Business News
BASF expects record year in 2010
Thursday 28. October 2010 - Business remains dynamic; demand continues at a high level; Sales and earnings outlook for 2010 raised
Third Quarter 2010:
Sales 15.8 billion (+23 %)
EBIT before special items 2.2 billion (+77 %)
Expectations for full year 2010:
Sales approximately 63 billion and EBIT before special items more than 8 billion
High premium on the cost of capital – dividend increase
Demand for BASFs products continued to be high in the third quarter of 2010. There was hardly any sign of the usual seasonal slowdown and the capacity utilization rate was high. Nearly every business benefited from this. Growth impetus came from all regions. In this favorable economic environment, BASFs business performed better than anticipated. The good business development is expected to continue in the fourth quarter and BASF has therefore raised its outlook for the current year.
Dr. Jürgen Hambrecht, Chairman of BASFs Board of Executive Directors said: “We are now profiting from the favorable economic environment because we further improved our competitiveness in the crisis and made our portfolio even more cyclically resilient through the rapid integration of Ciba.”
High cash flow and financial strength
In the third quarter, sales rose by 23% to 15.8 billion compared with the same quarter of 2009. Income from operations before special items increased by 77% to 2,213 million. The high earnings level of the second quarter of 2010 was maintained.
Net income increased by 1 billion to 1.2 billion. At 33.4%, the tax rate was lower than in the third quarter of 2009. This was mainly due to the lower earnings contribution from the highly-taxed Oil & Gas segment.
Earnings per share were 1.35 in the third quarter of 2010, compared with 0.26 in the same period of 2009. Adjusted for special items and amortization of intangible assets, earnings per share amounted to 1.52 (third quarter of 2009: 0.61).
Cash provided by operating activities increased to the high level of 5.3 billion. This was partly due to a decrease in net working capital in the third quarter despite continued strong demand. With the high free cash flow, net debt could be reduced by 2.1 billion to 11.4 billion. The equity ratio increased to almost 37%.
Outlook full year 2010
BASF still expects the following global economic conditions in 2010:
Growth of gross domestic product: 3% – 4%
Growth in industrial production: 7% – 8%
Growth in chemical production (excluding pharmaceuticals): 7% – 8%
An average euro/dollar exchange rate of $1.30 per euro
Average oil price of $75 per barrel in 2010
Hambrecht said: “We anticipate our sales growth in 2010 will outpace global chemical production. Overall, we aim for sales of around 63 billion and income from operations before special items of more than 8 billion. We expect to earn a high premium on our cost of capital and thus to increase the dividend.”
Despite the economic upturn, risks still remain for a sustained recovery. The high debt level of many countries is threatening the stability of the financial and banking system. The need to trim government spending around the world will have an impact on demand, as will the winding down of national stimulus programs and the end of inventory restocking. Additional risks are primarily associated with volatile raw materials and currency markets, excess capacities, growing geopolitical tensions, and protectionism in the form of new trade barriers.
Segments with significant increase in earnings
In the Chemicals segment, sales growth was driven by rising sales volumes, higher prices and positive currency effects. As in the previous quarter, there were delivery bottlenecks for some products in the Petrochemicals and Intermediates divisions in the third quarter of 2010. Earnings were significantly higher than in the third quarter of 2009 as a result of improved margins for several basic products as well as good capacity utilization.
Demand in the Plastics segment remained strong in the third quarter of 2010 and sales were well above the level of the same quarter of the previous year. Although business with customers in the automotive and construction industries usually slows in the summer months, there was barely any slowdown in the third quarter of 2010. Earnings were significantly improved thanks to high capacity utilization rates.
The Performance Products segment posted higher sales volumes. Positive currency effects and higher prices further boosted sales growth in the segment. In a favorable business environment, earnings increased despite high one-time charges in the Performance Chemicals division. The increase was due largely to higher volumes as well as the successful measures to integrate Ciba and restructure the combined businesses.
In the Functional Solutions segment, demand from the automotive industry improved in all regions compared with the third quarter of 2009. Sales growth also resulted from positive currency effects and higher precious metals prices. The business environment in the construction industry only improved slightly compared with the third quarter of 2009. Although there were varying trends in the customer industries, earnings increased, primarily thanks to higher volumes.
Despite the typical seasonal slowdown, business in the Agricultural Solutions segment in the third quarter was pleasing. Higher sales volumes and positive currency effects contributed to a rise in sales in all regions. In South America, the new growing season started successfully and there was particularly strong demand for soybean fungicides. Thanks to higher volumes, earnings significantly surpassed the level of the third quarter of the previous year.
In the Oil & Gas segment, sales decreased in comparison with the third quarter of 2009. As a result of the OPEC production restrictions in Libya, oil production volumes declined. Natural gas trading volumes were also lower. These developments were only partially offset by higher oil prices. In the Exploration & Production business sector, earnings increased thanks to higher prices. In contrast, lower sales volumes in the Natural Gas Trading business sector led to a decrease in earnings. Overall, the segments earnings were slightly above the level of the third quarter of 2009.
Sales in Other grew substantially, mainly resulting from higher prices in the Styrenics business. Styrenics improved its earnings. In addition, earnings growth in Other was driven by gains from hedges against foreign currency risks. Income was also generated by the reversal of provisions for the BASF Option program.
Double-digit sales growth in all regions
Sales by companies in Europe were 13% higher than in the third quarter of 2009. Nearly all segments posted sales growth but due to a decrease in volumes in oil production and natural gas trading, sales in the Oil & Gas segment did not match the level of the previous third quarter. Income from operations before special items rose by 786 million to 1.6 billion. In a generally favorable business environment, all segments increased earnings compared with the third quarter of 2009.
In North America, sales grew by 30% in U.S. dollars and 44% in euro terms. Earnings rose by 129 million to 238 million. Sales and earnings in the chemicals business grew sharply compared with the previous third quarter as a result of higher volumes and prices. In the Agricultural Solutions segment, sales volumes and sales increased but declining prices led to a slight reduction in earnings.
Sales in the Asia Pacific region grew by 19% in local-currency terms and by 34% in euro terms. Higher sales volumes in the chemicals business contributed to sales growth. Earnings in the region also improved by 101 million to 307 million. In the Chemicals segment, earnings grew significantly thanks to an increase in volumes as well as higher margins for some basic products.
In South America, Africa, Middle East, sales were up year-on-year by 10% in local-currency terms and by 26% in euro terms. Agricultural Solutions in South America made a significant contribution to this growth; the new growing season in this market started successfully. Third-quarter earnings in the region were below the previous years level due to one-time effects.