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Ciba announced that results in the
first half of 2004 in Swiss francs were higher than the comparable 2003
period in sales, gross profit, operating income, EBITDA and net income.
Sales (+1 percent) totaled CHF 3.405 billion. Operating income and EBITDA
both rose by 1 percent (respectively, to CHF 330 million, or 9.7 percent
of sales, and to CHF 513 million, 15.1 percent). Net income was 4 percent
higher (CHF 201 million, or 5.9 percent of sales) and earnings per share
were 8 percent higher, at CHF 3.03.
While economic conditions improved, the upswing was volatile
and only visible in selected markets, with sizeable swings noted between
individual months.
Sales in Swiss francs rose by 4 percent in Asia-Pacific,
primarily on strength in China and Japan, and by 1 percent in Europe.
In the Americas, the further weakening of the United States dollar against
the Swiss franc masked an otherwise solid performance in the U.S. (+3
percent in local currencies) and a continuing strong performance in South
America.
The segments Plastic Additives (+3 percent), Coating
Effects (+4 percent) and Water & Paper Treatment (+2 percent) grew
above average, while Textile Effects (-5 percent) still faces challenging
market conditions and the comparably smaller Home & Personal Care
Segment (-7 percent) saw good growth in new products but shrinking sales
in hygiene effects and whiteners.
Product margins were slightly better than during the
first half of 2003. Selling, general and administrative expenses were
kept well under control. Spending on research and development, at CHF
140 million, matched last year's high level.
Net current operating assets were sharply lower than
year-ago levels, with inventories, receivables and payables, as a percentage
of sales, dropping from 30.4 percent to 26.8 percent.
Roughly CHF 1.1 billion in cash was spent during the
first half, with the largest outlays coming for the cash portion of the
Raisio Chemicals acquisition (CHF 655 million), the share capital reduction
(CHF 197 million) and the share buy-back program (CHF 163 million). Correspondingly,
net debt increased by close to CHF 1.1 billion, as debt levels remained
steady. Compared to the first half of 2003, however, net debt rose by
only CHF 602 million due to lower net current operating assets and lower
total debt. CHF 1.3 billion in cash remains on the balance sheet. Free
cash flow, which is traditionally lower in the first half, was minus CHF
121 million.
To continuously improve the Company's portfolio,
Ciba will establish a small group to oversee strategic
development and portfolio management. This group will be under the leadership
of Tim Schlange. Schlange, currently Head of the Home & Personal Care
Segment, will become Ciba's Chief Strategy Officer, reporting directly
to the Chief Executive Officer, and will leave the Executive Committee.
To further streamline its Group structure, Ciba will
integrate the Home & Personal Care Segment into two other existing
segments, creating a Group with four strong segments. This saves the cost
of a support structure for a segment, which lacked critical mass and had
limited opportunities for external growth. By transferring specialty effects
products to Plastic Additives, and whiteners and hygiene effects to Water
& Paper Treatment, the businesses can also benefit from existing technology
and production synergies with the larger segments, while enhancing their
future development prospects within Ciba.
For 2004, assuming that business conditions remain at
least at the levels experienced during the first half of this year, that
currency levels do not worsen and excluding the effects of acquisitions,
the Company expects sales in local currencies, the EBITDA margin and net
income in Swiss francs to exceed last year's levels. The Company expects
free cash flow for the full year to be close to the lower end of its target
range of between CHF 400 million and CHF 500 million. Should a more sustainable
economic recovery begin to take shape during the second half of the year,
including in Europe, the Company would expect a rapid and substantial
improvement in net income and margins.
Armin Meyer, Chairman and Chief Executive Officer, commented:
"We delivered higher results across most of our key business parameters,
with a particularly strong earnings per share performance. We are certainly
encouraged by recent economic trends, although we do not yet see a consistent
pattern across the globe. For now, we therefore remain cautiously optimistic.
In this environment, it is important to react quickly to changing demand
patterns with aggressive cost and sourcing management and by adjusting
the organization to meet business needs."
Strong sales growth in Asia-Pacific and rebound in
U.S.
Sales for the first half of 2004 totaled CHF 3.405 billion,
1 percent higher in both Swiss francs and local currencies. Net effects
of currency movements against the Swiss franc were largely neutral, as
a further weakening of the U.S. dollar against the franc was mostly offset
by a strengthening of the euro, yen and British pound.
