Quarterly Results. Clariant Reports Strong Cash Flow Despite Continuing Weak Demand

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1 Clariant International Ltd Rothausstrasse Muttenz 1 Switzerland Second Quarter 2009, Clariant Reports Strong Cash Flow Despite Continuing Weak Demand Sales in Q2 down 21% in local currencies and 24% in CHF Operating income before exceptional items decreases to CHF 69 million from CHF 143 million in the second quarter 2008 but improved from CHF -13 million in the first quarter Cash flow from operations improved to CHF 184 million, from CHF 33 million in the previous-year period Net debt reduced to CHF 985 million from CHF million at year-end 2008 Outlook: For the full year 2009, Clariant expects sales in local currencies to decrease 16-20% compared to Cash flow is expected to remain strong as a result of ongoing stringent net working capital management and further improvement of the operating income before exceptional items compared to the first half of 2009 CEO Hariolf Kottmann commented: Our focus on generating cash, decreasing costs and reducing complexity has shown results, both in terms of cash flow that remained strong and operating income. However, we are still challenged by unprecedented low demand and don t expect a quick recovery. Hence, we are continuing with our efforts to reduce costs, generate cash and simplify our operating structure in order to close the performance gap to our peers and gain further operational and strategic flexibility.

2 Page 2 of 9 Key Financial Data Sales EBITDA before exceptional items margin EBIT before exceptional items margin EBIT Net loss / income Operating cash flow Number of employees * ** * ** as of 30 June 2009 as of 31 December 2008 Clariant Q2, 2009 Performance Muttenz, Clariant, a world leader in specialty chemicals, today announced sales of CHF billion in the second quarter of 2009, compared to CHF billion in the same period of the previous year. This represents a 24% decline in Swiss Francs, and 21% in local currency. The second quarter was characterized by continuous weak demand in most businesses. Although volumes came down 23% year-on-year, the gross margin increased to 29.3% from 28.9% in the previous-year period as a result of successful margin management. Compared to the first quarter of 2009, the gross margin was 5.7 percentage points higher as the measures to adjust capacity to lower demand levels have started to kick in. In addition, destocking along the value chains eased in some customer industries. As a consequence, Clariant has started to increase production output in some businesses with the effect of reduced costs for underutilization of capacities. Also, the stabilization of raw material costs has led to less devaluation of inventories. The company s efforts on cost savings favorably impacted Sales, General & Administration (SG&A) costs, which decreased in absolute terms to CHF 371 million from CHF 434

3 Page 3 of 9 million. However, due to the drop in sales, the SG&A ratio increased to 23.1% from 20.5%. Based on higher capacity utilization, ongoing cost savings and a stabilizing raw material cost environment the operating income before exceptional items reached CHF 69 million in the second quarter, compared to CHF 143 million in the previous-year period. However the operating income before exceptional items improved from CHF -13 million in the first quarter. All divisions contributed positively to operating income before exceptional items. The decisive cost-saving measures in the Textile, Leather & Paper Chemicals Division positively impacted the profitability of all three businesses. The Pigments & Additives Division significantly reduced its costs for the underutilization of capacity due to the fact that destocking had eased and order intake had stabilized. The Functional Chemicals Division continued to be the most resilient against the decline in demand. The Masterbatches Division further lowered its break-even point. Net income remained negative (CHF 61 million) in the reporting period mainly due to the restructuring and impairment costs of CHF 74 million but also resulting from the weak operating income. The previously announced reduction of 1350 job positions was already completed with 1423 job positions reduced. An additional 500 job positions to be made redundant in 2009 were identified and implementation has begun. Further reductions in 2009 and 2010 will follow in line with the company s goal to close the performance gap to its peers and to adjust the company s structure to the global recession. Operating cash flow reached CHF 184 million in the second quarter of 2009, compared to CHF 33 million in the comparable previous-year period. This substantial increase has been achieved through a stringent reduction in net working capital, in particular due to tight inventory management. The cash position in the group improved to CHF 545 million from CHF 438 million at the end of the first quarter of In addition, Clariant s cash position and debt maturity profile have been further improved by launching a CHF 300-million Convertible Bond shortly after the closing of the second quarter. The available financial headroom remains at more than CHF 2 billion. The Bond has a coupon of 3% and matures on 7 July The conversion price was set at CHF 8.55

