Clariant post 3Q07 results - paper chemicals sluggish

Clariant announced a rise in 9-month sales with growth of 4% in local currencies and 6% in Swiss Francs, compared to the first three quarters of 2006. In absolute terms, sales rose to CHF 6.447
billion from CHF 6.090 billion a year earlier. Quarterly profitability for the Division slipped with Clariant's gross margin decreasing to 29.6% from 31.2% in the previous year. Clariant said its net loss from continuing operations widened during the 3rd quarter to CHF 45 mio from CHF 15 mio as the company failed to offset raw material and energy costs and booked CHF 12o mio on its restructuring charges to close its plant in Selby, UK.

The issues which continue to dominate the business are:

• A raw material cost increase of 4%
• Higher energy costs
• Unfavorable currency exchange effects
  
• Enduring, inability to achieve significant or even compensating price increases
  

The paper chemical's results are hidden in those of the Textile, Leather and Paper (TLP) Division but the following key points can be gleaned from the 3Q07 report:

• Sales for the TLP Division declined by 2% (year on year, in local currency terms).
  
• Product prices have "stabilized", and the division "accepted lower sales rather than bow to pressures on selling prices." Nevertheless, they admit that increasing momentum
  in pricing – in particular in the third quarter – could not offset rising raw material and energy costs
• Demand remained stable in the textile sector
• The paper business was "sluggish", with the following points coming from the report:
  
• Loss of growth in optical brighteners (OBAs or FWAs) - loss of volume by attempting to increase prices in a highly competitive, commodity market. The loss of key personnel in this business will not help.
  
• Dyes managed to maintain the previous year's level.
  
• Demand for coating chemicals continued to grow (this is a relatively insignificant business for Clariant)
• The decline in sales in the TLP Division is largely due to weakness in the poor performance of leather chemicals.
  

In line with the “Clariant 2010” strategy and the embedded strategic site optimization, the company booked CHF 120 million of restructuring costs in the third quarter, mainly in
order to close the Textile, Leather & Paper Chemicals site at Selby in the UK (a reversal of recent plans to invest in Selby).

The markets have not responded favoutrably, with the share price again decreasing today.