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BASF vitamin C, lysine sales slip once more

By Jess Halliday , 03-Aug-2006

BASF's fine chemicals division reported a huge rise in operating profits in second quarter 2006 - no thanks to vitamins. Rather, credit is given to a swift trade in aroma chemicals and gains from contract manufacturing and personal care acquisitions.

The division reported sales of €465m for Q2, up 10 per cent on last year's period, and income from operations (EBITDA) of €96m compared to €12m last year.

This figure includes a special income figure of €66m from a reduction in a fine imposed by the EU for BASF's involvement in a vitamin cartel in the 1990s, and special charges for restructuring measures.

Chairman of the board Jûrgen Hambrecht said: "Overcapacities and high raw material costs continue to put pressure on margins for lysine and vitamin C."

This is not news for BASF, which has been experiencing such pressures for some time - compounded by competition from Chinese vitamin suppliers.

In 2005 BASF initiated a restructuring programme in an effort to improve margins for the division. The most significant measure so far has been the closure of the plant in Grenaa, Denmark, which has helped reduce fixed costs in vitamin C and means that BASF's primary source is now Asia.

Hambrecht said cost-cutting measures to mitigate the effect of the pressure were also responsible for raising the division's earnings in the recent quarter.

The increase in sales is attributed to the pharmaceutical manufacturing business that BASF acquired in October 2005, and the newly acquired personal care business of Englehard Corporation.

The fine chemicals result is set against a backdrop of excellent results for the German chemicals group as a whole. Overall sales were up 16.5 per cent to €12.3bn, and EBITDA was up 10.5 per cent to €2.37bn.

"In view of the strong business performance in the first half of 2006, we remain optimistic for the full year," said Hambrecht. "We expect to post significantly higher sales and higher EBIT before special items compared to the previous year's strong level."

Although all regions reported sales growth and the business environment was strong, with a positive outlook in the economic situation, BASF said that risks remain in high prices and geopolitical tensions "making markets jittery".

Record raw material costs have increased pressure on margins making price increases necessary. For instance, at the end of June it increased prices of proprionic acid, one of the building blocks of vitamin E production

"Price increases to reflect rising costs will also be necessary in the future," said the company.

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