Reshaped Clariant Increases Q4 Profitability
CEO Hariolf Kottmann: "Clariant achieved solid results in a demanding year, with the majority of businesses performing well. In most regions the company continued on a robust growth path. In Europe, the economic weakness affected some of the more cyclical businesses. Concerning the repositioning of Clariant, the company has made good progress. Five businesses have been reclassified as discontinued operations and an agreement to divest three of those businesses has already been signed. The focus in 2013 will now be on growing the remaining seven core businesses. Combined with continuous cost efficiency, the reshaped Clariant is well positioned to achieve its 2015 targets."
Full-Year 2012 Performance
Clariant today announced full-year sales 2012 from continuing operations of CHF 6.038 billion compared to CHF 5.571 billion in the previous-year period. This corresponds to an increase of 8% in local currencies and in Swiss francs. The 8% increase was driven by the acquisition of Sued-Chemie, while organic growth was flat with 2% higher prices offsetting lower volumes.
Sales development in 2012 was heterogeneous across all regions and businesses. From a regional perspective, all regions except Europe grew double-digit. Europe declined 2% while growth dynamics in Asia/Pacific remained robust during the year. The pronounced weakness in southern Europe has spread across the continent in the second half-year. However, with roughly two thirds of sales generated outside of Europe, the impact of the European crisis on Clariant was offset by growth in the other regions. In the fourth quarter no further deterioration of the business environment from third quarter levels has been observed.
In an overall demanding market environment, there was strength in the Catalysis & Energy and Oil & Mining Services Business Units (BU), both growing double-digit in a year-on-year comparison. Industrial & Consumer Specialties and Functional Materials held up well due to their limited exposure to the economic cycle. While Masterbatches managed to resist the weakness in Europe, the Pigments and Additives BUs were impacted by the severe downturn in some end-markets "mainly in Coatings, Printing and Electronics" and primarily in Europe.
At 28.9%, the gross margin improved from 27.5% recorded in the previous year. The improvement was the result of a positive volume/mix effect and a stringent margin management which over-compensated higher costs for the underutilization of production capacities. Year-on-year, prices increased by 2% while raw material costs remained stable.
The EBITDA before exceptional items from continuing operations was 4% lower year-on-year, contracting to CHF 802 million from CHF 835 million. EBITDA margin before exceptionals stood at 13.3% compared to 15.0% for the continuing operations in the previous-year period.
On the EBITDA line, exceptional items including restructuring and impairment costs were lower at CHF 127 million versus CHF 192 million in full-year 2011 and were mostly related to the integration of Sued-Chemie. Net result from continuing operations was 4% lower at CHF 211 million compared to CHF 220 million in the same period one year ago. Lower taxes could not fully offset the impact from a lower operating income and somewhat higher financing costs.
Full-year operating cash flow was strong with CHF 468 million compared to CHF 314 million one year ago, following the normal seasonality with a build-up in inventories in the first half of the year followed by a reduction in inventories and therefore cash flow generation in the second half-year.
Net debt stood at CHF 1.789 billion and was therefore lower compared to the CHF 1.934 billion recorded at the end of the third quarter 2012, but close to the CHF 1.740 billion reported at year-end 2011. Consequently, the gearing, reflecting net financial debt in relation to equity, improved to 59% from 64% at the end of the third quarter 2012, and was only marginally higher compared to the 58% recorded at year-end 2011.
Event Subsequent to FY 2012: Early Redemption of Convertible Bond
Clariant has decided on February 6, 2013, to early redeem the 3% Convertible Bond 2009-2014 of CHF 300 million with conversion rights into Clariant registered shares with a nominal value of CHF 3.70 based on the terms of the bond. As far as the conversion rights are exercised, Clariant will reduce its net debt and increase its equity.
Q4 2012 Performance
In the fourth quarter, Clariant reported 2% sales growth in local currencies on the back of 3% higher volumes and 1% lower prices. In Swiss francs, sales were 1% higher, at CHF 1.509 billion compared to CHF 1.491 billion a year ago. Compared to the third quarter of 2012, both sales prices and raw material costs decreased 1%. Sales growth in the fourth quarter was driven by strength in Oil & Mining Services and Catalysis & Energy with growth of 15% respectively 9%. While Functional Materials, Industrial & Consumer Specialties, Masterbatches and Pigments developed stable year-on-year, Additives was adversely impacted by the ongoing weakness in the electronics industry. At the regional level, Latin America grew double-digit in local currencies while North America and Asia/Pacific were slightly above previous-year's level. EMEA was flat with good growth in the Middle East compensating for the weakness in Europe.
The gross margin was higher year-on-year, at 29.3% compared to 27.0%1 in the previous-year period. This was mainly due to stringent margin management and lower idle facility costs year-on-year. The EBITDA margin before exceptional items climbed to 14.9% from 14.3% in the fourth quarter of 2011 as a result of almost stable or better margins in five of the seven Business Units.
Operating cash flow picked-up significantly and amounted to CHF 284 million compared to CHF 200 million in the fourth quarter 2011.
In 2012 Clariant announced it would be looking for strategic options for the four BUs Textile Chemicals, Paper Specialties, Emulsions Detergents & Intermediates and Leather Services. In a first phase, Clariant announced on 27 December 2012 an agreement to sell its Textile Chemicals, Paper Specialties and Emulsions businesses to SK Capital, a US-based investment firm. Subject to regulatory approvals, the transaction is expected to close by the end of Q2/2013. In a second phase, strategic options are currently evaluated for Leather Services and Detergents & Intermediates. Therefore all four BUs are reported as "discontinued operations", starting with 2012 full-year results.
For information purposes, the Group's figures for full year and Q4, before reclassifying in continuing and discontinued operations, would have been as follows:
Driven by the acquisition of Sued-Chemie, full-year 2012 sales including discontinued operations amounted to CHF 7.782 billion, a 6% increase from the CHF 7.370 billion recorded in 2011. In local currencies sales were also 6% higher. EBITDA before exceptional items fell 4% to CHF 934 million (margin 12.0%) from CHF 975 million (margin 13.2%) in full-year 2011. Fourth quarter 2012 sales including discontinued operations rose 2% in local currency and 1% in Swiss francs to CHF 1.936 billion from 1.918 billion in the previous-year period. The EBITDA before exceptionals was 9% higher at CHF 264 million (margin 13.6%) compared to CHF 241 million (margin 12.6%) in the fourth quarter 2011.
The repositioning of the portfolio in 2011 and 2012 has brought Clariant to a sustainably higher level of profitability and net income. The Board of Directors will therefore propose to the AGM an increased distribution of CHF 0.33 per share (+10%). The distribution is proposed to be made from the capital contribution reserve that is exempt from Swiss withholding tax.
For 2013, Clariant expects a persisting soft macroeconomic environment characterized by high volatility. While solid growth in the emerging markets is most likely, no significant growth impulses are expected from the European and the North American economies.
In this scenario, Clariant will focus on growing the seven core businesses and a continuous cost discipline. This will lead to further top-line growth in local currencies and an improved profitability in 2013. For the mid-term, Clariant confirms its 2015 targets of an EBITDA margin of above 17% and a return on invested capital (ROIC) above peer group average.