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Diversified portfolio of BASF helps post solid earnings
26 Feb '09
7 min read
BASF – The Chemical Company – is acting quickly and decisively to combat the effects of the global economic crisis:
Production capacities and investments worldwide are being tailored to the drastic decline in demand, and the implementation of restructuring and efficiency programs is being accelerated.
At the company's Annual Press Conference in Ludwigshafen, BASF's Chairman Dr. Jürgen Hambrecht explained: “With our diversified portfolio, we are far better positioned in this recession than other companies in the chemical industry. Strong businesses such as crop protection, nutrition, cosmetics, hygiene as well as oil and gas act as stabilizing factors. Right now it is particularly important that we are very solidly financed and have one of the best ratings in the chemical industry. Our strengths include a high free cash flow, which, as in previous years, significantly exceeded €2 billion in 2008.”
The financing of the BASF Group remains solid. At year end, 2008, the company had an equity ratio of approximately 37 percent. The financial indebtedness of the BASF Group was €14.5 billion with a liquidity of €2.8 billion. Approximately 57 percent of financial indebtedness was long-term debt with a maturity of over one year. The company's medium to long-term debt financing is based on corporate bonds with a balanced maturity profile. Despite the tense situation on the credit markets, BASF was able to finance itself with commercial paper without any difficulty.
In order to maintain the company's long-term competitiveness, BASF is accelerating its ongoing efficiency and restructuring programs, and will close less profitable plants and also sites throughout the BASF Group. This applies, for example, to coatings sites in the United States, Asia and Europe, and to plants for plastics precursors in Asia. Normally, such plants would be replaced by new capital expenditures. Now, BASF is closing them faster than originally planned. Unfortunately, a total of at least 1,500 jobs will be lost worldwide in 2009 as a result.
Solid earnings in 2008
Despite the deep global economic crisis, BASF – The Chemical Company – presented solid figures for full year 2008. Sales rose by 8 percent compared with 2007 to €62.3 billion. This was primarily due to higher prices in all divisions. However, BASF was unable to pass on fully raw material prices, which were volatile and higher on average than in 2007. Income from operations (EBIT) before special items was on course for a new record up to the fourth quarter. At just under €6.9 billion at the end of the year, however, it was 10 percent lower than the record amount posted in 2007. In 2008, BASF again earned a high premium of €1.6 billion on its cost of capital, compared with €2.9 billion in 2007.
Outlook 2009
“2009 will be a year of unprecedented challenges,” said Hambrecht. “Following the dramatic drop in our global business in the fourth quarter of 2008, demand for chemical products has not picked up since the start of 2009. A reversal of the trend is not yet in sight. On the contrary: The situation in our sales markets is worsening, and inventory levels in the value chains are still too high. As a result, the chemical industry is continuing to shrink.”
Hambrecht stated that all forecasts are currently subject to great uncertainty. The company's attempt to give a rough outlook for 2009 is based on the following macroeconomic conditions:
A marked decline in global economic growth (–0.3 percent), especially due to a decrease in industrialized countries (–1.6 percent), and a decline in global chemical production (excluding pharmaceuticals, –2.0 percent) An average euro/dollar exchange rate of $1.30 per euro An average oil price (Brent) of $50 per barrel in 2009Despite the acquisitions of Ciba and Revus Energy, BASF expects a decline in sales compared with 2008 and an even greater decline in income from operations, which will be negatively impacted by integration costs. The company nevertheless aims to at least earn its cost of capital and keep its dividend stable. “All in all, these goals are extremely ambitious in the current economic climate,” said Hambrecht. “We also plan to keep expenditures for research and development at the same level as in previous years in order to ensure our long-term success.”
Production capacities and investments worldwide are being tailored to the drastic decline in demand, and the implementation of restructuring and efficiency programs is being accelerated.
At the company's Annual Press Conference in Ludwigshafen, BASF's Chairman Dr. Jürgen Hambrecht explained: “With our diversified portfolio, we are far better positioned in this recession than other companies in the chemical industry. Strong businesses such as crop protection, nutrition, cosmetics, hygiene as well as oil and gas act as stabilizing factors. Right now it is particularly important that we are very solidly financed and have one of the best ratings in the chemical industry. Our strengths include a high free cash flow, which, as in previous years, significantly exceeded €2 billion in 2008.”
The financing of the BASF Group remains solid. At year end, 2008, the company had an equity ratio of approximately 37 percent. The financial indebtedness of the BASF Group was €14.5 billion with a liquidity of €2.8 billion. Approximately 57 percent of financial indebtedness was long-term debt with a maturity of over one year. The company's medium to long-term debt financing is based on corporate bonds with a balanced maturity profile. Despite the tense situation on the credit markets, BASF was able to finance itself with commercial paper without any difficulty.
In order to maintain the company's long-term competitiveness, BASF is accelerating its ongoing efficiency and restructuring programs, and will close less profitable plants and also sites throughout the BASF Group. This applies, for example, to coatings sites in the United States, Asia and Europe, and to plants for plastics precursors in Asia. Normally, such plants would be replaced by new capital expenditures. Now, BASF is closing them faster than originally planned. Unfortunately, a total of at least 1,500 jobs will be lost worldwide in 2009 as a result.
Solid earnings in 2008
Despite the deep global economic crisis, BASF – The Chemical Company – presented solid figures for full year 2008. Sales rose by 8 percent compared with 2007 to €62.3 billion. This was primarily due to higher prices in all divisions. However, BASF was unable to pass on fully raw material prices, which were volatile and higher on average than in 2007. Income from operations (EBIT) before special items was on course for a new record up to the fourth quarter. At just under €6.9 billion at the end of the year, however, it was 10 percent lower than the record amount posted in 2007. In 2008, BASF again earned a high premium of €1.6 billion on its cost of capital, compared with €2.9 billion in 2007.
Outlook 2009
“2009 will be a year of unprecedented challenges,” said Hambrecht. “Following the dramatic drop in our global business in the fourth quarter of 2008, demand for chemical products has not picked up since the start of 2009. A reversal of the trend is not yet in sight. On the contrary: The situation in our sales markets is worsening, and inventory levels in the value chains are still too high. As a result, the chemical industry is continuing to shrink.”
Hambrecht stated that all forecasts are currently subject to great uncertainty. The company's attempt to give a rough outlook for 2009 is based on the following macroeconomic conditions:
A marked decline in global economic growth (–0.3 percent), especially due to a decrease in industrialized countries (–1.6 percent), and a decline in global chemical production (excluding pharmaceuticals, –2.0 percent) An average euro/dollar exchange rate of $1.30 per euro An average oil price (Brent) of $50 per barrel in 2009Despite the acquisitions of Ciba and Revus Energy, BASF expects a decline in sales compared with 2008 and an even greater decline in income from operations, which will be negatively impacted by integration costs. The company nevertheless aims to at least earn its cost of capital and keep its dividend stable. “All in all, these goals are extremely ambitious in the current economic climate,” said Hambrecht. “We also plan to keep expenditures for research and development at the same level as in previous years in order to ensure our long-term success.”
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