Bloomberg News

Clariant Drops the Most in 3 1/2 Years on Profit Miss

July 27, 2011

(Corrects to say the drop is the most in 3 1/2 years in first paragraph.)

July 27 (Bloomberg) -- Clariant AG dropped the most in more than 3 1/2 years in Zurich trading after the Swiss chemical maker reported second-quarter profit that missed analyst estimates.

Clariant plunged as much as 16 percent to 13.00 Swiss francs, its biggest decline since November 2007. Earnings before interest, taxes, depreciation and amortization declined 9.5 percent to 241 million francs ($301 million). JPMorgan analysts predicted 293 million francs.

The purchase of German catalysts maker Sued-Chemie for $1.5 billion in April failed to offset a stronger franc and a 14 percent jump in raw-material costs. Chief Executive Officer Hariolf Kottmann said today an efficiency drive that’s transferring production of paper and textile chemicals from Switzerland to Spain and Asia is almost one year ahead of schedule.

“With the group digesting the Sued-Chemie acquisition, this reversal in profitability is unwelcome, though assuming the currency position deteriorates no further it remains manageable,” RBS analyst Jonathan White said in a note.

The Muttenz, Switzerland-based chemical maker was trading at 13.17 francs as of 4:30 p.m., down 14 percent. The company has lost 30 percent this year, cutting its market value to 3.9 billion francs.

Clariant has raised selling prices by about 7 percent, enough to cover higher raw-material costs this year, Kottmann said. The CEO is pursuing a price-over-volume strategy to improve profitability rather than squeeze the company for short- term gain, he said in an interview.

Signs of Slowdown

The company is seeing the first signs of a slowdown in demand in some businesses, with the sovereign debt crisis in Europe and a slow economic recovery in the U.S. leading to “market caution,” it said.

The CEO is in the midst of a strategic review following the purchase of Sued-Chemie, analyzing units for their growth potential. While textile and paper-chemical businesses are underperforming now, the restructuring moves will help transform these units into “new revenue drivers,” Kottmann said in an interview.

Clariant is still gauging what position it should have in surfactants, which is linked to intermediate chemicals, he said.

“You have to distinguish between business units that perform well and business units that don’t do well,” Kottmann said. “We are evaluating what we have at the moment. We need the entire year before coming to a conclusion.”

Clariant has also pursued bolt-on acquisitions, purchasing Octagon Process in March to add chemicals used in the aerospace industry and Prairie Petro-Chem in April to expand in oil services.

--Editors: Andrew Noel, Robert Valpuesta

To contact the reporter on this story: Sheenagh Matthews at smatthews6@bloomberg.net.

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.


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