UpdateBASF first-quarter results receive positive market reaction

30 April 2009 12:54  [Source: ICIS news]

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LONDON (ICIS news)--Financial analysts have called BASF’s consensus-beating first-quarter financial results strong, and the company's stock had risen 8.6% to €28.90 ($38.53) by 12:30 Germany time on Thursday.

Financial markets reacted positively to the apparent robustness of the chemical giant’s first-quarter earnings, which saw BASF reporting a 68% year-on-year drop in net profits to €375m and sales that were down 23% to €12.2bn.

“BASF has clearly succeeded in its goal to become less cyclical, with strong beats [of profits forecasts] from agriculture and gas," said analysts with Credit Suisse. "Consensus numbers will clearly have to come up,” they added. 

Adjusted earnings before interest and tax (EBIT) were down 58% but, at €985m, were well above the bank’s forecast of €591m and the consensus forecast of €780m.

The pre-exceptional EBIT was 8% above its forecast, Citigroup said in a note to clients, due to a slightly better performance across the group.

BASF said its first quarter profits decline was due to “persistently weak demand”.

And citing “enormous challenges” the company would face this year, the company said it was looking at cutting its workforce by at least 2,000 by end-2009 and could consider more plant closures to cope with the difficult business environment.

BASF expected full-year sales and profit from operations to contract from 2008.

“Our goal of earning our cost of capital is thus becoming increasingly difficult to achieve,” said CEO Jurgen Hambrecht.

“There is currently no sign of a reversal of this trend and we do not consider temporary topping up of inventories in some regions and industries to be signs of a sustainable upturn,” he said.

“BASF will maintain strict cost and spending discipline and will continue to reduce current assets rigorously,” said Hambrecht.

Further restructuring may include closure or sale of plants and sites that could not ensure long-term competitiveness, he added.

BASF had faced the deepest recession in its recent history in the first quarter, BASF CFO Kurt Bock said during a conference call with investors.

The company had worked to preserve cash during the quarter and paid down debt, he said.

The global operating rate during the quarter was below 60%, Bock said, and the working capital reduction was €1bn, largely because of the production cutbacks.

Bock said group operating cash flow for the quarter almost doubled to €2.1bn, while net debt was at €10.2bn

The outlook for the next couple of quarters “remained extremely challenging,” Bock said. “We cannot detect any signs of improvement at the moment.”

BASF had seen sales volumes in the first quarter decline 4% compared with the fourth quarter of 2008, and prices dropped by 10% on the same basis.

Bock said that BASF did not expect improved demand for its chemicals businesses for at least the next couple of months.

Referring to the group’s plastics businesses, Bock said: “We expect weak market conditions to persist for the foreseeable future.”

BASF makes polyamide and polyurethanes, which are widely used in the automotive industry and other currently depressed industrial sectors.

Pearl Bantillo and Bohan Loh contributed to this article

($1 = €0.75)

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By: Nigel Davis
+44 20 8652 3214

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