Prepared for Profitable GrowthAnnual Report 2010
Financial SummaryKey Figures                                                                                              ...
1Index     Letter to Shareholders                                           Page 0201   Restructuring accomplished        ...
2   Clariant Annual Report 2010    Letter to Shareholders                     Dear Shareholders,                     In 20...
3A sustainable increase in value is vital for the futureThe capital market also noted the improvement of Clariant’s perfor...
4   Clariant Annual Report 2010                     Specific benchmarks to measure success                     As part of ...
5Jürg Witmer                          Hariolf Kottmannchairman of the board of Directors   chief executive officer
6   Clariant Annual Report 2010    Restructuring accomplished    Since 2008 the Clariant Group    has been undergoing    a...
RestRuctuRing Accomplished                                                                                                ...
8   Clariant Annual Report 2010    From 2001 to 2006, Clariant sold a number of Business Units, mainly                    ...
RestRuctuRing Accomplished                                                                                                ...
10   Clariant Annual Report 2010     Reduction of complexity                                                   new structu...
RestRuctuRing Accomplished                                                                                                ...
12   Clariant Annual Report 2010     Financial Review     Clariant achieved or     exceeded all of its goals in     the bu...
FinAnciAl Review                                                                                                          ...
14   Clariant Annual Report 2010     Results of operations, financial position,                                  Solid sal...
FinAnciAl Review                                                                                                          ...
16   Clariant Annual Report 2010     (CHF 150 million) at CHF 135 million. Operating income before           Segment analy...
FinAnciAl Review                                                                                                          ...
18   Clariant Annual Report 2010     to strong increases in sales. The Business Unit achieved solid         › Improved ear...
FinAnciAl Review                                                                                                          ...
20   Clariant Annual Report 2010     Performance Chemicals                                                   The Additives...
FinAnciAl Review                                            21Condensed Consolidated Balance SheetCHF mn                  ...
22   Clariant Annual Report 2010     Solid balance sheet structure                                              Net financ...
FinAnciAl Review                                                                                                          ...
24   Clariant Annual Report 2010     Among the Business Units, Masterbatches had the highest headcount         average com...
FinAnciAl Review                                                                                                          ...
26   Clariant Annual Report 2010     Outlook                                                                 Important str...
FinAnciAl Review                                           27                   Hariolf Kottmann, CEO                   re...
28   Clariant Annual Report 2010     Strategic Review     Following the completion     of the restructuring and     reorga...
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Annual Report Clariant 2010

  1. 1. Prepared for Profitable GrowthAnnual Report 2010
  2. 2. Financial SummaryKey Figures 2010 2009 CHF mn CHF mnSales 7 120 6 614Operating income before restructuring, impairment and disposals 696 270Net income/loss 191 – 194Operating cash flow 642 757Total assets 5 921 6 092Total equity (including non-controlling interests) 1 806 1 896Investment in property, plant and equipment 224 135Staff costs 1, 2 1 479 1 555R&D costs 135 150Basic earnings per share CHF 0.81 – 0.911 Staff number: 16 176 (2010) 2 Excluding exceptional personnel costssales by business unit sales by regionCHF mn CHF mnTotal 2010: 7 120 Total 2010: 7 120 Industrial & Consumer Specialties 1 526 21 % Europe 2 977 42 % Masterbatches 1 260 18 % MEA* 552 8% North America 860 12 % Pigments 1 168 16 % Textile Chemicals 821 12 % Latin America 1 199 17 % Oil & Mining Services 604 8% Leather Services 326 5% Performance Chemicals* 1 415 20 % Asia/Pacific 1 532 21 %* Performance Chemicals includes the BUs Additives, D & I, Emulsions, Paper Specialties * Middle East and Africashare price Development from 31.12.2009 till 31.12.2010Share price in CHF 22 20 18 16 14 12 1031/12/09 31/01/10 28/02/10 31/03/10 30/04/10 30/05/10 30/06/10 31/07/10 29/08/10 30/09/10 31/10/10 28/11/10 31/12/10
  3. 3. 1Index Letter to Shareholders Page 0201 Restructuring accomplished Page 0602 Financial Review Page 1203 Strategic Review Page 2804 Business Units Page 3205 Corporate Responsibility Page 5406 Corporate Governance Page 5607 Compensation Report Page 7008 Consolidated Financial Statements of the Clariant Group Page 80 82 Consolidated balance sheets 83 Consolidated income statements 84 Consolidated statements of comprehensive income 84 Consolidated statements of changes in equity 85 Consolidated statements of cash flows 86 Notes to the consolidated financial statements 144 Report of the statutory auditor Review of Trends 145 Five-year Group overview Financial Statements of Clariant Ltd, Muttenz 146 Clariant Ltd balance sheets 147 Clariant Ltd income statements 148 Notes to the financial statements of Clariant Ltd 155 Appropriation of available earnings 156 Report of the statutory auditor 157 Forward-looking statements
  4. 4. 2 Clariant Annual Report 2010 Letter to Shareholders 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.
  5. 5. 3A sustainable increase in value is vital for the futureThe 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 in2010. Since the start of the economic crisis, our investors have benefited from an above market and sector-averageperformance 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 foundationsfor profitable growth. The task now is to sustain our successes. To this end, further significant changes to ouroperations and activities are necessary. Sustainably increasing value requires the willingness to break new groundin 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 improvementClariant launched the company-wide Clariant Excellence initiative in 2009 and rolled it out across all BusinessUnits and regions in 2010. Clariant Excellence is the core initiative for continuous improvement in order toachieve a sustainable increase in value. Based on Lean Sigma methodologies, Clariant Excellence comprisesthe four key components of Operational Excellence, Commercial Excellence, Innovation Excellence, and PeopleExcellence. More than 1 000 projects have already generated benefits of CHF 13 million in 2009 and approximatelyCHF 50 million in 2010. Group-wide implementation of the projects will continue in 2011. As a result we expectfurther cost savings, which will be significantly higher than those in previous years. To date, implementation of theinitiative has concentrated on the areas of Operational Excellence and Commercial Excellence with special attentionpaid to optimizing the production processes, supply chain and cost structures. Under Commercial Excellence, wetook measures to increase profitability by clearly focusing on margin, price and cash requirements. The initiativewill establish a further key focus in 2011 expanding Innovation Excellence to gradually develop Clariant as a globalinnovation leader.
  6. 6. 4 Clariant Annual Report 2010 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 long- term 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 Board of Directors Chief Executive Officer
  7. 7. 5Jürg Witmer Hariolf Kottmannchairman of the board of Directors chief executive officer
  8. 8. 6 Clariant Annual Report 2010 Restructuring accomplished Since 2008 the Clariant Group has been undergoing a comprehensive restructuring and reorganization. As a result there were major improvements in cash generation as well as cost and complexity reduction.
