"In light of the challenging conditions, our business performed well in the first half of 2013. Our business with crop protection products contributed substantially to sales and earnings growth. Earnings rose considerably in the Functional Materials & Solutions segment. Higher volumes in the Oil & Gas segment also boosted sales and earnings development,” said Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF SE at the company’s half-year press conference.
At just under 2%, global gross domestic product grew more slowly in the first half of 2013 compared with the same period of the previous year. Global industrial production only rose by around 1% over the same period. Bock said: “The economic environment is and remains volatile. The European economy is shrinking slightly; the Chinese growth engine is no longer running at full power; the United States is growing moderately. We are clearly feeling these effects and are doing everything we can to maneuver BASF successfully through this challenging environment. ”
Outlook for full year 2013
Based on the economic development of the first six months of 2013, the company’s estimates for the economic environment are more conservative than they were previously. BASF now forecasts the following for the global economy in 2013 (previous forecast in parentheses):
Growth of gross domestic product: 2.0% (2.4%)
Growth in industrial production: 2.7% (3.4%)
Growth in chemical production: 3.1% (3.6%)
An average euro/dollar exchange rate of $1.30 per euro (unchanged)
An average oil price for the year 2013 of $105 per barrel
($110 per barrel)
Worldwide economic growth and demand for chemicals are not expected to accelerate in the second half of 2013. An uneven development marked by economic uncertainty is anticipated. Bock: “Despite this, we still aim to exceed the 2012 levels in sales and EBIT before special items. Achieving our earnings target is significantly more challenging today than we had expected at the beginning of the year.”
BASF’s excellence program STEP, which as of the end of 2015 is expected to contribute around €1 billion to earnings each year compared with the base year 2011, is running on schedule and savings of €300 million will be achieved this year. Due to uncertainty about further business development, the increase in personnel particularly planned in emerging markets will proceed more slowly.
High operating cash flow
In the second quarter of 2013 as in the previous quarter, cash provided by operating activities amounted to around €2.0 billion. Thus, it totaled €4.0 billion in the first half of 2013, up by €619 million year-on-year. Cash and cash equivalents amounted to €2.2 billion as of June 30, 2013, compared with €1.6 billion at the end of 2012. Net debt rose to €12.5 billion as of the end of the second quarter of 2013, compared with €11.2 billion as of December 31, 2012. “We made use of the low interest rates and issued bonds with a nominal value of around €2.1 billion in the first half of 2013. The equity ratio of BASF Group was a very solid 41% as of June 30, 2013,” said Dr. Hans-Ulrich Engel, Chief Financial Officer of BASF.
Business development in the segments in the second quarter
In the Chemicals segment, sales decreased by 4% in a weak environment. Sales prices declined due to lower raw material costs. Sales volumes rose slightly. Compared with the second quarter of 2012, EBIT before special items declined by €106 million to €495 million. This was mainly the result of weaker margins for caprolactam and polyamides.
In the Performance Products segment, sales were down by 1% on account of negative currency effects and lower sales prices resulting from reduced raw material costs. Increased volumes in Care Chemicals as well as portfolio effects from the acquisition of Pronova BioPharma in the Nutrition & Health division had a positive impact on sales. Intense competition in some product lines and the depreciation of the yen against the euro led to a decrease in EBIT before special items of €48 million to €394 million. In the second quarter of 2012, insurance payments for damage sustained from the earthquake and tsunami disaster in Japan had contributed positively to earnings.
There was an increase in volumes and prices in the Functional Materials & Solutions segment and thus sales rose by 2%. Currency effects reduced sales growth. At €293 million, EBIT before special items exceeded the level of the previous second quarter by €77 million. Better margins made a significant contribution to this.
Business continued to develop very successfully in the Agricultural Solutions segment: Compared with the second quarter of the previous year, sales increased by 18% to €1.7 billion. EBIT before special items rose by €71 million to €485 million. Sales volumes in all regions and indications rose. Furthermore, higher prices and the acquisition of Becker Underwood also contributed to this sales and earnings growth.
In the Oil & Gas segment, sales grew by 10% despite lower oil prices. This was mostly a result of increased volumes in natural gas trading. At €382 million, EBIT before special items significantly exceeded the level of the previous second quarter thanks to a higher contribution from the Exploration & Production business sector.
Sales in Other were 11% above the same quarter of the previous year. EBIT before special items declined to minus €217 million, mainly due to valuation effects for the long-term incentive program: While the second quarter of 2013 included expenses for recognizing provisions, provisions had been reversed in the second quarter of 2012.
Business development in the regions in the second quarter
Sales at companies headquartered in Europe rose by 3% in the second quarter of 2013 mainly as a result of higher sales volumes. Volumes grew significantly in the Oil & Gas segment. However, sales volumes declined in the Chemicals segment. EBIT before special items decreased by €259 million to €1.1 billion, particularly due to a lower contribution from the Chemicals segment.
In North America, sales by location of company increased by 9% in U.S. dollars and 7% in euro terms. Sales rose significantly in the Agricultural Solutions segment, driven primarily by considerably higher sales volumes and the acquisition of Becker Underwood. Earnings grew by €158 million to €485 million.
Sales in Asia Pacific grew by 1% in local-currency terms and decreased by 2% in euro terms. Sales volumes increased in all segments. In the chemicals business, which consists of the Chemicals, Performance Products and Functional Materials & Solutions segments, lower sales prices and negative currency effects led to a decline in sales. EBIT before special items declined by €27 million to €196 million. This was mainly due to a lower earnings contribution from the Performance Products segment.
In South America, Africa, Middle East, sales improved by 12% in local currency terms and 5% in euro terms. Increased volumes and prices boosted sales, while currency effects dampened sales in all divisions. Due to improved earnings in the Oil & Gas segment, EBIT before special items for the region grew by €23 million compared with the previous year’s quarter to €77 million.