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BASF: Strong start to 2010

Published on 2010-05-04. Author : SpecialChem

  • Demand increases in all regions – Asia remains growth engine
  • 1st Quarter 2010: Sales + 26% (€15.5 billion) and EBIT before special items + 98% (€1.95 billion) above previous year
  • Restocking of inventories among customers accelerates recovery
  • Strong rise in earnings in industry business – Sustainable rise in earnings in Performance Products.
  • Outlook 2010 remains positive:
    • Significant increase in EBIT before special items
    • Premium on cost of capital expected
    • Negative impact from plant shutdowns in 2nd quarter
    • Slowing recovery due to basis effect over course of year

Ludwigshafen, Germany -- BASF's business continued to develop favorably in the first quarter of 2010. In conjunction with the recovery of the economy and some restocking of inventories by customers, demand has risen strongly in almost all divisions. At the same time, some chemical products were in short supply. Thanks to these improvements in the market environment, sales increased by 26% to €15.5 billion.

Income from operations before special items rose by 98% to €1.95 billion, primarily as a result of higher capacity utilization. Earnings improved significantly in almost all divisions. Measures to reduce costs and increase efficiency, as well as synergies from the Ciba integration, also contributed to improved earnings. Sales and earnings increased further compared with the fourth quarter of 2009.

"We have thus almost achieved the level of the very good quarters before the crisis. Especially our industry business, that is the Chemicals, Plastics, Performance Products and Functional Solutions segments, grew substantially thanks to renewed demand from almost all customer industries, particularly from the automotive, electric and electronic industries. Regionally, we saw high demand in Asia and South America. North America is also slowly recovering. Europe is bringing up the rear," said Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors of BASF SE at the presentation of figures for 2009 and the first-quarter 2010 during the Annual Meeting in Mannheim, Germany.

Sustainable increase in earnings in Performance Products

In the Chemicals segment, sales in all divisions increased considerably. This was not only due to significantly improved demand, but also to higher sales prices, for example for our cracker products in the Petrochemicals division. Earnings, too, were significantly higher than in the same quarter of 2009 thanks to significantly improved volumes, high capacity utilization and improved costs.

The business environment in the Plastics segment has been recovering steadily since the start of 2009. Sales were substantially higher in comparison with the first quarter of 2009, primarily as a result of increased volumes. Earnings also increased markedly thanks to higher demand. In the Performance Polymers division, increased raw materials prices, partially due to limited product availability, could largely be passed on to the markets.

In the Performance Products segment, demand also improved considerably in all divisions. The segment posted a clear increase in sales in the first quarter 2010, which will be the final time that the inclusion of the Ciba businesses that have now been integrated will have this effect. The main reasons for the significantly improved earnings were increased volumes and the successful realization of synergies from the Ciba integration.

Thanks to the renewed rise in demand from the automotive industry and higher prices for precious metals, sales in the Functional Solutions segment clearly exceeded the very weak level of the first quarter of 2009. In contrast, the business environment in the construction industry remained difficult. Despite the varying business trends in our customer industries, all divisions increased their earnings and made a positive contribution to the segment's earnings.

The Agricultural Solutions segment had a generally successful start to the season, with sales at the level of the excellent first quarter of 2009. In North and South America in particular, sales volumes increased. Negative currency effects had an unfavorable impact on earnings, which were slightly below the level of the first quarter of the previous year. There was strong demand for the herbicide Kixor™, which was recently launched on the U.S. market.

Sales in the Oil & Gas segment were lower than in the first quarter of 2009. This was mainly due to significantly lower natural gas prices, which could not be offset by increased sales volumes in gas trading. The negative time-lag effect was detrimental to margins in both business areas. Overall, earnings did not match those of the same quarter of the previous year.

Other experienced significant sales growth, primarily as a result of increasing volumes in the styrenics and fertilizer businesses. Earnings improved in the Styrenics division. Overall, expenses for the BASF option program resulting from positive share price developments led to a reduction in earnings, which were lower than in the first quarter of 2009.

Special items of minus €114 million (first quarter of 2009: minus €57 million) primarily resulted from the integration of Ciba.

At €1.84 billion, EBIT increased by 98% compared with the first quarter of the previous year. EBITDA grew by €1.04 billion to €2.63 billion. The EBITDA margin rose to 17% (first quarter 2009: 13%).