  9. 9. RestRuctuRing Accomplished 7Completion of the restructuring phase Many difficulties date back yearsClariant’s short history has been characterized by a number of Providing historical context for the situation prior to the lastrestructuring phases, which have had varying degrees of success. As restructuring phase (begun in 2008) requires a look back at thea result of changes in the business portfolio and internal structural company’s beginnings.issues, many of our performance indicators lost ground against ourcompetition, a situation that was accentuated by the recent financial The company’s history began in the summer of 1995 when itscrisis. Swiss parent company, Clariant Ltd, was created in a spin-off and subsequent IPO of the Chemicals Division of Sandoz. A key milestoneThe management has reacted and taken a number of measures was reached in 1997 with the purchase of the specialty chemicalssince 2008 to advance the restructuring and reorganization of the business of Hoechst AG. In 2000, Clariant took over the businessGroup at all levels. By clearly focusing on the core themes of cash of British company BTP, a specialist in life science chemicals –generation, cost savings, and the reduction of complexity, decisive a high-priced debt-financed acquisition which overstretched thesteps have been taken to restore Clariant’s profitability and position financial capacity of the Group. At that time, Clariant had aroundit on a course towards profitable growth. The results of these efforts 31 000 employees – almost twice as many as it does today. Thealready started to show in 2010. Group’s complexity quickly became problematic. High leverage, reduced profitability, and changing global operating conditionsAlthough the current measures to further increase efficiency will led the company into a severe crisis in 2003. This resulted in acontinue until their final implementation by the end of 2013, the strict program aimed at cutting costs, increasing efficiency, andClariant Group’s restructuring phase can now be considered as significantly reducing headcount.complete.timeline oF clariant’s history Acquisition of Rite Systems and Ricon Colors Divestment of Acquisition of CIBA Masterbatches, Cellulose Ethers and Divestment of Pharmaceutical Fine Electronic Materials Chemicals Divestment of Clariant Acquisition of parts of Emulsion Divestment of Divestment ofSandoz spin-off Hoechst Specialty Acquisition Business and Acetyl Building Custom Manu-established and IPO Chemicals of BTP Hydrosulfite NA Blocks facturing 1886 … 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
  10. 10. 8 Clariant Annual Report 2010 From 2001 to 2006, Clariant sold a number of Business Units, mainly Project Clariant and Clariant Excellence: to create more financial room for maneuver. However, costs could Strategic cornerstones of the realignment not be sufficiently reduced to compensate for the constant decline In 2008 and 2009, we launched Project Clariant and Clariant in profitability that the businesses were experiencing at the time. Excellence, two initiatives that have played a decisive role in the Groups ability to handle the impact of the economic crisis and make Global financial crisis calls for a shift in mindset progress in terms of cost management. They created a sustainable Despite past efforts to reduce costs and a largely strong competitive basis for putting Clariant back on the path to profitable growth. position, in 2008 our earnings and thus our profitability remained weak compared to the competition in many operating areas and › project clariant. Initiated at the end of 2008 as a restructuring in the Group as a whole. This became increasingly evident as program, Project Clariant was developed with the aim of increasing the global financial crisis intensified at the end of the year. For cash generation and reducing costs and complexity. It was designed a number of years, many of our performance indicators had lagged to systematically reshape all areas of the company in 2009 and behind the competition. Clariant’s sales per employee, SG&A costs, 2010. sales growth, and net working capital ratios were all consistently in the lower third for the sector. As a result, profitability measured › clariantexcellence. Clariant Excellence was launched in in EBITDA (earnings before interest, taxes, depreciation, and March 2009 to systematically introduce a culture of continuous amortization of intangible assets) and ROIC (return on invested improvement throughout the company. capital) remained low. project clariant – worK streams, main objectives anD status quo work streams objectives achievements as of end-2010 cash › Reduction in › Net Working Capital (NWC) = below 20 % › nw c = 23.8 % of sales by end 2008 working capital by end 2010 15.9 % by end 2010 cost › FTE reductions › Reduction of more than 2 000 FTEs › Reduction of Ftes* by > 3 900 to < 16 200 › Focus on SG&A* costs › Reduction of own personnel costs by approximately CHF 180 million › Asset network › Identification and planning of plant shut-downs › Structural optimization of 20 sites optimization (Project GANO) (* Full Time Employees) (* Sales, General and Administrative) complexity › Product pruning › Streamlining of product range › Focus on high-margin and high-growth products: analysis and › Country pruning implementation across all Business Units › Organizational structure › Reduction in number of locations worldwide › 14 site closures as part of GANO by end-2013 › Definition and implementation of more stream- › Reorganization of Group structure completed by end 2009 lined and effective organization improvement of key performance indicators: › ebit margin* improved from 6.6 % in 2008 to 9.8 % in 2010 › roic* of 18 % which has doubled, compared to 2008 (* = before exceptional items)
  11. 11. RestRuctuRing Accomplished 9Project Clariant Project GANO results in annual cost savingsProject Clariant comprises a range of work streams divided into of around CHF 100 millionthree parts. The main focus areas are cash, cost, and complexity. Structural weaknesses and overcapacities have considerably impacted Clariant’s cost base in the past. Project ClariantGeneration of additional cash flow established the Global Asset Network Optimization (GANO) ProjectIn 2009 and 2010, cash generation reached record levels thanks to address these production issues. Each site was analyzed into the “Cash Performance” initiative, which focused on reducing light of its capacity and appropriate rationalization programs wereinventories and trade receivables. Strict, ongoing inventory subsequently introduced where necessary.management is vital to managing net working capital effectively. Inaddition, credit periods were increased through the renegotiation In total, GANO was implemented in around 20 Group sites on allof contracts. The sharp economic upswing in 2010, which led to an continents. The last phase of this process was announced in Octoberincrease in working capital in the Group due to growing demand, had 2010. In addition to the final measures involving the operationallittle impact. Despite this counter-effect, it was possible to decrease units, the consolidation of global research and developmentnet working capital as a percentage of sales from 23.8 percent at activities in Frankfurt was announced. GANO will lead to a closurethe end of 2008 to 15.9 percent at the end of 2010. This figure is of 14 sites and an additional downsizing of six sites. A total of threeeven lower than the already low goal of 20 percent for 2010 set by sites were closed by the end of 2010 and their activities moved tothe company. more suitable locations.The generation of additional cash flow made it possible to reduce The various efficiency improvements will be implemented by theconsolidated debt drastically, allowing net financial liabilities to be end of 2013. Cost savings already had a positive effect on operatingdecreased from CHF 1 209 million to CHF 126 million since 2008. income before exceptional items in 2010. After completion in 2013, we expect annual cost savings of around CHF 100 million fromCost efficiency is the top priority GANO.The high cost base of 2008 represented a clear competitivedisadvantage for Clariant. To address this fundamental weakness,Project Clariant focused on decreasing costs in all areas, witha particular focus on SG&A. By consistently implementing efficiencyimprovements, the own personnel costs have been reduced byapproximately CHF 180 million, compared to 2008.The downsizing of the workforce by more than 3 900 from the end of2008 to the end of 2010 was substantial; 2 566 took place in 2009and 1 360 in 2010. This reduced the total number of employees toless than 16 200.
