Ciba Specialty Chemicals - ACE Analyser Meet/132184_20060930.pdf · Ciba’s major industries and...

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Michael Jacobi

Finance PresentationHalf Year 2006

Ciba Specialty Chemicals

First half year 2006Strategic direction

Operational Agenda

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ContentOverview second quarter and first half year 2006

Strategic direction

Operational Agenda

Results first half year 2006

Outlook and conclusions

Overview second quarter and first half year 2006

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Overview H1 2006• Sales up 6% in local currencies on strong volume growth• Absolute EBIT before restructuring charges up over 2005• EBIT margin of 7.9%(1) almost at 2005 levels

Strong margin of 9.2%(1) in Q2 2006• Company loss of (202) following Textile Effects divestiture• Strongly improved free cash flow (+ 2 vs – 158)

Positive trend in Q2 2006Outlook 2006 confirmed

(1) Continuing operations, excluding restructuring, impairment and other charges;

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Overview H 1 2006• Divestment of Textile Effects complete at lower cost than

anticipated• Strategy with focused portfolio defined• „Operational agenda“ to achieve growth & increased

profitability– 400-500 mio CHF improvement of cost structure by 2009– 2500 positions to reduce by 2009 majority through natural

atrition / 250-300 mio CHF costs

Strategy & Implementation defined

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Strategic direction

Operational Agenda



Strategic direction

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Strategic crossroad

higher growth & margins

potential

New focused

Water & Paper Treatment

Coating Effects

Plastic Additives

Textile Effects More focusNew opportunities through- More focus- More homogeneousstructure

- Concentration on commonkey value factors

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Strategic analysis

Strategy: Strengthen strengths

Strengths:• Focused portfolio• Leading in key industries:

plastics, coatings• Global presence• Strong position in Asia• Unique innovation• Competent people

Weaknesses:• Production not yet at lowest

cost • Marketing & Sales driven by

technology • Complex structure and

fragmented processes• High demand of support

functions room for reduction

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Ciba’s major industries and markets

Complemented by attractive niche businesses and knowledge based services

Plastics• Size: 10 BCHF• Growth 5-6%: > GDP

Paper • Size: 15 BCHF• Growth ~ 3%: at GDP

Water • Size: 10 BCHF• Growth ~ 4%: > GDP

Coatings• Size: 7 BCHF• Growth ~ 5%: > GDP

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Strategic focus

Focus on profitability in Water & Paper Treatment

Expand leading position in growth businesses Plastic Additives and Coating Effects with above-average resource allocation

Strengthen positions in selective, profitable businesses such as Electronics, Personal Care, Oil & Lubricants, knowledge-based Services

Fuel organic growth, complementary technology acquisitionsMid-term smaller acquisitions only

Strengthen core businesses

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Leaner, faster, more agile

Midterm objectives• Annual average organic growth: > 3 - 4%• Expanded position in Asia • Investments allocated to highest-return opportunities

• Improved cost structure by 400 – 500 MCHF by 2009• Streamlined organization and processes, therefore

2’500 positions less

• Continuous EBIT improvement by > 1% per year, acceleration 2008 onwards

• Significant improvement of Free Cash Flow as of 2008

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Strategic direction

Operational Agenda



Operational Agenda

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DivestmentTextile Effects

We shape the future of Ciba2005 2006 2007 2008 2009

STRATEGY: Focused portfolio, exploiting potential

Growth in Plastic Additives and Coating EffectsProfitability in Water & Paper Treatment

OPERATIONS: Business transformation with Operational Agenda

Enterprise: Transparent processes and common systemsFootprint: Simplified global Group structure

Strengthened, market-driven Marketing & Sales Excellence

Lean Manufacturing

Innovation

Ongoing segment specific improvement programs

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Operational Agenda - Efficiency• Geographical footprint: Adjust to the most cost-effective way to market after

TE divestment. Complete by 2007– Reduce countries / locations / sites, shift more to regional / continental

approaches– SG&A reduction by leaner support structures/optimized regional set up

• Company wide process & system structure: Shift to SAP, start 2006– Change modus operandi in key areas like end to end supply chain & planning

through standard processes & common system platform– Less personnel & purchasing cost (SG&A), higher transparency, lower inventory– Role-in starts in 2006, complete 2008. major part of savings of operat. ag.