The financial result was minus €80 million, an improvement of €122 million compared with the same quarter of the previous year. The earnings of OAO Severneftegazprom, which is consolidated using the equity method, improved primarily as a result of currency gains.

Income before taxes and minority interests was up €1.03 billion in the first quarter to €1.76 billion. At 34.7%, the tax rate was lower than in the first quarter of 2009. This was due to the lower contribution of the highly taxed Oil & Gas segment to earnings. Net income increased by €654 million to €1.03 billion.

Earnings per share were €1.12 in the first quarter compared with €0.41 in the same period of 2009. Adjusted for special items and amortization of intangible assets, this amounted to €1.32 (first quarter of 2009: €0.55).

Double-digit growth in all regions

Sales in Europe were 12% higher than in the same period of the previous year. EBIT before special items rose by €452 million to €1.25 billion. Against the backdrop of the economic recovery, product demand rose compared with the first quarter of 2009, also due to restocking by customers. This was reflected, in particular, by substantial sales and earnings growth in the Chemicals, Plastics, Performance Products and Functional Solutions segments. Oil & Gas recorded a decrease in sales and earnings due to the sharp decline in natural gas prices. Synergies resulting from the Ciba integration made a positive contribution to the region's earnings.

Sales in North America grew by 55% in U.S. dollars and 47% in euro terms. Earnings rose by €259 million to €329 million. For Chemicals, Plastics, Performance Products and Functional Solutions, sales and earnings improved considerably as a result of increasing demand, which led to noticeably higher capacity utilization at our plants. Margins were also higher in some areas, in particular in the Petrochemicals division. In the Agricultural Solutions segment, we had a successful start to the new growing season: Following a strong first quarter of 2009, we were able to increase sales volumes once again.

Sales in the Asia Pacific region rose by 77% in local currency terms, and by 73% in euro. At €310 million, earnings grew by €258 million. Demand for our products continued to increase in the region. Nearly all business sectors were able to increase sales and earnings significantly year-on-year. The Chemicals and Plastics segments, in particular, posted substantial rises in earnings; in the Petrochemicals division, this was primarily a result of higher prices for cracker products. In the Polyurethanes division, rising volumes was one reason for the strong increase in earnings.

Sales in South America, Africa, Middle East were up year-on-year by 26% in local currency terms and by 33% in euro. In the Agricultural Solutions segment, sales in South America grew, due in part to weather-related, high disease pressure. However, as a result of negative currency effects, higher sales level did not lead to increased earnings; At €64 million, earnings were at the level of the previous year. Thanks to good business with architectural coatings, the Coatings division achieved higher earnings.

Outlook full year 2010: Premium on cost of capital expected

BASF's Chairman overall sees the further development of 2010 positively. However, he points out that "the recovery remains shaky." Risks result mainly from the continuing financial and debt crisis, which is intensifying in some areas, the winding down of national stimulus programs, volatile raw materials markets, excess capacities, growing geopolitical tensions, and protectionism.

Despite the global economic upturn in the first quarter of 2010, Hambrecht expects the economic recovery over the course of the year to become slower and increasingly uneven. "This is primarily due to the basis effect through the comparison with the previous year," he explained.

At BASF, scheduled plant shutdowns for maintenance will have a negative impact on sales and earnings in the second quarter of 2010. For example, in the second quarter the entire Nanjing site will be shut down for a general overhaul and expansion.

In April 2010, the structural integration of the businesses acquired from Ciba was completed as planned. The costs for the Ciba integration will thus decrease sharply over the current year. By the end of 2010, the combined businesses are expected to generate synergies of €350 million, which should increase to over €450 million a year by the end of 2012.

"We expect our sales to grow again in 2010 and outpace global chemical production. We anticipate that the income from operations before special items will improve considerably and that we will again earn a premium on our cost of capital," said Hambrecht.

About BASF

BASF is the world's leading chemical company: The Chemical Company. Its portfolio ranges from chemicals, plastics and performance products to agricultural products, fine chemicals as well as oil and gas. As a reliable partner BASF creates chemistry to help its customers in virtually all industries to be more successful. With its high-value products and intelligent solutions, BASF plays an important role in finding answers to global challenges such as climate protection, energy efficiency, nutrition and mobility. BASF posted sales of more than €50 billion in 2009 and had approximately 105,000 employees as of the end of the year. BASF shares are traded on the stock exchanges in Frankfurt (BAS), London (BFA) and Zurich (AN).

Source: BASF


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