Pharma unit lets Clariant down

By Gregory Roumeliotis

- Last updated on GMT

Related tags Generally accepted accounting principles Clariant

Despite a 3 per cent drop in sales to SFr8.181bn (€5.212bn),
specialty chemicals maker Clariant has posted a 29 per cent rise in
net profit for 2005 to SFr192m, thanks to lower interest charges,
currency gains and lower taxes, but its Life Science Chemicals
division, where intermediates and active pharmaceutical ingredients
(APIs) are made for the pharmaceutical industry, is the only one
within the company not showing growth.

The Swiss firm blamed the disappointing results to the continued high costs of raw materials, energy and transportation and pointed to tough measures it took in 2005 to put it on a strong footing, including divestments, a capital increase and job cuts - 4,000 jobs or 15 per cent of its staff.

Although its 'Transformation Program', along with asset impairment, set the company back by SFr186m in 2005, it also achieved savings of SFr310m, contributing to making the 28 per cent drop in operating income to SFr368m not evident in the company's bottom line.

Particularly helpful were savings of SFr159m in administration and general overhead costs and SFr56m in R&D savings, indicating Clariant is streamlining its operations.

Yet the Life Science Chemicals division has performed particularly poorly, with operating income plummeting from SFr95m in 2004 to a loss of SFr36m in 2005.

This was not only because of fewer sales, down from SFr1.028bn to SFr883m, but also an impairment charge of SFr55m in the Pharmaceutical Fine Chemicals business.

"Lower divisional sales were due to the weak performance in the pharmaceutical business,"​ Clariant spokesman Walter Vaterlaus told​.

"Delays in customer projects and the anticipated loss of a sales contract amid prevailing tough market conditions resulted in a weaker performance compared to 2004."

Still the company claims it has been witnessing a growing interest on the part of customers in outsourcing their production of APIs and teaming up with Clariant as their partner, and that this is already generating new business.

What is more, the division's results in 2005 were adversely affected by the sale of its Clariant Acetyl Building Blocks (CABB) subsidiary to the Gilde Buy-out Fund for €44m.

"CABB is one of the leading companies in the field of products based on chlorine and acetyl chemistry, with a strong market position in monochloracetic acid,"​ said Vaterlaus.

"Under international financial reporting standards (IFRS), the business did not qualify for reporting as discontinued operations, but is summing up to a net effect of less than 2 per cent for the year on Group sales."

"However, the sale negatively impacted the result of the Life Science Chemicals division by about SFr30m."

The company takes heart from a year-on-year increase in overall sales in Q4 of 2005 from SFr1.980bn to 2.087bn, though a one-off charge of SFr25m, an impairment charge of SFr55m and a SFr30m charge related to early loan repayments, along with higher operational costs, meant that net loss was up from SFr17m to SFr30m.

Still, Clariant's results fare better than those of its competitor Ciba, which posted a net loss of SFr256m in 2005, dramatically down from a net profit of SFr306m in 2004.

As their product lines are similar, there have been rumours that the two companies may merge, though these are strongly denied by both sides.

Clariant now sees "excellent growth"​ in net income for 2006, with an improvement of at least SFr120m in operating income before exceptional items.

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