In local currencies, sales in Asia-Pacific were 4 percent
higher (with Region China +17 percent), while Europe was 3 percent lower,
due to weaker sales in the United Kingdom, a mixed performance in continental
Europe and higher sales in Eastern Europe and Germany. In the Americas,
sales were 3 percent higher, driven by stronger performances in the U.S.
and South America. Between the first and second quarters of 2004, sales
in Swiss francs rose by 4 percent, with a 10 percent quarter-to-quarter
increase in Asia-Pacific and a 4 percent increase in the Americas. In
the second quarter alone, Company sales were 2 percent higher than a year
ago.
Volume for the first half was 4 percent higher than a
year ago, with acceleration noted in the second quarter. Prices, compared
to a year ago, were 3 percent lower, with stronger pressure coming in
some of the Company's semi-specialties businesses. Several of the
Company's businesses announced price increases toward the end of
the first half.
Gross profit, operating income and EBITDA up
Gross profit for the first half of 2004 totaled CHF 1.114
billion, or 32.7 percent of sales, a 3 percent increase compared to last
year (CHF 1.084 billion, or 32.1 percent of sales). The improvement resulted
from a combination of higher sales, slightly lower production costs, a
reduction in production personnel and improved capacity utilization rates
(to around 80 percent for the Company overall). To meet volatile order
patterns, the Company incurred slightly higher freight costs.
Across the Group, raw material costs remained flat, as
increases seen in the second quarter in some segments were offset by declining
raw material prices in others.
The Company's investment in research and development
(CHF 140 million) was maintained at last year's high levels.
Selling, general and administrative expenses totaled
CHF 625 million, 3 percent higher than 2003. Key reasons for the increase
were costs for 134 new personnel stemming from the acquisition of the
British company Pira and inflation-driven increases in social contributions
and salaries around the world. Overall, not including the Raisio Chemicals
acquisition, personnel levels were 1 percent lower compared to the year-end,
even as the Company added personnel in the strategic growth areas of Region
China, Eastern Europe and the Middle East.
Both operating income and EBITDA increased by 1 percent
in Swiss francs compared to the first half of 2003. Operating income totaled
CHF 330 million, or 9.7 percent of sales (last year: CHF 327 million,
9.7 percent). EBITDA increased to CHF 513 million, or 15.1 percent of
sales (last year: CHF 507 million, 15.0 percent).
Earnings per share +8 percent
Net financial expenses for the first half of 2004 developed
in line with expectations, totaling CHF 71 million, CHF 12 million higher
than a year ago. Net interest expense accounted for CHF 9 million of the
difference. This stems primarily from the changes in financing mix that
were implemented in the middle of 2003, and also from the use of cash
in 2004 for the Raisio Chemicals acquisition, the share capital reduction
program and the share buy-back program. Exchange losses, net of hedging
gains, and other financial expenses were CHF 3 million higher than last
year. Tax expense was favorably impacted by CHF 15 million, as the settlement
of outstanding tax matters during the second quarter of 2004 led to the
release of previously established provisions.
Net income for the first half of 2004 was 4 percent higher
in Swiss francs than last year, totaling CHF 201 million (5.9 percent
of sales), compared to last year's first half result of CHF 193 million
(5.7 percent).
Earnings per share were even higher, 8 percent above
the first half of 2003, at CHF 3.03, supported by the reduced number of
outstanding shares due to the share buy-back program.
Balance sheet remains strong; CHF 1.3 billion in cash
on hand
Net current operating assets (inventories, receivables
and payables) were significantly lower than during the first half of last
year, falling from 30.4 percent of sales at the end of the first half
of 2003, to 26.8 percent this year, confirming that last year's focus
on reducing assets had a lasting positive effect. They increased throughout
the first half due to the traditional seasonal pickup in demand, with
receivables particularly higher in June following sharply higher sales
for which payments have not yet been received.
Net debt increased from CHF 1.049 billion at the end
of 2003 to CHF 2.125 billion due to the cost of the cash portion of the
Raisio Chemicals acquisition (CHF 655 million), the share capital reduction
(CHF 197 million) and the share buy-back program (CHF 163 million). Debt
levels were steady. Compared with the same period in 2003, however, net
debt was only CHF 602 million higher due to lower net current operating
assets and lower total debt. The Company still has CHF 1.3 billion in
cash on hand.
The cash payment for Raisio Chemicals, which was acquired
June 2, 2004, is reflected in the half year accounts under "Financial
investments", as closing in some countries was delayed into the latter
part of June and early July. The business will be fully consolidated in
the third quarter of 2004.
Ciba' share buy-back program,
which began in the second half of 2003 and continued through the first
half of 2004, has resulted in the repurchase of 3.065 million shares (or
4.2 percent of the total share capital), with 1.762 million shares having
been purchased after February 3, 2004, on the second trading line. The
program will end on August 26, 2004.
