Drop in Demand Impacts Ciba Profitability
February 20, 2009
Ciba, Basel, Switzerland, has reported that the company’s sales in local currencies were maintained at 2007 levels until late in the fourth quarter, where demand dropped sharply in many customer industries, notably plastics and coatings for the automotive and construction industries, as the economic downturn took effect.
BASEL, Switzerland – Ciba, Basel, Switzerland, has reported that the company’s sales in local currencies were maintained at 2007 levels until late in the fourth quarter, where demand dropped sharply in many customer industries, notably plastics and coatings for the automotive and construction industries, as the economic downturn took effect. Overall, sales were 3 percent lower than 2007 in local currencies, and 9 percent lower in Swiss francs, as the U.S. dollar remained relatively weak against the Swiss franc, and the British pound lost considerable value at the end of the year.
In Europe, sales were 8 percent lower in local currencies than 2007, while sales in the Americas held up better, just 2 percent below 2007 levels, with a particularly strong performance in Water & Paper Treatment. Despite growth slowing in Asia towards the end of the year, sales there increased 4 percent in local currencies over 2007.
Brendan Cummins, Chief Executive Officer, noted, “We faced some significant challenges in 2008, with raw material costs reaching unprecedented levels in the first half and a dramatic drop in demand towards the end of the year, as the economic downturn took hold. We have acted quickly to mitigate the effect of these factors, reducing capacity and inventory levels, as well as limiting capital expenditure and keeping costs to a minimum. Despite these difficult business conditions, we are well ahead with our Operational Agenda program and have been able to reduce costs throughout the organization. We have also substantially increased sales prices, which have offset much of the impact of higher raw material costs experienced in the first half of the year.”
Sales in the fourth quarter suffered from a dramatic drop in customer demand in late November and December for Plastic Additives and Coating Effects, as key markets were hit by the economic downturn. Sales to the automotive industry were significantly impacted, as were sales in the construction and displays market. Less affected was the Water & Paper Treatment segment, where sales in local currencies increased slightly with strong growth in the Americas and Asia, offsetting lower sales in Europe. Overall, in local currencies, sales were 13 percent lower in the fourth quarter and 19 percent lower in Swiss francs.
Profitability levels in the fourth quarter suffered from the deterioration in economic conditions at the end of the year. Operating income (EBIT) before restructuring was CHF 34 million (2007: CHF 129 million) or a margin of 2.6 percent (2007: 8.2 percent). As a result of the lower operating profitability and the additional charges relating to the BASF transaction, the company posted a net loss of CHF 41 million in the fourth quarter (2007: net income CHF 84 million).
Looking forward, Cummins commented, “The outlook for the economy over the next few months is very unclear. Raw material costs have started to ease, but we are not expecting market demand to show any meaningful recovery until late in 2009 at the earliest. Our focus is to make sure our production capacity is well balanced with the reduced demand, and that the fundamental structures of our business are fully optimized. We will also continue to focus on maximizing our innovation potential and making sure our businesses are well positioned in their customer markets for an upturn in demand whenever it may come.”