Annual report Clariant 2011


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Annual report Clariant 2011

  1. 1. Profitable Growth under WayAnnual Report 2011
  2. 2. Financial Summary Key Figures 2011 2010 CHF m CHF m Sales 7 370 7 120 EBITDA before exceptionals 975 901 EBITDA margin before exceptionals (%) 13.2 12.7 Net income 251 191 Basic earnings per share 0.86 0.81 Operating cash flow 206 642 Investment in property, plant and equipment 370 224 Research & development costs 176 135 Total assets 9 081 5 921 Total equity 3 026 1 806 Equity ratio (%) 33.3 30.5 Net financial debt 1 740 126 Gearing ratio (%) 1 58 7 Employees 22 149 16 176 1    et financial debt to equity N Sales by Business Unit Sales by Region CHF m CHF m Total 2011: 7 370 Total 2011: 7 370 Industrial Consumer Specialties 1 473 20 % Europe 3 029 41 % Masterbatches 1 124 15 % Middle East Africa 642 9 % North America 958 13 % Pigments 973 13 % Textile Chemicals 675 9 % Latin America 1 144 15 % Oil Mining Services 620 8 % Leather Services 265 4 % Performance Chemicals1 1 293 18 % Asia/Pacific 1 597 22 % Functional Materials 2 456 6 % Catalysis Energy2 491 7 % 1    erformance Chemicals includes the Business Units Additives, Detergents Intermediates, P Emulsions, Paper Specialties. 2    ay – December 2011 M Cover photo The cover photo was taken at St. Jakob-Park in Basel, home of the 14-time Swiss football champions, FC Basel. Stadium seats can be made with products from three of Clariant´s Business Units: Additives, Masterbatches and Pigments. Profitable Growth under Way Their products provide, amongst other things, vibrant color; block light with their UV stabilizers; repel dust withClariant Annual Report 2011 Annual Report 2011 CLA_GB11_Umschlag_E_jsc.indd 1 17.02.12 14:22 their antistatics; and fight fire with their flame retardants.
  3. 3. Business Units in 2011 Additives Emulsions Key Figures 2011 Key Figures 2011 See Performance Chemicals. See Performance Chemicals.The Additives Business Unit is an important supplier of products with func- The Emulsions Business Unit is one of the leading suppliers of latex/polymertional effects for plastics, coatings, and printing inks. The product range in- dispersions for paints, coatings, adhesives, sealants, and for the textile, leath-cludes flame retardants, waxes, and polymer additives for effects in plastics, er, and paper industries. These water-based and therefore environmentallyvarnishes, and other applications. compatible products give colors luminosity and Catalysis Energy Functional Materials Key Figures 20111 Key Figures 20111 Sales (CHF m) 491 Sales (CHF m) 456 EBITDA before exceptional items EBITDA before exceptional items (CHF m) 107 (CHF m) 59 Employees 2 659 Employees 2 829Catalysis Energy has been part of the Clariant Group since the acquisition of Functional Materials has been part of the Clariant Group since the acquisi-Süd-Chemie in 2011. This Business Unit holds a leading position as a producer tion of Süd-Chemie in 2011. This Business Unit is among the market leadersof catalysts for the chemical, petrochemical, polymer, refinery, and auto­ otive m in specialty products and solutions for improving product and efficiency char-industries. It also supplies products into environmental markets and sells acteristics in various industries including adsorbents, solutions for protectiveenergy storage materials such as for lithium-ion batteries. packaging, and water Detergents Intermediates Industrial Consumer Specialties Key Figures 2011 Key Figures 2011 See Performance Chemicals. Sales (CHF m) 1 473 EBITDA before exceptional items (CHF m) 251 Employees 1 801Detergents Intermediates is one of the most important producers of key raw The Industrial Consumer Specialties Business Unit has the highest salesmaterials for detergents and household cleaners. It is also an important sup- volume in the Clariant Group and is one of the largest providers of specialtyplier of chemical intermediates used specifically for producing agrochemicals chemicals and application solutions for consumer care and industrial marketsand pharmaceuticals. such as the agricultural, metalworking, machine-building, and aircraft tries. Its EcoTain® label exemplifies its uncompromising pursuit of the principle of environmental sustainability.   ay – December 20111 M
  4. 4. Leather Services Paper Specialties Key Figures 2011 Key Figures 2011 Sales (CHF m) 265 See Performance Chemicals. EBITDA before exceptional items (CHF m) 26 Employees 595Leather Services is a leading producer of chemicals and services to the leather in- Paper Specialties is one of the largest manufacturers of products for optical bright-dustry. The Business Unit offers chemical and technical solutions for the complete ness, color, coating, and thickness of paper and thus helps improve the optical andleather production process, from beamhouse to finishing. functional properties of all types of papers and board with its focused product fering. Masterbatches Pigments Key Figures 2011 Key Figures 2011 Sales (CHF m) 1 124 Sales (CHF m) 973 EBITDA before exceptional items EBITDA before exceptional items (CHF m) 129 (CHF m) 210 Employees 3 091 Employees 1 928Clariant Masterbatches is a leading manufacturer of dye and additive concentrates The Pigments Business Unit is a leading global provider of organic pigments, pig-and technical composites for the plastics industry, and supplies the packaging, con- ment preparations, and dyes, which are used for coatings, printing, plastics, andsumer goods, medical, textile, and automotive industries. other special applications. These include high-performance pigments and dyes ink jet and laser printers. Oil Mining Services Textile Chemicals Key Figures 2011 Key Figures 2011 Sales (CHF m) 620 Sales (CHF m) 675 EBITDA before exceptional items EBITDA before exceptional items (CHF m) 72 (CHF m) 34 Employees 1 000 Employees 2 096The Oil Mining Services Business Unit is one of the most significant provid- Clariant’s Textile Chemicals Business Unit supplies specialty chemicals for the pre-ers of products and services to the oil, refinery, and mining industries. The treatment, dyeing, printing, and finishing of textiles and improves the properties ofbroad and diverse product range includes chemical solutions for deep wa- garments and other textiles such as high fashion fabrics, home textiles, and specialter exploration to refining which help to reduce costs and improve production technical fabrics.efficiency. or www.mining.clariant.comPerformance Chemicals Performance Chemicals includes the Business Units, Additives, Detergents Inter-Key Figures 2011 mediates, Emulsions, and Paper Specialties.Sales (CHF m) 1 293EBITDA before exceptional items (CHF m) 177Employees 2 141
