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2006-04-27 News Headlines
Plastics Additives helps Ciba Specialty Chemicals sales growth Ciba Specialty Chemicals achieves strong sales growth in the first quarter of 2006 thanks in part to contributions from the plastics segment.
Armin Meyer, Chairman of the Board and Chief Executive Officer, comments: “We started the year with strong organic sales growth across most of the businesses. The separation of Textile Effects is a turning point for the future of the Company. This intensive process is on schedule for a closing in the third quarter. The divestment will strengthen our strategic focus on our core businesses for plastics, coatings, water and paper. It will give us the opportunity to streamline our global structures and to sustainably improve our profitability from the first quarter levels, which did not meet our expectations.” Chief Operating Officer Brendan Cummins added: “Our profitability
continues to be impacted by increases in raw material costs, utility costs
and social benefit costs. With selected price increases, a number of firm
operational initiatives underway as well as strict cost containment, we
are confident to deliver higher sales, higher profits and free cash flow
in 2006.” First quarter sales were CHF 1,645 million (2005: CHF 1,486 million), up 11 percent in Swiss francs and 5 percent in local currencies. Volumes were 5 percent higher, supported by improved demand in several industries, notably automotive and plastics. The positive currency effect in Swiss francs stemmed from a stronger US dollar in the first three months. While the businesses most exposed to high raw material costs pushed through further price increases, overall sales prices for the quarter were flat. The Company will continue its strict price discipline in order to offset unfavorable cost increases such as utilities and raw material costs.
All regions showed sales growth in local currencies, with Asia up 13 percent, Europe 3 percent and the Americas 1 percent. Sales in Plastic Additives reached CHF 536 million (2005: CHF 461 million), up 16 percent in Swiss francs and 10 percent in local currencies over the same period last year. Sales prices were further increased, and volume growth was significant across all business areas, underlining the need for production expansion which is currently underway in Singapore. Coating Effects sales were CHF 485 million (2005: CHF 441 million), up 10 percent in Swiss francs and 5 percent in local currencies over the first quarter of 2005. Volume growth was strong, although pricing pressure on more mature products in Imaging and Inks and Electronic Materials led to some decreases in sales prices. Sales in Water & Paper Treatment reached CHF 624 million (2005: CHF
584 million), up 7 percent in Swiss francs and 1 percent in local currencies.
Sales price increases in Water Treatment, driven by the need to compensate
higher raw materials costs, more than offset weaker volumes. Paper Chemicals
suffered from sluggish demand and price pressure in certain product lines,
while the acquired product lines of Raisio Chemicals performed according
to expectations. Profitability was affected by temporarily lower capacity utilization by approximately CHF 14 million. As expected, profitability was also impacted by higher utility costs, a 3 percent increase in raw material costs, compared to the first quarter 2005, as well as higher social benefit costs. Lower demand towards year end 2005 led to higher inventories. As a consequence, production was temporarily reduced but in the meantime runs at normal levels again. In addition, Paper Chemicals has faced temporary effects on capacity utilization, expected to end by mid year, from the fire at the Grenzach plant and from production relocation to Asia. Although the overall lower capacity utilization affected profitability levels, it also had a positive effect on inventory levels and thus strongly supported cash flow generation in the first quarter. Gross profit margin improved over the fourth quarter in 2005 to 28.7 percent of sales (2005: 30.6 percent). Selling, general and administrative costs were 11 percent higher in Swiss francs and 6 percent higher in local currencies, primarily due to higher social benefit costs and costs for the separation of Textile Effects and operational initiatives. Operating income before restructuring reached CHF 109 million or 6.6 percent of sales (2005: CHF 128 million, 8.6 percent of sales). Plastic Additives maintained its 13.9 percent operating income margin based on strong volume growth. Coating Effects saw margin pressure from lower sales prices as well as lower capacity utilization primarily in the Imaging and Inks business, and reached an operating income margin of 10.9 percent of sales. Action to restore profitability to prior levels is underway. Water & Paper Treatment profitability was negatively impacted by around CHF 12 million from lower capacity utilization, aggravated by the fire at the Grenzach plant (Germany) and the shift of production from its Clayton site (UK) to India, with an operating income margin of 1.9 percent of sales. The margin levels should significantly improve again later in 2006. Net income before restructuring was CHF 64 million (2005: CHF 73 million).
Net income was CHF 37 million (2005: CHF 67 million). Following the February 2006 announcement that a definitive agreement
has been reached to sell the Textile Effects business to US chemical company,
Huntsman The Textile Effects segment continues to perform operationally according
to expectation. Project Shape, focusing on the paper chemicals business following the
Raisio Chemicals acquisition, as well as the shift of the Textile Effects
business to its Asian customer base, is showing good benefits, with overall
savings before taxes of CHF 20 million in the first quarter 2006. Savings
and costs relating to Textile Effects are now reported under “discontinued
operations”. A number of operational initiatives have been developed to sustainably improve the effectiveness and efficiency of all key processes across the business mid-term. Organizational and geographical structure Overall, business conditions in 2006 are expected to remain similar to those of the previous year, with utility and raw material costs at high levels and industry demand mixed. While the divestment of Textile Effects will bring a clear strategic focus on the core businesses, allowing streamlined structures, and strengthens Ciba Specialty Chemicals’ overall position, Management is determined to improve the Company’s performance with additional operational measures. Assuming business conditions in 2006 are equivalent to last year and
that currency levels do not worsen, sales for the year in local currencies
are expected to be higher than 2005. Excluding restructuring and impairment
costs, operating income is expected to increase, resulting in margins
remaining around 2005 levels, and net income from continuing operations
after tax is expected to improve. The Company also anticipates a strong
improvement of free cash flow. August 17, 2006: Half year 2006 financial results Read a recent press release from Ciba Specialty Chemicals about; 'Ciba Specialty Chemicals’ Textile Effects Segment to launch the first comprehensive global branding program for textiles colors and effects.'
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