Chemicals sector
February 25, 2011
Despite a tough 2009, BASF finished last year with record sales and earnings.
Sales soared 26 percent, climbing to 63.9 billion euros. Net profit at 4.56 billion euros was the highest since 2001, and three times higher than in 2009.
"We were able to take advantage of the strong economic recovery in 2010," BASF chairman Jürgen Hambrecht said in a statement.
Demand for chemical products, a key sector in Germany, is a good indicator of the overall state of the economy, so the jump in earnings underlines the strength of the overall economic recovery in Europe's biggest economy.
Slight disappointment
Sales for 2010 also rose considerably in the fourth quarter, but earnings before interest and taxes (Ebit) and special items were below the levels of previous quarters. At 1.8 billion euros, the Ebit before special items was lower than the 2 billion euros expected by analysts. BASF attributed that development partly to restructuring measures.
But Lutz Grüten, an analyst tracking the chemical sector with Commerzbank, said fourth quarter results were good and in line with expectations at the bank. "BASF incurred one-time costs of some 200 million euros in the fourth quarter to pay for re-structuring and special payments," he told Deutsche Welle. "But that has allowed them to get a clean start into 2011, which is what they wanted. I think the fact that the share price rose against the market is an indication that the figures were fine."
Grüten added that the only slight disappointment with BASF's results was the dividend payout, "which could have been more." Shareholders are set to receive a dividend payout of 2.20 euros. In 2009, BASF shocked investors with its decision to slash the dividend to 1.40 euros after sales had slumped.
Booming business at Henkel, too
Consumer goods company Henkel, which had spun off its specialty chemicals business into a unit acquired by BASF last year, also posted impressive fourth quarter results. Cosmetics and adhesives contributed to sales, which, at 3.7 billion euros, were up by around 11 percent. Operating profit rose to 379 million euros, up 29 percent compared to the same period a year earlier.
Despite its strong sales and profits, Henkel is concerned about rising costs for raw materials. Many of its products are based on oil whose price has risen considerably due to unrest in North African states. To offset higher costs and become more profitable, Henkel intends to raise prices for its products.
BASF, too, has already noted higher costs in raw materials for its chemicals segment. But it has so far been able to pass on higher costs to customers.
Commerzbank analyst Grüten expects BASF to continue pursuing that strategy. "Capacity utilization is good, as is the supply-demand-balance," he said, adding that "BASF has what's called pricing power – they can pass on higher costs to their customers."
Libya crisis
For 2011, Ludwigshafen-based BASF expects sales and earnings to exceed 2010 figures. "One positive result is that the total number of BASF employees will increase by about 2,900 in the current year," Hambrecht said.
But he added he was concerned about Libya. Since 1958, BASF subsidiary Wintershall has been exploring oil fields and producing oil in Libya. But Wintershall employees have left the country because of the crisis, bringing production to a standstill.
Grüten, however, doesn't expect the Libya crisis to put much of a damper on BASF results in 2011. "Libya has an impact, but in relation to the enterprise as a whole, that impact will be almost negligible," he said.
Author: Andrea Rönsberg
Editor: John Blau