Industry News

BASF Raises Outlook for 2005

Published on 2005-08-03. Author : SpecialChem


  • Significant increase in sales to EUR 10.6 billion (plus 14 percent)
  • EBIT before special items of EUR 1.7 billion (plus 31 percent)
  • Successful start of Verbund site in Nanjing, China
  • Earnings jump in North America
  • Outlook for 2005: sales and earnings above strong 2004 level

BASF remained on its path to success in the second quarter of 2005 and again posted very strong earnings. Sales rose 14 percent to EUR 10.6 billion compared with the second quarter of 2004; income from operations (EBIT) before special items climbed 31 percent to EUR 1.7 billion. Cumulative sales in the first half of 2005 amounted to EUR 20.7 billion, or almost 13 percent more than in the same period of the previous year. In the first half, BASF increased EBIT before special items by 32 percent to EUR 3.2 billion compared with 2004.

Sales growth was primarily due to urgently needed price increases. Although raw material costs were volatile and rose continuously, BASF succeeded in gradually raising its margins to the necessary level. The good volume growth of 3 percent in the second quarter and 2 percent in the first half builds on the already strong level posted in 2004 and fits with the company's "value over volume" concept.

During his presentation of the quarterly results on August 3, 2005, BASF Chairman Dr. Jurgen Hambrecht thanked all employees for their outstanding performance in a difficult economic environment: "Prices for raw materials, and for crude oil in particular, have reached unprecedented levels. Economic growth remains weak in many parts of Europe. The geopolitical situation remains tense."

Outlook for full year 2005: Stronger performance than in 2004

Hambrecht expects the chemical industry to continue on a growth path in the second half of the year. At approximately 3 percent, however, he anticipates production growth for the full year to be slower than in the record year 2004, which represents a very high baseline for further growth. The strongest impulses for growth are again likely to continue to come from North America and Asia.

"The coming months therefore offer both opportunities and risks. Our aim is to capitalize on the opportunities and to assess the risks correctly. We want to complete our major capital expenditure projects on schedule and to continue with our successful measures for restructuring and achieving additional cost savings. At the same time, we are working hard to further expand our market position as The Chemical Company," said Hambrecht.

Overall, Hambrecht is confident when looking to the future, and the company has raised its outlook for the full year 2005: "We are expecting significantly higher sales and an increase in EBIT before special items compared with our already strong performance in 2004."

This forecast assumes that economic growth is not impacted by unexpected events such as terror attacks, dramatic increases in raw material prices or currency fluctuations.

Sales and earnings performance

Chief Financial Officer Dr. Kurt Bock pointed out that both EBIT and earnings after tax in the first half of 2005 were higher than the full year figures in 2003 and 2002. "This is an indication of BASF's current earning power," he said.

"We increased sales prices in our chemical businesses in the second quarter of 2005. In addition, the higher oil price had a positive impact on sales. Compared with the high level posted in the second quarter of 2004, most of our operating divisions also increased sales volumes slightly," said Bock.

After special charges of EUR 70 million, EBIT was EUR 1.6 billion in the second quarter. The charges were primarily related to restructuring measures.

Net income increased to a lesser extent than pre-tax earnings. This was due to the level of noncompensable oil production taxes, which are tied to the oil price. These taxes more than doubled in the second quarter, increasing to EUR 267 million. Net of this effect, the tax rate was at the same level as in the second quarter of 2004 at approximately 34 percent.

Earnings per share increased 14 percent to EUR 1.48. The decline in the number of shares outstanding as a result of share buybacks had a positive effect.

Successful projects in all regions

BASF is continuing with its restructuring measures and is optimizing its portfolio in all regions.

Second-quarter sales by location of company in Europe totaled EUR 6.2 billion. This corresponds to an increase of 11 percent. EBIT before special items rose 28 percent in Europe.

There was very positive news from the Ludwigshafen site in the second quarter. After three years, the Site Project has been successfully completed, thus significantly improving the site's competitiveness. At the same time, costs in Ludwigshafen were permanently reduced by EUR 480 million per year.

In North America, sales rose by more than 17 percent. In local currency terms, sales increased by 23 percent. This was due equally to higher prices and higher volumes. The increase in EBIT before special items by 65 percent to EUR 351 million is evidence of the success of the company's measures to restructure its business in North America. BASF has already achieved its targeted savings of $250 million, one year ahead of schedule.

In the South America, Africa, Middle East region, sales by location of company declined by 4 percent. This was due to unfavorable conditions in the agro business as a result of extremely dry weather in parts of South America. EBIT before special items fell by 73 percent.

The Asia Pacific region continues to demonstrate rapid growth. BASF increased sales by location of company by 24 percent and EBIT before special items by 34 percent.

"China continues to be the most powerful engine for growth in the region. We want to increase the performance of this engine even further through major investments in China, in particular the startup of our Verbund site with our partner Sinopec in Nanjing," said Hambrecht. In Nanjing, the two partners have invested $2.9 billion in their joint venture BASF-YPC. With its steam cracker and nine downstream plants, the new site has an annual capacity of 1.7 million metric tons of high-quality chemicals.

BASF also announced that it had recently put the world's largest PolyTHF® complex into full production at the integrated site in Caojing near Shanghai. PolyTHF® is an important component in the production of spandex fibers for the textile industry.
The new plants are an important step in achieving the company's strategic goals in Asia: By 2010, BASF aims to generate 20 percent of sales and earnings in its chemical activities in Asia Pacific.

BASF is the world's leading chemical company: The Chemical Company. Its portfolio ranges from chemicals, plastics, performance products, agricultural products and fine chemicals to crude oil and natural gas. As a reliable partner to virtually all industries, BASF's intelligent solutions and high-value products help its customers to be more successful. BASF develops new technologies and uses them to open up additional market opportunities. It combines economic success with environmental protection and social responsibility, thus contributing to a better future. In 2004, BASF had approximately 82,000 employees and posted sales of more than EUR 37 billion. BASF shares are traded on the stock exchanges in Frankfurt (BAS), London (BFA), New York (BF), Paris (BA) and Zurich (AN).

Forward-looking statements

This release contains forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance or achievements of BASF to be materially different from those that may be expressed or implied by such statements. Such factors include those discussed in BASF's Form 20-F filed with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking statements contained in this release.

Source: BASF

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