Commentary: Tepid Q2 for Europe

25 July 2014 09:55 Source:ICIS Chemical Business

Adverse currency effects and the slow recovery produced unspectacular results

Lacklustre second-quarter (Q2) financial results from major European chemical companies BASF and AkzoNobel show how fragile the operating environment remains for businesses based in the region.

Both companies were hit hard by the strength of the euro, which reduced earnings from sales in many other currencies. The slow economic recovery in Europe and globally also hit pricing.

 

BASF failed to meet analysts’ expectations
Photo: © BASF

 

BASF’s chemicals division performed well in Q2 but the company as a whole was let down by its Agricultural Solutions division as well as “Other”, which is where contributions from the Styrolution joint venture are reported. An explosion at BASF and Shell’s joint venture styrene monomer (SM)/propylene oxide (PO) plant at Moerdijk in the Netherlands, in June, reduced output from the facility.

For the company as a whole, sales increased by 1% to €18.5bn while earnings before interest and tax (EBIT) before special items rose 12% to €2.1bn, 4% below consensus analysts’ expectations.

In chemicals, sales volumes rose in all divisions with especially strong growth in North America petrochemicals, where the company started up a new furnace at Port Arthur in Texas to boost ethylene production from ethane. The strong euro hit overall earnings by around €200m compared to the previous year.

Sales in Europe edged up by 1%, with higher volumes in Chemicals, Functional Materials & Solutions, and Oil & Gas compensating for lower prices and negative currency effects.

Currency effects also impacted Dutch coatings and specialty chemicals group AkzoNobel, where revenues declined 4% to €3.7bn with the strong euro having a 5% impact on the result. Operating income rose 10% to €353m, beating analysts’ expectations by 7%. Volumes increased modestly in all divisions but sales fell across the board. Analysts J.P. Morgan said a -1% hit on pricing was “somewhat disappointing”. AkzoNobel CEO Ton Buchner described “volatile” market conditions but insisted the company is on track to deliver 2015 financial targets.

Do you agree?
Email joseph.chang@icis.com or go to the commentary blog at www.icis.com/blogs/editorscommentary

 

By Will Beacham