Analysis: Price rises help BASF to glowing Q3 performance

11 November 2004 13:10  [Source: ICIS news]

LONDON (CNI)--Success in raising product prices was a major factor behind BASF's massive rise in third quarter profits, the German energy and chemicals group said on Thursday.

 

As reported earlier, third quarter pre-tax profits more than tripled to Euro865m ($1.09bn) from Euro266m in 2003. Sales rose 20% to Euro9.3bn and operating profit (earnings before interest and taxes or EBIT) before special items more than doubled to Euro1.05bn, due to higher volumes and reduced fixed costs. EBIT leapt from Euro374m to Euro958m and net income nearly tripled to Euro337m.

 

On a nine-month basis, pre-tax profits jumped by 67% to Euro3.00bn. EBIT before special items was up 55% to Euro3.39bn and EBIT rose 52% to Euro3.18bn. Net income almost doubled to Euro1.49bn on sales 11% ahead at Euro27.68bn.

 

The first-half recovery continued into the third quarter without any sign of the usual summer lull in business, said the company, while strong demand has raised plant utilisation levels.

 

Moreover, said BASF, the soaring oil price has helped commodity prices. The quarter's record sales figure of Euro9.3bn was due not just to higher volumes, it said, but also to price increases for many of its products - the first such increases for some time, it added.

 

Jurgen Hambrecht

BASF chairman Jurgen Hambrecht said he was particularly pleased by the across-the-board improvement in BASF's chemicals activities. Third quarter sales of chemicals soared 32% to Euro1.81bn, delivering EBIT up threefold to Euro302m. EBIT before special items soared from Euro101m to Euro331m.

 

Within the chemicals business, inorganics sales rose 18% to Euro214m on higher volumes, with a notable upturn in important downstream industries like electronics and wood products.

 

Petrochemicals showed the biggest boost, as higher prices backed up increased volumes in all product lines to lift sales by 44% to Euro1.10bn. Cracker products showed particularly high growth, although much of that was due to the low baseline of the year-ago quarter.

 

Intermediates sales were up 18% to Euro500m, with improvements in all regions, especially Asia.  The polyalcohols business showed strong growth in North America while demand for amines increased in Europe. Earnings from intermediates were up because of higher prices and 'rigorous' cost-cutting measures, the company said.

 

Margins improved dramatically in the plastics business, with EBIT more than doubling to Euro147m from last year's third quarter figure of Euro64m. EBIT before special items also more than doubled, from Euro67m to Euro158m. Sales surged 32% to Euro2.83bn.

 

The best performance came from styrenics, where significant price increases boosted sales for the quarter by 50% to Euro1.28bn. However, the operation's margin was hit by the very high benzene price, said BASF.

 

Polyurethanes (PU) revenues benefited from higher volumes in all regions, particularly in the isocyanates sector. Earnings were up as cost reduction measures backed up sales growth of 23% to Euro907m for the quarter.

 

Performance polymers lifted sales by 18% to Euro644m, but margins remained under pressure despite increases in the selling price of fibre intermediates and extrusion grades. However, the business's earnings improved due to lower fixed costs and higher capacity utilisation, said BASF.

 

BASF's agricultural products and nutrition business continued to struggle, although its operating loss of Euro66m for the quarter was significantly lower than the Euro144m deficit in the 2003 third quarter. Losses before special items were down 63% to Euro36m. BASF said the improvement resulted from measures to cut costs and optimise its portfolio, and said the loss was due to seasonal factors. However, at Euro1.03bn, the business's sales were 2% below the year-before level, mostly due to weakening prices in its fine chemicals operations where sales fell 5% to Euro444m. As a result the fine chemicals business slipped into the red, reporting a Euro4m operating loss compared with a Euro24m operating profit in Q3 last year.

 

Agricultural products turnover was almost unchanged at Euro591m. An 11% increase in volume was more than wiped out by the dollar's weakness combined with slightly lower prices, according to BASF. Nevertheless, the agricultural products business managed to halve its operating loss to Euro62m for the quarter. Losses before special items were cut by 63% to Euro44m.

 

Sales volumes of performance products rose in all regions, delivering a 7% increase in total division revenues to Euro2.07bn. This resulted in a  41% increase in EBIT to Euro190m while EBIT before special items rose 33% to Euro192m.

 

Performance chemicals sales were up 5% to Euro830m, functional polymers grew 12% to Euro722m while coatings sales edged up 3% to Euro516m. Bright spots were in automotive refinish coatings, monomers and dispersions for decorative paints, and performance chemicals for detergents and formulators. Earnings improved due to higher capacity utilisation and reduced costs.

 

Higher oil prices and increased volumes in gas production and trading were reflected in a 69% rise to Euro458m in third quarter EBIT from the oil and gas division. Sales rose 25% to Euro1.16bn.

 

On a regional basis (by location of company), the BASF group recorded earnings improvements in all main areas, with very strong growth in Europe, North America (Nafta) and Asia-Pacific. European profits surged from Euro288m to Euro776m on sales up 18% at Euro5.36bn. North America (Nafta) delivered a profit of Euro78m against a loss in Q3 last year of Euro22m. Sales were up 23% to Euro2.04bn. South American EBIT before special items was up 12% to Euro86m on sales 15% ahead at Euro528m. Asia-Pacific and Africa produced profits of Euro114m - almost double the Euro60m earned in Q3 last year. Sales rose 26% to Euro1.39bn.

 

The fall in the dollar rate had a negative effect on the group as a whole, cutting net sales growth for the quarter from 25% to 20%, BASF said. It also recorded special charges of Euro96m in the quarter related to cost-cutting moves in the chemicals and agricultural businesses.

 

For the full year, Hambrecht said he "confidently expected" a significant increase in both sales and earnings before interest and taxes (EBIT) before special items.

 

Hambrecht noted the improved climate did not mean BASF intended to ease off on its cost-cutting programme, since tough global competition was forcing the company to keep improving productivity especially where growth was weak. '"We cannot afford to take a break from our restructuring efforts," he said. The result, he added, would be that BASF would "earn a premium on our cost of capital".

By: Peter Mitchell
+44 20 8652 3214

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