Ludwigshafen, Germany
April 30, 2009
High cash flow and reduction of
net debt
Very weak demand in industrial business
Strong earnings in Agricultural Solutions
Sales down 23%, EBIT before special items down 58%
Goal of earning cost of capital increasingly difficult to
achieve
In an extremely difficult
environment, BASF’s business declined in the first quarter of
2009. At €12.2 billion, sales were 23% lower than in the first
quarter of 2008, primarily due to persistently weak demand.
Income from operations (EBIT) before special items fell by 58%
to €985 million as a result of a substantial decrease in volumes
in many divisions.
BASF responded swiftly to the crisis: The company has tailored
production to reflect the decline in demand and reduced
inventories. Compared with the first quarter of 2008, cash flow
nearly doubled, and net debt has been reduced by around €1.5
billion since the beginning of the year.
Cost reduction and efficiency programs are being implemented
rigorously and rapidly. With the excellence program NEXT, BASF
intends to further improve productivity and effectiveness in all
functions and working areas: The aim is to reduce costs,
increase efficiency and speed up all business processes. In
conjunction with ongoing cost-cutting activities, the company
expects this to progressively increase earnings by more than €1
billion per year as of 2012.
“In times of crisis, swift and decisive action is important. As
early as the fourth quarter of 2008, we were one of the first
companies in our industry to adapt our capacities to the
dramatic slump in demand and reduce costs on all levels in order
to ensure profits and liquidity in the short term. At the same
time, we are focusing far ahead and are taking action today to
be well equipped for the next upturn. Our goal is to emerge from
this crisis even stronger and to increase our leading position,”
said BASF Chairman Dr. Jürgen Hambrecht in his presentation of
figures for 2008 and the first quarter of 2009 at the Annual
Meeting of BASF SE on April 30, 2009 in Mannheim.
Very successful start to year in Agricultural Solutions
In the first quarter of 2009, sales decreased significantly in
all divisions of the Chemicals segment due to lower
volumes and prices. Earnings fell sharply as a result of the
continued low level of product demand but were positive in all
divisions. The fact that competition was tougher than in the
same quarter of 2008 had a particularly detrimental effect on
margins in the Petrochemicals division. Production was tailored
to reflect this fall in demand and inventories have been
reduced.
A drastic decline in sales was also recorded in the Plastics
segment, mainly due to substantially lower volumes compared with
the same quarter of the previous year. Earnings declined
considerably and were slightly negative – in particular, as a
result of low margins and high costs of idle capacity in the
Performance Polymers division.
Sales in the Performance Products segment fell in all
three divisions. With prices remaining stable, there was a
sizeable reduction in demand. The Care Chemicals division
improved earnings thanks to reduced fixed costs, whereas
earnings in the segment as a whole fell sharply as a result of
lower volumes.
As a result of very weak demand from the construction and
automotive industries and a decline in prices for precious
metals, sales dropped dramatically in the Functional
Solutions segment. The Catalysts and Coatings divisions were
affected particularly badly. In contrast, sales in the
Construction Chemicals division were at the same level as in the
first quarter of 2008. Profitability in this segment was
negatively impacted by the extremely weak business with the
automotive industry and earnings were negative.
In the Agricultural Solutions segment, higher volumes and
price increases led to strong sales growth. The nonagricultural
pest control business of the Sorex Group acquired at the end of
2008 also contributed to the increase in sales. The new growing
season got off to a particularly successful start in Europe and
North America. Earnings improved significantly compared with the
same quarter of the previous year as a result of higher sales
volumes, increased margins and positive currency effects.
The Oil & Gas segment also posted slightly higher sales.
The drastic fall in oil prices was more than compensated by the
increased prices in the Natural Gas Trading business sector.
Earnings in the Exploration & Production business sector
decreased substantially due to lower prices, whereas earnings in
Natural Gas Trading increased greatly due to higher margins.
However, this increase in earnings in Natural Gas Trading was
not enough to offset the decline in earnings overall.
Sales in Other decreased significantly, primarily due to
lower sales in Styrenics. Volumes of fertilizers also decreased
considerably as a result of an unusually late and therefore also
poor fertilizer season. Earnings in Other were negatively
impacted by currency losses from the hedging of forecasted sales
not allocated to the segments.
Special items of minus €57 million (first quarter of
2008: minus €51 million) were related in particular to expenses
for restructuring.
