Degussa sees higher '04 core EBIT despite 5% fall in '03

09 March 2004 12:06  [Source: ICIS news]

LONDON (CNI)--The weak dollar, higher feedstock costs, lower demand and a massive write-down at its fine chemicals unit plunged German specialty chemicals group Degussa into a net loss of Euro159m (197m) last year, it was disclosed on Tuesday.

 

Degussa recorded a 5% fall to Euro902m ($1.12bn) in earnings before interest and tax (EBIT) from core operations, down in all divisions except fine & industrial chemicals. Group sales were down 3% at Euro10.68bn as a 2% hike in volumes failed to offset a negative exchange rate effect of 5%.

 

Including non-core businesses, EBIT dropped 6% to Euro878m on sales down 3% at Euro11.43bn.

 

The firm made a full year pre-tax loss of Euro15m on continuing operations, compared with a Euro380m profit in 2002, after including the impact of the first time application of US GAAP statements and the Euro500m fine chemicals impairment charge.

 

Including discontinued operations, net losses totalled Euro159m, compared with a Euro227m profit in 2002.

 

Degussa said it did not expect fine chemicals demand to recover before 2005 or 2006 but it expected a slight improvement in group core earnings before interest and tax (EBIT) and sales this year.

 

All divisions should contribute roughly equally to the improvement in 2004, the German specialty chemicals company said after unveiling a group pre-tax loss last year of Euro15m after a Euro500m impairment charge in its fine chemicals unit.

 

Although the strength of the euro is continuing to affect business, Degussa said there are initial signs of a cyclical upturn.

 

Rising demand as the global economy recovers should more than offset the decrease in competitiveness of its exports, the firm said. Higher export demand will once again drive the upswing in Germany while domestic demand its unlikely to provide any noteworthy impetus, it added.

 

Degussa said it is cautiously positive on the economic outlook. The German economy seems to be picking up gradually, it said. At year-end, sentiment was more optimistic than at any time since 1996, it noted.

 

The outlook for the chemical industry in the next few months is relatively subdued, said Degussa, adding that the industry is not playing its usual role as a leading indicator of the business cycle this time. Even in the euro zone, sentiment in the chemical industry is only cautiously positive and the upturn in 2004 is expected to be modest, the firm pointed out.

 

Capital expenditures in core operations fell 21% to Euro769m in 2003. Degussa has earmarked Euro825m for investment in 2004, which it said is roughly in line with depreciation and should be funded out of cash flows.

 

Utz-Hellmuth Felcht

Commenting on the 2003 results, chairman Utz-Hellmuth Felcht said: "We took prompt action to counter the difficult economic trends in the past fiscal year. As a result of this, we were able to limit the decline in sales and EBIT.”

 

In 2003, EBIT from the construction chemicals division dropped 4% to Euro184m on sales down 5% at Euro1.72bn, due to currency effects.

 

In the North American admixture systems business, EBIT failed to reach the 2002 level on sales down 12% at Euro211m. The European admixture systems business’ EBIT increased slightly on sales up 9% at Euro376m, partly due to acquisitions. In Asia-Pacific, EBIT was lower on sales down 1% at Euro222m. 

 

EBIT in the Americas construction systems business was lower on turnover down 18% at Euro305m. Degussa attributed the declines almost entirely to adverse exchange rate effects. The European construction systems business matched the 2002 level in EBIT despite sales slipping 5% to Euro605m. 

 

In the fine & industrial chemicals division, full year EBIT rose 5% to Euro267m. Sales were up 2% to Euro2.97bn as demand rose significantly.

 

The fine chemicals business suffered a significant decline in EBIT due to the Euro500m impairment charge on sales down 3% at Euro940m. Earnings from the bleaching chemicals business’ fell on sales down 7% at Euro534m.

 

EBIT in the C4 chemistry business’ increased on revenues up 18% at Euro643m. The catalysts & initiators business’ had flat profits on sales down 4% at Euro243m. The feed additives business managed a substantial rise in EBIT as sales rose 7% to Euro610m.

 

Degussa's performance chemicals division suffered a 19% fall to Euro174m in income on revenues down 6% at Euro1.85bn. It blamed the declines on unfavourable exchange rates and the inability to implement price rises because of poor economic conditions.

 

The superabsorbents business, however, was able to limit the impact of low margins on earnings through cost savings and increased productivity. Nevertheless, sales fell 8% to Euro423m.

 

Care specialties reported a lower EBIT on flat sales of Euro547m. The oligomers & silicones business’ EBIT was somewhat lower on revenues down 4% at Euro335m. The food ingredients business suffered a substantial drop in income on turnover down 10% at Euro547m.

 

Higher raw material costs, unfavourable exchange rates and poor economic conditions depressed  full year EBIT in the coatings & advanced fillers division by 16% to Euro275m on sales down 2% at Euro2.08bn.

 

Earnings from the colourants and coatings business were well below the 2002 level on turnover down 1% at Euro641m. EBIT in the aerosil & silanes business fell significantly on sales down 7% at Euro447m. The advances fillers & pigments business had flat earnings on revenues down 1% at Euro994m.

 

Degussa's specialty polymers division suffered a 21% fall in earnings to Euro146m on flat sales  of Euro1.31bn. Profits were dented by economic conditions, the dollar's decline, increased raw materials costs and start-up costs for new polyamide and methacrylate capacities.

 

Earnings in the high performance polymers business were held back by poor conditions in key markets such as automotive, textiles and domestic appliances. Sales were unchanged at Euro243m.

 

Degussa said that earnings from the division's specialty acrylics business were virtually unchanged on sales down 4% at Euro456m. Methacrylates EBIT was a good deal lower on turnover down 13% at Euro332m. The Plexiglas business suffered a significant fall in earnings on turnover down 7% at Euro279m.

By: Russell Ong
+44 208 652 3214

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