BASF strengthens outlook despite difficult economy

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German chemicals group BASF said this week it was strengthening its
forecast for 2002, despite an unfavourable environment. The leading
vitamins supplier said it was confident that its pro-active
approach to the current climate would resist some of the negative

Leading German chemicals group BASF said this week it was strengthening its forecast for 2002, despite an unfavourable environment.

"On the basis of a roughly similar level of sales, we aim to increase EBIT before special items significantly over 2001,"​ said Dr Jurgen Strube, chairman of the board of directors at BASF, on announcement of the company's third quarter results.

For the July-September period, BASF, a leading supplier of vitamins and nutritional ingredients in Europe, posted total sales of almost €7.6 billion, up 5.3 per cent from the same quarter of 2001. However, sales in July and August were weak, only picking up in September. Cumulative sales for the first nine months were slightly lower than the previous year's same period, at around €24 billion, a decline of 2.5 per cent on 2001.

In contrast, third-quarter EBIT before special items of €591 million exceeded the previous year's level by €263 million - an increase of 80 per cent. In the first nine months, BASF achieved EBIT before special items of more than €2.2 billion, €190 million more than in the same period in 2001.

With the exception of the seasonally weak business with agricultural products, all of BASF's operating divisions were in the black before special items in the third quarter. However, the company is concerned that sales prices are increasingly coming under pressure. Higher volumes are compensating for the decline in prices only to a certain extent.

In fine chemicals, third-quarter sales declined 7.2 per cent. BASF said that an increase in sales volumes was more than offset by negative currency effects - in particular the weaker US dollar - and some further weakening of prices for vitamins and lysine. Sales of cosmetics raw materials and pharmaceutical active ingredients increased compared with the same period of 2001.

The company has also recently made further provisions for the settlement of claims for damages relating to vitamins, leading to a negative income from operations after special items for both periods.

Strube said: "Our confidence is based on the major efforts that BASF and its employees have taken since the first signs of an economic downturn were seen in early summer 2001. We are not passively waiting for an upturn in the economy, but are taking active measures to further develop BASF: from a position of financial strength, we are pursuing a strategy of active portfolio management and carrying our the necessary structural measures."

The company added that in all regions, with the exception of Asia Pacific, economic recovery is proving to be weaker than was expected in the summer.

In Europe, BASF sales were up 4.3 per cent more than in the same quarter of 2001. Earnings in the NAFTA region also were considerably higher than in the previous years, although margins remain under pressure from high costs for raw materials.

Strube noted that consumer confidence would determine growth in the NAFTA region. Consumers are apprehensive about falling share prices, increasing unemployment and the threat of military action against Iraq, he said, and this has led to cautious buying and slower growth in North America. Third-quarter sales in South America declined considerably, and the company is to pursue a cautious business policy in the region.

In the Asia Pacific region, sales increased by 21.9 per cent to more than €1.3 billion. EBIT before special items was just below the figure for the third quarter of 2001. In coming years, Asia - led by China - is expected to provide an engine for growth at BASF.

The BASF chairman said 2003 would present demanding tasks. "Optimistic estimates predict that the gross domestic product will grow by more than 2 per cent in Western Europe and by almost 3 per cent worldwide, although growth in the chemical industry is likely to be stronger. However, this growth is associated with a number of uncertainties such as the possibility of military action against Iraq. Should this occur, we can expect another significant increase in oil prices, even heavier pressure on margins and much lower economic growth,"​ said Strube.

In 2001, BASF​ had sales of €32.5 billion.

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