Business News

New record year 2007 gives BASF confidence for 2008

Friday 22. February 2008 - Record sales (plus 10 percent) and EBIT before special items (plus 5 percent) in 2007 Further high premium on cost of capital of €2.9 billion Outlook 2008: Higher sales and slightly higher EBIT before special items

For BASF, 2007 was another record year. Thanks to organic growth and the very positive development of the acquired businesses, BASF posted sales of almost €58 billion and income from operations (EBIT) before special items of more than €7.6 billion in 2007. “This is a great achievement,” said Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors of BASF SE, today at the company’s Annual Press Conference in Ludwigshafen. “Our employees can be particularly proud of this great achievement because the economic challenges have increased in recent months.” Hambrecht nevertheless remains confident with regard to the development of BASF’s business in 2008.

In 2007, BASF earned its highest ever premium of €2.9 billion on its cost of capital and again grew profitably and faster than the market. Sales rose by more than 10 percent. The operational integration of the acquired businesses is now complete and the activities contributed approximately €3.6 billion to sales in 2007. Overall, EBIT before special items grew by approximately 5 percent.

At €5.8 billion, cash provided by operating activities reached the previous year’s very high level. “This solid operating cash flow and our healthy balance sheet are two of BASF’s key strengths,” said Dr. Kurt Bock, BASF’s Chief Financial Officer.

In the fourth quarter of 2007, BASF slightly increased sales by almost 2 percent. EBIT declined by just over 3 percent, primarily due to low capacity utilization rates as a result of turnarounds of key plants that lasted longer than scheduled. Volume demand and the level of orders remained strong in the fourth quarter of 2007.

BASF is confident for 2008 and sets itself ambitious goals

“The first weeks of 2008 have run on smoothly from the past year for BASF. The level of orders remains strong and the capacity utilization rates of our plants are high. We therefore expect that BASF’s business will also develop positively in 2008,” said Hambrecht.

BASF is basing its business planning on the following assumptions:
A moderate slowdown in global economic growth and global chemical production (excluding pharmaceuticals) to 2.8 percent
Declining interest rates in the United States in the course of 2008 with moderate knock-on effects in Europe
An average euro/dollar exchange rate of $1.45 per euro
An average oil price of $78 per barrel for Brent crude in 2008

The company sees possible risks posed by:
continuing uncertainty due to the global credit crisis
unfavorable developments in customer industries, in particular in the construction and automotive industries;
an increasing imbalance in exchange rates;
economic risks due to the continuing high prices of raw materials, in particular oil; and
an aggravation of geopolitical tensions.

BASF will therefore continue to rigorously implement its measures to optimize its portfolio, increase efficiency and reduce costs. In 2008, it remains the declared goal to improve the productivity of the BASF Group in order to ensure the competitiveness of the company in the long term.

“Assuming that there are no changes to our portfolio, we aim to increase sales and improve income before special items slightly in 2008. We aim to grow faster than the chemical market each year, and we are convinced that BASF will earn at least its cost of capital in any given year,” said Hambrecht.

Chemicals segment: Double-digit sales and earnings growth

With sales totaling more than €14 billion, the Chemicals segment achieved double-digit sales growth in 2007. This was due primarily to the new Catalysts division, which contributed a first full year of sales for the first time. EBIT before special items increased by more than 18 percent to €2 billion.

Higher volumes and price increases improved sales and EBIT before special items in the Plastics segment. Sales rose by approximately 6 percent to €13.5 billion, while earnings increased by 9 percent to €1.3 billion.

In the Performance Products segment, sales climbed by more than 15 percent to €11.7 billion. This was due in particular to the acquired businesses. The rise in earnings in the Construction Chemicals and Performance Chemicals divisions more than compensated for the decline in the Coatings and Functional Polymers divisions.

In the Agricultural Products & Nutrition segment, the Agricultural Products division posted higher sales and the Fine Chemicals division almost matched the previous year’s sales level despite divestitures. Higher sales prices in the Agricultural Products division and successful restructuring measures in the Fine Chemicals division resulted in significantly higher earnings in both divisions.

Sales and earnings declined in the Oil & Gas segment. Sales from Exploration and Production declined, but rose in Natural Gas Trading thanks to higher volumes. By contrast, earnings in the natural gas trading business were significantly lower than in the previous year because of the lag in adjusting sales prices to reflect purchasing prices that are based on the price of oil.

Further sales growth in all regions

In Europe, sales by location of company rose by 9 percent. The sales growth was driven by the Catalysts and Construction Chemicals divisions as well as higher sales volumes and prices in the Intermediates and Inorganics divisions. Compared with 2006, income from operations declined slightly by 1.3 percent as a result of the Oil & Gas segment.

Sales in North America rose 13 percent in local currency terms and by 5 percent in euro terms. The Chemicals and Performance Products segments posted significantly higher sales. This was due in particular to the contribution of the activities acquired in 2006. Sales declined in the Plastics segment and in the Agricultural Products division, also as a result of currency effects. Income from operations amounted to €762 million and was 12 percent lower than in 2006. This decline in earnings was due to one-time effects such as the scheduled plant turnarounds in the Petrochemicals division and the shutdown of the TDI plant in Geismar, Louisiana, for a number of weeks, as well as weaker demand from the automotive and construction industries and higher special items.

BASF remains very dynamic growth in Asia Pacific: Sales rose by more than 25 percent in local currency terms and by 18 percent in euro terms. The greatest contribution was made by the Chemicals segment, in particular due to the new Catalysts division. New plant startups in the Plastics and Performance Products segments benefited from the above-average growth in the Asian markets. Income from operations amounted to €828 million and was thus more than four times higher than in the previous year. This was due to strong earnings growth in the Chemicals and Plastics segments as well as significantly lower special items.

In the region South America, Africa, Middle East, sales increased by 28 percent in local currency terms and by 24 percent in euro terms. Income from operations rose by 45 percent to €311 million. This was due in particular to higher volumes and prices for agricultural products in South America, especially in Brazil. In a positive market environment with persistently high prices for soybeans and strong demand for sugar cane, export-oriented customers invested more strongly in high-value crop protection products. Sales of architectural coatings and to the automotive industry also increased. The successful integration of the catalysts business in South Africa also contributed to the rise in earnings.