A dynamic BASF moves forward into the second half
Ludwigshafen, Germany (ots)
- Good performance in the second quarter of 2003: EBIT before
special items up slightly on 2002
- Agricultural Products & Nutrition segment improves significantly
- Additional restructuring program to strengthen profitability in
the NAFTA region
- Full year 2003: major efforts needed to match last year's
earningsBASF is continuing to perform well in a persistently difficult environment. Thanks to the success of its timely cost-reduction program, the company achieved second-quarter EBIT before special items of EUR 832 million - an increase of 1.2 percent compared with the same period of 2002. Sales declined by 1.6 percent to EUR 8.2 billion. This was mainly due to the drop in the value of the U.S. dollar by more than 20 percent compared with the previous year. BASF increased sales volumes by 3.2 percent and prices by 3.0 percent. Disregarding the translation effect of the weaker dollar, the company would have posted sales of EUR 8.8 billion, or 4.4 percent more than in the second quarter of 2002. "You can rely on BASF's strength, even when we have to operate in an economic climate that offers very few encouraging signs," explained Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors of BASF Aktiengesellschaft, during his presentation of the interim results for the second quarter of 2003.
Second-quarter EBIT after special items was EUR 774 million, or 5.3 percent lower compared with the previous year. Special charges of EUR 58 million in the second quarter were associated with provisions for restructuring measures in the NAFTA region and the integration of BASF's latest acquisition in the Agricultural Products division. Net income fell by 61 percent to EUR 195 million as a result of higher income taxes, mainly due to a one-time effect of EUR 124 million related to corporate income tax. Earnings per share were therefore EUR 0.35 in the second quarter compared with EUR 0.86 in the same period of 2002.
Thanks to the very good first quarter, cumulative sales for the first half of 2003 were more than EUR 17 billion or 2.8 percent higher than in the first half of 2002. Adjusted for currency effects, sales would have been EUR 18 billion or an increase of 8.3 percent.
EBIT before special items for the first half of 2003 was almost EUR 1.8 billion or 8.3 percent higher than in the same period of 2002. All operating divisions were in the black.
In the first half of the year, cash provided by operating activities increased significantly to EUR 1.9 billion, exceeding the amount for the same period in 2002 by EUR 1 billion. This increase is the result of the substantially lower additional financing requirements for net current assets.
Outlook for full year 2003: major efforts needed to match last year's earnings
BASF's Chairman does not expect there to be an upturn in the economic climate until the fourth quarter of 2003 at the earliest "High unemployment rates, which continue to rise in the eurozone and in the United States, suggest that growth triggered by private consumption is unlikely. The signals from our customers also fail to show any signs of an upturn in the short term," said Hambrecht.
In the second quarter, the level of orders and the number of incoming orders have been lower than in the same period in 2002. Hambrecht is therefore not particularly optimistic with regard to sales and earnings development in the third quarter. "We expect sales at the same level as in 2002 and lower EBIT before special items. It is even more difficult to give a prognosis for the full year because of the continuing uncertainties. Considerable risks must be overcome if we are to achieve the same level of sales and earnings as in 2002. In particular, these risks are associated with volatile oil prices, the uncertain development of the U.S. dollar and persistent stagnation in important economies. Major efforts are therefore needed to match last year's achievements," he said.
Two-phase restructuring program for the NAFTA region
The company aims to make additional savings by reducing its fixed costs through a two-phase restructuring program for the NAFTA region.
In the first phase, BASF wants to optimize the effectiveness and efficiency of service functions such as human resources, IT, purchasing, finance and legal with the goal of saving $100 million. These measures are expected to incur one-time costs of $55 million, of which $41 million has already been accounted for as special charges in the first half of 2003.
In the second phase of the NAFTA restructuring program focuses on further optimizing product portfolio and site structures. The goal is to concentrate on business areas with high growth and profit potential. At the same time, BASF's will sharpen the customer focus of its business processes and exploit market potential more fully. The second phase is expected to result in total cost savings of at least $150 million, which are to be realized by 2006.
The goal of this two-phase program is to earn the cost of capital in the NAFTA region.
Segment overview: Agricultural Products & Nutrition improves significantly
In the Chemicals segment, sales volumes remained healthy even though customers reduced their inventory. Second-quarter sales rose 2.5 percent to EUR 1.4 billion.
