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Europe's Results Signal A Downturn

First quarter is marked by earnings drops

by Patricia Short
May 5, 2008 | A version of this story appeared in Volume 86, Issue 18

ALMOST HALF OF THE EUROPEAN chemical companies reporting their first-quarter financial results thus far posted declines in earnings compared with the same period in 2007. Those declines emerged in press conferences held in the past two weeks to discuss the results.

Two companies—Ciba and Clariant—showed a drop in sales. Both firms are Swiss, and a significant contribution to that decline came from the dramatic strengthening of the Swiss franc during the past year. At the end of March 2007, the franc was worth 83 cents; at the end of this March, it was worth $1.01. Any U.S. sales consolidated into Swiss corporate accounts—and Ciba and Clariant both have sizable U.S. sales—suffered in translation.

In addition, Ciba CEO Brendan Cummins said, "We are also clearly starting to feel the impact of the economic slowdown on overall sales growth." Cummins said the impact is particularly apparent in North America, where growth has slowed, and in Europe, where the firm is experiencing weakness in a number of industries. Ciba has not "had the strong start to the year that we were anticipating a few months ago," he added.

Companies outside Switzerland faced difficult conditions in the first quarter as well. For example, at Finland's Kemira, first-quarter 2008 provided "challenging times," according to CEO Harri Kerminen. "Substantially higher than expected raw materials and energy-related costs and the continued weakening of the U.S. dollar," he pointed out, eroded the company's profitability compared with the first quarter of 2007.

As he reported on Kemira's first-quarter performance, Kerminen also noted that the company has decided to retain its Chemidet business, which it had considered divesting. The unit, which makes detergent intermediates, will remain part of Kemira's specialty division.

In contrast, at DSM, "This has been a very strong quarter with excellent performance across the company," Chairman Feike Sijbesma said. In fact, he added that although the Dutch firm is "conscious of the current less favorable macroeconomic outlook," thus far the strong first quarter has continued into the second quarter.

Similarly, Jürgen Hambrecht, chairman of Germany's BASF, revealed a record quarter for his company. "Our long-term strategy is paying off," he said. "That's most apparent in turbulent times like the ones we're currently seeing in the financial markets."

Even North American sales increased by 9% in dollar terms, Hambrecht noted. However, they were down 4% in euro terms—an indication of the strengthening of the euro during the past year.



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