Dear Shareholders,
2011 was an important year for Clariant in terms of our transformation from restructuring to sustainable profitable growth. Following the sometimes painful but necessary cutbacks in 2009 and 2010, when we were forced to overcome additional obstacles created by the financial crisis, we posted a successful performance in 2010, aided by a strong economic tailwind. We have made further progress in 2011. Despite the fact that the global financial crisis cooled industrial demand significantly in the second half of the year, Clariant reported another excellent year with sales increases of 16 percent in local currency or 4 percent in Swiss francs and the best profitability in ten years. The strong growth was driven by price increases and by Süd-Chemie sales, which were consolidated for the eightmonth period following the acquisition of the company in April 2011. Overall group sales reached CHF 7.37 billion and EBITDA margin before exceptional items increased to 13.2 percent versus 12.7 percent in 2010.
Profitable growth under way
We will continue to gradually and systematically implement the efforts we began three years ago. We created the foundation for profitable growth in Phase 1 by executing the cash-generating, cost-cutting, and complexity-reducing measures as part of the Project Clariant program. At the end of 2009, Clariant entered Phase 2 with the launch of Clariant Excellence, the company-wide initiative that focuses on continuous improvement and value enhancement. We are now in the process of changing the philosophy that governs our day-to-day business activities and integrating a culture of continuous improvement into all business units based on Operational Excellence, Commercial Excellence, Innovation Excellence, and People Excellence. After benefits at a total of CHF 63 million in 2009 and 2010, the company has been able to achieve further benefits of more than CHF 100 million in 2011 through a large number of projects at all levels. 2011 saw the focus shift for the first time to strengthening our Innovation Excellence and taking the first steps in People Excellence.
We will continue these efforts in 2012 in order to achieve new savings of more than CHF 60 million each year through Clariant Excellence. Further cost reductions totaling CHF 60 million are expected by mid-2013 after completion of the production network optimization under the Global Asset Network Optimization (GANO) program as part of Project Clariant.
We entered Phase 3 of our strategy plan in 2011: Its goal being to sustainably increase value based on long-term profitable growth. The emphasis is on continually improving profitability in all business units, focusing on innovation, expanding our already strong competitive position in the growth markets of Asia and Latin America, and optimizing our company portfolio.
Acquisition of Süd-Chemie – a great opportunity for Clariant
The takeover of Süd-Chemie in 2011 is of great significance in the transformation of the company. Through this transaction, we acquired two attractive high-margin businesses. Our newly acquired segments – Functional Materials and Catalysis & Energy – posted EBITDA returns of just under 13 and approximately 22 percent, respectively, in 2011. In view of the ongoing economically turbulent times, it is remarkable that Süd-Chemie was able to generate a very stable margin even during the last global recession of 2008 – 2009. Süd-Chemie also has an excellent track record in future technologies and innovations. Overall, Clariant has increased Group sales and earnings by about one fifth through this acquisition. The integration of Süd-Chemie is progressing as planned. We project that integration-related synergies and Clariant Excellence initiatives from the integration will lead to an additional rise in EBITDA of CHF 90 to 115 million by 2013.
Solid balance sheet structure
Even after this major acquisition, Clariant has a solid balance sheet structure that will enable us, to effectively increase our own investments in the future of the company in the coming years. The willingness of the capital market to participate in the financing package that Clariant put together in the course of the takeover was crucial in this regard. This was not a foregone conclusion since the deal involved a total financing volume of about CHF 2.5 billion. We strengthened our equity base through a capital increase that raised the equity ratio to 33.3 percent, slightly above the previous year’s 30.5 percent level. We also refinanced all our commitments with long-term financing at attractive conditions. We will work hard in 2012 and in subsequent years to reduce our net financial debt rapidly and substantially.
Our vision for 2015
Clariant has set ambitious goals for the years through to 2015 in expectation of a moderate upward trend in the global economy and stable exchange rates. By implementing the measures from the strategy initiatives Project Clariant and Clariant Excellence, we aim to improve the profitability of the company and all business units. We will also increase investments in the Group’s technology and innovation, as well as expand the innovation pipeline significantly by implementing Innovation Excellence. The focus will be on broader expansion into the fast-growing emerging market regions. The company will in particular increase its market share in China, India, and Brazil. The profitability of the current portfolio will be analyzed on a continuous basis. We will also make targeted acquisitions in the future to strengthen the product pipeline and the company’s regional presence, but we will also consider divestments.
By implementing these basic strategic goals for 2015, Clariant aims to increase Group sales to more than CHF 10 billion. The EBITDA margin before exceptional items is projected to rise to above 17 percent, and Return On Invested Capital (ROIC) is expected to be higher than the industry average.
A challenging 2012
The fiscal year 2012 will play a major role in these developments. An accurate forecast for this year is difficult to make, given the high level of economic uncertainty. We will monitor the conditions very closely and respond rapidly, where necessary. Should the expectations of most economic experts prove correct – namely, that the world economy, driven by impetus from the emerging markets, will return to solid growth in the course of the year – then Clariant is also confident that it will be able to increase sales and earnings for 2012. We are confident we will improve the performance of the company after a slow start in 2012, given the current economic slowdown. The integration of Süd-Chemie has increased the percentage of the Group’s less cyclical activities markedly to about 50 percent. This makes us stronger and more able to resist economic fluctuations.
A bitter note in 2011 was the performance of the Clariant share price, which was disappointing for us. After a sharp rise in 2010, the stock market still categorizes us as a highly cyclical company. We must address this issue in proving the sustainability of our performance. We will continue focussing our efforts to increase the value of the Clariant Group. We would like to thank our shareholders for their trust, especially in these difficult times.
We would also like to express our gratitude to all employees of the Clariant Group around the world for their excellent work and high level of commitment. They have played a key role in getting our company back on track to success. 2012 will be another year full of challenges. We are well equipped and will step up our efforts to make Clariant a specialty chemicals company that is a global leader in innovation, productivity, and competitiveness.
Yours sincerely,
