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BASF with solid start to the year
30-04-2012: BASF had a solid start to 2012. Sales were higher than in the very good first quarter of the previous year and rose 6% to €20.6 billion. Income from operations (EBIT) before special items decreased as expected and, at €2.5 billion (down 7%), was slightly below the same quarter of the previous year. “Increased raw material costs could not be fully passed on in all business areas, which put pressure on our margins. Our Oil & Gas and Agricultural Solutions segments increased their earnings significantly,” said Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF, at the Annual Shareholders’ Meeting in the Congress Center Rosengarten in Mannheim.
Compared with the first quarter of the previous year, EBIT grew by 22% to €3.1 billion. Special items in EBIT resulted primarily from gains of €645 million on the disposal of thefertilizer business. EBITDA rose by €525 million to €3.9 billion.
At minus €73 million, the financial result was €903 million lower than in the same quarter of 2011. In the previous year, the financial result included special income of €887 million from the sale of shares in K+S Aktiengesellschaft.
Income before taxes and minority interests decreased by €333 million in the first quarter of 2012 to €3.0 billion. At 39.6%, the tax rate was far higher than in the first quarter of 2011. This increase is the result of the largely tax-free gain on the sale of shares in K+S Aktiengesellschaft in the previous year as well as a higher earnings contribution from the Oil & Gas segment in 2012.
Net income decreased by €687 million to €1.7 billion. Earnings per share were €1.88 in the first quarter of 2012, compared with €2.62 in the same period of 2011. Adjusted for special items and amortization of intangible assets, earnings per share amounted to €1.57 (first quarter of 2011: €1.94).
With cash provided by operating activities at just under €1.6 billion, BASF has been able to further reduce its net debt by €1.5 billion to around €9.4 billion since the beginning of the year.
At the end of the first quarter of 2012, BASF shares traded at €65.59, an increase of 21.7% compared with the closing price at the end of 2011. The BASF stock thus outperformed the German stock index DAX 30 and the European benchmark index DJ EURO STOXX 50 as well as the global industry indexes DJ Chemicals and MSCI World Chemicals.
The Board of Executive Directors and the Supervisory Board proposed to the Annual Shareholders’ Meeting that a dividend of €2.50 per share be paid for the 2011 business year. Bock said:“We are thus standing by our ambitious dividend policy of increasing our dividend each year or at least maintaining it at the previous year’s level.”
Bock thanked Dr. Stefan Marcinowski, who is retiring following 15 successful years on the Board of Executive Directors of BASF. Marcinowski joined BASF 33 years ago as a chemist in the main laboratory with further stations in his career as head ofthe public relations department and three years abroad in Brazil. Bock also wished much success to Wayne T. Smith, who will join the Board as of the end of the Annual Meeting.
Outlook for 2012
After a weak fourth quarter in 2011, BASF’s business recovered in the first quarter of 2012. However, higher raw material costs could only be partly passed on. The company expects global economic growth to continue over the course of 2012. Uncertainty on the financial markets dampens growth prospects. Positive stimulus for the chemical industry will mainly come from the emerging markets. BASF’s expectations for the global economy in 2012 remain unchanged:
- Growth of gross domestic product: 2.7%
- Growth in industrial production: 4.1%
- Growth in chemical production: 4.1%
- An average euro/dollar exchange rate of $1.30 per euro
- An average oil price of $110 per barrel
Excluding the effects of acquisitions and divestitures, BASF aims to increase sales volumes. Bock stated: “We strive to exceed the 2011 record levels in sales and income from operations. Our forecast will be especially supported by the resumption of our crude oil production in Libya as well as by growing volumes in the chemicals business. In the first half of 2012, we are unlikely to match the extraordinarily good levels of the same period of the previous year.” For the second half, however, BASF expects an increase in sales and earnings compared with the second half of 2011. The company aims to earn a high premium on its cost of capital once again in 2012.
Sales increase in almost all segments
Sales increased in the Chemicalssegment, mainly thanks to positive currency effects and sales to Styrolution Group companies. Sales volumes decreased as a result of the optimization of the supply chain for steam cracker products, carried out in the third quarter of 2011. On a comparable basis, volumes increased slightly. Higher raw material costs resulted in declining margins, which led to earnings significantly below the very good level of the previous first quarter.
In the Plastics segment, sales were slightly reduced compared with the first quarter of 2011. Higher prices and currency effects made a positive contribution to sales development; sales volumes were weaker. Lower margins led to a significant decline in earnings. Furthermore, the scheduled maintenance of the MDI and TDI plants in Geismar, Louisiana, negatively impacted earnings in the Polyurethanes division.
Sales in the Performance Productssegment were at the level of the very good previous first quarter. Demand was slightly lower. Higher sales prices and positive currency effects were able to offset this decrease in volumes. Sharply increased raw material costs put pressure on margins; earnings decreased as a result.
Sales in the Functional Solutionssegment increased slightly as a result of higher demand from the automotive and construction industries. The sales contribution from precious metal trading declined. In addition to portfolio measures, currency effects also contributed positively to sales development. Earnings increased, thanks in particular to the contribution from the Catalysts division.
The Agricultural Solutions segment had a very successful start to 2012. Sales growth was particularly driven by higher sales volumes and prices. Currency effects also had a positive impact on sales. Earnings increased significantly.
Increased production and sales volumes as well as higher crude oil and gas prices led to significantly improved sales in the Oil & Gas segment. Natural gas trading volumes grew mainly as a result of weather conditions. After the production stoppage in Libya from February to October of the previous year, crude oil could be continuously produced there during the first quarter of 2012. Earnings considerably surpassed the level of the same period of the previous year.
Otherposted a decline in sales, mostly due to the divestiture of the styrenics business, which was contributed to the Styrolution joint venture as of October 1, 2011. As a result of both this transaction and higher costs from the long-term incentive program, earnings in Other were also below the level of the previous first quarter.
Sales and earnings increase in Europe
Due to higher prices and volumes, sales in Europe were up 12% compared with the same quarter of the previous year. The Oil & Gas segment posted a significant increase in sales as a result of increased production and sales volumes as well as higher crude oil and gas prices. The season started well in the Agricultural Solutions segment. EBIT before special items rose by €32 million to €1.9 billion, mainly due to significantly improved earnings in the Oil & Gas segment compared with the first quarter of 2011.
Sales in North America declined by 4% in U.S. dollars, remaining at the level of the previous first quarter in euro terms. The optimization of the supply chain for steam cracker products in the third quarter of 2011 led to a decline in volumes. Higher sales prices and positive currency effects offset this decline. The Performance Products segment posted a significant sales increase. At €370 million, earnings were €23 million below the level of the previous first quarter. This was due to lower earnings contributions from the Chemicals and Plastics segments resulting from lower margins and the scheduled shutdown of several plants in Geismar, Louisiana.
Sales in the Asia Pacific region decreased by 8% in local-currency terms and by 3% in euro terms. Along with lower sales prices, particularly in the Chemicals segment, the contribution of the styrenics activities to the Styrolution joint venture was largely responsible for this development. Decreased volumes, especially in the Plastics segment, also contributed to the decline in sales. Currency effects, however, had a positive impact. Especially as a result of weaker margins for basic products, earnings were reduced by €197 million to €219 million.
In South America, Africa, Middle East, sales were up year-on-year by 4% in both local-currency as well as euro terms. Business with crop protection products was very successful. Sales in the Oil & Gas segment increased significantly thanks to higher sales prices. Earnings were reduced by €12 million to €79 million, primarily due to the lower contribution from the Functional Solutions segment.
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