  5. 5. 1IndexL etter to Shareholders Page 02Profitable growth under way Page 08Financial Review Page 14 15 Results of operations, financial position, and net assets 19 Segment analysis 26 Extract of cash flow statement 31 Outlook 33 The Executive CommitteeDrivers for profitable growth Page 36 36 Portfolio Management 42 Global Positioning 46 Innovation, Research Development 52 Sustainability at Clariant 60 Clariant ExcellenceC orporate Governance Page 70Compensation Report Page 86Consolidated Financial Statements of the Clariant Group Page 99 99 Consolidated balance sheets Financial Statements of Clariant Ltd, Muttenz 100 Consolidated income statements 160 Clariant Ltd balance sheets 100 Consolidated statements 161 Clariant Ltd income statements of comprehensive income 162 Notes to the financial statements of Clariant Ltd 101 Consolidated statements of changes in equity 170 Appropriation of available earnings 102 Consolidated statements of cash flows 171 Report of the statutory auditor 103 Notes to the consolidated financial statements 172 Forward-looking statements 158 Report of the statutory auditor Review of Trends 159 Five-year Group overview
  6. 6. 2 Clariant Annual Report 2011 Letter to Shareholders Dear Shareholders, 2011 was an important year for Clariant in terms of our transformation from restructuring to sustainable profitable growth. Following the sometimes painful but necessary cutbacks in 2009 and 2010, when we were forced to over- come additional obstacles created by the financial crisis, we posted a successful performance in 2010, aided by a strong economic tailwind. We have made further progress in 2011. Despite the fact that the global financial crisis cooled industrial demand significantly in the second half of the year, Clariant reported another excellent year with sales increases of 16 percent in local currencies or 4 percent in Swiss francs and the best profitability in ten years. The strong growth was driven by price increases and by Süd-Chemie sales, which were consolidated for the eight- month period following the acquisition of the company in April 2011. Overall group sales reached CHF 7.37 billion and EBITDA margin before exceptional items increased to 13.2 percent versus 12.7 percent in 2010. Profitable growth under way We will continue to gradually and systematically implement the efforts we began three years ago. We created the foundation for profitable growth in Phase 1 by executing the cash-generating, cost-cutting, and complexity-reducing measures as part of the Project Clariant program. At the end of 2009, Clariant entered Phase 2 with the launch of Clariant Excellence, the company-wide initiative that focuses on continuous improvement and value enhancement. We are now in the process of changing the philosophy that governs our day-to-day business activities and integrat- ing a culture of continuous improvement into all business units based on Operational Excellence, Commercial Excel- lence, Innovation Excellence, and People Excellence. After benefits at a total of CHF 63 million in 2009 and 2010, the company has been able to achieve further benefits of more than CHF 100 million in 2011 through a large number of projects at all levels. 2011 saw the focus shift for the first time to strengthening our Innovation Excellence and taking the first steps in People Excellence. We will continue these efforts in 2012 in order to achieve new savings of more than CHF 60 million each year through Clariant Excellence. Further cost reductions totaling CHF 60 million are expected by mid-2013 after comple- tion of the production network optimization under the Global Asset Network Optimization (GANO) program as part of Project Clariant. We entered Phase 3 of our strategy plan in 2011: Its goal being to sustainably increase value based on long-term profitable growth. The emphasis is on continually improving profitability in all business units, focusing on innova- tion, expanding our already strong competitive position in the growth markets of Asia and Latin America, and optimizing our company portfolio.
  7. 7. Letter to Shareholders 3 Acquisition of Süd-Chemie – a great opportunity for Clariant The takeover of Süd-Chemie in 2011 is of great significance in the transformation of the company. Through this transaction, we acquired two attractive high-margin businesses. Our newly acquired segments – Functional Materi- als and Catalysis Energy – posted EBITDA returns of just under 13 and approximately 22 percent, respectively, in 2011. In view of the ongoing economically turbulent times, it is remarkable that Süd-Chemie was able to gener- ate a very stable margin even during the last global recession of 2008 – 2009. Süd-Chemie also has an excellent track record in future technologies and innovations. Overall, Clariant has increased Group sales and earnings by about one fifth through this acquisition. The integration of Süd-Chemie is progressing as planned. We project that integration-related synergies and Clariant Excellence initiatives from the integration will lead to an additional rise in EBITDA of CHF 90 to 115 million by 2013. Solid balance sheet structure Even after this major acquisition, Clariant has a solid balance sheet structure that will enable us, to effectively increase our own investments in the future of the company in the coming years. The willingness of the capital market to participate in the financing package that Clariant put together in the course of the takeover was cru- cial in this regard. This was not a foregone conclusion since the deal involved a total financing volume of about CHF 2.5 billion. We strengthened our equity base through a capital increase that raised the equity ratio to 33.3 per- cent, slightly above the previous year’s 30.5 percent level. We also refinanced all our commitments with long-term financing at attractive conditions. We will work hard in 2012 and in subsequent years to reduce our net financial debt rapidly and substantially. Our vision for 2015 Clariant has set ambitious goals for the years through to 2015 in expectation of a moderate upward trend in the global economy and stable exchange rates. By implementing the measures from the strategy initiatives Project Clariant and Clariant Excellence, we aim to improve the profitability of the company and all business units. We will also increase investments in the Group’s technology and innovation, as well as expand the innovation pipeline significantly by implementing Innovation Excellence. The focus will be on broader expansion into the fast-growing emerging market regions. The company will in particular increase its market share in China, India, and Brazil. The profitability of the current portfolio will be analyzed on a continuous basis. We will also make targeted acquisitions in the future to strengthen the product pipeline and the company’s regional presence, but we will also consider divestments. By implementing these basic strategic goals for 2015, Clariant aims to increase Group sales to more than CHF 10 billion. The EBITDA margin before exceptional items is projected to rise to above 17 percent, and Return On Invested Capital (ROIC) is expected to be higher than the industry average.
