Clariant the company edge forward - paper chemicals?

Clariant announced their 2007 results and have shown some small progress (see the Clariant report; Business Wire; Fox Business; Investment Headlines; etc, etc; . When looking into the detail it is clear that the company has made some short-term progress, hacking their costs (although it is incredible that after all the cost reduction programmes, their S&GA costs are higher this year than last) to protect their Swiss-centric aims. There are some positives but overall the challenges remain - higher raw material costs, inability to cover the increases by increasing prices and the unfavourable impact of currency changes.

Where does this leave the paper chemicals business? Much of the detail is buried in the corporate waffle, with the following being stated: 'Demand for products in the Paper Business also weakened in the fourth quarter. After several quarters of extremely high growth, the optical brighteners business is starting to level off. In order to keep prices at their current high level, the focus here has been on qualitative growth. The positive trend in paper dyes is attributable largely to the stronger focus on growing service-oriented products, and the company’s market leadership in this business.'

What does this mean? Well, it is not difficult to glean the reality from the market:

• OBAs or FWAs - Clariant is struggling to cover their raw material costs. This is a price-driven business where raw material increases have been very significant over the last year or so. The Chinese (and Indian) companies have continued to make inroads. The reduction in the dollar has not helped Clariant and they have lost significant business in the USA.
• Dyes - the margins Clariant has made over the years are being challenged by Indian, Chinese and lower cost-base companies.
• Outside of the Dye and FWA markets, Clariant has struggled to forge a strategy and it is difficult to work out what the focus is. They are a high cost-producer, as is any company which wishes to protect its Western European chemical production base. There remain questions as to whether the management is able to lead a sustainable new venture, particularly after recent investments in various ventures have failed to show any return.
  
• The paper business remains a small part of the larger Clariant and an even smaller part of the speciality paper market so there remain questions as to whether this business is part of the future core business for Clariant and whether they can compete on the larger global stage.
  

This is clearly a challenging year for Mr Jan Secher and Clariant and there is a need for an injection of optimism and success.