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Clariant announced that sales reached CHF 1.6 billion in the first quarter of 2009, compared to CHF 2.1 billion in the same period a year earlier, a decline of 19% in local currencies and 24% in Swiss francs. The quarter was characterized by a steep decline in demand. Volumes fell 25%, 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.
"In a low demand environment, Clariant's focus on generating cash and cost savings had the expected results," said Hariolf Kottmann, CEO, Clariant. "The strong cash flow further strengthened Clariant's liquidity and has increased the financial headroom for the necessary restructuring. However, inventory devaluations and the impact of capacity underutilization costs led to an operating loss that was mitigated by our cost saving measures reflected in lower SG&A costs. We do not assume a sustainable recovery in demand. In the short- to mid term we will therefore accelerate restructuring and maintain cash generation as top priority."
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% on average and 2% compared to the same period one year ago. This effect is expected to become negligible once raw material price volatility decreases which we expect to take place already in the second quarter this year. While Clariant's margin management was successful with 6% higher sales prices year-on-year, inventory devaluation and underutilization costs led to a decline of the gross margin to 23.6% from 30.5% in the previous year.
The company notes that some markets stabilized during the first quarter, with the first signs of a partial demand improvement coming from some Asian and Latin American countries. Going forward Clariant will continue to restructure forcefully with estimated restructuring costs of CHF 200-300 million in 2009. For 2010, Clariant confirms its target of a sustainable above-industry average return on invested capital.
The complete report is available as a PDF from the company.