BASF Posts Loss in Q4, Accelerates Restructuring

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.

26/02/09 BASF, the world’s largest chemical company has reported that a significant decline in global economy has impaired fourth-quarter earnings and has accelerated restructuring and efficiency programs. BASF expects a decline in sales compared with 2008 and an even greater decline in income from operations.

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.
 
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.
 
 “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 2009

Despite 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.”
 
In 2008, the Chemicals segment posted a 10 percent increase in sales compared with 2007. In particular, this was due to passing on considerably higher raw material prices. Income from operations declined. This was primarily the result of lower margins for cracker products as well as plant shutdowns due to the hurricanes in the United States and the significant decline in demand toward the end of the year.
 
In the Plastics segment, sales declined by 3 percent, in particular due to negative currency effects. The decline in earnings was primarily due to lower volumes and margins in the Performance Polymers division, as well as reduced capacity utilization rates and writedowns on inventory in the fourth quarter.
 
Sales in the Performance Products segment rose slightly (+1 percent) compared with 2007. The Acrylics & Dispersions division contributed mainly to this increase. The segment’s earnings improved thanks to a further increase in earnings in the Care Chemicals division.
 
In the Functional Solutions segment, sales decreased slightly (-1 percent) due to lower sales in the Catalysts and Coatings divisions. Earnings declined in all divisions in this segment because of weaker demand from the automotive and construction industries, as well as higher raw material costs, which negatively impacted margins.
 
In the Agricultural Solutions segment, sales increased by 9 percent due to strong demand for crop protection products resulting from high prices for agricultural produce. Earnings grew strongly thanks to higher volumes and margins.
 
Sales in the Oil & Gas segment rose significantly (+37 percent) thanks to the higher average oil price in 2008 and higher sales volumes in natural gas trading. Segment earnings rose compared with 2007, above all due to higher earnings in the Exploration & Production business sector as a result of the higher oil price.
 
In 2008, companies in Europe increased sales by 13 percent to €38.7 billion. The economic environment has deteriorated since the second half of 2008. At €5.8 billion, income from operations was significantly higher than in 2007, in particular due to the contribution of the Oil & Gas segment.
 
Sales by companies in North America increased by 8 percent in local-currency terms but declined by approximately 1 percent in euro terms. The economic environment and domestic demand in the region weakened significantly in the second half of 2008. Income from operations declined by 90 percent to €73 million. This was due to plant shutdowns, a decline in margins, as well as a drop in overall business in the fourth quarter. Earnings were also negatively impacted by writedowns on long-term assets.
 
Companies in Asia Pacific increased sales in local currencies by 4 percent. At €8.7 billion, sales in euro terms declined slightly compared with 2007. Earnings dropped significantly by €574 million to €254 million, primarily as a result of weaker earnings in the Chemicals, Plastics and Functional Solutions segments. The Performance Products and Agricultural Solutions segments made a positive contribution.
 
Sales by companies in South America, Africa, Middle East rose in local currency terms by 12 percent and in euro terms by 7 percent. Earnings increased by 1 percent to €314 million. This was due in particular to the strong performance of the Agricultural Solutions segment in South America and strong growth in the Care Chemicals division.