• Lean Manufacturing: Manufacturing transformation at major sites– Optimize production by applying best practice approach on the way they work– Less headcount, less utility cost, less maintenance cost, better capacity utilization

(COGS). Major part of savings of operational agenda

Operational agenda: A far-reaching transformation program

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Operational Agenda - Growth• Marketing & Sales: Transform Ciba into a market driven organization

– Employ most up-to date marketing tools to enhance value extraction– Benefits through higher sales and achieving higher value for the

value we bring

• Innovation: Focus on most attractive opportunities– Strengthen external partnerships with research institutes– Strengthen new group-wide technology platforms such as nanotechnology, white

biotechnology and organic electronics– Top down resource allocation of scarce resources on fewer projects– Shorten “time to cash”

Growth opportunities by enhanced frontline performance

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Asia-Pacific~ 300

Europe~ 1600

Americas~ 600

Mainly in• Production (Lean Manufacturing)• IT, Logistics (new processes & systems)• Country organizations

(simplified structure after Textile Effects Divestment)

Majority through natural attrition

~ 2500 fewer positions required by 2009

(CH: ~ 350)

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Priority: Fast and decisive implementation

Operational Agenda: Status

Organizational andgeographical structure

Lean Manufacturing

Marketing & Sales

Innovation

Company-wide system structure

initiated status completed

20% 2007

40% 2008

10% 2008

30% 2009

2009

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Substantially increased sales, margins and free cash flow

Benefits and Cost• Average 3 - 4% organic sales growth over the next years• Improvement of cost structure of 400 – 500 MCHF by 2009• Operating income margins to increase by > 1% of sales for 2007

and 2008, acceleration thereafter

• Overall implementation costs: 250 – 300 MCHF• Majority in 2007/08• Cash-out: ~ 80%

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Strategic direction

Operational Agenda




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Business conditions H1 2006

Ciba’s global presence as advantage

• Currencies: positive impacts reducing in Q2 as $ weakens• Increased oil price pressuring raw material & utility costs• Improved demand across the businesses, especially during

second quarter• Good organic growth in local currencies in all regions

– Asia-Pacific: + 11%• China: + 17%• India: + 15% • Japan: + 8%

– Europe: + 5%• above-average growth in Southern and Eastern Europe

– Americas: + 2% in local currencies • NAFTA: + 3%

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Incl. restruct./ impairment

Results H1 2006 continuing operations

Higher sales and operating income

(1) basic and diluted, in CHF

MCHF H1 H1 ∆% H1 H1 ∆%2006 2005 CHF l.c. 2006 2005 CHF

Sales 3 285 3 003 + 9 + 6Operating income 259 247 + 5 226 197 + 15

as % of sales 7.9 8.2 6.9 6.6Income 117 135 - 13 95 99 - 4

as % of sales 3.6 4.5 2.9 3.3Free cash flow 2 - 158 - 35 - 180 EPS(1) 1.77 2.06 - 14 1.44 1.51 - 5

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Significantly improved operating income

Sales 1 640 1 517 + 8 + 6Operating income 150 119 + 26 143 77 + 88

as % of sales 9.2 7.9 8.7 5.0Income 64 63 0 59 33 + 76

as % of sales 3.9 4.2 3.6 2.2EPS(1) 0.97 0.98 0.90 0.52

MCHF Q2 Q2 ∆% Q2 Q2 ∆%2006 2005 CHF l.c. 2006 2005 CHF

Results Q2 2006 continuing operations

Incl. restruct./ impairment

(1) basic and diluted, in CHF

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Significant improvement in Q2 2006

Continued good volume growth

• Organic growth: + 6% in local currencies• Sales prices selectively increased, overall stable• Development of costs:

+ : „Shape“, capacity utilization, strict cost management- : raw material and energy costs

