BASF issues profits warning, introduces short-time working

19 January 2009 13:32  [Source: ICIS news]

By Nigel Davis

BASFLONDON (ICIS news)--BASF issued a profits warning on Monday saying that the decline in business was greater than expected in November and would negatively affect earnings.

The world’s largest chemicals group said it would introduce short-time working for 1,680 employees at German facilities manufacturing products for the automotive industry.

Such arrangements could be implemented rapidly elsewhere in Europe, it suggested, warning that job losses could be necessary in other regions.

BASF said in November in a first warning on 2008 profits that it did not expect full year operating profits before special items (EBIT – earnings before interest and tax -  before special items) to reach the 2007 level of €7.6bn ($10.1bn) against the backdrop of the sharp chemicals downturn.

December was not as good as expected in November, a company spokesman said.

The €58bn-turnover chemicals giant generated an operating profit of €6.3bn in the first nine months of the year, driven to a great extent by the high and rising oil price through much of the period.

“The situation remains tough and difficult to predict, CEO Jurgen Hambrecht said. “We do not expect the economic environment to improve in the coming months.”

Average capacity utilisation now is less that 75%, BASF said on Monday. Only demand for crop protection products and chemicals for the good industry remains high, it added.

It cut capacity utilisation at it six major global production sites in mid-November and said capacity utilisation was down between 20% and 25%.

In November 80 of its plants were idled and 100 operating at reduced rates. The downturn currently affects a similar number of units with 50 idled and 130 running at reduced capacity.

The new working arrangements would affect workers in Munster, Germany, but could be extended to employees at its main manufacturing site in Ludwigshafen and to its plants in Antwerp, Belgium, BASF said. Short-time working can be avoided at the Ludwigshafen and Antwerp sites currently because of flexible manpower planning, it said.

The company has used flexible working time arrangements, such as reduced overtime and holidays, to cope with the downturn but said these were no longer sufficient to absorb the affects of production cuts everywhere.

Agreements were already in place to allow the rapid introduction of short-time working in Ludwigshafen Germany if necessary, the company said.

In Germany employees can work fewer hours or not at all for a maximum period of 18 months so as to avoid redundancy. Plant closures in North America and Asia affecting 200 jobs have already been announced but more job losses could follow, the company warned.

Financial analysts at investment bank Cazenove said they were assuming a near 30% sales decline for BASF in its core Chemicals and Plastics businesses and a sharp margin decline.

BASF's shares dropped sharply on the news and were down 4.97% at €22.60 at 12:58GMT on Monday.

($1 = €0.75)

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By: Nigel Davis
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