BASF Net Profits Soar in Q4, Positive on 2011 Outlook
The business environment was also favorable in the fourth quarter of 2010. Sales rose 25% versus the same quarter in 2009 and with €16.4 billion, they were the highest of any quarter in 2010.
2/24/2011 --- 2010 was a record year for BASF with sales of €63.9 billion (up 26%) reported. At the company’s Annual Press Conference, Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors of BASF SE, said, “ We achieved record sales and earnings in 2010. In the chemicals business, in particular, we were able to take advantage of the strong economic recovery in 2010, which was more dynamic than we all initially expected."
The company has also moved forward in its goal of expanding its leading position:
• Its portfolio has been further optimized through the integration of the Ciba activities and the acquisition of Cognis. In the styrenics business, BASF is making good progress in bringing together its activities with those of Ineos in the Styrolution joint venture to create added value.
• Examples for investments in growth markets are the further expansion of the company’s Verbund site in Nanjing, China, and plans for new specialty chemical plants in Malaysia.
• BASF is securing its future by further increasing its investment in research and development.
The good numbers reflect BASF’s growing momentum. The capital market also recognizes this. BASF’s share price reached an all-time high in December 2010 and rose by more than 37% in the course of the year. With dividends reinvested, the increase was almost 43%. BASF shares outperformed the stock markets worldwide.
Positive impulses from all regions contributed to the double-digit sales growth. Compared with 2009, total sales rose 26% to reach €63.9 billion. Income from operations (EBIT) before special items increased 68% to €8.1 billion. In 2010, BASF again earned a premium on its cost of capital with a record premium of €3.5 billion.
The business environment was also favorable in the fourth quarter of 2010. Sales rose 25% versus the same quarter in 2009 and with €16.4 billion, they were the highest of any quarter in 2010. However at €1.8 billion, EBIT before special items was below the level of the previous quarters.
This was due to:
• in particular higher provisions for the long-term incentive program as a result of the strong increase in BASF’s year-end share price,
• a provision for the special payment of €50 million to employees throughout the world in appreciation for their excellent crisis management over the past two years,
• and one-time costs for accelerated maintenance and restructuring measures in various divisions in order to allow for a good start in 2011.
Overall, this resulted in one-time costs of over €200 million in the fourth quarter of 2010.
Hambrecht said: “BASF has had a very strong start to 2011. However, we are concerned about Libya. Overall, we are optimistic for the first quarter and the year as a whole. One positive result of this is that the total number of BASF employees will increase by about 2,900 in the current year. The focus is on Asia, but we also plan to hire an additional 800 employees in Germany, thereof approximately 500 at the Ludwigshafen site.”
BASF’s outlook for the full year 2011 is based on the following economic forecast:
• Solid global economic growth (+3.3%)
• Significant growth of global chemical production (excluding pharmaceuticals) (+5.2%)
• An average euro/dollar exchange rate of $1.35 per euro
• An average oil price of $90/barrel in 2011
BASF aims to significantly exceed the record levels for sales and income from operations achieved in 2010. “We also expect to earn a high premium on our cost of capital once again in 2011,” said Hambrecht. With respect to Libya, BASF hopes that the situation will calm down soon.
Segments: Strong growth in the chemical business
In the Chemicals segment, sales were far above the 2009 level thanks to higher prices and volumes. For some products, there were temporary supply shortages. Higher raw materials costs could largely be passed on in the sales prices. The Petrochemicals division benefited particularly from this development. There was a strong improvement in income from operations in the segment thanks to increased margins, especially for basic products, and higher volumes.
The Plastics segment also posted a strong rise in sales compared with the previous year. The economic upswing in key customer industries led to a noticeable revival of demand. The automotive industry in particular recovered more quickly than expected. Capacity utilization rates at the plants were good. While prices in the Polyurethanes division remained broadly stable, they rose in the Performance Polymers division mainly as a result of higher raw materials costs. With margins generally stable, there was a strong improvement in income from operations.
The Performance Products segment benefited from the economic recovery as well as the quick and successful integration of Ciba and the restructuring of the combined businesses. Demand and sales grew in all divisions, due in part to inventory restocking along the entire value-adding chain, especially in the first half of the year. While special items resulting from the integration of Ciba had a negative impact on the segment’s earnings in 2009, in 2010 measures to reduce fixed costs and the realization of synergies led to a strong improvement in income from operations.
In the Functional Solutions segment, sales were far above the 2009 level thanks to higher volumes and prices. In the Catalysts and Coatings divisions, an increase in sales volumes and sales was mainly attributable to improved demand from the automotive industry. In the Construction Chemicals division, however, sales growth was not as strong. Thanks to strict cost discipline and measures to increase efficiency, all three divisions made a considerable contribution to the segment’s strong improvement in income from operations.
Agricultural Solutions significantly exceeded the very good sales level of the previous year. Sales volumes of insecticides, herbicides and fungicides were higher than in the previous year. Lower prices were offset by the increase in business volume and positive currency effects. Income from operations remained nearly stable despite increases in selling expenses as well as research and development expenses.
Sales declined in the Oil & Gas segmentcompared with the previous year. The reasons for this were different for each business sector: In Exploration & Production, volumes declined due largely to the OPEC production restrictions in Libya. However, this was almost entirely offset by higher crude oil prices and a stronger U.S. dollar. In Natural Gas Trading, sales volumes increased but sales declined due to lower gas prices. Despite the decline in sales, income from operations in the segment improved slightly.
Sales in Other rose significantly primarily as a result of higher prices and sales volumes in the Styrenics business. Income from operations in Other, however, declined, which was attributable primarily to higher expenses for the long-term incentive program. This was partially offset by better foreign currency results and the higher earnings contribution from Styrenics.
Sales in Europe grew by 16% compared with the previous year to reach €35.2 billion. In the chemicals business, sales at €19.4 billion even exceeded the pre-crisis level. Compared with 2009, this was an increase of 32%. This development shows that BASF has emerged from the economic crisis even stronger than before in Europe. At €5.2 billion, income from operations was more than twice as high as in the previous year. This was mainly due to the excellent earnings in the chemicals business.
In North America, sales rose by 41% to €13.2 billion, or 34% in local currency terms. Nearly all segments posted considerable gains in sales volumes and sales compared with the previous year. Income from operations in 2010 reached a new record of €1.1 billion, representing an increase of €604 million over the previous year.
Sales in Asia Pacific increased by 46% to €11.6 billion, or 35% in local currency terms. Sales increased in all segments, particularly in the chemicals business. Income from operations reached a record €1.3 billion, up €768 million from the previous year. Asia is more and more becoming a stable contributor to BASF’s success.
Sales in South America, Africa, Middle East were far above the 2009 level, increasing by 31% to €3.8 billion. In local currency terms, sales were 19% higher than 2009. Compared with the previous year, income from operations declined by €104 million to €177 million. This was due to one-time expenses for valuation adjustments on receivables related to long-term supply agreements.
