BASEL, Switzerland - Ciba has reported a net loss of CHF 569 million for the first half of 2008, due in part to rising raw material costs, the continued weakness of the U.S. dollar and a noncash goodwill impairment for the company’s paper business.  

The company reported sales of CHF 3,088 million, down from CHF 3,308 million in 2007, flat in local currencies and 7 percent lower in Swiss francs. Growth in Asia was strong, with sales in China up 10 percent in local currencies. However, sales in the Americans were 1 percent higher in local currencies compared to the same period in 2007 and 10 percent lower in Swiss francs, a result of the weakened U.S. dollar. European sales were 5 percent lower in local currencies and 7 percent lower in Swiss francs.  
The company reported a gross profit margin of 26.8 percent, compared to 29.0 percent in 2007, mainly due to high raw material costs. Production costs were flat over the first half of 2007, despite a 10-percent increase in energy costs.   Operating income (EBIT) before restructuring was CHF 161 million compared to CHF 273 million in 2007, resulting in a margin of 5.2 percent, compared to 8.2 percent in 2007. The result was severely impacted by the escalation in raw material costs, as well as the strength of the Swiss franc relative to the U.S. dollar. The margin erosion from the higher costs has now been stemmed, with significant sales price increases coming through in mid-June and into the third quarter.  

The company conducted a strategic review of the paper business and concluded that further strategic options needed to be evaluated for this business, as market dynamics have changed considerably over the last few years and previously forecast profitability levels would not be met. In addition, the company experienced higher interest rates and equity risk premiums, and therefore an increase in discount rates. Together, these factors triggered an impairment test and a resultant CHF 595-million noncash goodwill impairment for the segment. Around two-thirds of this relates to the acquisition of Allied Colloids in 1998. The company has therefore reported a net loss for the first half of 2008 of CHF 569 million, compared to net income in 2007 of CHF 103 million.  

Looking forward, Brendan Cummins, Chief Executive Officer commented, “Business conditions going into the second half clearly remain a challenge. We are experiencing a deterioration in some markets, particularly in Europe; however, we are also seeing continued robust growth in other regions, notably in Asia, where we have a strong market position. Overall, based on our current market forecasts, raw material costs and foreign exchange rates, we believe the outlook we communicated at the first quarter is achievable with the margin improvements that are coming through from the increased sales prices in the second half. However, should business conditions worsen further, the results may be lower than we are currently anticipating.”