BASF Not Convinced Upturn Is Imminent

BASF AG on Thursday followed its rival Bayer AG in delivering a cautious outlook for full-year 2002. "In our order books during the first months of 2002, we have not seen any signs of a strong recovery," said Chief Executive Jürgen Strube at the presentation of the group's results for full-year 2002.

"Early indicators are increasingly giving grounds for a modest level of confidence" Strube said, adding that the development of BASF's orders in Europe and the United States was encouraging, but orders had yet to recover to the level seen in the first quarter of 2001.

"2002 will not be an easy year for our industry or for our company," said Strube. Although the economic downturn in the leading industrialized nations appeared to have gone as far as it was going to go, the signals were not unequivocally positive.

Still, there were grounds for hope that demand for the chemicals industry's products would grow in the second half, he added. Strube said the group expects to be able to achieve a clear increase in operating earnings on constant sales generated by ongoing activities. "If the positive signals emanating from the indicators are borne out and there is an economic recovery, we will be among the companies who will be able to take advantage of this development."

BASF is seen as a classic early responder to cyclical changes, and this view of the company has given its share considerable impetus over the past few weeks. Strube expects to provide a detailed outlook in April. In this, it will follow rival Bayer, whose chief, Manfred Schneider, on Wednesday said the economic situation is still too uncertain to allow a precise earnings forecast right now. Next week, Degussa AG, BASF's other big German rival, will present its 2001 results.

Experts take a more upbeat view of the chemicals sector's prospects than do the company themselves. "Investors in the chemicals sector should gradually prepare for a recovery and position themselves accordingly," said Commerzbank. The bank's analysts are expecting the bank's profit growth this year to exceed most expectations, and it has upgraded the shares to hold. But it stresses that there are no signs right now that the first six months of this year will bring a recovery.

Strube on Thursday looked back on 2001 as one of the most difficult years BASF had experienced in decades. Without the proceeds of around €7.5 billion ($6.6 billion) from the sale of its pharmaceuticals business, the group would have booked a full-year loss of around €118 million.

Group operating earnings fell by 60.4 percent to €1.217 billion. Operating profit before special items dropped by 32.6 percent to €2.29 billion. Sales fell 9.6 percent to €32.5 billion. In the final quarter, the group posted a net loss of €469 million after a profit of 227 million in the last quarter of 2000. Operating profit before special items fell to €252 million. Sales fell 17.5 percent to €7.683 billion.

BASF plans to lay the basis for a rise in operating earnings this year by stepping up its efforts to restructure and improve efficiency. It plans to cut costs by around €750 million this year. This year and next, it plans to reduce investments to the level of write-downs. And in its North American business, where BASF incurred a loss of €678 million after extraordinary effects last year, it expects to move into profit

Though BASF's coffers are full, Strube does not plan any large-scale acquisitions. BASF said its not interested in chemicals units that Bayer is putting up for sale. Chief Finance Officer Max Dietrich Kley said the group is already well represented on the German market and must maintain a geographically balanced business portfolio.