Business News
BASF achieves leap in earnings
Thursday 29. July 2010 - 2nd quarter 2010: sales up 30% and EBIT before special items up 94% year-on-year; 1st half 2010: sales up 28% and EBIT before special items up 96% year-on-year; Portfolio optimiza; tion is paying off; Growth impulses from all regions - chemicals business at record level
Outlook for 2010:
– Economic recovery to continue at moderate pace in 2nd half
– EBIT before special items to improve considerably
– Premium on cost of capital will be earned
– Higher dividend for 2010 expected
In a further improving business environment, BASF has achieved a leap in earnings. The recent portfolio measures are paying off and the earnings strength of the chemicals business has improved sustainably. And BASF is continuing to actively shape its business further and is laying the foundation for future growth.
At a conference call to present BASFs figures for the first half and second quarter of 2010, Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors stated: “Our strategy is clear: We are focusing on businesses that are closer to customers and on growth markets. The capital markets acknowledge our achievements: BASF share prices rose 7.8% in the first half of 2010, outperforming the DAX 30, DJ EURO STOXX 50 and all chemical industry indices.”
Following the upturn in business performance in the first three months of 2010, BASF continued to gain momentum in the second quarter. Sales rose 30% compared with the previous year to 16.2 billion. Second-quarter income from operations (EBIT) before special items rose 94% to 2.2 billion.
Sales in the first six months increased 28% to 31.7 billion and EBIT before special items rose 96% to 4.2 billion. Both sales and EBIT before special items were also above the good level of the first quarter of 2010. These developments were especially due to very high demand in the chemicals businesses, that is, in the Chemicals, Plastics, Functional Solutions und Performance Products segments. This was augmented by inventory restocking along the value chain.
Outlook for the full year 2010
The full-year estimates are based on the following expectations for the global economy:
Growth of gross domestic product: 3 – 4%
Growth in industrial production: 7 – 8%
Growth in chemical production (excluding pharma): 7 – 8%
An average dollar-euro exchange rate of $1.30 per euro
An average annual oil price of $75 per barrel
Hambrecht said: “We expect our sales to grow in 2010 and outpace global chemical production. We anticipate that EBIT before special items will improve considerably and we will again earn a premium on our cost of capital. According to our dividend policy, we expect a higher dividend for 2010.”
BASFs Chairman expects that economic recovery will continue at a moderate pace in the second half of 2010. The necessary consolidation of government budgets around the world will dampen demand, as will the winding down of national stimulus programs. Other risks are primarily associated with volatile raw materials markets, excess capacities, growing geopolitical tensions and protectionism.
All segments help to boost earnings
Thanks to high demand, second-quarter sales in the Chemicals segment grew by 64% compared with the second quarter of 2009, which was weak due to the economic crisis. EBIT before special items was 429 million higher than the previous years figure (plus 166%). Despite the negative impact of the scheduled maintenance shutdown of the Nanjing Verbund site, earnings were up on first-quarter 2010 figures.
Sales in the Plastics segment were 48% higher in the second quarter compared with the weak level of the previous year. In addition to the good capacity utilization, the positive effects of restructuring measures are also reflected in the EBIT before special items. It increased by more than 211 million (plus 153%). Despite a number of scheduled maintenance shutdowns and short supply of polyamide 6,6, the earnings level of the first quarter were surpassed.
The Performance Products segment was able to significantly increase second-quarter sales by 29% year-on-year thanks to higher volumes and prices. There were delivery bottlenecks in some product lines due to the limited availability of important intermediates. EBIT before special items rose by 391 million (plus 489%). The strong earnings growth is attributable to the realization of synergies from the Ciba integration, the implementation of our business models and the favorable business environment. All divisions made a clearly positive contribution to EBIT before special items.
Sales in the Functional Solutions segment rose sharply in all regions in the second quarter, mainly due to stronger demand from the automotive industry, and increased 40% compared with the second quarter of 2009. EBIT before special items was up 117 million compared with the previous year (plus 244%). In addition to a more favorable business environment, successful restructuring measures contributed to this development.
Second-quarter 2010 sales in Agricultural Solutions were up 3% year-on-year. This was a result of favorable exchange rates and stronger volume sales in South America and Asia. EBIT before special items was 47 million below the previous years record high (minus 13%). This was due to lower prices and targeted increases in selling expenses and expenditures for research and development.
Sales in the Oil & Gas segment were 3% below the level for the second quarter of 2009. EBIT before special items rose by 9 million in the second quarter (plus 2%) due to volume increases in natural gas trading. Sales in Exploration & Production declined mainly because of OPEC production restrictions in Libya.
The segment Other posted significant sales growth of 32% in the second quarter of 2010. This was largely due to higher prices in the Styrenics business. Earnings improved in the Styrenics business. Provisions for the BASF Option Program reduced earnings because BASF shares significantly outperformed the benchmark index MSCI World Chemicals in the second quarter.
Sales and earnings increased in all regions
Sales by companies in Europe were 16% higher than in the same period of the previous year. EBIT before special items rose by 1.14 billion to 2.63 billion (plus 76%). Thanks to higher demand in the chemicals business, sales and earnings grew substantially compared with the weak first half of 2009. In the Oil & Gas segment, sales and earnings did not match the level of the first half of the previous year due to the decline in natural gas prices.
In North America, sales grew by 42% in U.S. dollars and 44% in euro terms. Earnings rose by 530 million to 792 million (plus 202%). Thanks to higher volumes, sales and earnings in the chemicals business increased sharply. Sales and earnings in the Agricultural Solutions segment were below the very good level of the previous years first half. This was partially due to lower sales volumes in our fungicides business as a result of higher inventories at distributors.
Sales in the Asia Pacific region rose by 55% in local currency terms, and by 60% in euro terms. Earnings grew by 357 million to 603 million (plus 145%), despite the scheduled maintenance shutdown of the Nanjing site. The dynamic economic upturn had a particularly positive effect on the chemicals business. In the Agricultural Solutions segment, sales and earnings were higher then the same period of the previous year.
In South America, Africa, Middle East sales were up year-on-year by 21% in local-currency terms and by 33% in euro. The successful Agricultural Solutions business in South America made an important contribution to this sales growth. Earnings in the region were 6% higher then in the first half of 2009.