Ciba Specialty Chemicals Delivers Solid First Half 2001 Results.

Business Editors

BASEL, Switzerland--(BUSINESS WIRE)--Aug. 21, 2001

Ciba Specialty Chemicals(NYSE:CSB):

- Net income increases by 3 percent in Swiss francs

- Sales in local currencies 1 percent below record first half 2000

- Simplified structure increases efficiency - further cost reductions initiated


- Outlook 2001: net income expected to be above previous year

- Mid-term targets and strategy defined

Virtual media kit for full year results: http://www.cibasc.com/media

- News releases in full (including tables) - Half Year Report 2001 (PDF) - Slides (PDF) - Our Vision - Our Mission - Our Values (PDF) - Photos Ciba Specialty Chemicals

Ciba Specialty Chemicals increased its net income and earnings per share, compared to the same period last year, and achieved a 17.1 percent EBITDA margin during the first half of 2001, despite less favorable currency rates and a slowdown in the global economy.

Ciba Specialty Chemicals Chairman and Chief Executive Officer Armin Meyer commented, "Overall, we delivered a solid performance in a difficult environment in the first half of this year. With our simplified organization announced in February we took early actions to get closer to our customers and to increase our efficiency by streamlining and simplifying our processes. We are currently implementing several rationalization projects with resulting annual cost savings of CHF 70 million, once all of these measures are fully completed in about 12 to 18 months. Our target for 2001 is to outperform the general market in sales, and to reach a net income above last year. With our newly streamlined organization, our clear strategic approach and a new Vision we have built a solid basis for profitable growth in the future."

Solid performance in a difficult environment

Sales in the first half of 2001 were 1 percent lower in local currencies than during the record first half of 2000. Even though the U.S. dollar strengthened against the Swiss franc in the first half of 2001, compared to the same period last year, a number of other currencies were considerably weaker - including the Euro, the British pound and the Japanese yen - leading to sales of CHF 3.856 billion, 4 percent lower in Swiss francs. Volumes in the first half of 2001 reached the same high level as achieved during the first half of 2000. At the same time, price reductions abated further.

Sales in several regions and end-markets were weak, especially as compared to the very strong performance during the first half of 2000, when the Company recorded the highest sales total in its history. This trend was most notable in the NAFTA region, particularly in the automotive, paper and electronics markets. Toward the end of the second quarter, Europe began to show some areas of weakness as well, particularly in Germany. Net interest expenses declined 42 percent reflecting a further positive development in debt levels. As a result, net income was up 17 percent in local currencies, respectively by 3 percent in Swiss francs, to CHF 222 million, and earnings per share totaled CHF 3.37.

Operating income reached CHF 425 million in the first half of 2001 as compared to CHF 464 million in the first half of 2000. Three-quarters of the reduction in operating income (-CHF 30 million) were directly attributable to less favorable currency rates. The other two factors were the effect of divesting certain equity affiliates, which reduced operating income (-CHF 22 million) but benefited financial expenses, and a underlying positive development in the business Segments (+CHF 13 million).

The improvement in the underlying business performance was based on proactive measures taken to prepare for the weaker business environment. Selling, general and administrative expenses were 10 percent, or CHF 75 million, lower. Further improvements were also made in overall process optimization. Offsetting these lower operational costs were higher raw material and utilities costs (particularly raw materials for the Water & Paper Treatment Segment) and some idle capacity costs. Investments in research and development were maintained at last year's high levels in Swiss francs.

Further efficiency improvements underway

In February, the Company introduced the "Fit for Growth!" program, featuring an alignment of business operational activities along customer industries. "Fit for Growth!" was also designed to speed up decision-making by eliminating the former divisional layer, as well as to improve efficiency by harmonizing several support areas. Chief among these efficiency projects is a 12 to 18 month effort to rationalize the existing three supply chains into one coordinated, global supply chain system. This will include the renegotiation of a number of associated contracts for the supply of services and materials. A rationalization of the IT support structure is also underway, including reduced reliance on outsourcing services. In addition, the Water & Paper Treatment Segment will face a reduction in its overall headcount as part of its strategy to streamline operations, improve profitability and then grow the business. The Company expects the overall effect of these efforts, in combination with an ongoing streamlining of the simplified organization, to result in an impact on up to 450 positions by the end of 2002. By the end of July 2001, as an effect of the simplified structure, an additional 150 positions had already been reduced. The Company will strive to reduce the positions wherever possible through the normal fluctuations in staffing. The Company anticipates annual cost savings of CHF 70 million once all of these measures are in place.

