BASF reports higher earnings on flat sales, confirms outlook
07:06 AM | July 24, 2014 | Natasha Alperowicz
BASF today reported a 12.3% increase in second-quarter net income, to €1.3 billion ($1.7 billion), on 0.6% higher sales, €18.5 billion. Ebitda was up 9.0%, to €2.7 billion, and Ebit before special items advanced 12%, to €2.0 billion. The slight increase in sales was due largely to higher sales volumes in the chemicals business, which includes the chemicals, performance products, and functional materials and solutions segments, as well as in oil & gas, says Kurt Bock, BASF chairman. Earnings increased considerably in the chemicals business and the oil and gas segments but declined considerably in the agricultural solutions segment and in businesses classified Other. “The devaluation of almost all major currencies against the euro negatively impacted earnings by roughly €200 million compared to the previous second quarter,” Bock says.
BASF is continuing with its business optimization program and is investing in “attractive” business areas, Bock says. “Just a few days ago, BASF inaugurated a new production plant for mobile emissions catalysts in Sroda Slaska, near WrocÅ‚aw, Poland. The company is also investing more in plastics and plastic precursors business in Asia. The restructuring of the performance products segment is on track. Through the restructuring measures in this segment, more than 2,000 positions will be reduced by the end of 2017. BASF expects an annual earnings improvement of about €500 million from 2017 onward. One-time costs are €250–300 million,” Bock says.
BASF has lowered its economic outlook but is keeping its earnings guidance for the full year. The company expects growth in GDP to be 2.5% compared with the previously forecast 2.8%, and industrial and chemical production will grow 3.7% and 4.4%, respectively. “The slight upturn in growth expected for the global economy and key customer industries in 2014 has a positive effect on our business. We thus stand by our outlook for 2014 despite even more unfavorable currency developments and increased political risks. We aim to increase our sales volumes excluding the effects of acquisitions and divestitures,” Bock says.
Sales, however, are likely to decrease slightly compared with 2013 because of the divestment of the gas trading and storage business as well as continuing negative currency effects. BASF expects Ebit before special items to slightly rise, especially as a result of considerably higher contributions from the performance products and functional materials and solutions segments. Special income from the planned divestment of the gas trading and storage business as well as from the divestment of BASF’s share in Styrolution, the styrenics joint venture with Ineos, will make a significant contribution.
In the chemicals segment, sales were up 3%, to €4.3 billion, with a 4% rise in Ebitda, to €725 million. Sales volumes rose in all chemicals divisions, with North America's petrochemical volumes growing especially especially strongly. Sales in performance products were down 3%, to €3.9 billion, but Ebitda rose 16%, to €646 million. The decline in sales was due to negative currency effects. Sales volumes grew especially in Asia/Pacific. Sales were flat in the functional materials and solutions business, at €4.5 billion, while Ebitda rose 18%, to €468 million. Negative currency effects strained sales development, but volumes increased considerably, especially in the catalysts division. Sales in the agricultural solutions segment declined 4%, to €1.7 billion, because of negative currency effects. Volumes remained stable. Ebitda was down 9%, to €476 million. The segment classified Other reports a 20% drop in sales, to €855 million, and an Ebitda loss of €306 million. This segment covers sale of raw materials, engineering and other services, as well as rental income and leases. The main reasons for the decline in sales were the force majeure at the Ellba jv with Shell at Moerdijk, Netherlands, and lower raw material trading activities.
Second-quarter sales in Europe were 1% higher, at €10.5 billion, with Ebit before special items up 25%, to €1.35 billion. North America reports a 4% increase in sales, to €4.16 billion, on 4% lower Ebit, €466 million. Sales in Asia/Pacific declined by 5%, to €2.86 billion, and Ebit was 12% down, to €172 million. Sales decreased considerably in the chemicals segment in Asia/Pacific. The region reports considerably lower earnings in the chemicals and agricultural solutions segments. South America, Africa, and the Mideast reports a 7% decline in sales, to €954 million, and a 12% lower Ebitda before special items, at €68 million.