German majors foresee little hope of upturn

07 December 1992 00:00  [Source: ICB]

THE Q3 ACCOUNTS of the German majors (ECN30 November) highlighted the combined effect of a drop in domestic sales and an unfavourable currency position, leading to a precipitous fall in profits. The poor outlook has spurred the three companies to announce plans to cut back their workforces in 1993, with Germany bearing the brunt of the redundancies.

BASF saw pre-tax profit fall 44.8% over the first nine-months this year to DM1.083bn ($0.679bn), on a 2.5% fall in group sales to DM34.2bn. The group reported that BASF Magnetics, Kali und Salz and the group operations in the US and Brazil recorded losses. With the exception of oil and gas, net sales for all divisions were lower. Indeed, the 5% increase at Wintershall reflects the higher German mineral oil tax.

In the agriculture division, low-priced fertiliser imports have put pressure on prices and volumes, while the crop protection business was down on 1991, due to the slump in demand which resulted from EC Common Agricultural Policy (Cap) resolutions.

Demand for potash remained weak, and short-time working has. been instigated at some Kali und Salz sites. BASF chairman Jürgen Strube said the company is in negotiations with the Treuhandanstalt with a 'view to shaping a better future for the German potash industry'.

Volumes and price were erratic in plastics and fibres. Demand for polyolefins and PVC, foams for the construction industry and engineering plastics was still satisfactory in Q3, even though prices were depressed. The volume of polyurethanes dropped off noticeably.

By contrast, chemicals held up well for BASF, although large scale shutdowns in Ludwigshafen and Antwerp impacted sales and earnings in basic chemicals. Industrial chemicals improved due to a slight increase in volumes.

Business was satisfactory in pharmaceutical and elastomeric fibre intermediates, compensating for a drop in other areas. In dyestuffs and finishing products, speciality chemicals and dispersions experienced a downturn. Business failed to pick up as well as expected after the summer.

At Hoechst, pre-tax earnings for the first nine months of 1992 declined 19% to DM1.54bn, with sales falling back 2% to DM34.2bn. While domestic sales in Germany were flat, at DM8.7bn, foreign turnover dipped 2% to DM25.5bn. For the third quarter, Hoechst group sales were DM10.7bn, down 7%, while pre-tax profits were DM406m, down 18%.

Chairman Wolfgang Hilger said he was not optimistic that the bottom line for Q4 would show much improvement against Q3. 'Manufacturers' selling prices are currently below 1992 levels on average, and costs are considerably higher'.

He noted that the downturn would have been more severe were it not for the one-off sale of Sopharga, from Roussel-Uclaf. Hilger added that pharmaceuticals had been the mainstay of results in Q3, accounting for about half of the group result. Engineering plastics also recorded a noteworthy increase, he said.

In chemicals and colour, chemicals recorded an increase in volumes in the US, but the pressure on prices continued. In the fibres business, the depressed state of the European market affected volumes and prices. Although textile fibres and the polyester raw material business for fibres and bottles developed favourably in the US.

German majors nine-month results 1992 (DMm)
Group	Sales	Change,%	PBT	Change,%
BASF	34 202	(2.5)	1083	(44.8)
Bayer	31 747	(2.4)	2224	(15.8)
Hoechst	34 174	(1.8)	1537	(19.3)
PBT: profit before tax

The polymers division traded at a loss in Q3, with volumes and prices of commodity materials down. Sales volumes of engineering materials exceeded the previous year's level, but again prices were unsatisfactory.

In agriculture, sales volumes of crop protection agents suffered as a result of weak demand in Europe.

Hoechst nine-month 1992 sales (DMm)
Division	Sales	Change,%
Chemicals/colour	7964	(5.1)
Fibres	5171	(2.0)
Polymers	6225	(4.3)
Health	7876	4.2
Engineering/ technology	4917	(0.1)
Agriculture	2021	(3.0)
Total	34 174	(1.8)

At Bayer, Q3 1993 saw a 7% fall in sales, to DM9.56bn, and a 32.4% drop in earnings to DM470m. Over the first nine months, turnover was DM31.7bn, down 2.4%, and earnings were DM2.2bn, down 16% on the same period in 1991.

Bayer noted that moderate increases in volumes were more than offset be declines in prices and adverse exchange rate movements. Indeed, one-third of the decline, close to DM900m, was due to the strength of the deutschmark.

Bayer nine-month 1992 sales (DMm)
Division	Sales	Change,%
Polymers	5539	(7.1)
Organic products	4212	(5.5)
Industrial products	5823	(1.3)
Healthcare	6692	2.4
Agrochemicals	4299	(3.6)
Imaging technologies	5182	(0.4)
Total	31 747	(2.4)

Bayer experienced a 4% fall in domestic business, and a 2% decline in exports from Germany. Foreign companies maintained their sales turnover at the same level as 1991.

The results were buoyed by the healthcare division, which saw sales advance 2.4% to DM6.7bn. On the other hand, sales of polymers declined 7.1%, to DM5.54m, and organic products saw a 5.5% decline to DM4.2m. Also down were agrochemicals, by 3.6% to DM4.3m, imaging technologies, by 0.4% to DM5.18m, and industrial products, by 1.3% to DM5.823m.

There was some relief in the industrial products division, with growth in coating raw materials, and pigments and ceramics. But inorganic chemicals and polyurethanes showed declines.

Chairman Manfred Schneider commented that even in the healthcare business all was not well, 'and there are clouds on the horizon'. He is concerned about health policies in a number of countries, including Germany - where savings are being sought on drug expenditure. Bayer has proposed a prices freeze, and argues that cuts below this 'would be a serious infringement of our corporate freedom.'

On the immediate outlook, Schneider commented that the downward trend in the economy is set to continue for the time being. Bayer expects a further weakening in demand and lasting pressure on prices for the fourth quarter.

'We expect conditions to remain very difficult next year, especially for the chemicals sector, and we expect the pressure on our company to increase,' he concluded.

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