Outlook

The Company's targets for 2001, as issued at the start of the year, were for sales above market growth (which was estimated, at that time, to be around 2 percent) and profitability defined as an EBITDA margin of 17.1 percent to 17.6 percent of sales. They were predicated on a moderately softer macro economic environment throughout 2001, with a pick up in the second half of 2001. Based on the macro economic developments in the second quarter of this year, the Company believes it is clear that not only will the market not grow by 2 percent this year, rather a market contraction has to be expected for the full year given the weak end-user markets.

Against this backdrop, the Company's target for 2001 is to outperform the general market and by that the sales target for the full year is to achieve about the same level of sales, in local currencies, as achieved in 2000. The Company believes its profitability will most likely be around the lower end of the full-year target range. Net income and earnings per share should be above the previous year's result. These assumptions are based on no further, unexpected deterioration in macro economic environment conditions during the second half of 2001, as well as a currency exchange rate scenario that is reasonable.

New Company Goals, Business Strategies and Vision defined

Ciba Specialty chemicals today also released new mid-term Company financial targets. They include: first, an average annual sales growth of 6 percent, in the years 2002 through 2005; second, to improve profitability by 2005, as measured by EBITDA margin, to 20 percent of sales; and third, to generate a strong annual free cash flow in 2005 of greater than 1 billion Swiss francs.

Armin Meyer remarked, "These are ambitious targets, even in a more positive economic environment, yet I am confident we will reach them with our more efficient structure, with Ciba's dedicated and motivated workforce and with a return to more positive economic and market conditions."

By realigning the business along customer industries Ciba has formed five strong Segments that have the critical size for market leadership. The Company will maintain a balanced geographical presence and put its emphasis on highly innovative products and services. A critical goal for driving profitable growth is to exploit the Company's vast internal know-how, coupled with its leading products, to provide total integrated customer solutions. The Company seeks to grow organically with its research expertise and, where it makes sense, it will invest in the necessary mid- and small-sized acquisitions to complement its products and technology, strengthen its Segments, enter new markets and further push growth. Ciba Specialty Chemicals is pursuing a strategy of managing its extensive portfolio with three separate business models to accommodate its broad and interconnected customer base.

- Specialty products, which comprise approximately two-thirds of

Ciba's portfolio;

- Semi-specialties, which represent about one-third of Ciba's

portfolio;

- The emerging area of comprehensive customer services.

Each of our five Segments continues to have the same overall mission: to provide the best and most value-adding products and services to their respective customer industries. Each Segment will pursue its goals in a unique manner:

- Plastic Additives: Leveraging industry leadership.

- Coating Effects: Expansion through innovative technology.

- Water and Paper Treatment: Provider of choice in Water & Paper

Treatment

- Textile Effects: The provider of Integrated Textile Solutions.

- Home and Personal Care: Technology opportunities building a bright

future.

Meyer also announced that Ciba Specialty Chemicals is introducing a new Vision: "We create effects to improve the quality of life." Meyer explained. "At Ciba, we are working to improve the quality of life. We add performance, protection, color and strength in automobiles, clothing, packaging, home and personal care products and many more. We enable beneficial features that make everyday products better and offer new product applications."

Plastic Additives

The Plastic Additives Segment outperformed the market both in sales and profitability in spite of weak market conditions in key global markets. The Segment achieved the same high sales in local currencies as during the first half of 2000. Sales in Swiss francs totaled CHF 969 million, 2 percent lower than last year. Segment profitability improved in the first half of 2001 due primarily to an increase in productivity. EBITDA reached CHF 230 million, compared to the previous year, resulting in an EBITDA margin of 23.7 percent as compared to 23.1 percent in 2000.

Coating Effects

In 2001, the very weak conditions in the U.S. automotive, microelectronics and print advertising markets hindered the ability of Coating Effects to reach last year's exceptionally strong sales. The Segment recorded sales of CHF 1.018 billion for the first half of 2001, 7 percent lower in Swiss francs and 4 percent lower in local currencies. In the first half of 2001, EBITDA totaled CHF 209 million, 13 percent below the previous year's total. The EBITDA margin was 20.6 percent compared to 22.0 percent during the comparable period in 2000. Aside from lower sales, the key reason for the decrease was reduced production levels, mainly at the Company's Newport facility in the U.S.

