BASF Reports Solid Q2, Cognis Brings Positive Impact to Sales
Compared with the extraordinary growth in the first quarter, the growth rates have normalized in the second quarter as expected. In addition, for the first time since the first quarter of 2010 currency effects were negative (minus 6%) due to the weak U.S. dollar.
Jul 28 2011 --- Following a strong start to the year, BASF has reported a good and very solid second quarter. Sales improved by 13.9% to €18.5 billion and income from operations (EBIT) before special items by 1.4% to €2.2 billion despite the suspension of oil production in Libya. In the second quarter of 2010, the Libyan activities contributed an EBIT before special items of €280 million. On a comparable basis, EBIT before special items thus increased by 16%.
“The economic environment in the first half of 2011 was favorable for our business. Our numbers show that we successfully took advantage of this momentum,” said Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF SE at the presentation of BASF’s results in Ludwigshafen.
Compared with the extraordinary growth in the first quarter, the growth rates have normalized in the second quarter as expected. In addition, for the first time since the first quarter of 2010 currency effects were negative (minus 6%) due to the weak U.S. dollar. The inclusion of the Cognis businesses made a positive contribution to sales. In the chemicals business, sales volumes increased 5%. Due to the suspension of oil production in Libya, the contribution to earnings before taxes from Oil & Gas was lower compared with the same quarter of the previous year.
For the first half of 2011, sales were €37.8 billion, an increase of 19.4% compared with the same period of the previous year. EBIT before special items rose by 19.4% to around €5 billion.
BASF continues to view the economic outlook as positive for the second half of the year, but expects growth to be less dynamic, as could be observed towards the end of the second quarter. Bock said: “The economic risks remain: We continue to be concerned about the development of the euro as well as the debt situation in some European countries and the United States. Added to this is the persistently high oil price, which is having a negative impact on margins across our value chains and is leading to some customers being more cautious in their orders.”
Price increases were necessary in several business areas and will continue to be necessary in the future. Domestic tensions – particularly in North Africa – continue to unsettle the markets. As announced at the beginning of May, due to the ongoing hostilities in Libya, BASF does not anticipate being able to resume oil production there in 2011.
In the chemical sector, the company anticipates worldwide growth in chemical production of 5% to 6%, which can differ considerably from region to region. However, BASF wants to grow faster than the market in all regions. For the full year 2011, BASF estimates an average exchange rate of $1.40 per euro. Due to the persistently high and further rise in the price of oil, the company’s forecast for the annual average price of Brent crude is being raised by $10 to $110 per barrel.
Bock said: “Based on the positive business growth in the first half, we remain confident for 2011. Despite the reduction in oil production, we expect significant sales growth for the BASF Group in 2011. Adjusted for non-compensable income taxes on oil-producing operations, we continue to aim to significantly exceed the record 2010 level in EBIT before special items. We expect to once again earn a high premium on our cost of capital in 2011.”
In the Chemicals segment, sales were significantly higher than in the second quarter of 2010. Sales prices increased in all divisions, particularly in the Petrochemicals division. EBIT before special items was impacted by scheduled and unscheduled plant shutdowns and almost reached the level of the previous year.
In the Plastics segment, sales volumes were higher in both divisions. Increased prices also contributed to sales growth. EBIT before special items improved thanks to higher volumes and margins.
The Performance Products segment posted a strong increase in sales thanks largely to a considerable contribution from the acquired Cognis businesses. They also contributed to the increase in EBIT before special items.
All divisions contributed to the strong growth in sales in the Functional Solutions segment. EBIT before special items rose slightly compared with the same quarter of 2010. This was due primarily to the volume-related strong contribution from the Catalysts division.
In the Agricultural Solutions segment, sales volumes increased. With stable prices, sales were at the same level as in the second quarter of 2010 due to the weak U.S. dollar. EBIT before special items slightly improved.
Sales in the Oil & Gas segment rose slightly compared with the second quarter of 2010, thanks to higher crude oil and natural gas prices. Due to the suspension of oil production in Libya at the end of February 2011, production volumes decreased. Therefore, EBIT before special items did not reach the level of the second quarter of 2010. However, net income improved substantially.
BASF’s business in the first half of 2011 was positive in all regions. Growth in sales and earnings was partially double-digit.
Sales and earnings in Europe rose significantly. The Performance Products segment made a strong contribution to this growth. In the Chemicals segment, higher raw materials costs were passed on to the market. Sales also grew substantially in the Plastics segment thanks to good demand from the automotive industry.
In North America, sales also increased. The inclusion of the Cognis businesses considerably bolstered sales growth in the Performance Products segment. The chemicals business developed successfully overall. In the Agricultural Solutions segment, sales declined in particular as a result of the weaker U.S. dollar and difficult weather conditions. Earnings were above the level of the first half of 2010.
Sales in Asia Pacific rose thanks to good demand. The Cognis businesses and price increases due to higher raw materials costs, especially in the Petrochemicals, Performance Polymers and Catalysts divisions, contributed to this growth. Earnings improved substantially in particular due to good margins in the Performance Products segment.
In South America, Africa, Middle East sales and earnings increased significantly. The inclusion of the Cognis businesses made a significant contribution to the sales growth. The successful business with crop protection products contributed to the substantial increase in earnings.
