Clariant Reports Strong Cash Flow Despite Weak Demand
May 8, 2009
MUTTENZ, Switzerland - Clariant, a leader in specialty chemicals, has announced that sales reached CHF 1.6 billion in the first quarter compared to CHF 2.1 billion in the same period a year earlier, a decline of 19 percent in local currencies and 24 percent in Swiss francs. The quarter was characterized by a steep decline in demand. Volumes fell 25 percent, resulting in extremely low capacity utilizations, which were accentuated by the company's strong focus on cash-flow generation by reducing inventories. The substantial reduction of inventories was achieved by lowering production volumes clearly below sales volumes. The resulting strong operating cash flow came at the expense of a lower gross margin and a negative operating margin.
Margins were also negatively influenced by a substantial inventory devaluation resulting from a fast decline in raw-material costs during the quarter. Compared to the fourth quarter, raw-material prices fell 15 percent on average and 2 percent compared to the same period one year ago. This effect is expected to become negligible once raw-material price volatility decreases, which the company expects to take place in the second quarter of this year. While Clariant's margin management was successful with 6 percent higher sales prices year-on-year, inventory devaluation and underutilization costs led to a decline of the gross margin to 23.6 percent from 30.5 percent in the previous year.
The contributions of less cyclical businesses, such as de-icing, oil services and agrochemicals, could not compensate for the overall negative trend in demand. A reasonably good economic environment in Latin America and first signs of stabilization in some Asian countries could not offset the collapse of demand in the mature markets of the United States and Europe.