30 April 2002 13:08 [Source: ICIS news]
LONDON (CNI)--BASF reported on Tuesday a small rise in first quarter operating income and said improvements in the business climate should lead to higher full year profits.
Operating income (earnings before interest and tax) climbed 3% to Euro814m ($732m), thanks to lower special items. Excluding these items, EBIT dropped 15% to Euro818m, mainly because of reduced earnings from the oil & gas and agricultural products & nutrition segments.
Sales sank 11% to Euro8.24bn, due to the sale of the pharmaceutical business and lower selling prices. Excluding pharmaceuticals, sales were 8% lower.
The German chemicals group said Q1 pre-tax profits increased by 33% to Euro838m, excluding income from the sale of its pharmaceutical business last year. Including the income of Euro6.01bn from the pharmaceuticals sale, pre-tax profits plunged 87%.
Jurgen Strube, BASF chairman, commented: "The numbers are encouraging. We believe that all signs are pointing to a moderate upturn." He noted that it is not clear whether the positive earnings trend "will be a continuous upturn or whether we are seeing replacement of depleted stocks".
BASF expects second quarter profits and sales to remain at Q1 levels. "For 2002 as a whole, we continue to expect sales at the previous year's level and improved income from operations." The group added that it aims to reduce special items in 2002 to below last year's levels.
Economic recovery will depend largely on the price of oil, which again has reached a high level, according to Strube. In addition, BASF considers that a turnaround in North America is a realistic goal following the first quarter developments, he said.
Following a tentative start to 2002, BASF said business improved in March and capacity utilisation at important sites increased. All segments were in the black, indicating that the restructuring and cost-saving measures are paying off, stated Strube.
BASF achieved cost savings of some Euro250m last year and intends to increase the savings to Euro700m this year. It is targeting Euro1bn in cost savings by 2003.
The chemicals segment raised Q1 operating income before special items by 2% to Euro111m on sales up 7% at Euro1.20bn. BASF said sales of petrochemicals soared 24% to Euro610m thanks to the increasing capacity utilisation of the new cracker in Port Arthur, Texas. However, earnings were reduced by lower margins for cracker products as a result of higher naphtha prices. Earnings improved in the intermediates and inorganics businesses, although sales of intermediates sank 3% to Euro424m and inorganics sales were 11% lower at Euro169m.
In the plastics & fibres segment, income before special items rose 5% to Euro98m but sales fell 8% to Euro1.98bn as a result of lower prices. Earnings from the styrenics business declined because of unsatisfactory margins, and sales were 13% lower at Euro742m. In the performance polymers business, earnings rose thanks to higher capacity utilisation rates and last year's restructuring measures. However, performance polymers sales declined 12% to Euro541m. Sales from the polyurethanes (PU) business climbed 1% to Euro692m and earnings were also stable.
Income (before special items) from the performance products segment declined 8% to Euro115m due to valuation allowances to receivables in Argentina. Sales fell 5% to Euro1.98bn. In the performance chemicals business, sales dipped 2% to Euro848m and earnings were flat. Sales from the coatings business fell 7% to Euro531m due to lower automotive production in Europe, and earnings were reduced correspondingly, said BASF. The functional polymers business suffered a 7% drop in sales to Euro604m, and the group said cost-saving measures had a positive effect on earnings.
The agricultural products & nutrition segment recorded a 22% drop in first quarter income to Euro234m due to a 25% drop in income from the agricultural products business, to Euro213m. Income from the fine chemicals business soared 62% to Euro21m. The segment's sales dropped 26% to Euro1.54bn, with agricultural product sales down 16% at Euro1.04bn and fine chemicals sales up 2% at Euro504m. BASF said efforts to optimise inventories of agricultural products are expected to lead to a shift in sales in the second quarter.
Income from the oil & gas segment plunged 25% to Euro284m on sales down 15% at Euro1.23bn. BASF said the average price of crude oil was $21/barrel in Q1, $4.7/barrel lower than for the same period last year. The group has increased the average oil price used in its planning to $22/barrel for 2002.
BASF's underlying first quarter EBIT of Euro818m was higher than analysts' forecasts. Credit Suisse First Boston (CSFB) said underlying EBIT beat its forecasts by 7.8% and a consensus estimates by 18.6%, although sales were 1.5% below its forecast. BASF's shares were trading on the Frankfurt stock exchange 1.8% higher at Euro46.80 at approximately 13:00 hours local time (11:00 GMT), having reached a high of Euro46.95 earlier in the day.
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