EBIT before special items was burdened by scheduled shutdowns of the steam cracker in Ludwigshafen and other downstream plants. At EUR 134 million, it was 16.8 percent lower than in 2002.
Compared with the same period in 2002, second-quarter sales in the
Plastics segment declined 2.9 percent to EUR 2.2 billion, partially due to weak demand in Asia. Oversupply, especially of styrenics, led to further pressure on prices and margins.
At EUR 76 million, EBIT before special items fell by 64 percent compared with 2002. This figure contains integration costs for the engineering plastics business acquired from Honeywell as well as startup costs for our new 140,000 metric ton plant for TDI and precursors in Yeosu, South Korea.
Sales in the Performance Products segment declined compared with 2002 due to currency effects. Volumes were slightly lower. Sales were 8 percent lower at EUR 1.9 billion; EBIT before special items dropped 31 percent to EUR 145 million.
Business improved considerably in the Agricultural Products & Nutrition segment. In euro terms, second-quarter sales of EUR 1.5 billion were at approximately the same level as in 2002. However, because about 60 percent of the company's business is conducted dollars, considerable increases are partially disguised by the significant rise in the value of the euro. Despite negative currency effects, EBIT before special items climbed by almost EUR 80 million or 61 percent to EUR 209 million. Both divisions in the segment contributed to this positive development.
The market for crop protection products shrank once again in the key markets of Europe and North America. Even so, the Agricultural Products division was able to increase sales by approximately 5 percent and, in dollar terms, by almost 30 percent. This increase was due to new product launches, the acquisition of the fipronil business and efforts to conduct business closer to the application period. The increase in EBIT before special items by almost 60 percent to EUR 117 million exceeded our expectations and is a consequence of structural measures and the increased volume of business. The EBITDA margin before special items in the first half of 2003 was 29.4 percent. Measures to reduce in-channel inventory are now nearly completed in the United States and South America. The one-time costs of EUR 31 million in the first half of 2003 resulted almost entirely from step-ups on inventories following the fipronil acquisition. Despite the persistently difficult market conditions, BASF has set itself the goal of improving earnings in the second half of 2003 compared with the previous year.
Despite slightly higher volumes, the Fine Chemicals division was unable to achieve the previous year's level of sales as a result of the strong euro. At EUR 38 million, second-quarter EBIT before special items was up 73 percent on 2002. Thanks to the further implementation of a restructuring program, BASF succeeded in significantly increasing the division's EBIT margin.
The Oil & Gas segment posted the strongest increase in sales. Compared with the same period in 2002, we increased sales in the second quarter by 5.6 percent to EUR 928 million. This increase was due primarily to higher volumes in our natural gas trading activities (+22 percent). EBIT before special items remained at a high level but declined by 4.8 percent compared with 2002 to EUR 278 million.
BASF is the world's leading chemical company, offering its customers a range of high-performance products, including chemicals, plastics, performance products, agricultural products, fine chemicals as well as crude oil and natural gas. Its distinctive approach to integration, known in German as "Verbund," is its strength. It enables BASF to achieve cost leadership and gives the company a competitive advantage. BASF conducts its business in accordance with the principles of sustainable development. In 2002, BASF had sales of EUR 32 billion (circa $34 billion) and over 89,000 employees worldwide. Further information on BASF is available on the Internet at www.basf.com.
Forward-looking statements
This release contains forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance or achievements of BASF to be materially different from those that may be expressed or implied by such statements. Such factors include those discussed in BASF's Form 20-F filed with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking statements contained in this release.
You can also obtain further information from the Internet at the following address:
www.basf.de/PK (German) www.basf.de/pcon (English)
07:30 a.m. CEST Second Quarter 2003 Interim Report
Press Release
Photos10:00 a.m. CEST Speech Dr. Jürgen Hambrecht (live transmission)
11:00 a.m. CEST Speech Dr. Jürgen Hambrecht (printed version)
ots Original Text: BASF AG Internet: http://www.presseportal.de
Contact:
Michael Grabicki
Tel.: +49 621 60-99938
Fax: +49 621 60-92693
E-Mail: michael.grabicki@basf-ag.de
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