UPDATE 3-Clariant 2008 sales drop, to cut 5 pct of jobs

Tue Jan 27, 2009 8:16am EST

Related Topics

* Clariant cutting jobs in bid to cut costs

* More job cuts could be necessary in 2009

* Meets EBIT and cash flow full-year guidance

* Shares rise 4 percent

(Adds analyst comments, background, updates share price)

By Katie Reid

ZURICH, Jan 27 (Reuters) - Swiss specialty chemicals company Clariant (CLN.VX) said it was axing 1,000 jobs to cut costs and could shed more staff this year after it posted a 5 percent drop in full-year sales.

Sales in 2008 fell to 8.1 billion Swiss francs ($7.1 billion) as the economic downturn hit demand in the fourth quarter, Clariant said in a statement on Tuesday.

The group, which makes pigments for products from textiles to cars, said it would cut jobs in sales and administration as it focuses on cash generation in 2009.

By 1310 GMT, shares in the group had risen 3.3 percent to 5.64 Swiss francs, outperforming a 2.15 percent drop in the European chemicals sector .SX4P.

"Headwinds will continue to be tough and investor sentiment for specialty chemicals stocks is likely to remain low in the foreseeable future. However, following the recent slide of Clariant's share price, we believe the stock is ready for a short-term recovery," Helvea analyst Martin Flueckiger said.

High raw material costs and growing competition from Asia plagued chemical companies in 2008 and the global economic downturn means that demand for their products is now waning.

U.S. chemical maker DuPont (DD.N) posted a fourth-quarter loss and trimmed its full-year 2009 forecast on Tuesday as customers bought fewer nonagricultural products and the strong dollar weighed. [ID:nN27409529]

Last week, German chemicals group BASF BASF.DE said it would cut working hours as demand in all regions declined in December and had not picked up so far in January.[ID:nLJ635504]

MORE JOB CUTS?

Clariant has undergone deep restructuring to improve margins and in 2006 decided to cut 2,200 jobs.

The group's operating margin for the year was in the range of 6.5 to 6.8 percent, while cash flow from continuing operations was around 400 million francs, in line with its full-year EBIT and cash flow guidance, Clariant said.

"We may well have to start another round of job cuts in 2009. The decision depends on the demand situation going forward," a spokesman for the group said.

"A lot of customers are selling out stocks as they have a cash generation focus. We don't know how long this will last. There will also be a correction in structural demand as a result of the recession," the spokesman said.

It was very difficult to predict what would happen in areas such as textile, leather, automotive and construction in the next couple of months, he said.

Demand in these areas had fallen dramatically in the fourth quarter, the company said in a statement.

The group said it had revised plans for its leather and textile markets due to the uncertain outlook for 2009, leading to an impairment charge of 180 million francs that would be booked in the fourth quarter. Vontobel analyst Patrick Rafaisz said this would result in a reported net loss for 2008.

Agrochemicals, oil services and de-icing had proven to be more resilient, Clariant said.

"The market will likely see negative read-across for (rival) Lanxess (LXSG.DE) in Clariant's statement, given Lanxess' exposure to leather and autos," analysts at Credit Suisse said.

"We would highlight that Lanxess has followed a similarly pro-active cost cutting approach to Clariant, giving us confidence that Lanxess will also meet expectations for 2008," the analysts said.

The group, which said it would not pay a dividend, will communicate on its mid and long-term targets when it releases audited 2008 results and restructuring measures on Feb. 17.

Clariant trades at around 5 times expected 2009 earnings, at a discount to the European chemicals sector. (Editing by Dan Lalor and Hans Peters)

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