achieve our mid-term vision,” he says. This includes staying “independent and publicly traded,” and “remaining headquartered in Switzerland.” —IAN YOUNG IN ZURICH
Yara International reported a net loss of NK2.1 billion ($311 million) for the fourth quarter of 2008, compared with a net profit of about NK2 billion in the year-ago period. Fourth-quarter sales were up 9%, to about NK19 billion. The result reflects lower sales volumes, write-downs on third party-sourced inventories, and foreign exchange losses on debt, Yara says.
Full-year 2008 results were at record highs for Yara, however, the firm says. Yara recorded a 36% rise in net profits, to NK8.2 billion, and a sales increase of 54%, to NK89 billion.
“The fertilizer industry has since September experienced an unprecedented slowdown in deliveries and a decline in international fertilizer prices,” says Jørgen Ole Haslestad, president and CEO of Yara. “Despite challenging market conditions, we delivered a strong underlying performance excluding write-downs on third party-sourced inventories and currency effects on debt, demonstrating the strengths in Yara’s flexible business model. We have taken action to mitigate the effects of the slowdown by reducing third-party sourcing and curtailing production, and we are benefiting from cheaper ammonia imports,” Haslestad says.
—DEEPTI RAMESH
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