  12. 12. 10 Clariant Annual Report 2010 Reduction of complexity new structures implementeD in 2009 anD 2010 The number of products, customers, and countries in which we New structure Role operate creates a considerable level of complexity. To be successful, 1. executive committee Overall responsibility and accountability we had to manage this complexity better. for steering our organization both strate- gically and operationally. Simplifying our structures has not only helped close the performance 2. corporate center Supports the Executive Committee by gap with our competition, but also promote entrepreneurship and setting objectives and ensuring the necessary resources and structures are accountability, thereby building a platform for sustainable increased in place. profitability. 3. business units Ten BUs lead business operations. The restructuring implemented in 2009 involved the following key Each BU has Profit & Loss accountability for its businesses. elements: 1. Redefining the role of the Group Executive Committee, which 4. business services Delivery of non-core services to the BUs. has overall responsibility and accountability for steering the Coordinated globally and delivered through eight Regional Service Centers. organization both strategically and operationally. 2. Redefining the functions of the Corporate Center in Pratteln and its 5. regions and countries Lead Business Services locally by coor- 100 employees, who support the Executive Committee by setting dinating across BUs. They also represent the company to external stakeholders. objectives and providing the necessary resources and structures. 3. Replacing the previous structure consisting of four central 6. group technology services Coordinate and centralize innovation Divisions with ten newly created Business Units (BUs), which through six R&D centers. Consolidation of Group-wide research bear full responsibility for their operational results (see Annual and development activities in Frankfurt. Report page 33). Clariant Excellence – long-term initiative for sustainably improving performance While Project Clariant focuses on addressing our structural and cost- based issues, Clariant Excellence is a long-term initiative to promote continuous improvement and reinforce cultural change. With LeanSigma processes at its core, the mission of Clariant Excellence is to enhance our competitiveness by creating customer value and improving efficiency. Clariant Excellence will create a new business culture that embraces entrepreneurship and will position us at the top performance levels of our industry.
  13. 13. RestRuctuRing Accomplished 11Clariant Excellence comprises four elements: Operational Excellence, The fourth element of Clariant Excellence is people excellence,Commercial Excellence, Innovation Excellence, and People which is the foundation for the success of all “Excellence” areas,Excellence. These elements are being developed and implemented providing employees with the necessary skill sets and resources tostep-by-step. conduct their work in a more efficient and innovative manner. The company is making a major commitment to selecting, training, andclariant excellence empowering the right people in our organization to drive continuous improvement.innovation excellence: commercial excellence:Promoting new ideas and solutions Empowering sales and marketingfor profitable growth to offer the best customer service The key methodology for continuous process improvement in all and pricing “Excellence” areas is LeanSigma. LeanSigma is a high-performance, data-driven approach to analyzing and solving the root causes of leansigma business problems. LeanSigma training and projects are being deployed throughout the organization to drive change. In 2009 andoperational excellence: people excellence: 2010, approximately 2 000 employees were trained in LeanSigma,Striving for optimum efficiency across Enabling our people to achieve with more than 700 senior and middle managers trained to the levelall of our operating processes a culture of continuous improvement of “Excellence” champions. Since the initiative was introduced, more than 1 000 LeanSigma projects have been launched,operational excellence focuses on operational and administrative generating benefits of over CHF 13 million in business year 2009 andareas. It will continuously improve all of our operational processes, approximately CHF 50 million in business year 2010.from order entry and planning to production and delivery to thecustomer. It also includes our purchasing processes. The phase of profitable growth can begin Thanks to numerous measures and the commitment of all ourcommercial excellence focuses on sales and marketing. It employees, we have been able to achieve our goals of considerablywill empower our sales and marketing organization to offer the increasing Clariant’s competitiveness and outperforming thebest customer service, most appealing product portfolio, and the industry average for key performance indicators. This representsmost attractive price-performance ratio, hence increasing sales a major step towards repositioning our company for the future. Weeffectiveness. With efficient processes and tools, managing the are fully confident that by rigorously applying Project Clariant andgross margin and driving growth will continue to be the focus of our implementing continuous improvements through Clariant Excellence,sales activities. we can sustainably improve Clariant’s performance and meet our goals in business year 2011 and beyond so that we significantlyFor 2009 and 2010, we prioritized cash generation and cost reduction. increase the value of our company over the long term.As a result, our focus continued to be on Operational Excellence andCommercial Excellence. However, from 2011, we will introduceinnovation excellence to promote new ideas and turn them intoprofitable products.
  14. 14. 12 Clariant Annual Report 2010 Financial Review Clariant achieved or exceeded all of its goals in the business year 2010. Sales, income and cashflow increased markedly, which again improved the quality of the balance sheet.