4 Page 4 of 9 per share, a premium of 30% to the prevailing share price on the date of issuance. The bond will be booked in the third quarter of The company has further strengthened its balance sheet by reducing net debt by CHF 224 million to CHF 985 million compared to year-end The gearing net debt divided by equity was at 51% on 30 June In line with Clariant s focus on cash generation as well as cost and complexity reduction, the company intends to simplify its operational structure effective January 1, The divisional management layer will be removed. 10 Business Units will have full profit and loss responsibility including ownership of their assets. The new structure will create more operational and strategic flexibility. This move will not only foster entrepreneurship and accountability, but also create a platform to improve Clariant s profitability Business Unit by Business Unit and going forward facilitate portfolio measures where applicable. Outlook Clariant assumes that the global economy will only slowly recover. Consequently, Clariant sales in local currencies are predicted to remain weak until the end of the year, approximately in the range of 16-20% below the previous year. The company will maintain its focus on cash generation by decreasing its net working capital. At the same time, the cost-saving and restructuring measures will continue to favorably impact the operational result, which will then also increasingly contribute to cash generation. Based on this scenario, Clariant anticipates a further improved operating income before exceptional items for the full year compared to the first half of Going forward Clariant will continue its restructuring efforts with estimated restructuring costs of CHF million in 2009 and further job reductions in 2009 and For 2010, Clariant confirms its target of a sustainable above industry average return on invested capital (ROIC).

5 Page 5 of 9 Business Discussion Second Quarter Textile, Leather & Paper Chemicals Sales EBITDA before exceptional items margin EBIT before exceptional items margin EBIT Despite persistent poor business conditions resulting in a massive decline in sales, the Textile, Leather and Paper Chemicals Division returned to profitability at the operating level. Sales dropped 22% in local currencies and 25% in Swiss francs. Compared to the first quarter of 2009, however, demand has stabilized with a differentiated picture among the three Business Units. The Leather Business recovered slightly from the collapse in demand experienced in the preceding two quarters. Volumes in the Textile Business did not recover substantially but some markets stabilized at depressed levels towards the end of the quarter. The Paper Business, which held up reasonably well during the initial phase of the economic crisis, started to suffer from the downturn late in the first quarter of This trend continued in the second quarter. At the regional level, Asia and Latin America were more resilient to the downturn than Europe and North America in all businesses, but still clearly negative. The gross margin was lower than in the second quarter last year, mainly due to unabsorbed fixed costs due to underutilization of capacities. Compared to the first quarter of 2009, however, the gross margin improved. At the operating level before exceptional items, all three business units returned to black as a result of the decisive and fast implementation of rigorous restructuring measures. The division will continue to focus on reducing costs and complexity to improve its competitive position and to adapt to the expected future lower demand levels.

6 Page 6 of 9 Pigments & Additives Division Sales EBITDA before exceptional items margin EBIT before exceptional items margin EBIT Demand in all businesses of the Pigments & Additives Division remained weak in the second quarter. Sales were down 30% in local currencies and 32% in Swiss francs. Compared to the first three months of 2009, revenues for the second quarter of 2009 were up 12% sequentially. There is evidence that the fall in demand bottomed out during the course of the second quarter. However, business conditions remain extremely challenging. The Coatings Business experienced improved demand in the decorative and architectural market segments. However, the business remained under pressure as trading conditions in both the industrial and automotive markets stagnated. Weak demand in the Plastics segment negatively impacted sales in the Speciality Business. The weakness was only partially offset by improving conditions in Special Printing Inks applications. In the Waxes Business destocking came to an end, enabling the Base Products Business to recover slightly from an unusually weak first quarter. The division successfully improved its gross margin on the back of a higher capacity utilization compared to the first quarter, where the clear focus had been on inventory reduction. With demand stabilizing, production was slightly ramped up, resulting in lower idle facility costs. On a year-on-year basis, the operating margin before exceptional items was markedly lower. Compared to the first quarter 2009, operating profit and margins improved significantly in the second quarter as a result of rigorous implementation of cost reduction measures and improved plant capacity utilization. Pigments & Additives will continue to build on the improved trend of the second quarter by further optimizing costs and reducing working capital.

