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| Issue date:01/04/2006 |
| ATA Journal for Asia on Textile & Apparel - Apr 2006 Issue |
| Source:Journal for Asia on Textile & Apparel |
| by Geoff Fisher |
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| Ciba's Panyu site in China |
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Ciba Specialty Chemicals is to sell its Textile Effects business to Huntsman Corporation for CHF332 million in cash and assumed debt. All 3,300 employees of the textile effects segment, along with 900 group supporting staff, will transfer to Huntsman.
The divestment is expected to be concluded in the third quarter of 2006 after a comprehensive separation process and the necessary regulatory approvals.
Huntsman, which is almost twice the size of Ciba, is a listed US chemical group with sales of US$13.0 billion in 2005 and 11,300 employees worldwide. In 2003, it acquired Vantico Group, which was formerly Ciba Specialty Chemicals Performance Polymers division, based in Basel, Switzerland. This is now Huntsman's Advanced Materials division, which will operate shared sites with the textile effects segment in Basel and Panyu, China.
Divestment after restructuring
The board of Ciba, Switzerland's second largest specialty chemicals company, took the decision to divest the textile effects segment after several months of intense evaluation. Ciba was advised by an investment bank and is believed to have considered several bids as part of an auction.
Following continued lackluster results and the shift of the textile market and customers to Asia, the company had looked to reposition the business in an attempt to achieve higher sustainable levels of profitability.
Ciba Chairman and Chief Executive Officer Dr Armin Meyer said the company had been evaluating a number of strategic options.
"The aim was to find a solution which secures a sustainable future for the textile effects business, strengthens the company's overall position and takes into account the interests of employees," said Dr Meyer, announcing the sale. "We [The board] concluded that a divestment would be the best option. The textile business needs a different operational structure from that of our other three segments [plastic additives, coating effects, and water and Paper treatment], as it has a broader, more regional customer base."
Headquartered in Basel, the textile effects business manufactures a broad range of chemical and dye products that enhance the performance properties and color of finished textiles and materials. It serves more than 10,000 customers in 80 countries and is a leading global supplier of comprehensive solutions for the textile industry. The business has around 4,200 employees and operates 11 primary manufacturing facilities located in eight countries.
Peter Huntsman, President and Chief Executive of Huntsman, commented, "The acquisition will compliment our existing formulation businesses and provide our performance products segment with new downstream technology and marketing platforms.
"It is consistent with our corporate strategy to continue to expand our differentiated segments through high return growth projects. We believe the global demand for textile solutions will continue to grow, and there remain significant opportunities for the existing textile effects management team and Huntsman to continue to restructure this business to meet the changing demands of the marketplace," Mr Huntsman added.
"We also see considerable supply chain and commercial synergies with our existing businesses. In addition, with approximately CHF450 million in revenues in Asia, Textile Effects will compliment our continued expansion in this region."
Ciba's movements in Asia
Back in October 2004, Ciba instigated Project Shape to help support the relocation of the textile industry to Asia with the related reduction of manufacturing and marketing activities in Europe. This, it was hoped, would restore the segment to acceptable profitability levels.
However, the shift of the textile market and customers to Asia was further accelerated in 2005 with the ending of the World Trade Organization quotas. It became evident to the company's management that significant profitability for the segment could not be achieved without additional cost-saving measures. This triggered a requirement to test the carrying value of certain segment's long-lived assets for impairment.
As part of the repositioning process, which was announced in August 2005, an assessment of the value of textile effects led to a significant impairment in the fourth quarter of 2005 - CHF583 million before taxes was booked as non-cash charges reflecting an impairment of the fixed and intangible assets of the textile effects business, explained Chief Financial Officer Michael Jacobi.
Full-year sales for the segment were CHF1.28 billion, a fall of 1% against 2004. However, compared with decreases announced in previous years, this was a reasonably stable result, largely due to recent restructuring measures as part of Project Shape and the alignment of the textile effects business to its Asian customer base.
Ciba reported strong sales growth for textile effects in the Asia-Pacific region, particularly China and South Asia. Sales of textile chemicals were stable while those of dyes were slightly lower than 2004. Prices fell by 1% and volumes were 1% lower, although these figures improved in the second half of 2005 with signs of market recovery.
Eric Marohn, head of the textile effects segment, said that while there were some "bumps" in Europe and the US during 2005, there was good growth for both dyes and chemicals in the key markets of China and India. "Asia will soon be our biggest market," he predicted. "The local market in China is growing and starting to develop its own fashions, and we will continue to invest in production in Asia.
"We expect 2006 to be similar to 2005," Mr Marohn continued. "The markets in Europe and North America should stabilize in 2007, particularly in the apparel and home textiles sectors. We will also continue to step up our operations in the technical textile fields and increase our focus here."
With profitability now stable, Mr Marohn said the business is examining ways to compensate for the lack of profit growth. "We are looking at bigger and better products on the dyes sides, for example, and there are also opportunities in textile chemicals. We believe we can achieve this with our current expenditure, but by trying to be even more market-focused and operating in areas where we have a better chance to succeed. We see some opportunities in 2006, where we are working with customers and trying to develop new types of business, especially in technical textiles," he said.
Ciba Specialty Chemicals has been building up its Asian business for many years, with 27% of the workforce based at 25 locations in the region, according to William Yau, head of the Asia Pacific region for the textile effects segment. A network of production facilities, including dye synthesis in Qingdao (China) and Mahachai (Thailand), and chemicals in Panyu (China), support both local and global demand, while technical centers cover all the main textile manufacturing countries in Asia.
"Our strategy in Asia is to invest in the major markets, while continuing to provide innovation, high quality, speed and efficiency with high value-added and cost-efficient effects," said Mr Yau.
As part of its expansion in key Asian markets, in October 2005 Ciba opened a new R&D center in Panyu, where it is further investing to expand production capacity. The company is also building a new formulation and distribution center in Hangzhou, Zhejiang, where it will open a new technology center by the first quarter of 2006, and will expand dye production in Qingdao this year. At the same time, Ciba is upgrading its technical center in Mumbai, India, where it will also strengthen local production, especially for textile chemicals.
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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