  8. 8. 4 Clariant Annual Report 2011 A challenging 2012 The fiscal year 2012 will play a major role in these developments. An accurate forecast for this year is difficult to make, given the high level of economic uncertainty. We will monitor the conditions very closely and respond rapidly, where necessary. Should the expectations of most economic experts prove correct – namely, that the world economy, driven by impetus from the emerging markets, will return to solid growth in the course of the year – then Clariant is also confident that it will be able to increase sales and earnings for 2012. We are confident we will improve the performance of the company after a slow start in 2012, given the current economic slowdown. The integration of Süd-Chemie has increased the percentage of the Group’s less cyclical activities markedly to about 50 percent. This makes us stronger and more able to resist economic fluctuations. A bitter note in 2011 was the performance of the Clariant share price, which was disappointing for us. After a sharp rise in 2010, the stock market still categorizes us as a highly cyclical company. We must address this issue in prov- ing the sustainability of our performance. We will continue focussing our efforts to increase the value of the Clariant Group. We would like to thank our shareholders for their trust, especially in these difficult times. We would also like to express our gratitude to all employees of the Clariant Group around the world for their excellent work and high level of commitment. They have played a key role in getting our company back on track to success. 2012 will be another year full of challenges. We are well equipped and will step up our efforts to make Clariant a specialty chemicals company that is a global leader in innovation, productivity, and competitiveness. Yours sincerely, Jürg Witmer Hariolf Kottmann Chairman, Board of Directors Chief Executive Officer
  9. 9. Letter to Shareholders 5Jürg Witmer Hariolf KottmannChairman, Board of Directors Chief Executive Officer
  10. 10. 6 Clariant Annual Report 2011
  11. 11. 7Yolanda Garcia, RD Department Special DyesUsing 92 percent less water and remarkably littleenergy to achieve a higher standard of quality in avast array of colors. Environmentally minded andfashion aware: Thanks to Advanced Denim’s Pad/Sizing-Ox dyeing process, an innovative solution ofthe Textile Chemicals Business Unit, dyeing jeanshas become far more environmentally compatible.
  12. 12. 8 Clariant Annual Report 2011 Profitable growth under way Clariant was able to sustain the 2010 performance and to reap further rewards from the restructuring measures of recent years in 2011. However, increases in profitability and organic and external growth were slowed by a gloomy economic environment. 2011 objectives achieved despite difficult Operating margin development since 2000 environment Clariant has made significant progress in 2011 in consistently pursu- Disciplined and fast strategy execution is starting to be ing its strategic goal of sustainable profitable growth as it expanded reflected in margin progress1 % its EBITDA margin before exceptional items from 12.7 percent in 2010 to 13.2 percent in 2011. After adjustment for negative cur- 2011 9.7 rency effects, Group sales were up by 16 percent and EBITDA before 2010 9.8 exceptional items rose by 8 percent year on year. The significant 2009 4.1 cooling in industrial demand in the second half of the year due to the 2008 6.6 global financial crisis should, of course, be taken into account here. 2007 6.3 A crucial factor in this regard is that the company was able not only 2006 6.9 to safeguard the achievements of the tough restructuring process of 2005 6.3 2009 to 2010 but also to expand them at almost all levels and in all 2004 7.4 Business Units. The efforts of the past few years have increasingly 2003 7.2 started to pay off. Savings resulting from optimization of the produc- 2002 7.4 tion network through Global Asset Network Optimization (GANO), 2001 6.4 for example, totaled about CHF 60 million up to 2011. 2000 10.7 0 3 6 9 12 EBIT margin before exceptional items 1 This shows that none of the companies in the Clariant Group is rest- ing on its laurels; rather, all are working systematically to realize the long-term goal of sustainable profitable Group-wide growth. After all, the targets for the fiscal year 2015 are high: Group sales are ex- pected to increase to more than CHF 10 billion, assuming moderate economic growth and stable currencies, while the EBITDA margin (before exceptional items) is projected to climb to above 17 percent.
  13. 13. Profitable growth under way 9A positive factor in the year just ended was that Clariant was able Five-year comparison:to pass on significantly higher raw material costs in their entirety. Trend in ratio of net working capital to sales %Clariant also made good on its promise to strengthen its portfolioand future potential through external growth by acquiring Süd- 2011 19.6Chemie in April. The key operating data for the Süd-Chemie trans- 2010 15.9action demonstrate that this acquisition will have a very positive 2009 21.1effect on Clariant. The two newly acquired businesses, Functional 2008 23.8Materials and Catalysis Energy, posted in 2011 EBITDA returns 2007 25.5 0 5 10 15 20 25 30of just under 13 and approximately 22 percent, respectively, whichis already a very good sign. Clariant will benefit fully from thisacquisition in 2012 since Süd-Chemie will then be consolidated for Efforts to establish stable cash generation also focus on the area ofthe first time on a full-year basis. Clariant also projects that inte- working capital management. The 19.6 percent ratio of net workinggration-related synergies and Functional Excellence initiatives from capital to sales as of 31 December 2011 met the Group’s target of 20integration will lead to additional growth in EBITDA of CHF 90 to 115 percent. Return on invested capital (ROIC), another important Groupmillion by 2013. The first significant effects are expected to emerge indicator, was affected in 2011 by the consequences of the major ac-as early as the new fiscal year. quisition of Süd-Chemie. The value at year-end of 13.1 percent was thus significantly below the previous record level of 18.1 percent from 2010, however still above long-term industry average.Focus on management of net working capitalClariant has also taken important steps in 2011 with regard to itsbalance sheet. It was possible to finance the Süd-Chemie takeover Strategic Reviewon the capital markets in a very short time, even given the totalinvestment volume of about CHF 2.5 billion. This involved raising On a clearly defined growth path as plannedequity through a capital increase as well as bringing in outside The transformation process launched in 2008 is progressing ascapital. In this case, the maturity pattern of the loans was markedly planned. This will take the Clariant Group from the restructuringimproved by utilizing various financing instruments, such as issuing initiatives of the past few years to a new level as a specialty chemi-bonds or certificates of indebtedness, which also resulted in favor- cals company that is a global leader in innovation, productivity andable conditions for Clariant in an extremely volatile environment. competitiveness with sustainable profitable growth. The company isThe investor confidence indicated by this underlines the fact that the following a clearly defined three-phase strategy to this markets have fully acknowledged the company’s successes.Nonetheless, there is still work to be done. Although the equity ratiowas solid at 33.3 percent at the end of 2011 and the gearing ratio of58 percent was also respectable, Clariant will work hard in the com-ing years to reduce net financial debt, which has risen to CHF 1.7billion as a result of the acquisition.
