Dear Shareholders,
In 2010 we began to earn the benefits of the past two years of constant restructuring. The primary focus of Project Clariant, which was launched at the end of 2008, remained on generating cash, reducing costs and streamlining corporate structures and processes. We have met – and in some cases even exceeded – our objectives in this regard. Thus, the ratio of net working capital to Group sales at the end of 2010 was reduced below the threshold of 20 percent. In 2008 this figure stood at 23.8 percent. Thanks to a strong operational performance, liquid assets increased within two years from CHF 356 million to CHF 1 419 million. Net debt decreased significantly by approximately CHF 1 100 million to CHF 126 million. The Clariant Group is therefore well positioned to finance investments in order to create profitable growth in the coming years.
The significant streamlining of Group structures and internal processes contributed to this success. With its 10 Business Units, eight regional service centers, and the Group headquarters in Pratteln, Clariant now has a competitive, sustainable structure. In addition, we announced our new Group Technology organization in 2010, with the future Clariant Innovation Center in Frankfurt and satellites in Clariant’s key regions.
Severe cuts including reductions in headcount were necessary during the restructuring phase in 2009 and 2010 in order to address the non-competitive cost structure of our Group. In doing so, we succeeded in building a solid platform for profitable growth, even during the largest economic and financial crisis in more than 60 years. In total, the workforce was reduced by 20 percent to below 16 200 employees. This resulted in cost savings of more than CHF 200 million. In parallel we launched a program to optimize our global production network (Project GANO, Global Asset Network Optimization) in 2009, to eliminate the structural weaknesses and overcapacities that had impacted Clariant’s cost base. As part of this project we analyzed and optimized all locations and production facilities. This will lead to a closure of 14 sites and an additional downsizing of six sites. After completion in 2013 yearly cost savings of more than CHF 100 million are anticipated from GANO project.
The restructuring measures already started to pay off in 2010; evident from the improvement in EBIT margin before exceptional items from 4.1 percent to 9.8 percent. This corresponds to an absolute increase in operating income before exceptional items from CHF 270 million in 2009 to CHF 696 million in 2010, on the back of a 13 percent increase in sales in local currency from CHF 6.6 billion to CHF 7.1 billion. It is important to emphasize here that we achieved improvements in all 10 Business Units. The restructuring phase is now largely completed.
A sustainable increase in value is vital for the future
The capital market also noted the improvement of Clariant’s performance. From a low of CHF 3.61 in March 2009, the Clariant share price increased fivefold to CHF 18.94 by the end of 2010. The share price rose by 55 percent in 2010. Since the start of the economic crisis, our investors have benefited from an above market and sector-average performance and we want to continue this trend. Our management is committed to increasing enterprise value, which stood at more than CHF 4.3 billion at the end of 2010. Between 2008 and 2010, Clariant laid the foundations for profitable growth. The task now is to sustain our successes. To this end, further significant changes to our operations and activities are necessary. Sustainably increasing value requires the willingness to break new ground in order to operate our businesses even more successfully.
The way forward is based on four pillars:
- Improving our profitability across all Business Units by further sharpening our focus on the opportunities available
in terms of products, customers, and regions, as well as increasing the value contribution of our products and services. - Strengthening Innovation through the reorganization of Research & Development, New Business Development,
and processes in order to bring the right products to the right market at the right time. - Expanding and exploiting our existing strong, competitive position in the Asian and Latin American growth markets.
- Optimizing our portfolio through complementary acquisitions in order to tap additional potential for profitable growth or entry into new fields of activity, should suitable opportunities arise.
Clariant Excellence as the core initiative for continuous improvement
Clariant launched the company-wide Clariant Excellence initiative in 2009 and rolled it out across all Business Units and regions in 2010. Clariant Excellence is the core initiative for continuous improvement in order to achieve a sustainable increase in value. Based on Lean Sigma methodologies, Clariant Excellence comprises the four key components of Operational Excellence, Commercial Excellence, Innovation Excellence, and People Excellence. More than 1 000 projects have already generated benefits of CHF 13 million in 2009 and approximately CHF 50 million in 2010. Group-wide implementation of the projects will continue in 2011. As a result we expect further cost savings, which will be significantly higher than those in previous years. To date, implementation of the initiative has concentrated on the areas of Operational Excellence and Commercial Excellence with special attention paid to optimizing the production processes, supply chain and cost structures. Under Commercial Excellence, we took measures to increase profitability by clearly focusing on margin, price and cash requirements. The initiative will establish a further key focus in 2011 expanding Innovation Excellence to gradually develop Clariant as a global innovation leader.
Specific benchmarks to measure success
As part of the implementation of the four-pillar strategy, we are aiming for a further improvement of our EBITDA margin as a result of addressed cost savings, coupled with a further increase in return on invested capital (ROIC) in the medium term. The business year 2011 should make a considerable contribution to this as we have laid the foundations for improving sales and results and for achieving a renewed high cash flow. However, considerable uncertainties remain regarding the further development of the chemicals industry. High levels of sovereign debt in the Western industrial nations and the resulting uncertainties regarding future economic development contrast with the uninterrupted growth in the Asian and Latin American markets.
We would like to thank our shareholders for the trust in difficult times. The successful implementation of our ambitious objectives will likely make a positive impact on the further development of our value.
We would also like to thank all employees of the Clariant Group without whose dedication it would not have been possible to return to a profitable growth path. The often painful restructuring measures were necessary for our longterm survival in the competitive international marketplace. However, the successes of 2010 are no reason to rest on our laurels. Rather, they serve as an impetus to continue to build Clariant into a global leading specialty chemicals company – a company that sets benchmarks in terms of innovation, productivity and competition and is among the preferred employers in its sector. In short, a company of which we can all be proud.
Yours sincerely
Jürg Witmer Hariolf Kottmann
Chairman of the Chief Executive Officer
Board of Directors
