Cognis’ 2004 annual results show significant improvement

Cognis has reported significant growth in both sales and operating results for 2004. In the twelve months from January 1 to December 31, 2004, the global specialty chemicals supplier posted total net external sales of 3,073 million euros (+4.2 percent). Cognis’ 2004 Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization and exceptional items) went up by 16.0 percent to 362 million euros, with a margin of 11.8 percent, up from 10.6 percent the year before. Comments Antonio Trius, CEO of Cognis: “The 2004 financial year was a successful one for us. Despite the continuing weakness of the US dollar and increasing raw material, energy and transport prices, we achieved a significant turnaround in our business. This is a result of a volume pick-up in our markets but also confirms the validity of our strategy of focusing on the wellness and sustainability trends. The comprehensive package of restructuring measures initiated through 2003 and 2004 has also contributed substantially to the cost savings.”

Cognis’ organic sales (sales adjusted for the effects of currency fluctuations, acquisitions and divestments) grew 8.3 percent from 2003, with all five SBUs achieving growth. Positive organic sales growth was also achieved by all regions, led by Central and South America (+24 percent) and Asia-Pacific (+16 percent). North America achieved +10 percent, North Europe +4 percent and South Europe +6 percent.

Cognis’ Adjusted EBITDA increased from 312 million to 362 million euros (+16.0 percent), due to the various restructuring measures undertaken such as the optimization of the organizational structure, the integration of Grünau Illertissen GmbH, and further improvements in production efficiency. However, significant increases in raw material and energy costs had an adverse effect on Adjusted EBITDA.

Despite unfavorable foreign currency effects, sales growth and cost savings meant that EBIT (earnings before interest and income taxes) for 2004 increased significantly to 99 million euros, up from 50 million euros in 2003. As in 2003, EBIT was affected by restructuring expenses (35 million euros) and other exceptional items (32 million euros), primarily the ongoing costs of putting in place an organizational infrastructure separate from that of Henkel. The net loss in 2004 was 34 million euros, compared with a 2003 figure of 71 million euros.

Sales by strategic business unit (SBU)

In the course of the restructuring measures in 2004, the Care Chemicals SBU came to include two business areas that were previously part of Oleochemicals – Basic Surfactants and Fatty Alcohols. Cognis’ largest SBU achieved sales of 1,155 million euros, as compared to 1,101 million euros in 2003 (+5.0 percent). Organic sales growth was 8.2 percent. The increase in sales was largely driven by innovative products, including Dehypon GRA, the first granular rinse additive for multifunction automatic dishwashing detergents, and a new range of active powders which enable moisturizing effects from apparently dry powder compositions.

In 2004, the Nutrition & Health SBU reported significant growth, with sales rising to 287 million euros (+8.9 percent). Organic sales growth was 11.0 percent. The SBU benefited from strong sales of phytosterols, Tonalin CLA and carotenoids. Overall sales of Vitamin E declined compared to the previous year despite higher sales volumes as a result of the weak US dollar.

With sales up 11.1 percent at 772 million euros, Functional Products achieved the highest growth of any of the Cognis group’s five SBUs. The SBU reported organic sales growth of 11.8 percent. The Polymers, Coatings & Inks (PCI) performed well, largely as a result of a strong US housing and construction market, the successful introduction of new coating additives, and significant growth in emulsion polymerization. The synthetic lubricants business achieved double-digit organic growth thanks to an increase in its share of the US transportation market. The agricultural chemicals business achieved the highest organic growth rate within the SBU, capitalizing on its approach of focusing on selected key accounts in order to become a strategic partner to those customers. The Mining Technology business maintained its position as global leader in copper solvent extraction and made significant progress in the development and roll-out of phase transfer catalysts and mining auxiliary products.

Process Chemicals’ total sales amounted to 401 million euros, 7.0 percent down on 2003. This decrease was due to foreign currency effects and the divestment of the PVC stabilizers business on July 1, 2004, which posted total sales of 44 million euros in 2003. Adjusted for foreign currency effects and this divestment, the SBU’s organic sales actually increased by 1.1 percent. This growth was driven by higher average selling prices as a result of changes to the product mix, and price increases. Textile Technology was particularly affected by sluggish European markets and shrinking output as production shifts to Asia. Organic growth in Plastics Technology was mainly volume-driven, though there was also a slight increase in average selling prices. Due to a decline in sales to its European customers, Leather Technology did not match its total 2003 turnover.

The Oleochemicals SBU achieved a significant turnaround in its business in 2004. The oleochemical basestocks business posted total sales of 430 million euros (+4.1 percent). Organic sales growth was 8.7 percent, thanks largely to higher sales volumes of fatty acids. Glycerin prices suffered a sharp decline in Europe due to oversupply resulting from increased biodiesel production, and the silicates business remained stable. The oilfield chemicals business, which produces biodegradable drilling fluids, remained subdued in 2004.

Outlook

Assuming the economic conditions remain favorable, Cognis expects moderate sales and Adjusted EBITDA growth in 2005. Product portfolio improvements – namely increased market penetration of new and specialty products – will drive sales, while overall quantities are expected to remain comparable to 2004. The expected growth in Adjusted EBITDA will be achieved by incorporating more profitable, innovative specialties into the product mix, allied to higher selling prices and cost savings resulting from the measures initiated in 2004. As in 2004, the main risks in 2005 are the dollar/euro exchange rate, although Cognis has taken steps to partly safeguard itself against this, and raw material prices.

Overview of results for the annual year 2004

About Cognis

Cognis is a worldwide supplier of innovative specialty chemicals and nutritional ingredients. The company employs about 8,100 people, and it operates production sites and service centers in 30 countries. Cognis has dedicated its activities to a high level of sustainability and delivers natural source raw materials and ingredients for food, nutrition and healthcare markets, and the cosmetics, detergents and cleaners industries. Additionally, Cognis provides solutions for a number of other industries, such as coatings and inks, lubricants, textiles and plastics, as well as agriculture and mining.

Cognis is owned by private equity funds advised by Permira, GS Capital Partners, and SV Life Sciences.

Cautionary Statement

The statements we make in this release may include statements about our plans and future prospects for the company and the industry that are forward-looking statements. Our actual performance may differ materially from performance suggested by those statements. We urge you to review the cautionary statements in our financial statements for information on factors that could cause those differences.

Contact

Susanne Marell
Vice President Corporate Communications
Cognis Deutschland GmbH & Co. KG
Phone: +49-2173-4995-222
Internet: www.cognis.com