  14. 14. 10 Clariant Annual Report 2011 Restructuring phase largely completed Cost cutting (excl. acquisition of Süd-Chemie): Phase 1 of the strategic realignment of the Clariant Group was car- › The total number of employees in the Clariant Group was reduced ried out primarily in 2009 and 2010 and involved implementing an by about 20 percent. extensive restructuring program. Under the Project Clariant heading, As part of Global Asset Network Optimization (GANO), the closure a large number of steps were taken, focusing on cash generation, of 20 sites worldwide was announced and is scheduled to be fully cost cutting and making Group structures leaner. implemented by mid-2012. Finalization of these measures will lead to further reductions in costs totaling CHF 60 million by mid-2013. Solid success has been achieved, as indicated by the trend in the key company indicators: Reduction of complexity: › The number of Business Units was streamlined, and the global ser- Cash generation: vice organization was consolidated at eight locations. › The ratio of net working capital to sales was reduced to 19.6 per- › A decision was made to realign Research and Development (RD) cent by the end of 2011, down from 23.8 percent at the end of 2008. with new research headquarters in Frankfurt and branches in core The internal long-term group target for this value was set at below regions. This has already been implemented for the most part. 20 percent. Clariant on the road to sustaining profitable growth Restructuring › Cash generation › Cost cutting ete Implementation of restructuring Compl › Complexity reduction Result: Establish a solid base for profitable growth Continuous improvement Clariant Excellence program Continue program/ › Operational Excellence › Commercial Excellence Sustain achievements › People Excellence › Innovation Excellence Result: Sustainable productivity improvement Profitable growth › Improve profitability of existing portfolio › RD and Innovation › Growth in emerging markets › Strengthen portfolio by selective acquisitions Result: Growth of profitable business portfolio 2009 2010 2011 2012 Cost focus Portfolio focus
  15. 15. Profitable growth under way 11The restructuring phase is largely complete, although some of the to improve the operating margin by an additional one to two percent-announced efficiency improvements will take until 2012 to imple- age points. Finally, Clariant also launched the Clariant Supply Chainment. System (CSS) initiative in early 2011 to enhance customer service, cash and working capital along the entire value chain.Clariant Excellence – a culture of continuous improvementAt the end of 2009, Clariant signaled the start of Phase 2 by launch- Clariant Excellenceing the company-wide Clariant Excellence initiative. With LeanSig- Innovation Excellence: Commercial Excellence:ma processes at its core, Clariant Excellence is designed to enhance Promoting new ideas and solutions Empowering sales and marketingcompetitiveness by improving efficiency and creating value. The for profitable growth to offer the best customer servicecompany is creating a culture of continuous improvement based on and valuefour pillars of Operational, Commercial, People, and Innovation Ex- LeanSigmacellence. Clariant has also put in place internal control mechanismsto maintain what has already been achieved. More than 3 000 em-ployees were designated as “belts”, i.e., project managers or project Operational Excellence: People Excellence:staff, trained specifically for tasks in connection with the Excellence Striving for optimum efficiency across Enabling our people to achieve all of our operating processes a culture of continuous improvementProgram, and entrusted with its implementation within the Group.Süd-Chemie employees will also be included in this process from2012. The sustainable value enhancement phase has begun We entered Phase 3 of our strategy plan in 2011: sustainably in-After saving a total of CHF 63 million in 2009 and 2010, the company creasing value based on long-term profitable growth. The focus is onhas been able to achieve further benefits of more than CHF 100 mil- four strategic pillars:lion in 2011 through a large number of projects at all levels. In 2011, › Ongoing improvement in the profitability in all Business Unitsthe focus was for the first time on strengthening our Innovation Ex- › Focus on innovationcellence and taking the first steps in People Excellence. The stated › Expansion and exploitation of Clariant’s strong competitive positiongoal is to make Clariant a global innovation leader and to be able to in the Asian and Latin American growth marketsrely on a well trained and coordinated team of employees. › Optimization of the company portfolio.In 2012 and the coming years, we will continue these efforts in or-der to achieve new savings of more than CHF 60 million each yearthrough Clariant Excellence. These figures are specifically supportedby a number of initiatives that have already been launched: For ex-ample, the Clariant Production System (CPS) was introduced in 2010to achieve optimum productivity and financial performance in theproduction units of all Business Units. The goal is to achieve pro-ductivity increases ranging between 8 and 10 percent. The ClariantCommercial System (CCS) was also established in 2010. This is aninitiative to optimize sales and marketing processes and is designed
  16. 16. 12 Clariant Annual Report 2011Christian Steib, Technical Marketing ManagerSoccer is one of the most beautiful games in the world.And for most boys probably the universe. In its AdditivesBusiness Unit, Clariant has developed licocene®, a poly-mer that has revolutionized the manufacture of artificialturf. The turf is fully recyclable and extremely hardwearing. Clariant donated the first artificial pitch withthis technology in Germany to the Feuerbach children’scenter in Stuttgart in 2011.
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  18. 18. 14 Clariant Annual Report 2011 Financial Review Given the challenging economic conditions the results achieved in 2011 are a good performance and reflect the sustainable profitability increase achieved by Clariant. Business performance review 2011 General conditions Summary statement for business year 2011 Global economic growth slows significantly at end of 2011 For Clariant 2011 was marked by the acquisition of Süd-Chemie According to data from the International Monetary Fund (IMF), AG, the slowdown in economic growth over the course of the year, the global economy grew 4 percent in 2011, but was unable and highly negative currency effects. Group sales totaled CHF 7 370 to sustain the dynamic growth of 2010. Moreover, economic growth million, slightly higher compared to 2010. After adjustment for weakened significantly in the second half of the year. The devel- acquisitions (particularly Süd-Chemie) and negative currency opment of the global economy was driven primarily by the emerg- effects, the company has achieved an organic growth of 2 percent. ing markets, while the industrial nations lost momentum. The Profitability as a percentage of the operating result (EBITDA) before gross domestic product of the emerging countries rose 6.4 percent exceptional items improved to 13.2 percent from 12.7 percent. These in 2011, whereas the IMF reported growth of only 1.6 percent for good results were achieved on the back of the success of the Project the industrialized world. In the wake of the euro crisis, Europe Clariant and Clariant Excellence initiatives that were launched in 2009. (+  percent) is wrestling with the unresolved problems of the 1.6 Clariant reached its goal of setting the company on a profitable debt-ridden southern European states. Impetus for growth was growth path. It will continue to pursue this strategy systematically also lacking in the US economy (+ 1.5 percent) due to a high govern- based on the sound operational and financial foundation already es- ment deficit. The emerging markets were exposed to much lower tablished in order to attain the ambitious objectives for 2015, which economic risks. Although experiencing inflationary tendencies the include increasing the EBITDA margin before exceptional items to emerging economies in Asia, in particular, continue to grow at about 17 percent, provided that there is a stable economic environ- a high rate. China’s economy experienced 9.5 percent growth in ment. Clariant will take further important steps in this direction in 2011, according to IMF figures, while India advanced by 7.8 percent. 