  15. 15. FinAnciAl Review 13Business performance review stronger in the second half, driven by a steep rise in German exports. By contrast, national product growth in the emerging markets ofSummary statement for business year 2010 Asia/Pacific and Latin America has already returned to pre-crisisClariant achieved its goals in 2010. Driven by a number of programs levels. Economic performance increased by 7.1 percent in theto increase efficiency and an improving global economy, the emerging markets in 2010, with China, seeing disproportionatelycompany was able to generate a high cash flow, lower its costs, and high growth of 10.5 percent. India (+ 9.7 percent) and Brazil (+ 7.5further reduce the complexity of the Group. Sales increased by 12.9 percent) are also experiencing significant growth.percent to CHF 7 120 million, while the operating income marginbefore exceptional items in Swiss francs more than doubled from Chemical industry benefits from global upswing4.1 percent to 9.8 percent. The measures initiated as part of the Both the chemical industry as a whole and specialty chemicalsProject Clariant and Clariant Excellence initiatives were and will in particular operated in a favorable market environment in 2010,continue to be implemented systematically. Clariant aims to triggered by the stronger global economy. Overall, chemicalestablish itself as a leading company in its sector in terms of market production worldwide increased during the reporting year. The firstposition and profitability. To this end, it will take further important half of 2010 brought a rapid recovery for the chemicals sector, drivensteps in 2011; sales and income should again be above the previous by replenishment of inventories by customers. Growth impulsesyear’s figures. came from all regions.General conditions However, the positive impetus eased again from the third quarter. Global economic growth increased only slightly in the second half,Global economy makes a strong recovery in 2010 as financial and monetary policy stimuli gradually came to an end.2010 was marked by the recovery of the global economy from the Although global production expanded slightly, some industrialsevere crisis in 2009. The global economic upswing covered all countries have already had to post declines. By contrast, the rate ofeconomic sectors and regions with varying degrees of intensity. growth and demand for chemicals in many Asian countries remainedWhile the gross domestic product (GDP) in the industrial nations high, but returned to normal over the course of the second half ofsaw a moderate increase, the emerging markets became the the year.driving force behind global economic growth. According to theInternational Monetary Fund (IMF), the global economy grew by In view of the slow growth in industrial production and continueda total of 4.8 percent in 2010. full inventories, demand for chemicals only increased slightly in the second half of 2010.However, the recovery process differed greatly from country tocountry. Among the industrial nations, the United States (+ 2.6percent) and Japan (+ 2.8 percent) saw stronger growth in the firsthalf in particular, while the EU countries (+ 1.7 percent) proved
  16. 16. 14 Clariant Annual Report 2010 Results of operations, financial position, Solid sales growth and net assets Group sales amounted to CHF 7 120 million in 2010. This represents an increase of 13 percent in local currency compared Analysis of sales, margins, and costs to the previous year. The slightly lower growth in Swiss franc terms was due to the strong appreciation of the Swiss franc Key figures against the main global currencies as a reflection of an increased CHF mn 2010 2009 Change in % volatility in 2010. The increase in selling prices also had Sales 7 120 6 614 8 a positive impact on the rise in sales and was able to offset a large Gross profit on sales 1 987 1 557 28 portion of the increase in raw material prices. EBITDA before exceptional items 901 495 82 Margin in % 12.7 7.5 – The growth in sales encompassed all Business Units; however, the EBIT before exceptional items 696 270 158 high growth rates in the first half of 2010 were also attributable Margin in % 9.8 4.1 – to the baseline effect of an extremely weak previous year. Leather EBIT 366 – 20 – Services, Additives, and Masterbatches benefited in particular Financial result – 123 – 101 – from higher demand for key technological products, such as non- Income/loss before taxes 243 – 121 – halogenated flame retardants in the electronics industry, as well as Net income/loss 191 – 194 – the surprisingly healthy order volume from the automotive industry. Basic earnings per share 0.81 – 0.91 – These Business Units saw the strongest growth overall. Results of operations – Solid sales growth and significant group sales – Five-year overview increase in profit due to global upswing and successful CHF mn restructuring 2010 7 120 Following an extremely difficult 2009, Clariant recovered in 2010, 2009 6 614 in a significantly more favorable economic environment. The strong 2008 8 071 economic upswing led to full order books around the globe. In the 2007 8 533 first six months in particular, inventories were substantially restocked 2006 8 100 following the crisis. However, this effect declined somewhat in the 0 2 000 4 000 6 000 8 000 10 000 second half. Thanks to their strong growth, the emerging markets generated additional momentum in the industrial countries, although the latter grew at a significantly lower rate. Clariant benefited in this environment from increased demand for specialty chemicals in all Business Units and in the key sales regions.
  17. 17. FinAnciAl Review 15sales by business unit Good capacity utilization, reduced costs and strong pricingCHF mn lead to an increased gross marginIndustrial & Consumer 2010 1 526 The strong increase in customer demand led to a significantly higherSpecialties 2009 1 425 capacity utilization of approximately 70 percent. Furthermore, 2010 1 260 the rise in efficiency generated by Project Clariant and ClariantMasterbatches 2009 1 122 Excellence made an increasing contribution to improved profitability. 2010 1 168 Overall, the Clariant Excellence initiative generated benefits ofPigments 2009 1 072 approximately CHF 50 million in 2010 compared to CHF 13 million 2010 821 in 2009. In contrast, greater demand for raw materials due to theTextile Chemicals 2009 777 global economic upswing led to higher prices across the board 2010 604 in 2010. This resulted in additional costs of 9 percent over theOil & Mining Services 2009 578 previous year across the Group. Clariant was able to largely offset 2010 326 these higher costs by increasing selling prices by an average ofLeather Services 2009 279 2 percent in Swiss francs. Price increases, improvements in efficiencyPerformance 2010 1 415 together with high capacity utilization led to a higher gross margin ofChemicals 2009 1 361 27.9 percent (previous year: 23.5 percent). ebitDa beFore exceptional items – Five-year overviewOverall, sales grew in local currencies in all key regions in 2010. In CHF mnthe traditional industrial countries in Europe (+ 14 per cent) and North 2010 901America (+ 12 percent), this increase was attributable to the recovery 2009 495following the serious declines of the global economic crisis in the 2008 783previous year. Clariant also posted significant growth in the emerging 2007 812markets, with the Asia/Pacific region experiencing growth of 2006 85513 percent and Latin America 10 percent. A significant percentage 0 250 500 750 1 000(> 45 percent) of the overall Group sales was already generated inthe emerging and developing markets, which are expected to see the Despite higher project costs, the ratio of sales, general andstrongest growth rates in the future. administrative costs (SG&A costs) to sales was reduced from 17.6 percent in 2009 to 16.5 percent in 2010, due to a permanentshare oF sales by region focus on cost savings. This corresponds to an increase ofCHF mn 2010 2009 Change Change in LC2 CHF 15 million to CHF 1 177 million in absolute figures. This in % in % includes considerable non-recurrent project costs. Research andEMEA1 3 529 3 334 6 14 development costs were significantly lower than the previous yearNorth America 860 792 9 12Latin America 1 199 1 138 5 10Asia/Pacific 1 532 1 350 13 131 Europe, Middle East and Africa2 LC = Local Currency