• Improved EBIT and income before and after restructuring/impairment

• Negative trend in currency exchange rates impacted financial income

• Good development of free cash flow

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+ 9%

Group sales H1 2006(1)

6% organic growth

H1 2005 Currency Volume Price H1 20062700

MCHF

3 003

3 285

(1) continuing operations

3300

3000+ 3%

+ 6%0%

90

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Sales by region(1)

Europe45%

Americas29%

Asia-Pacific26%

H1 2005 H1 2006

860 948 1 394 1 477 749 860

H1 2005 H1 2006 H1 2005 H1 2006

Local curr.(2) + 2% + 5% + 11%CHF(2) + 10% + 6% + 15%

Good organic growth in all regions, especially in Asia

(1) continuing operations, sales in MCHF(2) compared to H1 2005

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Segment sales H1 2006

Strong growth in Plastic Additives and Coating Effects

1000

1000

1000

• Sales(1) in MCHF and ∆%(2) in MCHF and (local currencies)• Total sales H1 2006: 3 285 MCHF

Plastic Additives+15% (+11%)

Coating Effects+9% (+6%)

Water & Paper Treatment+5% (+1%)

979

1 232

1 074Group

+ 9 (+6%)

(1) continuing operations(2) compared to H1 2005

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Group EBIT H1 2006

Positive development in second quarter

(1) Continuing operations, excluding restructuring, impairment and other charges

• Sales prices stable• Improved capacity utilization • Higher raw material and energy costs• Project Shape: 30 MCHF savings

MCHF H1 H1 ∆% Q1 Q2 2006 2005 CHF 2006 2006

EBIT(1) 259 247 + 5 109 150as % of sales 7.9 8.2 6.6 9.2

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Plastic Additives 153 121 78 56 as % of sales 14.3 13.0 14.7 11.9

Coating Effects 123 121 70 61as % of sales 12.5 13.5 14.1 13.4

Water & Paper Treatment 35 57 23 30as % of sales 2.8 4.9 3.8 5.1

Corporate - 52 - 52 - 21 - 28

Segment EBIT(1) H1 2006

Water & Paper Treatment: Negative one-time effects

Group 259 247 150 119as % of sales 7.9 8.2 9.2 7.9

(1) continuing operations, excluding restructuring, impairment and other charges

H1 Q2MCHF 2006 2005 2006 2005

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Project Shape• Complete project (incl. TE)

– Vast majority of actions implemented, program to complete end of 2006

– 1220 positions reduced by June 06, compared to 1300 program target

– Costs slightly below expectations, benefit slightly above & faster

• “Continuing Operations“– Minor costs and cash-outs still in late part of 2006 / early

2007– Savings run-rate HY’06: 65 mio CHF; FY’06 95 mio CHF;

upon completion 120 – 130 mio CHF; above expectations

Successful execution of Shape practically complete

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MCHF, H1 H1 incl. restructuring and impairment 2006 2005

Group net income H1 2006

Group loss due to Textile Effects transaction

(1) main charge in Q2(2) basic and diluted, in CHF

Operating income before restructuring 259 247Restructuring charges - 33 - 50 Operating income after restructuring 226 197Financial income, net - 88 - 57Income continuing operations 95 99

Income discontinued operations(1) - 297 47

Net income - 202 146

Earnings per share(2)

* continuing operations 1.44 1.51* discontinued operations - 4.50 0.71

Earnings per share(2) Group - 3.06 2.22

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Divestment Textile Effects

Fewer separation costs than expected

expected effective MCHF MCHF

• Total transaction result forecast 350-370 322• Non-cash book write-off 250 224• Transaction/separation costs 100 - 120 98(incl. income TE); after tax─ charged in Q2 2006 72─ expected for H2 2006/2007 26

• Total charge H1 2006 297• Expected net debt reduction

– 2006 200 200 (est.)– 2007+ 100 100(used to reduce gross debt)

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Capex per region in H1 2006

High share of expansion investments in Asia

EuropeAmericas Asia-Pacific

21 MCHF

+ 80%

- 8%

- 21%60 MCHF

20 MCHF

∆% compared to H1 2005* Long-lived assets in mio CHF

Assets* 714 1601 280 per region 27% 62% 11%

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Strongly improved free cash flow from continuing operations

