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Ciba capacity utilization above 80% as sales grow

Published on 2002-12-11. Author : SpecialChem

BASEL, SWITZERLAND, Dec. 11 -- Ciba AG's capacity utilisation is running at slightly over 80 percent as the Swiss-based firm continues to see sales growth in local currencies, its chief executive and chairman told Reuters.

"I would say visibility is still rather low, but what I can confirm is that the trading volumes we saw in the first nine months -- slightly higher in local currency terms - is continuing and there is no change in the trend," Armin Meyer said in an interview on Tuesday.

Sales of its products that range from detergent whiteners to the pigments that make Ferraris red were growing around five percent in local currency terms in Asia and around one percent in Europe -- with strong demand in Germany offsetting weak UK sales -- but were flat in the United States, Meyer said.

"But if you compare that with the mood of the people, everybody is talking negative -- but our sales in local currencies are still higher than last year. I wonder whether or not people are too negative at the moment," he said.

Ciba's capacity utilisation was running "slightly above 80 percent", Meyer said, in what he regarded as an optimum level for the Swiss firm. Analysts estimated that the firm's capacity utilisation was running under 80 percent in the third quarter.

Meyer reiterated Ciba's net income would rise in 2002 and earnings before interest tax deprecation and amortisation (EBITDA) and full-year sales would grow in local currencies.

Meyer, who said he was in no hurry to give up his job nor relinquish one of his dual mandates, said there was too much capacity in the chemicals industry and price pressure remained although the firm was working hard to protect margins.

"The margin pressure comes from hungry people. Hungry people are people with too much capacity and they go for additional volume," he said. Ciba has outperformed European rivals by more than a fifth this year with investors drawn to its turnaround story.

But shares have underperformed over the past quarter as investors fret about its rich valuation and the sector's anaemic top-line growth amid a patchy economic recovery. But Ciba was confident it would outgrow the global market, pointing to the success of its ultraviolet products in the fast-growing sun-screen market and dyes used in CDs and DVDs.

"We are well on track for 2005," he said, referring to Ciba's target to boost EBITDA margins to 20 percent from around 17 percent now and generate free cash flow of a billion francs. Under Meyer, Ciba has focused on specialty chemicals grouped around five businesses: textiles, plastic additives, coatings, water and paper treatment, and home and personal care.

The global specialty chemicals market is growing around two percent per year but Meyer wants Ciba sales to rise six percent a year with two points each coming from the market, the launch of new products and acquisitions.

The firm was on the outlook for deals to beef up its home and personal care and water and paper treatment businesses. "I don't expect large acquisitions -- the maximum a few hundred million francs," he said, stressing any acquisition must meet tough value targets and add profit in the second year.


"If we do not close a deal by the year-end, the board may consider again reducing the nominal value of the shares. Last year we had a two-franc dividend and gave an additional one franc to reduce the nominal value of shares. The board may consider that again," he said.

Meyer said recent big takeovers in the industry had tended to overstretch balance sheets but disappoint buyers. Now the trend was for small portfolio adjustments at lower prices.

Despite pressure on textiles caused by a movement of the industry to Asia, this business would remain a core part of Ciba, Meyer said, pointing to synergies such as the crossover between dyes in textiles and those in hair products.

Meyer said the firm would achieve 70 million francs in savings this year and would continue to boost productivity by cutting administration costs and reducing the supply chain. However, the firm would take additional costs of 40 million francs next year related to pension schemes should the stock markets remain at current low levels.

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