BASF boosts Q1 EBIT by 21% to Euro1.14bn on chems recovery

29 April 2004 14:12  [Source: ICIS news]

LONDON (CNI)--A substantial improvement in its chemicals business plus strong volume growth across all main divisions helped BASF boost first quarter operating profits by 21% and encouraged the company to confirm its forecast of slightly higher full year sales and earnings.

The German energy and chemicals group said Thursday that Q1 earnings before interest and tax (EBIT) and special items totalled Euro1.14bn ($1.35bn) compared with Euro944m in the first three months of 2003.

Operating profits after special items, mainly restructuring measures to be implemented later this year, were up 10.2% to Euro1.04bn. Pre-tax income rose 16.6% to Euro978m and net earnings increased by 16.5% to Euro515m.

Group sales were up 2.5% at Euro9.05bn with significantly higher volumes outweighing continuing unsatisfactory product prices. Excluding negative currency effects, sales rose 8.4%.

Hambrecht

BASF chairman Jurgen Hambrecht said the first quarter offered grounds for confidence, even though it is generally not representative of the full year due to seasonally higher contributions from agricultural products and oil and gas.

He said BASF expects demand for its products to remain strong this year, driven by the dynamic economies of Asia, especially China, and by solid growth in North America.

Despite lagging growth in Europe, persistently high and volatile raw materials costs, and the weak dollar, Hambrecht said he remained optimistic for 2004 overall.

"I expect that we will achieve slightly higher sales and increase EBIT before special items," he said.

Last year, BASF recorded an EBIT before special items of Euro2.99bn on sales of Euro33.36bn. EBIT after special items was Euro2.66bn.

The star performer in Q1 this year was BASF's chemicals business, which delivered a 69% rise to Euro245m in EBIT before special items, largely due to lower fixed costs and improved capacity utilisation. After special items, operating profits were up 58% at Euro228m, with significant improvements in all divisions.

Chemicals sales rose 4% to Euro1.58bn, due mainly to higher volumes. BASF said higher volumes boosted sales by 6.7%, portfolio changes added 2.8% and price rises 1.6%. However, adverse currency factors reduced sales by 7%.

Petrochemical sales rose 5% to Euro919m in Q1 as BASF benefited from continued high demand for olefins, alkylene oxides and glycols. Although the firm did not disclose actual earnings at business unit level, it said limited product availability in Europe and the US had boosted olefin prices, leading to a margin improvement for cracker products despite high and volatile naphtha costs. However, it added that the rise in olefins prices squeezed margins on plasticisers and solvents.

Sales of inorganic chemicals were up 10% at Euro201m, with demand from key customer industries such as wood products and electronics boosting volumes in all business areas. BASF said profits from inorganic specialties and electronic grade chemicals declined due to the weak dollar. Profits improved, however, in the glues and impregnating resins business.

BASF's intermediates business achieved "significantly higher" earnings as cost cuts at its Ludwigshafen, Germany, site and in North America far outweighed high raw material prices. However, intermediates did not share the sales growth enjoyed by inorganics and petrochemicals, recording only flat revenues of Euro462m. Alhough demand rose in Asia, BASF said it fell in Europe and the North America Free Trade Area (Nafta). Global sales of amines increased but diol and polyalcohol sales fell.

Higher capacity utilisation and cost savings enabled BASF's plastics business to increase EBIT before special items by 36% to Euro150m. EBIT after special items was up 37% at Euro149m. 

Sales growth, however, was stunted by the weak dollar. Plastics revenues were up only 1% to Euro2.31bn, with an 8.2% volume contribution almost totally wiped out by currency movements (-6.9%) and prices (-0.2%).

BASF said its performance polymers and polyurethanes (PU) divisions more than offset a decline in styrenics sales.

Restructuring helped the group's performance products business deliver a 38% rise to Euro196m in EBIT before special items. After exceptional items, profits were up 32% at Euro189m. BASF said the improvement owed much to consolidation and the optimisation of sites and product portfolios in its performance chemicals and functional polymers units.

Sales of performance products, however, rose only 1% to Euro1.93bn as volume gains were outweighed by negative currency factors and, to a lesser degree, lower prices. BASF said sales in North America and Asia of the division's performance chemicals for textiles, automobiles and the oil industry were particularly hard hit by currency effects. In Europe, however, higher sales and earnings were achieved for performance chemicals in coatings, plastics, specialties, detergents and formulators. Margins were eroded, though, in textile and leather chemicals. BASF said higher sales of automotive coatings and decorative paints offset adverse currency effects, and restructuring paid off in auto refinish coatings and industrial coatings. Restructuring and portfolio optimisation also contributed to an earnings increase in functional polymers, where higher volumes of dispersions for decorative paints and acrylic monomers helped boost sales.

The highest sales growth of all BASF's main operating divisions was in agricultural products and nutrition, where revenues rose 11% to Euro1.44bn. Operating profits before special items were up 13.5% to Euro269m; after exceptional items earnings rose 5.5% to Euro249m.

Agricultural products EBIT before special items rose almost 16% to Euro227m on sales up 18% to Euro983m on a strong end to the season in South America, improved business in Asia and acquisition of the fipronil business. Operating profits after special items were up nearly 8% to Euro207m. Volumes contributed 16% and portfolio changes 9% to sales growth. However, currency effects and prices cut growth by 5.8% and 1.2% respectively.

Negative currency effects had a bigger impact on the fine chemicals unit  of agricultural products and nutrition, where sales fell 1% to Euro458m. Operating profits before special items were up just 2.4% at Euro42m and after exceptionals fell 4.5% to Euro42m. BASF said the business enjoyed sales volume growth of 5.8% but this was eclipsed by prices (-0.2%) and currencies (-7.1%).

BASF's oil and gas division suffered even more from negative currency and price factors. EBIT before special items slumped 15% to Euro343m on sales down 6% at Euro1.39bn. Sales volumes were up 5.5% but the weak dollar and adverse price factors cut revenues by 11.5%.

At overall group level, BASF said all geographic regions reported an increase in operating profits before special items. Apart from the oil and gas segment, sales also rose in all geographic areas. Earnings were up particularly strongly in the Nafta, South America and Asia-Pacific/Africa regions. However, operating profits from BASF's activities in Germany were flat at Euro646m on flat sales of Euro3.89bn. Sales to BASF customers in Germany, however, were down 7% to Euro1.95n, underlining the struggle facing many German buyers of chemicals.

By: Neil Sinclair
+44 20 8652 3214

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