Ciba mulls selling units after surprise H1 loss

ZURICH Tue Aug 19, 2008 7:34am EDT

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ZURICH (Reuters) - Swiss specialty chemicals maker Ciba CIBN.VX posted a surprise first-half net loss of 569 million Swiss francs ($519.2 million) after a writedown and said it was considering selling two businesses, sending its shares down more than 16 percent.

Ciba's loss, far adrift of both analysts' expectations and its year-ago profit of 103 million francs, was due to a goodwill impairment of 595 million francs in its water and paper treatment (WPT) unit, which it is considering selling as well as its publication inks business.

"Absolute shocker, even worse than Q1 profit warning," one trader said.

The specialty chemicals company, which like local rival Clariant (CLN.VX) has been hit hard by high crude oil and other raw material costs as well as Asian competition, said it believed its previous full-year forecast was still achievable.

"Ciba is in a tough situation," said Vontobel analyst Damien Weyermann. "Ciba is taking corrective restructuring measures so as to restore both profitability and sustainable value creation but the turnaround will take time."

Ciba, which released its results two days earlier than expected, had already issued a profit warning for 2008 when it reported a lower-than-expected first-quarter profit.

Its shares fell 16.3 percent to 26.70 francs by 0913 GMT and its poor performance also hurt Clariant, whose stock dropped 3.4 percent to 9.70 francs.

SIGNIFICANT RESHAPING

Both Ciba and Clariant have been the subject of takeover speculation as they struggle to restructure their unwieldy businesses.

Ciba is in the process of agreeing a joint venture to expand its plastics capability in the Middle East and is planning to make acquisitions in the next few weeks to strengthen its coating effects business, Chief Executive Brendan Cummins said.

"We are taking significant action to reshape the portfolio and focus on areas of technological core strength in plastics, coatings and water," Cummins said.

The results were hurt by higher costs for oil and metals-based raw materials. Overall Ciba's raw material and energy costs rose 10 percent in the second quarter, but it was able to offset that with sales price increases by mid June and was seeing further "significant" price rises in July.

The Basel-based company expected local currency sales to increase from 2007 in the full year, but warned results may be lower than it currently anticipates if business conditions worsen further.

"Business conditions going into the second half clearly remain a challenge," Cummins said.

Ciba, whose shares had fallen nearly 40 percent in 2008 before Tuesday, trades at 9.2 times forecast 2009 earnings, a premium to Clariant at 7.1 but trailing other European competitors like Bayer BAYG.DE and BASF BASF.DE.

Ciba had been expected to post a profit of 80 million francs in the first half, according to a Reuters poll of 12 analysts.

(Additional reporting by Rupert Pretterklieber; Editing by Louise Ireland and Jason Neely)

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