  18. 18. 16 Clariant Annual Report 2010 (CHF 150 million) at CHF 135 million. Operating income before Segment analysis exceptional items more than doubled to CHF 696 million compared to CHF 270 million in 2009. The operating margin before exceptional Performance of the Business Units items rose accordingly from 4.1 percent to 9.8 percent. Restructuring costs and impairments of CHF 331 million (previous year: Industrial & Consumer Specialties CHF 298 million) primarily reflect the costs of optimizing the global production network (Project GANO) and other measures to improve Key Figures inDustrial & consumer specialties efficiency. CHF mn 2010 2009 Sales 1 526 1 425 operating margin beFore exceptional items – Five-year overview EBITDA before exceptional items 243 156 % Margin in % 15.9 10.9 2010 9.8 EBIT before exceptional items 206 115 2009 4.1 Margin in % 13.5 8.1 2008 6.6 No. of employees 1 790 1 911 2007 6.3 2006 7.3 › Sales growth in the key sales markets. 0 2 4 6 8 10 › Cost reductions and higher selling prices lead to an increase in operating income. The net financial result was CHF – 123 million, CHF 22 million lower than in the previous year (CHF – 101 million). Whereas financing The Industrial & Consumer Specialties Business Unit recorded a sales costs remain stable, the foreign exchange losses were significantly growth of 15 percent in local currencies, or by 7 percent in Swiss higher than in the previous year because of the higher volatility of francs to CHF 1 526 million. The main growth driver in local currencies the currencies in 2010. was the Industrial Applications segment, which experienced high demand for chemicals from the construction industry, lubricant The company was able to move back into profit. Clariant made a pre- manufacturers, and the paints and coatings industry. The recovery tax profit of CHF 243 million in 2010, compared to a loss of CHF 121 in Agrochemical Products continued in the reporting period in line million in 2009. The tax rate moved year-on-year from 60.3 percent to with general market performance. The Consumer Care segment also 21.4 percent mainly due to capitalization of deferred taxes. Income experienced growth due to continued high demand in the Personal after taxes rose accordingly by CHF 385 million to CHF 191 million Care and Industrial & Home Care markets. (previous year: a loss of CHF 194 million), resulting in earnings of CHF 0.81 per share. This compares to a loss per share of CHF 0.91 In the regional markets, the Business Unit generated double-digit in the previous year. sales growth in Latin America and in the Europe, Middle East, and Africa (EMEA) region. Growth was somewhat slower in Asia/Pacific and North America. The operating margin increased significantly from 8.1 percent to 13.5 percent, principally due to significant cost
  19. 19. FinAnciAl Review 17savings and selling price increases, which offset the considerable compared to 6.4 percent in the previous year as capacity utilizationrise in the price of raw materials for oleochemical products. was much higher and increases in raw material prices were passed on to customers. Customer demand in the automotive, packagingThe Business Unit will also selectively increase its selling prices in and textile sales markets was solid during the year.the future to compensate for further expected rises in raw materialprices. The undisputed drivers of global economic growth are the emerging markets, including India and Latin America. The double-digitThe implementation of measures under the Global Asset Network increase in local currency terms in the Business Unit’s sales in NorthOptimization (GANO) project is progressing according to plan. The America was particularly pleasing, while all other sales regionsnew multi-purpose ethoxylation facility in Dayabay (China) is due to posted growth in the mid- to high-single-digit range.come into operation in the first half of 2011 and will serve the broadspectrum of Chinese demand. Clariant will shut down its plants at As part of Project GANO, a total of seven locations will be closed byPontypridd (UK) and CIVAC (Mexico) by 2013. The company is also 2013. These are Lachine and Delta (Canada), McHenry and Milfordadjusting production in Gendorf (Germany). (US), Sefaköy (Turkey), Guatemala City (Guatemala), and Huningue (France). Some of the production activities of these locations willMasterbatches be taken over by other plants in corresponding areas in the future.Key Figures masterbatches PigmentsCHF mn 2010 2009Sales 1 260 1 122 Key Figures pigmentsEBITDA before exceptional items 151 105 CHF mn 2010 2009 Margin in % 12.0 9.4 Sales 1 168 1 072EBIT before exceptional items 120 72 EBITDA before exceptional items 236 83 Margin in % 9.5 6.4 Margin in % 20.2 7.7No. of employees 3 129 3 346 EBIT before exceptional items 202 48 Margin in % 17.3 4.5› Solid growth in all end markets. No. of employees 2 059 2 530› Disproportionate growth in North America.› Optimization of production processes stepped up worldwide. › Turnaround in income before exceptional items. › Operating margin rises to more than 17 percent.Sales in the Masterbatches Business Unit grew strongly both inlocal currencies and Swiss francs by 18 and 12 percent respectively The Business Unit Pigments booked a high operating profit ofto CHF 1 260 million. EBIT before exceptional items increased by CHF 202 million compared to CHF 48 million in the previous year.67 percent to CHF 120 million. The operating margin was 9.5 percent Pigments generated one of the best operating margins of all Clariant Group Business Units in 2010, at 17.3 percent. Improved cost efficiency made a considerable positive impact in addition
  20. 20. 18 Clariant Annual Report 2010 to strong increases in sales. The Business Unit achieved solid › Improved earnings thanks to higher capacity utilization and cost growth in demand across all sales markets. Demand for paints and reductions. coatings remained high, particularly in the automotive industry and › Relocation of production to Asia/Pacific strengthens competitive decorative paints. However, demand also began to increase again position. among manufacturers of industrial coatings. The plastics market benefited from the continuing upward tendency in the majority of Textile Chemicals experienced solid growth overall in 2010 in the sales markets. The trend for the industrial use of inkjet printers textile industry. Following an increase in the first six months driven aided growth in the printing market. by strong inventory effects, growth was somewhat weaker in the second half. However, growth was generated in all quarters in local The Business Unit achieved double-digit sales growth in all sales currencies. Growth in 2010 totaled 6 percent in Swiss francs and regions in 2010. Overall, sales were up by 12 percent in local 8 percent in local currencies. Sales in Asia/Pacific, the Business currencies and 9 percent in Swiss francs compared to the previous Unit’s key market, saw a single-digit increase compared to the year. The Latin American market was an exception here, managing previous year. The Europe, Middle East, and Africa (EMEA) and only single-digit growth in the second half due to the high baseline Latin America regions were largely unchanged year-on-year. The from the previous year. Business Unit generated its highest growth figures in the small North American market, which posted a double-digit rise. The extension of our joint venture with Chinese partner Baihe Chemical, Hangzhou City (PRC), to produce organic pigments was Textile Chemicals posted an improvement in the operating result also a success. A new plant started operation in October 2010. This year-on-year due to higher capacity utilization, the progress made expansion emphasizes Clariant’s position as a market leader in high- in focusing on high-quality growth, and cost savings. The operating quality organic pigments. The optimization of the global production margin in the reporting period was 5.6 percent (previous year: process of the Business Unit, which is to be completed by the end 0.0 percent). In order to be closer to its main markets, the Business of 2013, is also progressing according to plan. Under the GANO Unit will relocate from Switzerland to Singapore. initiative the closure of the Thane (India), Onsan (South Korea), Tianjin (China), and Huningue (France) Pigments sites was decided. The transfer of the Business Unit’s production to Asia/Pacific is Activities in Resende (Brazil) and Frankfurt (Germany) were also progressing according to plan. The manufacture of numerous affected by the measures. products has already been successfully transferred, both to own production sites and third-party contract manufacturers, in order Textile Chemicals to guarantee supply capability throughout the relocation process. The Roha (India), Shizuoka (Japan), and Muttenz and Reinach Key Figures textile chemicals (Switzerland) sites are also affected by these measures under CHF mn 2010 2009 Project GANO. Sales 821 777 EBITDA before exceptional items 69 23 Margin in % 8.4 3.0 EBIT before exceptional items 46 0.0 Margin in % 5.6 0.0 No. of employees 2 163 2 309
