BASF warns of lower 2003 op pft despite 1% hike in Q2; plans major N American restructuring

07 August 2003 12:52  [Source: ICIS news]

LONDON (CNI)--BASF warned on Thursday that it expects lower full year operating profits before special items and outlined a major restructuring of its North American operations in a bid to achieve further cost cuts.

The profits warning and forecast of flat sales in 2003 came despite a 1.2% hike to Euro832m ($936m) in second quarter.

In 2002, the German chemicals giant recorded an operating profit before exceptional items of Euro2.90bn on sales of Euro32.2bn.

Jurgen Hambrecht

Commenting on the 2003 outlook, chairman Jurgen Hambrecht said: "Considerable risks must be overcome if we are to achieve the same level of sales and earnings as in 2002. In particular, these risks are associated with volatile oil prices, the uncertain development of the dollar and persistent stagnation in important economies. Major efforts are therefore needed to match last year's achievements."

Hambrecht said he does not expect an economic upturn until the fourth quarter of 2003 at the earliest. "High unemployment rates, which continue to rise in the eurozone and in the US, suggest that growth triggered by private consumption is unlikely. The signals from our customers also fail to show any signs of an upturn in the short term."

With the level of orders and the number of incoming orders lower in Q2, Hambrecht said he is not “particularly optimistic” with regard to Q3 sales and earnings.

The two-phase restructuring programme announced today is aimed at cutting fixed costs in the North American Free Trade Area (Nafta). It aims to save $100m (Euro89m) through improved service function efficiencies and at least another $150m by 2006 through product portfolio and site reductions. The initial phase is expected to incur costs of $55m, of which $41m has already been booked as special charges in H1. 

The small increase in Q2 operating income to Euro832m was driven by growth in its agricultural product and nutrition segment, with currency hedging also having a positive effect. All other segments recorded lower earnings. The April-June group result was closely in line with expectations of analysts at ING.

After including Euro58m in special items, the BASF's operating income was reduced to Euro774m. These items comprise charges for the North American restructuring and integration of the fipronil crop protection business acquired in Q1.  

Group sales in Q2 fell 1.6% to Euro8.25bn, due to an over 20% fall in the value of the dollar. Volumes were up 3.2% and prices rose 3% but the negative currency effect was 8.9%. Without the effect of the weak dollar, sales would have rise 4.4% to Euro8.8bn, said BASF.

Pre-tax income fell 17% to Euro686m due to a negative financial result of Euro88m, compared with a Euro8m gain in Q2-2002. 

Net income tumbled 61% to Euro195m, due to higher taxes that resulted from a rule change on dividend credit. BASF said it has appealed against this first tax assessment.

For the first half,  BASF's operating income before special items grew 8% to 1.78bn on sales up 2.8% at Euro17.08bn. Pre-tax income dropped 8.3% to Euro1.53bn while net income slumped 40% to Euro637m.  

In Q2, the chemicals segment suffered a 17% fall to Euro134m in operating income before special items despite sales rising 2.5% at Euro1.43bn.

Income was down in all three divisions - inorganics, petrochemicals and intermediates - partly due to scheduled plant shutdowns. 

Inorganics sales rose 1.1% to Euro184m with volumes down slightly but prices improved. Petrochemicals revenues jumped 5.2% to Euro806m on higher volumes. However, sales of intermediates dropped 1.6% to Euro443m, as higher volumes and prices increases were outweighed by currency effects. 

In the plastics & fibres segment, Q2 operating income before special items plunged 64% to Euro76m on sales down 2.9% at Euro2.18bn. Due to weak demand, the segment was unable to totally pass the higher raw material costs onto customers, said BASF.

Income in the styrenics division fell due to higher feedstock costs on flat sales of Euro891m.

The performance polymers division’s income was significantly lower on sales down 12% at Euro552m, due to lower Asian volumes, especially for fibre intermediates

Income from the polyurethanes (PU) business dropped due to higher feedstock costs and startup costs for a new TDI (toluene di-isocyanate) plant in South Korea. Sales increased 1% to Euro734m.  

In the performance products segment, Q2 income before special items dropped 31% to Euro145m, as price hikes and cost reduction measures were unable to offset higher feedstock costs. Sales decline 8% to Euro1.91bn.

In the performance chemicals division, income was lower on sales down 7.5% at Euro792m due to currency effects.  

The coatings division’s income fell on sales down 11% at Euro505m, due to exchange rate effects.

Earnings from the functional polymers division fell short of last year due to higher raw material costs. Sales declined 6.1% to Euro614m as a result of negative currency effects and lower volumes for acrylic monomers and paper dispersions. 

The agricultural products & nutrition segment recorded a 61% hike in Q2 operating income before special items to Euro209m on sales up 0.7% at Euro1.51bn.

The agricultural products division’s income rose 58% to Euro171m due to cost reduction measures. Sales were up 4.8% at Euro1.05bn, due in part to the planned shift in turnover from Q1 to the application period in Q2 and the successful launch of new products. The recently acquired fipronil business has now been successfully integrated and it made a contribution to divisional sales, said BASF.

The fine chemicals division raised its income by 73% to Euro38m, thanks to cost reduction measures. Sales were, however, 7.7% lower at Euro454m as higher volumes could not offset adverse currency effects. 

The oil & gas segment's Q2 operating profits before special items dropped 4.8% to Euro278m. Revenues were up 5.6% at Euro928m on higher volumes in the natural gas trading activities.

By: Russell Ong
+44 208 652 3214

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