Compared with the first quarter of 2008, EBIT dropped 60%
to €928 million, while EBITDA decreased by 46% to €1.6
billion.
At minus €202 million, the financial result was €80
million lower than in the first quarter of 2008. The main reason
for this was a €52 million decline in earnings from investments
consolidated using the equity method.
Income before taxes and minority interests fell 67% in
the first quarter to €726 million. At 37.1%, the tax rate
was lower than in the first quarter of 2008. Income taxes for
oil production that are non-compensable with German corporate
income tax declined significantly.
Net income decreased by 68% to €375 million. Earnings per share
were €0.41 in the first quarter compared with €1.24 in the same
period of 2008.
Sales and earnings decline in all regions
In Europe, sales by location of company fell by 21%. EBIT
before special items also decreased substantially by €989
million to €797 million. The Chemicals and Plastics segments
were particularly affected by the drop in demand in key customer
industries and posted significantly lower sales and earnings.
Despite the lower oil price, the Oil & Gas segment made a
substantial contribution to earnings.
Sales by location of company in North America dropped by
35% in dollar terms and by 26% in euro terms. EBIT before
special items declined by €197 million to €71 million. Almost
all segments were affected by the fall in earnings. Only the
Agricultural Solutions segment achieved significantly higher
sales and earnings. The positive business development in this
segment was mainly due to higher volumes and improved margins
for fungicides and herbicides.
In Asia Pacific, sales decreased by 42% in local currency
terms and by 34% in euro terms. EBIT before special items fell
substantially by €171 million to €53 million. The considerable
decline in sales and earnings affected almost all segments and
was due in particular to the sharp fall in the export business
of customer industries. In contrast, sales and earnings
increased in the Agricultural Solutions segment as a result of
the high demand in Japan, China and India.
Sales in South America, Africa, Middle East decreased by
13% in local currency terms and by 14% in euro terms. EBIT
before special items declined by €12 million to €64 million. In
the Functional Solutions segment, weak demand from the
automotive industry in particular led to a decline in earnings.
In contrast, positive currency effects resulted in higher
earnings in the Agricultural Solutions segment.
Hambrecht: “No sign of a turnaround”
BASF is facing enormous challenges in 2009. The demand for
chemical products has declined further since the beginning of
the year, which has had a substantial negative effect on
business worldwide in the first quarter. “There is currently no
sign of a reversal of this trend and we do not consider
temporary topping up of inventories in some regions and
industries to be signs of a sustainable upturn,” said Hambrecht.
Higher sales and earnings in Agricultural Solutions and in the
Natural Gas Trading business sector bolstered business in the
first quarter. This positive effect can be expected to recede in
the subsequent quarters.
BASF will maintain strict cost and spending discipline and will
continue to reduce current assets rigorously. In this way, the
company aims to secure its strong cash flow and solid financing
structure.
BASF will restructure and, where necessary, close or sell plants
and sites that cannot ensure the company’s long-term
competitiveness. The company will cut at least 2,000 positions
by the end of 2009.
BASF is reducing capital expenditures in view of the changed
market conditions. However, research and development
expenditures for fast-growing and future-oriented businesses
remain high.
Following the acquisition of Ciba Holding AG, integration teams
have started to investigate the acquired businesses in detail.
They will develop an extensive integration plan by mid-2009.
Substantial restructuring measures are urgently needed to ensure
the profitable growth of the combined businesses. BASF aims to
achieve synergies of 10% of Ciba’s sales.
In 2009, despite the acquisitions of Ciba Holding AG and Revus
Energy ASA, 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. “Our goal of
earning our cost of capital is thus becoming increasingly
difficult to achieve,” said Hambrecht.
BASF is the world’s leading
chemical company: The Chemical Company. Its portfolio ranges
from chemicals, plastics and performance products to
agricultural products, fine chemicals as well as oil and gas. As
a reliable partner BASF helps its customers in virtually all
industries to be more successful. With its high-value products
and intelligent solutions, BASF plays an important role in
finding answers to global challenges such as climate protection,
energy efficiency, nutrition and mobility. BASF posted sales of
more than €62 billion in 2008 and had approximately 97,000
employees as of the end of the year. BASF shares are traded on
the stock exchanges in Frankfurt (BAS), London (BFA) and Zurich
(AN). |
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