2012, although there are still uncertainties regarding precise fore- The economies of the two other BRIC countries – Russia (+ 4.3 per- casts due to the effects of the global financial crisis on the world cent) and Brazil (+ 3.8 percent) – also posted robust expansion. economy. The massive revaluation of the Swiss francs against major curren- cies was stopped with the intervention of the Swiss National Bank, which set a floor of the value of the Swiss franc at an exchange rate of at least CHF 1.20 per Euro. On a year on year comparison how- ever the Swiss currency has appreciated significantly compared with most local currencies that are crucial for Clariant. Chemical industry in 2011: Positive year with weaker finish The chemical industry as a whole and specialty chemicals in particu- lar also exhibited positive growth trends, driven by a still positive economic environment. Global chemical production increased by
  19. 19. Financial Review 15“ lariant was able to further improve its result and has established C a sound financial foundation.” Patrick Jany, Chief Financial Officer about the same magnitude, proportionately, as the global economy. Since 1 May 2011, the sales and results of Süd-Chemie’s Catalyst Impetus for growth came primarily from the EMEA (Europe, Middle business and its Adsorbent Additive unit have been included in the East Africa) region, North America, and Asia. Growth was based Clariant Group’s consolidated financial statements. On 1 July 2011 in large part on the extremely dynamic development in some areas these businesses were renamed Catalysis Energy (catalysts) and in the first six months of the year. In the second half of the year, Functional Materials (adsorbents and additives). Clariant therefore however, the slowdown in industrial production across all regions has twelve instead of ten Business Units, and Clariant’s external re- triggered by economic conditions manifested itself in declining de- porting structure now includes nine segments instead of the seven mand. Europe was affected and experienced stagnating growth as that existed in 2010. of the third quarter after a definite uptrend at the beginning of the year. Momentum in the emerging Asian markets also slowed. By the Results of operations, financial position, end of the year, Japan’s chemical industry reported definite signs of and net assets recovery after the sharp downturn caused in the aftermath of the tsunami in March. Analysis of sales, margins, and costs The price levels for both raw materials and finished products also Key figures rose significantly, but stabilized after a peak in the mid of 2011. In CHF m 2011 2010 Change in % the second half of 2011 a significant de-stocking could be observed Sales 7 370 7 120 4 in several industries (Leather, Plastics, Coatings). Because of the Gross profit on sales 1 968 1987 – slowdown in industrial production, which was more pronounced to- EBITDA before exceptional items 975 901 8 ward year-end, the last six months of the year were characterized by Margin (%) 13.2 12.7 – stagnation in annualized chemical production. EBIT before exceptional items 717 696 3 Margin (%) 9.7 9.8 – Changes in the reporting structure EBIT 507 366 39 On 16 February 2011 Clariant AG announced a series of transac- Financial result – 173 – 123 41 tions, pursuant to which it acquired the specialty chemical company Income before taxes 334 243 37 Süd-Chemie AG at an aggregate enterprise value of approximately Net income 251 191 31 CHF 2.5 billion. Süd-Chemie AG was acquired partially in exchange Basic earnings per share 0.86 0.81 6 for cash and partially in exchange for newly issued Clariant shares. The last step in the acquisition of Süd-Chemie AG was concluded Earnings situation shaped by organic and external growth, with the squeeze-out of the remaining Süd-Chemie AG minority efficiency increases, and currency translation charges shareholders, the successful completion of which was announced on After the dynamic growth of 2010, Clariant was still able to post 1 December 2011. Clariant now controls 100 percent of the shares a solid performance in 2011 despite differing demand in the indi- in Süd-Chemie AG. vidual Business Units. It is important to emphasize that the less cyclical Business Units – Catalysis Energy, Functional Ma- terials, Oil Mining Services, Industrial Consumer Special- ties, and Additives – reported much stronger growth than Mas- terbatches, Pigments, Textile Chemicals, Leather Services and Paper Specialties, areas in which business is cyclical in nature. The last three segments were also negatively impacted by structural
  20. 20. 16 Clariant Annual Report 2011 problems. Due to the positive economic environment, especially Group sales – Five-year overview in the first half of the year, the Clariant Group realized significant CHF m improvements in local currencies. In addition, the consolidation of 2011 7 370 the newly acquired businesses of Süd-Chemie translated into appre- 2010 7 120 ciable external growth. Thanks to their strong growth, the emerging 2009 6 614 markets generated additional momentum in the industrialized coun- 2008 8 071 tries, although the latter grew at a significantly lower rate. Profit- 2007 8 533 ability was further improved by the efficiency improvements initiated 0 2 000 4 000 6 000 8 000 10 000 in the previous periods. Sales by Reporting Segment Sales in local currencies increased by 16 percent – organic CHF m growth at 2 percent Industrial Consumer 2011 1 473 Group sales totaled CHF 7 370 million in 2011, slightly above the fig- Specialties 2010 1 526 ure reported for 2010. This represents a 4 percent increase over the 2011 1 124 Masterbatches previous year. In local currencies, much stronger Group sales growth 2010 1 260 of 16 percent has been achieved. The lower rise in sales in Swiss 2011 973 Pigments francs is the result of the substantial appreciation of the Swiss 2010 1 168 franc against the major world currencies. While sales volumes 2011 675 Textile Chemicals decreased below the prior-year level by the end of the year after 2010 821 a sharp rise in the first half, increases in selling prices had a positive 2011 620 Oil Mining Services effect on sales revenue. This made it possible to fully compensate 2010 604 the rise in raw material prices. External growth also played a very 2011 265 Leather Services important role. It was driven primarily by the recently acquired activi- 2010 326 ties of Süd-Chemie AG, which contributed CHF 948 million in sales Performance 2011 1 293 during the eight months of consolidation. Adjusted for this factor and Chemicals 2010 1 415 for negative currency effects, Clariant would have posted an organic 2011 456 Functional Materials1 sales increase of 2 percent in local currencies. 2010 – 2011 491 Catalysis Energy1 The individual Business Units reported very different levels of de- 2010 – mand for their products in 2011. The less cyclical Business Units 1   ay – December 2011 M – Catalysis Energy, Functional Materials, Oil Mining Services, Industrial Consumer Specialties, and Additives – posted dynamic growth in local currencies in the low double-digit range. The more cyclical Business Units – Masterbatches, Leather Services, Textile Chemicals, Paper Specialties, and Pigments – experienced weaker year on year demand, even in local currencies. In Swiss francs there was a downward trend in all Business Units except for Oil Mining Services.
