FT view - Ciba Braces for Further Cuts

The Financial Times has also commented on the recent half-year results for Ciba Specialty Chemicals. The comments included:

• Ciba prepared employees and investors for further pain yesterday, as the Swiss specialty chemicals maker plunged into loss after sharply weaker margins and huge impairment charges.
• In almost permanent restructuring in recent years, Ciba warned of cuts ahead with the potential sales of its struggling paper and publication inks activities.
  
• The moves came alongside a one- off SFr595m goodwill impairment in water and paper treatment, pushing the group into a SFr569m ($521m) net first half loss. Sales fell by 7 per cent to SFr3.09bn.
• The scale of task facing Ciba, and many other European counterparts such as cross-town Clariant, was highlighted in the second quarter, when surging raw materials and energy costs prompted a SFr11m loss, even excluding impairment. Including the latter, Ciba lost SFr606m, compared with a modest net SFr27m profit in the same period last year and analysts' expectations of a SFr42m gain this time.
• Two attributed quotes of financial analysts were: 1) "Even though further strategic options are under evaluation, the company is still facing strong headwinds and has to achieve a turn around in difficult times," noted Oskar Schenker at Sarasin, the Swiss private bank; and 2) "We expect demand to weaken further in the coming months, particularly in Europe, but also in Asia, and therefore believe the group's guidance is too optimistic," added Martin Flückiger at Helvea, the Swiss brokerage.
• Ciba blamed its problems on its inability to pass higher costs to customers, many enjoying long-term contracts. The impairment charge was ascribed to rapid changes in the paper industry, especially a structural shift in growth to Asia [as pointed out in earlier blogs, this structural shift is not recent!]
  
• It also blamed about two-thirds of the charge on Allied Colloids, the UK manufacturer bought for £1.42bn ($2.65bn) in 1998 - [this has been an old excuse which Ciba should have been able to recover from by now! Clariant blame the acquisition of BTP for many of their woes - is there something about the ability of Swiss companies to analyse, acquire, and leverage business opportunities? It would be interesting to see how a Chinese company would transform Ciba or Clariant were they to acquire them - significant value generation?]
  

The Times also highlighted 'endemic lethargy', as seen in the belated sale in 2006 of Ciba's textile effects division in the face of a sharp but predictable shift in production to Asia. What we have highlighted in earlier blogs has been lethargy elsewhere in Ciba:

• The strengthening of the Asia market has been staring the industry in the face for many years!
  
• Asian paper chemical producers will lead in the drive for acquiring market share in China (the fastest growing paper chemical market).
• There is a strong need for consolidation of the paper chemicals business in Europe.
  

See earlier, recent blogs on the Ciba/Clariant situation:

• Forbes point to Ciba and Clariant as acquisition targets
• Ciba announce half year results
• Bloomberg - Clariant and Ciba may be targets for BASF, Dow or Sabic
• Clariant announce half-year results
• Clariant to shut Leeds, UK production site - paper chemicals affected
• Ciba looses patience with paper chemicals business

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