  21. 21. FinAnciAl Review 19Oil & Mining Services Leather ServicesKey Figures oil & mining services Key Figures leather servicesCHF mn 2010 2009 CHF mn 2010 2009Sales 604 578 Sales 326 279EBITDA before exceptional items 76 70 EBITDA before exceptional items 43 10 Margin in % 12.6 12.1 Margin in % 13.2 3.6EBIT before exceptional items 72 65 EBIT before exceptional items 38 5 Margin in % 11.9 11.2 Margin in % 11.7 1.8No. of employees 886 878 No. of employees 602 591› Healthy economic situation in the oil sector. › High demand from the automotive industry leads to strong sales› Major orders from leading oil companies strengthen Clariant’s growth. position in the Middle East and Latin America. › Higher costs of raw materials offset by price increases.The rise in global oil demand driven by the economic situation Continued strong demand from the premium segment of theled to a satisfying increase in sales in the Oil & Mining Services automotive industry in 2010 led to a significant rise in sales inBusiness Unit year-on-year, compared to a strong 2009. Growth in the Leather Services Business Unit year-on-year. Leather Serviceslocal currencies stood at 8 percent, or 4 percent in Swiss francs. generated the highest sales growth of all Business Units atThe year was characterized by a stable uptrend for Clariant Mining 20 percent in local currencies and 17 percent in Swiss francs givenServices, although growth slowed somewhat in the second half. The the low previous year basis. The upholstery and fashion segmentsBusiness Unit strengthened its position in the Middle East and Latin posted more moderate growth due to high prices for rawhide, whichAmerica through contracts with leading oil companies, causing a affected the manufacture of premium products such as leatherconsiderable surge in growth in both regions. Sales in North America shoes and furnishings. All regions contributed to growth with Latinalso increased encouragingly, while the Asian and European markets America having the best performance.ended the year at a similar level to the previous year. By focusing oncontracts with particularly good earnings prospects, Oil & Mining The Business Unit’s EBIT margin increased to the healthy figure ofServices posted an improvement in operating income compared to 11.7 percent. Higher raw material prices were offset on the sales side2009. The operating margin (operating income before exceptional by targeted price increases. Positive effects from the restructuringitems), which was already healthy in the previous year, rose from and pricing discipline within the leather industry also underpinned11.2 percent to 11.9 percent. the improvement in results.Crude oil prices are expected to rise further due to growing global In an environment of continuing stable demand for premium leatherdemand. In this environment, Oil & Mining Services is continuing products, the sales and results of the Business Unit are expectedto use the opportunity to raise prices to better counter rising raw to grow. The German Association of the Automotive Industry (VDA)material costs. expects the premium segment, which is the source of the biggest demand for leather within the automotive sector, to continue to grow in the next few years. Issues such as sustainability and environmental protection are also playing an increasing role in the leather industry worldwide. Clariant accordingly has a good basis for future business due to the introduction of new, innovative products and processes with less impact on the environment.
  22. 22. 20 Clariant Annual Report 2010 Performance Chemicals The Additives Business Unit was able to offset the increased costs of raw materials in all business areas and continue the positive Key Figures perFormance chemicals trend of the first half-year into the last two quarters of 2010 in every CHF mn 2010 2009 region. Detergents & Intermediates achieved a similar high capacity Sales 1 415 1 361 utilization due to stable demand. As raw material prices have since EBITDA before exceptional items 201 113 risen in line with inflation, the Business Unit has increased its Margin in % 14.2 8.3 selling prices as much as possible to cancel out the higher costs. EBIT before exceptional items 161 65 The Business Unit is still aiming for suitable price increases against Margin in % 11.4 4.8 this backdrop. No. of employees 2 140 2 213 The business situation allowed the Paper Specialties Business › Sales growth in all four operating areas. Unit to selectively increase selling prices and, as a result, achieve › Additional charges for raw materials were passed on. a satisfactory operating result. Emulsions experienced the most raw materials-related price pressure of all the Business Units, owing Performance Chemicals comprises four smaller Business Units at in great part to a production bottleneck in acrylates. Nevertheless, Clariant in terms of sales: Additives, Detergents & Intermediates, Emulsions was still able to increase prices. Emulsions, and Paper Specialties. Overall, sales in 2010 were higher than in the previous year across all operating areas, by As part of the Global Asset Network Optimization program, 10 percent in local currencies and 4 percent in Swiss francs. The production of the Paper Specialties Business Unit at the sites operating margin of 11.4 percent achieved in the reporting period in Reinach and Muttenz will be transferred to other production was significantly better than in the previous year (4.8 percent). The locations by 2013. Additives Business Unit scored a double-digit growth rate while Detergents & Intermediates, and Paper Specialties Business Units posted mid-to-high single-digit growth in local currencies. Emulsions stagnated at the same level as 2009.
  23. 23. FinAnciAl Review 21Condensed Consolidated Balance SheetCHF mn 31.12.2010 31.12.2009 Change in %assetsNon-current assets 2 416 2 705 – 11 Intangible assets 269 294 –9 Property, plant, and equipment 1 669 1 927 – 13 Financial assets 18 19 –5 Other non-current assets 341 390 – 13 Deferred income tax assets 119 75 59Current assets 3 494 3 385 3 Inventories 800 853 –6 Trade receivables 985 1 102 – 11 Other assets and receivables 993 290 242 Cash and cash equivalents 716 1 140 – 37 Non-current assets held for sale 11 2 total asset 5 921 6 092 –3equity anD liabilitiesEquity Shareholders’ equity 1 759 1 844 –5 Non-controlling interests 47 52 – 10 total equity 1 806 1 896 –5LiabilitiesNon-current liabilities 2 153 2 390 – 10 Financial debts 1 305 1 553 – 16 Retirement benefit obligations 443 484 –8 Deferred income tax liabilities 85 112 – 24 Provision for non-current liabilities 320 241 33Current liabilities 1 962 1 806 9 Financial debts 240 132 82 Provision for current liabilities 310 395 – 22 Trade payables 1 170 1 024 14 Current income tax liabilities 242 255 –5 total equity and liabilities 5 921 6 092 –3
  24. 24. 22 Clariant Annual Report 2010 Solid balance sheet structure Net financial debt was reduced by CHF 419 million to As of 31 December 2010, the total assets of the Clariant Group were CHF 126 million by the end of 2010. This includes current and non- CHF 5.921 billion compared to CHF 6.092 billion in the previous year, current debts, cash and cash equivalents as well as other current marked by a significant cash position of CHF 1 419 million, including assets worth CHF 703 million. The gearing ratio, which compares the short-term deposits of CHF 703 million. level of net financial debt to equity capital, was reduced to 7 percent on 31 December 2010. In the previous year it was still 29 percent. Equity capital fell slightly by CHF 90 million to CHF 1.806 billion from CHF 1.896 billion at the end of 2009. Here too, exchange rate influences played a crucial role. The equity capital ratio was slightly lower than 2009 at 30.5 percent. Financial position consoliDateD statements oF cash Flows CHF mn 2010 2009 Change in % Net income/loss 191 – 194 – Reversals of non-cash items 362 511 – 29 Cash flow before changes in net working capital and provisions 251 14 – Operating cash flow 642 757 – 15 Cash flow from investing activities – 961 – 114 – Cash flow from financing activities – 62 140 – net change in cash and cash equivalents – 424 784 – Currency translation effect on cash and cash equivalents – 43 1 – cash and cash equivalents at the beginning of the period 1 140 356 220 cash and cash equivalents at the end of the period 716 1 140 – 37 Cash flow significantly higher Investments in property, plant, and equipment rose markedly from In 2010 cash flow from operating activities before changes in working CHF 135 million to CHF 224 million as business improved. The capital – generated by the good operational performance of the entire outflow of funds from investment activities in the reporting Group – rose from CHF 14 million to CHF 251 million. The impact of period was CHF – 961 million, compared to CHF – 114 million in the the net working capital was still positive at CHF 391 million in spite previous year. At CHF 703 million, a large proportion of the increase of increased business activity in line with the improved economic is based on the conversion of cash and cash equivalents into current conditions. The ratio of working capital to sales fell accordingly bank deposits with a duration of more than three months. According from 21.1 percent to 15.9 percent, undercutting the target value of to International Financial Reporting Standards (IFRS), this position 20 percent. must be booked under investments. Considering those short-term bank deposits the total cash balance of the Group stood at CHF 1 419 million per 31 December 2010.