  21. 21. Financial Review 172011 Sales by Reporting Segment Sales by regionLocal Currencies, Growth in % CHF m 2011 2010 Change in CHF Change in LC2Industrial Consumer Specialties 10 in % in %Masterbatches 2  EMEA1 3 671 3 529 4 16Pigments – 6  North America 958 860 11 27Textile Chemicals – 6 Latin America 1 144 1 199 – 5 9Oil Mining Services 17  Asia/Pacific 1 597 1 532 4 16Leather Services – 6    urope, Middle East Africa 1 E   C = Local Currencies 2 LPerformance Chemicals 4Functional Materials1 7Catalysis Energy1 17 2011 sales structure by currency %  anuary – December 20111 J Euro 44Clariant was able to increase sales in local currencies in all keyregions in 2011. North America posted especially strong increases US dollar 32and reported 27 percent growth. The EMEA (Europe, Middle East Africa) region also reported positive results, selling 16 percentmore than in the previous year. Sales revenues in the Asia/Pacific Japanese yen 4region climbed 16 percent, whereas the Clariant subsidiaries in Swiss franc 0Latin America – after significant growth the previous year – saw Emerging markets 20a comparatively moderate 9 percent rise in 2011. Overall, around 46percent of Group sales were generated in the emerging and develop- 2011 cost structure by currencying markets, which are expected to have the strongest growth rates %in the future. The regional sales distribution of businesses acquired Euro 49from Süd-Chemie also had a positive impact in this regard. US dollar 25 Japanese yen 2 Swiss franc 7 Emerging markets 17
  22. 22. 18 Clariant Annual Report 2011 Gross margin below prior year due to volume 2010. The EBITDA margin before exceptional items increased to and currency effects 13.2 percent compared to the prior-year figure of 12.7 percent. Re- The high level of demand in most industries brought about a capacity structuring costs and impairments were substantially reduced and utilization of approximately 70 percent in 2011, as in 2010. Signifi- amounted to CHF 161 million in 2011, down from CHF 331 million the cant savings were realized as the result of the efficiency improve- year before. This reflects the sharply reduced costs for optimization ments successfully implemented in prior years – Project Clariant and of the global production network (Project GANO) and measures to Clariant Excellence. In the case of Clariant Excellence the savings integrate Süd-Chemie. totaled more than CHF 100 million compared with CHF 50 million in 2010. Nonetheless, these positive factors were not sufficient to EBITDA Margin before exceptional items – Five-year overview compensate for negative currency and volume effects. Gross margin % therefore declined overall from 27.9 percent in 2010 to 26.7 percent 2011 13.2 in 2011. Due to sluggish global economic growth, raw material pric- 2010 12.7 es stabilized in the course of the year but were still 13 percent higher 2009 7.5 than in 2010. The higher raw material costs were completely ab- 2008 9.7 sorbed, as planned, by an increase in sales prices. Price adjustments 2007 9.5 totaling 7.5 percent in local currencies were implemented in 2011. 0 2 4 6 8 10 12 14 EBITDA before exceptional items – Five-year overview The financial result was adversely affected by the higher level of CHF m indebtedness resulting from the Süd-Chemie acquisition. On bal- 2011 975 ance the result was a decrease in the net financial result to CHF 2010 901 –  million from CHF –  million. Operating income before 173 123 2009 495 exceptional items at CHF 717 million is above the previous year 2008 783 (CHF 696 million) but was reduced by currency effects totaling 2007 812 CHF 170 million. Clariant posted pretax profit of CHF 334 mil- 0 250 500 750 000 1  lion, compared with CHF 243 million in 2010. The tax rate rose to 24.9 percent from 21.4 percent the previous year. Profit after taxes Selling, general, and administrative expenses (SGA costs) as accordingly increased to CHF 251 million from CHF 191 million. a percentage of sales were lowered slightly to 15.9 percent (from 16.5 percent in 2010) as the result of high cost efficiency, despite This results in earnings per share of CHF 0.86 based on 264 586 754 increased project costs. In absolute figures, this corresponds to shares, compared with CHF 0.81 in 2010. a change to CHF 1  million from CHF 1  million. This figure 176 177 includes significant one-time project costs for the integration of ac- Given the significant improvement of Clariant’s performance and quired Business Units. The focus on innovations in conjunction with the sustainability of its earnings, the Board of Directors proposes the Innovation Excellence initiative and the integration of Süd-Chemie to repay 0.30 CHF of the nominal value of each registered share, as led to a CHF 41 million increase in research and development a result of a reduction of the nominal value from 4.00 CHF to 3.70 costs to CHF 176 million. Given these changes and the impact of CHF per registered share. In 2010 there was no distribution due to highly negative currency trends totaling CHF 41 million, the operat- the high restructuring expenditures. The motion will be subject to ing result (EBITDA) before exceptional items increased slightly by approval by the 17th Annual General Meeting on 27 March 2012. 8.2 percent to CHF 975 million, compared with CHF 901 million in
  23. 23. Financial Review 19Segment analysis improved product mix, an optimized cost structure, and higher sell- ing prices, which fully compensated for the increased raw materialPerformance of the Business Units costs.Industrial Consumer Specialties ICS will continue to focus on innovative solutions and businesses that create a high level of added value. Of special interest is theKey figures Industrial Consumer Specialties Personal Care business, in which Clariant has introduced numerousCHF m 2011 2010 innovations. ICS will strengthen its position in this market throughSales 1 473 1 526 an exclusive long-term partnership with KitoZyme, a leading manu-EBITDA before exceptional items 251 243 facturer of bio-polymers, which are tailored to the global needs of Margin (%) 17.0 15.9 Personal Care customers requiring natural and sustainable skin andEBIT before exceptional items 215 206 hair care substances. The takeover of Octagon Process LLC in mid- Margin (%) 14.6 13.5 March 2011 significantly expanded ICS’ North American activitiesNo. of employees 1 801 1 790 in the area of de-icing chemicals and generated additional growth potential.› Sales increase in local currencies of 10 percent› EBITDA margin further increased to 17 percent MasterbatchesThe Industrial Consumer Specialties (ICS) Business Unit reported Key figures Masterbatchesan increase of 10 percent in sales in local currencies in 2011, but CHF m 2011 2010a decrease of 3 percent in Swiss francs compared with the prior- Sales 1 124 1 260year period. Total sales in this segment reached CHF 1 473 million EBITDA before exceptional items 129 151(2010: CHF 1  million). There was particularly high demand for 526 Margin (%) 11.5 12.0chemicals for the construction industry and industrial lubricants. EBIT before exceptional items 102 120Significant growth again resulted from business in China, where ICS Margin (%) 9.1 9.5further solidified its market position by opening a new ethoxylation No. of employees 3 091 3 129plant in Daya Bay (south of Guangzhou, China). › Adversely affected by currencies and cost effectsIn the regional markets the Business Unit generated double-digit › EBITDA margin of 11.5 percent nevertheless highsales growth in Asia and North America as well as in Latin America, › Focus on growth opportunities in emerging marketsMiddle East Africa (MEA) region. Growth was somewhat weakerin Europe. Although the Business Unit was still able to achieve a sales increase at the beginning of the year, demand then weakened from Q2 on-EBITDA before exceptional items increased by 3.3 percent to CHF wards. As a result, sales in local currencies only grew by 2 percent251 million. The Business Unit therefore increased the EBITDA mar- while sales in Swiss francs fell significantly, by 11 percent to CHFgin to 17 percent from the already high level of 15.9 percent a year 1 124 million. The decline in demand, which was not noticeable untilearlier, despite negative currency effects. This rise was due to an the second quarter, worsened steadily in the second half of the year as plastics processing companies responded to rising raw material costs and uncertain economic conditions by reducing or delaying orders.
