07 August 2001 13:15 [Source: ICIS news]
LONDON (CNI)--BASF revealed on Tuesday a sharp drop in second quarter profits as a result of restructuring charges and difficult economic conditions, and warned that full year earnings would be below last year's levels.
Pre-tax profits before minority interests for the three month period plunged 79% to Euro201m ($178m). To implement its restructuring programme, which was announced in June and involves the closure of 10 sites and 14 additional plants, BASF recorded special charges of Euro447m.
Sales for the second quarter fell 7% to Euro8.33bn and operating profits before special items were down 15% at Euro751m.
Chairman Jurgen Strube said: "Under the current conditions of volatility we have to accept that the good full-year results we achieved in 2000 will not be reached this year."
He reiterated that "extraordinary efforts" were needed to achieve BASF's goal of increasing operating profits from ongoing businesses, before special items, by an average of 10% per year in the years 2000 to 2002. In addition, a significant economic upturn in the majority of Organisation for Economic Co-operation and Development (OECD) countries by no later than the turn of year is required, he added.
BASF said is not expecting a significant improvement in the economic situation for chemical products until 2002. Economic expectations for H2 are "rather restrained" in Germany and most other European countries, it continued, and the trends in the US and Japan are not particularly positive. In South America, the energy crisis in Brazil and the economic crisis in Argentina are also having a negative effect.
BASF's plastics and fibres segment was the hardest hit by the economic downturn, suffering a 70% slump in second quarter operating profits (before special items) to Euro70m. Sales were down 27% at Euro2.16bn. The styrenic polymers business was particularly affected by weak demand in the construction industry, while poor demand in Asia and the US hit sales of fibre products. Sales of styrenic polymers fell 9% to Euro658m and sales of fibre products were down 17% at Euro366m. Engineering plastics sales fell 2% to Euro434m but polyurethane sales increased 3% to Euro701m.
The chemicals segment registered a 37% fall in second quarter operating profits to Euro121m on sales up 3% at Euro1.15bn. BASF said lower demand for cracker products and plasticisers in Europe led to increased pressure on prices and reduced operating rates. Sales of petrochemicals were approximately stable at Euro516m, while sales of inorganics gained 4% to Euro176m and intermediates sales were up 6% at Euro462m.
In the colorants and finishing products segment, Q2 profits dropped 20% to Euro125m on sales down 1% at Euro2.12bn. Continuing pressure on prices for monomers and dispersions for paper finishing hit earnings in the dispersions division, said BASF. Business picked up in the coatings division in the second quarter but earnings were still below Q2-2000 levels, it added. Sales of colorants fell 17% to Euro489m, but specialty chemicals sales were up 6% at Euro340m, coatings sales rose 5% at Euro594m and dispersions sales were 5% higher at Euro692m.
BASF said Q2 profits from the agricultural products and nutrition segment rose 22% to Euro167m, partly thanks to the acquisition of the crop protection business of American Home Products (AHP). Sales dropped 11% to Euro1.53bn, although excluding the pharmaceuticals business which was sold to Abbott Laboratories in March sales rose 33%. Profits from the agricultural products business rose 17% to Euro133m on sales up 41% at Euro1.04bn. Fine chemicals' profits soared to Euro34m from Euro4m, aided by the acquisition of Takeda's water-soluble vitamins business. Sales of fine chemicals were 17% higher at Euro491m.
The oil and gas division posted the strongest increase. Second quarter operating profits rose 53% to Euro378m on sales up 29% at Euro981m. BASF said the production of oil and natural gas remained at a high level.
The group revealed today that its restructuring programme will involve the loss of some 4000 jobs from its 92 000-strong global workforce by the end of 2002.
BASF plans to achieve annual cost savings of Euro400m from the streamlining of its organisation. In addition, the group said it expects to save Euro160m by the end of 2002 by further optimising its global procurement of technical goods and services. Site and plant closures are expected lead to cost savings of Euro190m. BASF also intends to reduce capital expenditures in 2002 by Euro400m.
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