  25. 25. FinAnciAl Review 23Secure and diversified financial structure Ftes (on 31 December)Clariant has a solid financial basis and ample access to all financing 2010 16 176means. It makes use of various financial instruments. For example, 2009 17 536it issued a certificate of indebtedness in 2008 in a nominal amount 2008 20 102of EUR 100 million, maturing in 2011, of which, EUR 20 million was 2007 20 931placed at a fixed interest rate of 6.211 percent and EUR 80 million 2006 21 748at a variable rate. The financing structure also includes two bonds, 0 4 000 8 000 12 000 16 000 20 000 24 000one of which (CHF 250 million) was placed in 2007 at an interest rateof 3.125 percent (maturity: 2012), and the other (EUR 600 million) in Employee headcount reduced due to restructuring2006 with a maturity of seven years (to 2013) at an interest rate of In 2010, employee headcount decreased further to 16 176. This4.375 percent. Furthermore, Clariant issued a CHF 300 million senior represents a drop of 7.8 percent compared to the previous year.unsecured convertible bond in July 2009. The conversion price is CHF Clariant considers it extremely important to conduct its employee8.55 per share, and the interest coupon was set at 3.0 percent per reduction in a as fair and socially acceptable manner as possible.annum. All the reduction measures were made in close cooperation with employee representatives and authorities present onsite. TheEmployees introduction of shorter working hours proved an important tool forEmployees are an important factor in the success of the Clariant managing headcount during the economic crisis, as it enabled usGroup. Their qualifications, commitment and motivation are key to to retain highly qualified specialists, particularly during the majorthe company’s competitiveness going forward. Clariant makes every downturn of 2009, so we could return them to full-time work swiftlyeffort to recruit persons most suited to particular positions, and when the situation turned round. In total, 4 000 employees werestrives to retain and develop its employees. To achieve these aims, temporarily placed on shorter working hours in 2009, mainly at ourthe company pays performance-related compensation, provides German production sites. By mid-2010 we were able to discontinueongoing training, and pays due attention to helping individual this measure as the Group’s results improved.employees achieve their personal goals. Given its global presencewith production facilities on all continents, the Group naturally has In 2010 the Clariant Group spent CHF 1 646 million on salaries,a broad and intercultural mix of employees who have a precise social welfare contributions, and exceptional personnel costs. Theunderstanding of the different needs of customers in every region. corresponding figure for last year was CHF 1 757 million, whichThis quality is reflected in their work. represents a reduction of 6 percent (CHF 111 million) year-on-year.As in 2009, the staff management also had major challenges to In regional terms 55 percent of our employees were based in Europe.contend with in 2010. As part of the restructuring and systematic The number two Group location in terms of number of employees isanalysis of the entire company, Clariant reviewed the structure of Asia/Pacific (21 percent), followed by Latin America (17 percent) andemployees to create a platform for sustainable, profitable growth. North America (7 percent).The comprehensive restructuring and reorganisation had directimpact on the number of employees in the company.
  26. 26. 24 Clariant Annual Report 2010 Among the Business Units, Masterbatches had the highest headcount average compared to the 3.9 percent growth of the SLI Swiss leader with 19 percent of the Group’s total employees. Other high-headcount index, allowed Clariant to maintain its excellent 2009 performance. Business Units included Pigments (13 percent), Textile Chemicals (13 percent), and Industrial & Consumer Specialties (11 percent). The market capitalization of Clariant Ltd on 31 December 2010, was CHF 4.36 billion. The shares are 100 percent free floating. The implementation of the Global Asset Network Optimization (GANO) initiative will imply further adjustment in personnel. All of Key Figures For the clariant share these measures have already been communicated. 2010 2009 Closing rate (31 December) (CHF) 18.94 12.22 Ongoing and further training Peak (CHF) 19.73 12.22 Clariant’s sustainable staff policy focuses on providing training Lowest price (CHF) 10.85 3.71 opportunities and employing qualified staff, particularly when demand for new recruits is low. The Group maintained its investment Number of shares on 31.12. (million shares) 230.16 230.16 in further training at a high level during the economically challenging In free float in % 100 100 year of 2009, and continued this trend through 2010. Average trading volume per day (SIX) 1 883 336 2 129 707 Market capitalization on 31.12. (CHF mn) 4 359 2 813 Clariant share Earnings per share (CHF) 0.81 – 0.91 2010: A volatile year for share prices Although the economic outlook for most regions steadily improved, You can find more detailed information about Clariant on the the situation on the stock markets was volatile throughout the company website at www.clariant.com. year. Most of the European exchanges had risen markedly by the end of the first quarter. However, the stock market gains did not Investor Relations last, and prices fell heavily in the second quarter before trending Hardstrasse 61 sideways. Market participants were gripped by uncertainty about CH-4133 Pratteln the sustainability of the economic recovery and discussions about Switzerland the monetary policy followed by many central banks. However, on Tel.: +41 61 469 67 45 the back of good corporate quarterly results, share prices finally Fax: +41 61 469 67 67 began to rise significantly in the second half of 2010, resulting in year-on-year gains for major European indices like the the DAX 30 and the FTSE 100 whereas other indices marked time or declined. Clariant shares rise by 55 percent in 2010 Clariant shares mirrored this general market trend bolstered by good operational performance and the resulting higher valuation given by international investment houses. Clariant shares were priced at CHF 18.94 on 31 December 2010, 55 percent higher than at the beginning of the year. This performance, which was clearly above
