UpdateBASF 'fighting fit' after solid Q2 - CEO

31 July 2008 12:56  [Source: ICIS news]

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BASF CEO Jurgen HambrechtLONDON (ICIS news)--BASF reiterated its forecast of a slight increase in operating profits for the full year as it revealed margin and volume pressure in its key chemicals and plastics businesses, the chemicals major said on Thursday.

“BASF is fighting fit and in top shape,” said CEO Jurgen Hambrecht in a conference call.

The BASF share price was little changed as the market absorbed what some analysts called very strong second-quarter headline and earnings per share (EPS) numbers but weakened performance form the chemicals and plastics divisions.

BASF’s second-quarter net profit was up 27% at €1.30bn ($2.03bn) from €1.02bn and its EPS 34% ahead at €1.39, the return augmented by the chemical giant’s share buy-back programme.

Operating profits (EBIT – earnings before interest and tax) before exceptional items were up 19% at €2.41bn from €2.03bn on 11% higher sales at €16.31bn.

Demand remained strong with the seasonal lull not so pronounced but the operating environment was becoming more challenging, the CEO said.

“Sales prices have to be increased significantly,” he said.

BASF faced an additional €1bn raw material cost burden in the first half and was working to push that burden down in the second half, said chief financial officer Kurt Boch.

BASF expected global chemicals demand growth of 2.4% this year and global economic growth of 2.8%. It is planning against an average oil price of $120/bbl.

Analysts at Citigroup noted BASF’s strong headline numbers, but called the aggregate numbers for the group’s chemicals division “disappointing”.

The bank said that EBIT growth in the first half suggested that the group’s second-half outlook was “cautious”.

In the second quarter BASF’s agriculture EBIT rose 50.6% to €363m as agrochemicals demand increased and prices moved higher. Oil and gas segment EBIT was up 44.1% at €1.03bn.

BASF’s chemicals profits were hit by much weaker cracker margins and slumped 34% to €378m while plastics profits were down 14.2% at €291m on weaker US business.

Profits for the functional solutions segment, which includes the only recently acquired catalysts and construction chemicals businesses, alongside coatings, fell 30.3% to €108m, while the catalysts and construction chemicals businesses were hit by declining demand construction and automotive industry demand in North America, BASF said.

Performance products, however, posted a 38.3% increase in operating profit to €49m in the quarter as vitamins prices increased.

BASF said it had seen some downturn in real estate-related construction demand in Europe but that demand for its products in the continent's automotive sector was growing.

The clampdown on the transport of dangerous goods during the Beijing Olympics may have a slight impact on chemicals demand growth rates but overall demand growth in China remains strong, Hambrecht said.

BASF’s shares were down 1.33% at €40.77 in Berlin trading.

($1 = €0.64)

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By: Nigel Davis
+44 20 8652 3214

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