  24. 24. 20 Clariant Annual Report 2011 Sales growth was strongest in the Middle East region, especially in After a strong post-recession upsurge in demand was being felt in Saudi Arabia and Turkey. China and Indonesia also contributed posi- 2010, sales of the Pigments Business Unit declined 6 percent in local tively to growth in Asia. Sales only grew moderately in North Amer- currencies in 2011. In Swiss francs the decrease was 17 percent, to ica and Latin America, and in Europe they fell below the year-earlier CHF 973 million. There are three major reasons for this: Increased level, primarily due to weak economic growth in southern Europe. purchases in Q1 before price increases. De-stocking given the slow- down in the economy. Volumes were also reduced by the stronger The EBITDA margin in 2011 fell to 11.5 percent, down from 12 per- focus on areas with high added value. cent in 2010, since the increases in selling prices and productivity were not sufficient to absorb the negative currency effects and rising The lower demand was felt in most business sectors. The effects costs of underutilized capacities. The Business Unit’s raw material were especially pronounced in the printing industry, where the costs remained high but were fully compensated by higher selling Business Unit increasingly refocused efforts away from low-margin prices. EBITDA before exceptional items totaled CHF 129 million and products. In markets with high added value such as the non-impact was below the high CHF 151 million level of the previous year. printing market, customers reduced their inventories. Sales in mar- kets with high added value such as non-impact printing inks, paints, The Business Unit is focusing on growth opportunities in emerging and coatings fell from a high level in 2010 as the result of customers markets. It will benefit from expansion in the Middle East region re-adjusting their inventories. with new production facilities in Turkey, for example, as well as from expansion of existing sites in Saudi Arabia and Pakistan. Additional Despite the significant market headwinds, EBITDA margin reached capacities have also been created in China and Brazil in order to 21.6 percent, up from prior-year value of 20.2 percent thanks to the serve customers in the Asia/Pacific and Latin American regions. significantly improved cost structure resulting from the restructuring and efficiency improvement actions taken over the course of the pre- The Business Unit’s focus in Europe is on expansion in Eastern Eu- vious two years. EBITDA in absolute terms declined CHF 26 million rope and optimization of the existing production network in West- from previous year due to lower sales volumes and unfavorable rate ern Europe. In North America two plants were combined in order of exchange. It is expected that the benefits from the realized effi- to create a new state-of-the-art production facility in Chicago that ciency gains will continue in 2012 as the exits from the plants closed produces both liquid and granular masterbatches. in 2010 and 2011 are largely completed, supported by ongoing effi- ciency and competitiveness improvements derived by implementing Pigments measures under the Clariant Excellence initiative. Key figures Pigments The integration of the Italtinto business, specialized in supplying CHF m 2011 2010 integrated tinting systems to the paint industry, is progressing ac- Sales 973 1 168 cording to plan, enabling Business Unit Pigments to execute its strat- EBITDA before exceptional items 210 236 egy of capturing value further down the value chain. Initial market Margin (%) 21.6 20.2 responses and new orders were very promising, and customers are EBIT before exceptional items 184 202 showing considerable interest in our tinting system technology. Margin (%) 18.9 17.3 No. of employees 1 928 2 059 › Significant downturn in demand in second half of the year › EBITDA margin at 21.6 percent thanks to high cost efficiency
  25. 25. Financial Review 21Textile Chemicals The Textile Chemicals Business Unit will continue to focus on products that create added value for its customers. More than 25Key figures Textile Chemicals product, process, and effect innovations were recently presented atCHF m 2011 2010 the industry’s leading trade show, ITMA 2011, in Barcelona. TheseSales 675 821 included a new durable and more environmentally compatible flame-EBITDA before exceptional items 34 69 resistant finish for technical textiles and innovative acid dyes that Margin (%) 5.0 8.4 do not contain heavy metals and have high light resistance, even inEBIT before exceptional items 13 46 dark colors. Margin (%) 1.9 5.6No. of employees 2 096 2 163 Oil Mining Services› Massive currency effects depress performance Key figures Oil Mining Services› Accelerated relocation of production to Asia CHF m 2011 2010 Sales 620 604Performance in the Textile Chemicals Business Unit differed greatly EBITDA before exceptional items 72 76from one key region to the next in 2011. Sales growth in local cur- Margin (%) 11.6 12.6rencies reached a healthy level in North America and remained un- EBIT before exceptional items 67 72changed in Europe since there was still strong demand for technical Margin (%) 10.8 11.9textiles. In Latin America and China, on the other hand, sales expe- No. of employees 1 000 886rienced a double-digit drop as demand continued to be weakened bystrong fluctuations in cotton prices and flagging demand in the cloth- › Growing demand for oil servicesing sector. Overall, the Business Unit reported a decrease of sales › High level of investment to ensure future growthin local currencies in 2011 of – 6 percent. In Swiss francs, however,sales declined 18 percent. In the second half of the year the losses Buoyed by the rise in global oil production in line with general eco-turned to the double-digit range. nomic trends, sales in the Oil Mining Services (OMS) Business Unit soared, increasing by 17 percent in local currencies and continu-Textile Chemicals, which still has an extensive production operation ing to grow throughout the entire year. In Swiss francs, OMS postedin Muttenz, Switzerland, was heavily impacted by the stronger Swiss 3 percent growth to CHF 620 million. Sales growth was strongestfranc. It therefore accelerated relocation of production to Asia. The in the Middle East and in North America, where the acquisition ofheadquarters of the Business Unit was moved to Singapore in Au- Prairie Petro-Chem had a positive impact. The rise in sales was alsogust 2011. Production will now be transferred to China and India in in the double-digit range in all other regions except Europe. The in-early 2012, much earlier than originally planned, and this change will crease was especially strong in Latin America, where Brazil recov-significantly increase the Business Unit’s competitiveness. ered from a weak phase in the second quarter.EBITDA before exceptional items dropped significantly by 51 percent Sales growth was driven by the Oil Services business, which ac-to CHF 34 million since it was not possible to fully compensate for counts for about two-thirds of total sales. It experienced strongthe massive currency effects and decline in volume through cost re- growth in most regions. In North America, Oil Services benefitedductions. Higher raw material costs, however, were balanced out by from continuing investments in non-conventional oil and gas devel-higher selling prices. Corresponding the EBITDA margin fell consid-erably from 8.4 percent to 5.0 percent.
