All divisions contribute positive earnings - BASF

30 Oct '09

6 min read

Outlook for full year 2009

The company has updated its expectations with regard to the underlying economic conditions worldwide for the full year 2009 and now expects:

• Decline in gross domestic product (minus 2.5%)
• Decline in industrial production (minus 9.1%)
• Decline in chemical production, excluding pharmaceutical (minus 6.1%)
• Average euro/dollar exchange rate of $1.40 per euro
• Average oil price of $60 per barrel in 2009

Despite stabilization of the economic environment in the third quarter, BASF anticipates a significant decline in sales and earnings for full year 2009. Fourth-quarter income from operations before special items is likely to be higher than in the weak fourth quarter of 2008, but lower than in the third quarter of this year.

“Higher costs for the Ciba integration will additionally negatively impact earnings. BASF is therefore unlikely to reach its goal of earning its cost of capital this year,” said Hambrecht.

Plastics and Performance Products improve earnings
In the Chemicals segment, sales fell in all divisions compared with the same quarter of 2008 due to significantly lower prices and a decline in volumes. The overall decline was 34%. Earnings, however, were almost at the previous year's level and improved compared with the second quarter of 2009. Earnings in Petrochemicals and Intermediates increased compared with the third quarter of 2008.

In the Plastics segment, sales decreased by 20% due to lower volumes and prices. Demand for plastics increased compared with the second quarter of 2009, in particular in Asia. Despite the decrease in sales, earnings were higher than in the same quarter of 2008. This was mainly due to improved margins in the Performance Polymers division as a result of restructuring and cost reduction measures.

Thanks to the inclusion of the Ciba businesses, sales in the Performance Products segment rose by 25% compared with the same quarter of 2008 despite a decline in demand. Furthermore, earnings increased in all divisions due to price discipline and cost reductions.

In the Functional Solutions segment, lower sales volumes and a decline in prices for precious metals led to a 24% drop in sales. Thanks to successful cost reduction measures and higher margins in the Construction Chemicals division, earnings declined only slightly. Compared with the second quarter of 2009, sales and earnings increased in all divisions.

Due to a decline in the use of fungicides and herbicides, sales in the Agricultural Solutions segment were 2% lower than in the third quarter of 2008. Lower sales volumes and higher spending on research and development negatively affected earnings, which were slightly lower than in the third quarter of 2008. Business started successfully in the new growing season in South America. For full year 2009, BASF expects an EBITDA margin of more than 25%.

In the Oil &Gas segment, sales declined by 25% mainly due to the decline in the price of crude oil. In Exploration & Production, natural gas production was significantly expanded as the Yuzhno Russkoye natural gas field reached plateau production. Volumes increased in the Natural Gas Trading sector. Overall, earnings declined significantly compared with the strong third quarter of 2008 due to the drop in sales in Exploration & Production.

Sales in Other fell by 31% due to lower demand and falling prices for styrenics. Earnings in the Styrenics division rose thanks to lower fixed costs and an overall improvement in margins.

BASF

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