Water & Paper Treatment

Sales in the Water & Paper Treatment Segment rose 1 percent in local currencies, compared to the first half of 2000, but fell 2 percent in Swiss francs to total CHF 754 million. As expected, the reduced profitability experienced in the first quarter of 2001 continued into the second quarter. EBITDA for the first half of 2001 totaled CHF 67 million, or 8.9 percent of sales, down from 12.3 percent in the first half of 2000. Key factors influencing the results were: the strength of the British pound and the U.S. dollar which made exporting from the U.K. and the U.S. more difficult, the continuing high raw material prices in the first half of 2001 (primarily for acrylonitrile), idle capacity costs and the restructuring efforts.

Textile Effects

The Textile Effects Segment saw lower sales but substantially higher profitability during the first half of 2001, as compared to year-ago levels. The Segment enjoyed high sales in the first half of 2000, however a global slowdown in the textile industry since that time prevented the Segment from matching last year's totals. Sales were CHF 902 million, 5 percent lower in Swiss francs and 3 percent lower in local currencies. There was a strong improvement in profitability, with EBITDA reaching CHF 149 million, 16 percent higher than the first half of 2000. The EBITDA margin improved from 13.6 percent to 16.5 percent. Key to this performance was a tight control of product margins due, in large part, to a change in sourcing arrangements that are now providing a strong benefit. In addition, sales prices were stable and the Segment made further productivity improvements in both its production facilities and supply chain.

Home & Personal Care

In a stable market environment, the Home & Personal Care Segment increased sales and profitability in the first half of 2001 versus the comparable period in 2000. Sales increased by 6 percent in local currencies. Sales totaled CHF 213 million, an increase of 4 percent in Swiss francs. Stronger volumes led to increased capacity utilization during the first half of 2001. The Segment also maintained a stable cost base. As a consequence, profitability rose 16 percent, as EBITDA reached CHF 39 million. The EBITDA margin increased from 16.4 percent to 18.3 percent.

Ciba Specialty Chemicals (SWX:CIBN, NYSE: CSB) is a leading company dedicated to producing high-value effects for its customers' products. Our specialty chemicals, added in small quantities, enhance the performance, look and feel of the final product. Business success is driven by our long-term strategy of innovation and continuous operational improvements. Ciba brings new and creative thought to the processes and products of our customers in more than 120 countries. Ciba's continuing operations generated sales of CHF 7.9 billion in 2000 and CHF 293 million was spent on R&D to foster innovation across the Company.

Virtual media kit for full year results: http://www.cibasc.com/media

- News releases in full - Half Year Report 2001 (PDF) - Slides (PDF) - Our Vision - Our Mission - Our Values (PDF) - Photos Ciba Specialty Chemicals

For further information please contact:

Media Investor Relations Basel, Switzerland Basel, Switzerland Thomas Gerlach

Matthias A. Fankhauser Tel: [phone] Tel: [phone] Fax: [phone] Fax: [phone]

USA Kevin Bryla Tel: [phone] Fax: [phone]

Japan Chisato Akamatsu Tel: [phone] Fax: [phone]

Future Reporting Schedule for 2001 Third Quarter Results

October 23, 2001

Forward-Looking Statements 

Forward-looking statements and information contained herein are qualified in their entirety as there are certain important factors that could cause results to differ materially from those anticipated. Such statements reflect the current views of the Company with respect to market conditions and future events and are subject to certain risks, uncertainties and assumptions. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed above, among the factors that could cause actual results to differ materially are the following: the timing and strength of new product offerings, pricing strategies of competitors, introduction of competing products by other companies, lack of acceptance of new products and services by the Company's targeted customers, changes in the Company's business strategy, the Company's ability to continue to receive adequate raw materials from its suppliers on acceptable terms, or at all, and to continue to obtain sufficient financing to meet its liquidity needs, and changes in the political and regulatory framework in which the Company operates or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis and various other factors. Furthermore, the Company does not assume any obligation to update these forward-looking statements.