  27. 27. FinAnciAl Review 25Risk management Environmental, product, and financial risks, and litigation Relevant parameters for all manufacturing sites are centrally ana-Enterprise Risk Management lyzed to minimize potential environmental, safety, and health risks.Enterprise Risk Management is designed to clarify risk levels and Clariant mitigates risks arising from public and product liability byencourage entrepreneurial behavior throughout the Group. The concluding insurance policies and booking provisions. It limits poten-process considers opportunities and threats to short- and medium- tial inherited liabilities arising from acquisitions or disposals throughterm objectives as defined by the Board of Directors. Enterprise contractual agreements whenever possible.Risk Management ensures the coordination and development ofRisk Management activities through all decision-making levels. It Financial risks are monitored through a comprehensive analysis andensures the communication of all significant risks to the Executive evaluation system. Payment stream imbalances (transaction risks)Committee, the CEO, and the Board of Directors, and aims to inform, between various currencies are hedged on a selective basis via op-train, and motivate staff. tions, spot transactions, or forward transactions. The exposure of assets and liabilities (translation risks) is addressed by adoptingUnder the Group risk management policy, a risk management a business behavior geared towards “natural” hedging.tool supports risk assessments, quantification, assessmentof counter measures, allocation of responsibilities, and the Clariant manages the risks associated with interest rate changesmanagement reporting structure. The policy is based upon the risk primarily by maintaining the right balance between fixed and vari-management standard of the Institute of Risk Management (IRM) able rates and credit facility maturity.and benchmarked to the Enterprise Risk Management – IntegratedFramework of the Committee of Sponsoring Organizations of the Appropriate provisions are booked for non-insured litigation includ-Treadway Commission (COSO). The results of the risk assessments ing tax law, patent law, product liability, competition, and environ-and countermeasures are consolidated and the risk exposures are mental protection.assessed by the Executive Committee, the CEO, and the Board ofDirectors via the Audit Committee. Information technology risks Clariant operates business-critical software from a centralizedRisk assessments computer center with two physically separated server parks. TheBusiness planning and target setting are subject to risk assessment system’s parallel architecture overcomes failures and breakdowns.and, therefore, these risk assessments are linked to Clariants over- Reliable and permanently updated tools guard against virus attacks.all short- and medium-term objectives and the individual objectives Clariant regularly practices emergency drills.of senior managers. The risk score measures the likelihood of risk aswell as its financial, reputational, and operational impact. Each riskassessment reports on threat or opportunity, cause, impact, treat-ment, and control measures, level of confidence in the controls, ac-ceptability of identified risks, potential improvements, risk improve-ment plans, and timescale.The Investment Sub-Committee of the Executive Committee is re-sponsible for monitoring the assessment results for relevance,consistency, and accuracy. The risk assessment is repeated annu-ally with quarterly updates and interim reporting as necessary. Theprocess has been designed to deliver timely results.
  28. 28. 26 Clariant Annual Report 2010 Outlook Important strategic pillars for the next few years Following the operational turnaround in 2009 and 2010, Clariant will Global economy should continue to grow in 2011 focus on profitable growth starting in 2011. The following strategic The signs are good for a continuation of the global economic up- pillars are crucial in this regard: swing in 2011. Economic growth expectations for the emerging mar- kets are in the mid to high single-digit percent range and are far › Consistent performance improvement by all Business Units on the more positive than those for the western industrial nations where basis of the current portfolio. stagnation or only weak growth is expected. While sovereign debt › Improvement of innovation through systematic, market-oriented will remain the major cause of uncertainty in the euro zone, infla- research and development. tion risks in the emerging markets are latent. The strong economic › A clear focus on growth in the emerging markets (Asia/Pacific, expansion has already brought some fast-growing markets close to Latin America). overheating and triggered major inflation. › Selective acquisitions to optimize the portfolio. Confidence in growth in the chemical industry Outlook 2011 After chemical production in some regions of the industrialized world Starting 2011, Clariant shifted its focus on continuous improvement showed its strongest percentage production growth in over 30 years and profitable growth after restructuring has been completed in 2010. in 2010, sector experts are more reserved regarding 2011. Sector While the continuous improvement initiative “Clariant Excellence” growth in the traditional industrial locations of the US and Europe launched in 2009 will make the lower cost basis sustainable, the is expected to be considerably more modest. By contrast, chemical company now focuses on creating value by investing in future production in the fast-growing emerging markets of Asia/Pacific and profitable growth. Latin America as well as in the Middle East is likely to remain high due to the persistent high demand from these regions and the ca- For 2011, Clariant expects global economic growth to continue pacity expansions announced by European and US producers. Sector but at a slower pace than in 2010. Exchange rates of the most experts expect China to overtake the US in 2011 for the first time important currencies are expected to remain widely unchanged. as the world’s largest chemical market. The greatest uncertainties Growth will mainly come from the emerging markets in Asia/Pacific for the sector are based on renewed expectations of high currency and Latin America. After taking a breather in the second half volatility and significant rises in raw material prices in 2011. of 2010, commodity prices are expected to rise again in 2011. Clariant predicts raw material costs to increase in the high single-digit range. Clariant expects 2011 sales growth in local currencies in the low single-digit range. Further benefits from the restructuring measures taken during the last two years will improve the company’s cost position, resulting in a positive impact on the operating result. The EBITDA margin before exceptional items is therefore expected to rise above 2010 level. The company’s priority is to maintain the key figures of profitability and ROIC above average levels for the sector over the long term.
  29. 29. FinAnciAl Review 27 Hariolf Kottmann, CEO responsibilities: Legal & Compliance, HR, Communications, Corporate Development, Clariant Excellence Patrick Jany, CFO responsibilities: Financial Services, Treasury, Accounting, Tax, Corporate Controlling, IT, Investor Relations Christian Kohlpaintner responsibilities: Group Technology Services, ESHA, Pigments BU, Masterbatches BU, Performance Chemicals BUs (Paper Specialties, D&I, Additives, Emulsions) Mathias Lütgendorf responsibilities: Group Procurement Services, Supply Chain, Industrial & Consumer Specialties BU, Textile Chemicals BU, Oil & Mining Services BU, Leather Services BU
  30. 30. 28 Clariant Annual Report 2010 Strategic Review Following the completion of the restructuring and reorganization Clariant is now on the path to create sustainable profitable growth.

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