Free cash flow was CHF -121 million for the first half
of 2004. The Company traditionally in the first half of the year has a
weaker free cash flow when, for example, the distribution to shareholders
is paid out and the normal seasonal build up of receivables and inventories
occurs. Also, certain very short-term payments, such as value-added tax
or interest payments, tend to fluctuate between individual months of the
year leading to swings that are difficult to forecast during the year.
New group formed for strategic development, portfolio
management
To continuously improve the Company's portfolio, Ciba will establish a small group to oversee both strategic
development and portfolio management. This group will be under the leadership
of Tim Schlange. Schlange, currently Head of the Home & Personal Care
Segment, will become Ciba's Chief Strategy Officer, reporting directly
to the Chief Executive Officer, and will leave the Executive Committee.
Streamlined Group structure, with four strong segments
To further streamline the Group structure, Ciba will integrate the Home & Personal Care Segment into two
other existing segments, creating a Group with four strong segments. In
recent years, Ciba has evaluated numerous potential
acquisitions in the home and personal care market, however, none of them
met the Company's strict criteria for strategic fit and return on
investment. This left the segment with a lack of critical mass and the
Board of Directors decided to save the cost of the segment support structure.
At the same time, the segment's businesses will
be further developed within the Group. Specialty effects products have
been growing at double-digit rates in recent years, albeit from a small
base, while whiteners and hygiene effects continue to be leaders in their
markets, although they have faced continuing market pressure. By transferring
specialty effects products to Plastic Additives, and whiteners and hygiene
effects to Water & Paper Treatment, the businesses can also benefit
from existing technology and production synergies with the larger segments,
while enhancing their future development prospects within Ciba.
Segment overview
Sales in Plastic Additives (+3 percent in both Swiss
francs and local currencies) grew on new product introductions, higher
volumes and an improved product-mix in its specialty product lines. Development
in NAFTA was strong. Ciba® Expert Services, a part of Plastic Additives,
is off to a very good start. EBITDA increased by 10 percent in Swiss francs
compared to year-ago levels, due to higher sales and a tight control of
expenses, resulting in a margin of 17.9 percent of sales (versus 16.7
percent last year).
Coating Effects (+4 percent and +4 percent, respectively)
delivered sales increases in both Swiss francs and local currencies in
all but one of its businesses, including in coatings, pigments for plastics
and electronic materials. The still weaker imaging and inks business saw
clear signs of recovery in the second quarter. There were substantial
volume gains in several businesses, while new product introductions met
with successful market acceptance. EBITDA was 3 percent higher in Swiss
francs, resulting in a margin of 22.4 percent of sales.
In Home & Personal Care (-7 percent in Swiss francs;
-5 percent in local currencies), there was substantial volume growth and
steady prices for its specialty effects business, leading to a double-digit
Swiss franc increase. Some additional costs were incurred for new product
registration fees in the United States. For the hygiene effects and whiteners
business, continuing severe competitive pressure resulted in reduced sales.
As a result, the EBITDA margin fell from 16.5 percent a year ago to 14.1
percent.
Outlook 2004 confirmed
After a slow start to the year, Ciba
began to see an improvement in trading conditions in several regions.
The improvement was not uniform across the businesses or the regions and
was dependent on local conditions. Based on the recent encouraging trends,
however, Ciba remains cautiously optimistic about the future.
For 2004, assuming that business conditions remain at
least at the levels experienced during the first half of this year, that
currency levels do not worsen and excluding the effects of acquisitions,
the Company expects sales in local currencies, the EBITDA margin and net
income in Swiss francs to exceed last year's levels. The Company expects
free cash flow for the full year to be close to the lower end of its target
range of between CHF 400 million and CHF 500 million. Should a more sustainable
economic recovery begin to take shape during the second half of the year,
including in Europe, the Company would expect a rapid and substantial
improvement in net income and margins.
Ciba (SWX: CIBN, NYSE: CSB) is a
leading global company dedicated to producing high-value effects for its
customers' products. We strive to be the partner of choice for our
customers, offering them innovative products and one-stop expert service.
We create effects that improve the quality of life - adding performance,
protection, color and strength to textiles, plastics, paper, automobiles,
buildings, home and personal care products and much more. Ciba is active in more than 120 countries around the world and is
committed to be a leader in its chosen markets. In 2003, the Company generated
sales of 6.6 billion Swiss francs and invested 281 million in R&D.
Source: Ciba
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