MCHF H1 2006 H1 2005

Cash Flow

Free Cash Flow – continuing operations + 2 - 158• better operational results• lower seasonal current asset build-up• lower cash expenses

Restructuring payments – cont. operations - 37 - 22

Free cash flow – discontinued operations - 16 - 20Cash divestment proceeds, net of acquisitions, 138 - 32only cash receipt excl. transferred debt

Net debt as of end of June 2 101 2407

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Strategic direction

Operational Agenda


Outlook and conclusionsOutlook and conclusions

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Outlook 2006Assumptions:• Business conditions to remain similar to those of H1 2006• Utility and raw material costs at high levels • No currency deterioration

Outlook 2006(1) :• Sales in local currencies expected to be higher than 2005• EBIT(2) in CHF above 2005, EBIT margin(2) around 2005 levels• Net income(2) in CHF above previous year• Free cash flow: Strong improvement

Strengthening Ciba‘s position in 2006

(1) continuing operations(2) excluding restructuring, impairment and other charges

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Conclusions

Target: Leading market position and solid results

• Strong operational improvement in Q2 • Strategy to strengthen the Segments Plastic Additives,

Coating Effects, Water & Paper Treatment in implementation

• Operational Agenda underway; to sustainably improve cost base. Objectives:

– streamlining of Group structure– efficient and integrated business processes– focus on improvement in profitability and cash flow

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Forward-Looking StatementsForward-looking statements and information contained in this Report are qualified in their entirety as there are certain important factors that could cause results to differ materially from those anticipated. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believe”, “expect”, “may”, “are expected to”, “will”, “will continue”, “should”, “would be”, “seek” or “anticipate” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Such statements reflect the current views and estimates of the Company with respect to market conditions and future events and are subject to certain risks, uncertainties and assumptions. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed above, among the factors that could cause actual results to differ materially are the following: the timing and strength of new product offerings, pricing strategies of competitors, introduction of competing products by other companies, lack of acceptance of new products and services by the Company’s targeted customers, changes in the Company’s business strategy, the Company’s ability to continue to receive adequate raw materials from its suppliers on acceptable terms, or at all, and to continue to obtain sufficient financing to meet its liquidity needs, and changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis and various other factors. Furthermore, the Company does not assume any obligation to update these forward-looking statements.

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Disclaimer: No Securities OfferingThis presentation is not and under no circumstances is to be construed as an offer to purchase or sell any securities issued by Ciba Specialty Chemicals and does not constitute an offer or solicitation for investment or funds.

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Non-U.S. GAAP MeasuresThe presentation today includes the display of some company financial indicators that do not directly conform to United States Generally Accepted Accounting Principles (“U.S. GAAP”). Management is of the opinion that these financial indicators are an important measure of comparative operating performance and financial stability of the businesses of the Company, and provide investors with additional insight into the ongoing operations of the business. However, these supplementary financial indicators should be considered in addition to, and not as a substitute for U.S. GAAP measures of operating performance and financial stability. Furthermore, these financial indicators may not be consistent with similar measures provided by other companies.

Information regarding the reconciliation between the U.S. GAAP and non-U.S. GAAP measures are available, with today’s presentation, in the Investor Relations section of our website at www.cibasc.com and definitions are provided in the “Glossary of Financial Terms” in the Financial Review of the Annual Report.

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-c

Core business: Plastic AdditivesStrength• Global market and technology leader

– antioxidants, light stabilizers, effect additives• Strong customer relations and application

know-how

Strengthen leading position in theattractive plastics industry

Strategic focus• Capture Asian and Middle East growth• Cost leadership in semi-specialties• Strengthen innovative growth: Effect additives,

innovation and marketing

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EBIT (2) 153 MCHF 14.3% +26%