  26. 26. 22 Clariant Annual Report 2011 opment projects. In LATAM, for example, the Business Unit signed From a regional perspective, sales growth in local currencies was an extensive new agreement, which will help it to expand its excel- slightly negative in Europe, while growth in the Americas slackened lent market position in Brazil. slightly despite the strong growth in Brazil, the main market. Sales in Asia declined since they continued to be affected by high prices The Mining Services segment suffered from the weakening global for rawhide. In Japan, sales to tanneries that supply the automotive demand for minerals. The Business Unit counteracted this effect by industry recovered in the second half of the year to almost the same introducing new products and technologies in cooperation with min- level as before the earthquake. ing companies. Leather Services raised its selling prices and was thus able to com- The EBITDA margin before exceptional items was adversely affected pensate for higher raw material prices. However, the Business Unit by unfavorable currency effects and lies with 11.6 percent below also suffered from negative currency effects in addition to volume the prior-year level of 12.6 percent. This was due primarily to the decreases due to high prices for rawhide. The EBITDA margin there- higher sales and administrative costs associated with massive in- fore decreased to 9.8 percent from the prior-year level of 13.2 per- vestments in the oil and mining businesses in an effort to promote cent. In absolute figures, this is reflected in a 40 percent decline in future growth in these areas. The effects of higher raw material EBITDA before exceptional items to CHF 26 million. costs, on the other hand, were minimized by higher selling prices. EBITDA before exceptional items was accordingly CHF 72 million The Business Unit will continue to focus on segments with high add- (2010: CHF 76 million). ed value and on the introduction of new services and products that create added value such as the new chromium-free tanning technol- Leather Services ogy (EasyWhite Tan). It will place special emphasis on innovation activities and expand its future product portfolio, especially in its Key figures Leather Services line of more environmentally friendly products. CHF m 2011 2010 Sales 265 326 Performance Chemicals EBITDA before exceptional items 26 43 Margin (%) 9.8 13.2 Key figures Performance Chemicals EBIT before exceptional items 22 38 CHF m 2011 2010 Margin (%) 8.3 11.7 Sales 1 293 1 415 No. of employees 595 602 EBITDA before exceptional items 177 201 Margin (%) 13.7 14.2 › High leather prices lead to decline in sales EBIT before exceptional items 141 161 › tronger focus on innovative, more environmentally S friendly Margin (%) 10.9 11.4 products No. of employees 2 141 2 140 Despite continuing strong demand from the automotive and luxury › High growth momentum in Additives goods industries, sales in the Leather Services Business Unit de- › EBITDA margin almost maintained at high level of 13.7 percent creased by 6 percent in local currencies compared with 2010. Seg- ment sales in Swiss francs totaled CHF 265 million (– 19 percent). Performance Chemicals comprises four smaller Business Units in the The upholstery segment was largely responsible for the weak de- Clariant Group in terms of sales: Additives, Detergents Intermedi- mand. The trend toward the use of alternative materials in place ates, Emulsions, and Paper Specialties. Driven by a significant boost of leather grew in that segment since prices for rawhide remained high in 2011.
  27. 27. Financial Review 23in demand in the Additives business, sales of Performance Chemi- Functional Materialscals in local currencies rose in 2011 by 4 percent. In Swiss francs,however, it posted a 9 percent decline to CHF 1 293 million. The local Key figures Functional Materials1currencies growth momentum in Additives, which was in a double- CHF m 2011digit percentage range, was based on the strong demand for non-ha- Sales 456logenated flame retardants and waxes. Detergents Intermediates EBITDA before exceptional items 59and Emulsions saw single-digit sales growth, while sales in Paper Margin (%) 12.9Specialties were below the 2010 level. The Additives, Detergents EBIT before exceptional items 32 Intermediates, and Emulsions Business Units were able to raise Margin (%) 7.0their prices and fully compensate for higher raw material costs. The No. of employees 2 829strong appreciation of the Swiss franc had a negative impact on the  May  –  December 1profitability of all four Business Units. › Reorganization completed by 1 July 2011Additives posted good operating performance in all key regions, › High level of sales growth and performancewith especially strong growth in the Asia/Pacific region and in NorthAmerica. Future demand will be met by a new plant that will go into Sales and results for the Functional Materials Business Unit haveoperation in mid-2012. The Detergents Intermediates Business been included in the Clariant Group’s consolidated figures for eightUnit reported healthy demand for intermediates used in agrochemi- months of 2011. Functional Materials – formerly the Adsorbentscal and pharmaceutical products, which balanced out the slight Additives division of Süd-Chemie – initially included the followingdecrease in demand for household and cleaning products. Demand business lines: Adsorbents Additives, Foundry Products Spe-in Paper Specialties began to decline in the second quarter after cial Resins, Protective Packaging, and Water Treatment. From 1 Julycustomers curbed their production output due to lower paper con- 2011 the Functional Materials Business Unit was reorganized sosumption. Profitability was also reduced by the strong Swiss franc that it now includes three business lines: Adsorbents, Performanceand the high cost basis in Switzerland. Relocation of production from Packaging, and Water Treatment. Comparison with 2010 figures isSwitzerland to Spain and the United States was therefore acceler- therefore only possible up to a point due to the reorganization ofated so that it could be completed by the end of 2011. The Emulsions activities.Business Unit was able to compensate for high commodity prices.Latin America posted significant sales growth due to recovery in The Functional Materials Business Unit succeeded in improvingdemand in Brazil, whereas demand in the Middle East weakened. sales in local currencies by 7.4 percent over the prior-year. In Swiss francs, sales amounted to CHF 456 million. The EBITDA margin be-The Performance Chemicals EBITDA margin was slightly below fore exceptional items was 12.9 percent, maintaining the high levelthe previous year at 13.7 percent due to negative currency effects. of the previous year. EBITDA before exceptional items grew to CHFEBITDA before exceptional items was relatively stable at CHF 177 59 million in 2011.million. Analysis of the individual businesses reveals differing growth trends. The Performance Packaging business line saw a rise in both sales and EBITDA, driven by the strong demand for packaging used