ciba specialty chemicals - ace analyser meet/132184_20060930.pdf · ciba’s major industries and...
TRANSCRIPT
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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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ContentOverview second quarter and first half year 2006
Strategic direction
Operational Agenda
Results first half year 2006
Outlook and conclusions
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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ContentOverview second quarter and first half year 2006
Strategic direction
Operational Agenda
Results first half year 2006
Outlook and conclusions
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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ContentOverview second quarter and first half year 2006
Strategic direction
Operational Agenda
Results first half year 2006
Outlook and conclusions
Results first half year 2006
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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
180 12
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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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ContentOverview second quarter and first half year 2006
Strategic direction
Operational Agenda
Results first half year 2006
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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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
(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
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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
(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