Global chemicals giant BASF “achieved a leap in earnings” for its second quarter, with sales up 30% and its Chemicals segment at a record level, the company has announced. “The recent portfolio measures are paying off, and the earnings strength of the chemicals business has improved sustainably,” BASF said in a statement.
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 euros (about $21.2 billion US). Second-quarter income from operations (EBIT) before special items rose 94% to 2.2 billion euros (about $2.9 billion US).
Sales in the first six months increased 28% to 31.7 billion euros (about $41.5 billion US), and EBIT before special items rose 96% to 4.2 billion euros (about $5.5 billion US). Both sales and EBIT before special items were also above the good level of the first quarter of 2010.
BASF attributed the gains to “very high demand in the chemicals businesses, that is, in the Chemicals, Plastics, Functional Solutions and Performance Products segments,” augmented by inventory restocking along the value chain.
“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,” Dr. Jürgen Hambrecht, chairman of the board of executive directors, said in a conference call.
Hambrecht said he expected that the economic recovery would 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, he said. Other risks are primarily associated with volatile raw materials markets, excess capacities, growing geopolitical tensions and protectionism, he said.
Nevertheless, BASF’s performance should remain strong throughout 2010, Hambrecht said.
“We expect our sales to grow in 2010 and outpace global chemical production,” he said. “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.”
Business Segment Results
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 euros (about $561 million US) higher than the previous year’s 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 euros (about $276 million US) (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 euros (about $511 million US) (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 euros (about $153 million US), 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 euros (just over $61 million US) below the previous year’s 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 euros (about $11.7 million US) 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.
The company also noted “an important milestone” in its impending purchase of the specialty chemicals company Cognis. “ With this acquisition, we are strengthening our position in cyclically robust and profitable business areas such as health and nutrition as well as cosmetics, detergents and cleaners,” the company said. “We are particularly expanding our portfolio with products based on renewable resources. We aim to close this acquisition in November 2010. The Cognis businesses will be integrated into the Performance Products segment, in which a new Nutrition & Health division will be created.
Increases in All Regions
Sales by companies in Europe were 16% higher than in the same period of the previous year. In North America, sales grew by 42% in U.S. dollars and 44% in euro terms. Sales in the Asia Pacific region rose by 55% in local currency terms, and by 60% in euro terms. In South America, Africa, Middle East sales were up year-on-year by 21% in local-currency terms and by 33% in euro.
BASF’s portfolio ranges from chemicals, plastics and performance products to agricultural products, fine chemicals, oil and gas. BASF posted sales of more than 50 billion euros (about $65.3 billion US) in 2009 and had about 105,000 employees as of the end of the year. Further information is available at www.basf.com.