7 Page 7 of 9 Masterbatches Division Sales EBITDA before exceptional items margin EBIT before exceptional items margin EBIT Sales in the Masterbatches Division declined 15% in local currencies and 19% in Swiss francs. The substantial inventory devaluation that had hit Masterbatches in the first quarter slowed down during the second quarter. Towards the end of the quarter, demand from customers in the automotive and textiles value chain, as well as from major resin producers, picked up slightly. The business with concentrates for packaging turned out to be the most resilient against the destocking in the customer industries. Across all regions, Europe was impacted the most by the economic downturn, while demand in North America improved slightly. Sales in Latin America were stable and remained at satisfactory levels. Asia exhibited an improved picture. Exportoriented countries such as China or Japan continued to be weak but recovered slightly on the back of stabilizing Western economies. In contrast, demand in domestically oriented economies such as India remained at good levels. In the Middle East, the construction-related businesses developed poorly, while demand in other market segments remained solid. The division successfully managed to continuously adapt to the low demand environment and further lowered its break-even point by decisively taking out production capacity and reducing costs. Although both gross margin and operating margin were lower on a year-on-year comparison, a substantial improvement was achieved from the first quarter of Looking forward, the division will flexibly adapt the capacity to the demand level.

8 Page 8 of 9 Functional Chemicals Division Sales EBITDA before exceptional items margin EBIT before exceptional items margin EBIT Although most businesses of the Functional Chemicals Division benefited from still reasonable demand levels, the global recession started to leave its footprint predominantly in the European market. As a consequence, sales declined 15% in local currencies and 20% in Swiss francs. Clariant Oil Services won significant new contracts in Latin America and the Middle East while activity in North America was reduced. Oil Services posted double digit improvements in operating profit versus the corresponding quarter of Mining Services revenues were impacted by lower demand for minerals however profitability remained largely unaffected as a result of improved gross margins. In the Industrial & Consumer Care (ICC) Business, development overall was satisfactory with Latin America being stronger while Europe traded on a lower level. Within ICC, demand in the consumer-related businesses remained fairly stable, while the industrial segments Coatings & Construction Materials and Metal Working showed good growth compared to the first quarter. The agrochemical markets remained at a high level but started to feel the adverse effects of the economic crisis. Consequently, the Agrochemicals business experienced slightly lower demand for its products. Although the Functional Chemicals Division was less affected by the economic downturn, restructuring measures were implemented as decisively as in the other divisions in order to improve performance to peer level. As a result, the division reported a satisfactory gross and operating margin, maintaining last year s profitability level. Demand for Functional Chemicals is expected to erode slightly in the coming months as the economic crisis reaches the consumer. Further cost savings will ensure the division s profitability. - end -

9 Page 9 of 9 Contacts Media Relations Mark Hengel Phone: mark.hengel@clariant.com Arnd Wagner Phone: arnd.wagner@clariant.com Investor Relations Ulrich Steiner Phone: ulrich.steiner@clariant.com Clariant Exactly your chemistry. Clariant is a global leader in the field of specialty chemicals. Strong business relationships, commitment to outstanding service and wide-ranging application know-how make Clariant a preferred partner for its customers. Clariant, which is represented on five continents with over 100 group companies, employs around people. Headquartered in Muttenz near Basel, Switzerland, it generated sales of CHF 8.1 billion in Clariant s businesses are organized in four divisions: Textile, Leather & Paper Chemicals, Pigments & Additives, Masterbatches and Functional Chemicals. Clariant is committed to sustainable growth springing from its own innovative strength. Clariant s innovative products play a key role in its customers manufacturing and treatment processes or else add value to their end products. The company s success is based on the know-how of its people and their ability to identify new customer needs at an early stage and to work together with customers to develop innovative, efficient solutions.