BASEL, Switzerland - Releasing its first-quarter 2008 results, Ciba has reported a slow start, with some markets impacted by the economic slowdown and others proving more resilient. Sales in Swiss francs of CHF 1,557 billion (2007: CHF 1,659 billion) were significantly impacted by currency movements in the first quarter of 2008. Sales in Swiss francs were six percent lower and sales in local currencies were one percent lower.
Raw material costs surged in the middle of the quarter at an unprecedented rate, and the increases were significantly higher than anticipated, up 4.5 percent over the first quarter of 2007. Gross profit margin for the first quarter was 28.1 percent, down from 28.7 percent in 2007. Production costs were three percent lower than the first quarter of 2007, partially offsetting variable cost increases from higher raw material costs.
Coating Effects had a reasonable start to the year, with steady sales in local currencies and improved profitability. Sales were CHF 438 million (2007: CHF 469 million), seven percent lower in Swiss francs, as a result of the exchange rate, and one percent lower in local currencies. Operating income before restructuring of CHF 57 million (2007: CHF 61 million) was six percent lower than the first quarter of 2007, but significantly improved over the fourth quarter of 2007.
Brendan Cummins, Chief Executive Officer, commented, “We have not had the strong start to the year that we were anticipating a few months ago. Dramatic changes in the currency and raw material environment had an adverse effect on the first-quarter results and although in general we are seeing good underlying growth in many of our markets, we are also clearly starting to feel the impact of the economic slowdown on overall sales growth. This is particularly apparent in NAFTA, where growth has slowed and in Europe, where we are experiencing weakness in a number of industries. Asia and the Middle East are proving to be more resilient.
“We expect this trend to continue in 2008, with some markets delivering good growth and others slowing. In the short term, we will address underperforming areas of the business and focus on increasing sales prices on an ongoing basis to compensate for the higher raw material costs.
“Over the next eighteen months, we will complete our Operational Agenda program to streamline our organizational structure, which has already substantially reduced the cost base, and we will leverage more value through a new industry-focused innovation structure. Going forward, we expect that each of our businesses will earn at least its cost of capital.”