EBITDA(3) 203 MCHF 18.9% +23%

R&D 4.6% of sales

EBIT (2) 153 MCHF 14.3% +26%

EBITDA(3) 203 MCHF 18.9% +23%

R&D 4.6% of sales

• Double digit sales increase in all regions with highest growth in Asia-Pacific• Strong sales to the plastic converting industry• Flame retardants continued strong• Continued growth in light stabilizers with HALS/UVA, but esp. NOR-HALS• Take off of the new UVA additive for longterm stabilization of Polycarbonate• HPC: high market acceptance and very strong growth of new UV adsorbers

for sun screen• Capex level will increase due to the start of the Singapore project• PLA: strong performance due to growth in ashless AO technology

Profitability by innovation and productivity improvement

Sales(1) 1’074 MCHF 15%/11%Currency 4%Volume/Mix 11%Price 0%

Sales(1) 1’074 MCHF 15%/11%Currency 4%Volume/Mix 11%Price 0%

(1) H1’06 figures; sales in CHF / currency adjusted; changes compared to H1’05(2) EBIT before restructuring and impairment; as percentage of sales; changes compared to H1’05(3) Adjusted EBITDA before restructuring and impairment; as percentage of sales; changes compared to H1’05

PA: Sales & EBIT significantly increased

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Core business: Coating Effects

Strengthen leading position

Strength• Global market and technology leader

– Additives (light stabilizers, photo-initiators)– Pigments

• Strong position in knowledge intense markets• Leading innovator: Ecology, effectivity, efficiency

Strategic focus• Leverage high value segments• Keep technological superiority• Strengthen Asian presence

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CE: New markets and innovationSales(1) 979 MCHF 9%/6%

Currency 3%Volume/Mix 9%Price -3%

Sales(1) 979 MCHF 9%/6%Currency 3%Volume/Mix 9%Price -3%

• Double digit growth in Coatings, driven by Industrial & Deco in Europe and Asia, recovery of transportation driven by Europe and Japan

• Growth in Plastics driven by food packaging and consumer goods (FDA approved portfolio)

• Double digit growth for Electronic Materials - strong displays, weak OIS• Imaging & Inks: Publication inks remain difficult; double digit sales increase

due to strong Digital, Packaging (driven by strong performance of effect pigments in Asia), Commercial Inks and IMEX, still benefiting from the world cup effect

High level innovation rejuvenating portfolio

EBIT(2) 123 MCHF 12.5% +1%

EBITDA(3) 177 MCHF 18.0% +1%

R&D 5.6% of sales

EBIT(2) 123 MCHF 12.5% +1%

EBITDA(3) 177 MCHF 18.0% +1%

R&D 5.6% of sales


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Core business: Water & Paper Treatment

Priority: Profitability improvement

Strength• Leading global position in paper

– broad “functional” effects portfolio– “best-in-class” application expertise

• Strong position in water treatment– extractive and process technologies– waste water services / indust. water management

Strategic focus• Increase profitability:

profits and cash before growth• Leverage functional effects in attractive segments• Build Asia - especially China

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WPT: Successful Water TreatmentSales(1) 1’232 MCHF +5%/+1%

Currency 4%Volume/Mix 0%Price 1%

Sales(1) 1’232 MCHF +5%/+1%Currency 4%Volume/Mix 0%Price 1%

Project Shape on track for margin recovery

• Water Treatment: Growth driven by price increases, sales up in Europe and Asia, esp. China

• Ongoing success of Ciba® RHEOMAX™, a new technology for the mining industry, esp. in Africa, LatAm and – emerging – Canada

• Paper: Pricing affected by price development in the LATEX business, remaining Paper business increasing prices in tough competitive environment

• Ongoing negative effect in Q2 in whiteners and colourformers (temporary production change-over issues in Grenzach and Clayton with CHF 18.5m worse capacity utilization), will be resolved end Q3

EBIT(2) 35 MCHF 2.8% -39%

EBITDA(3) 110 MCHF 8.9% -20%

R&D 1.8% of sales

EBIT(2) 35 MCHF 2.8% -39%

EBITDA(3) 110 MCHF 8.9% -20%

R&D 1.8% of sales


Ciba Specialty Chemicals - ACE Analyser Meet/132184_20060930.pdf · Ciba’s major industries and...

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