BASF reports fourth-quarter and full-year results

BASF (Ludwigshafen, Germany) reported record sales of Euro 42.7bn for 2005, marking a 14% increase on 2004's €37.5bn.

The Group's net income jumped 50% to €3.007bn from €2.004bn, despite a drop in the fourth-quarter to €560m from €808m in the third-quarter, while its €637m (12%) rise in full-year income from operations (EBIT) to €5.8bn was mainly attributed to price increases for many products and to restructuring measures. EBIT for the quarter was down on 2004's fourth-quarter performance, falling from €1.8bn to €1.5bn.

Its chemicals segment experienced a 15.4% increase in sales for the year and a 17.7% rise for the quarter, totalling €8.1bn and €2.2bn respectively. EBIT for the year rose 3.3% to €1.3bn, but fell 21.5% for the quarter to €296m following 'significantly higher raw material costs worldwide' as a result of hurricanes in the Gulf of Mexico in the third-quarter, which triggered a 1.5% drop in intermediates sales for the fourth-quarter, in comparison to 2004, to €527m.

Full-year sales dropped 3.4% to €1.8bn in its fine chemicals division, where EBIT crashed €58m into the red as a result of 'increasingly high prices for raw materials and energy'. Its Pharma Solutions unit also experienced a loss in sales following US regulatory changes for the active ingredient pseudoephedrine.

Although it has described the situation as 'unsatisfying', the Group is not overly worried, with Dr Stefan Marcinowski, research executive director, saying that he does not see the fourth-quarter performance as 'an indicator that the party is over'.

Attempting to counter the trend, the Group has introduced a restructuring programme that has so far resulted in the closure of its vitamin C plant in Grenaa, Denmark following falling prices, and job losses at its production site in Minden, Germany. It also expects its acquisition of Swiss fine chemicals company Orgamol in the fourth-quarter to help with the expansion of its contract manufacturing business, and is forecasting higher sales and earnings in 2006.

BASF's long-term strategy includes investment in growth markets such as Asia - Hambrecht showed more affinity for China than India, questioning whether the latter's infrastructure could 'keep up' with current high levels of growth - along with the acquisition of and investment in 'customer-oriented' businesses. It is also planning a 9% increase in its r&d spend, which increased 8% to €1.06bn in 2005, to take the figure to around €1.15bn.

Quizzed on the Group's attempted takeover of chemicals and catalysts company Engelhard (New Jersey, US), Dr Juergen Hambrecht, chairman of the board, would not give the game away as to how much BASF would be prepared to pay, saying only 'a price which generates profitable growth for us'.

Its current offer stands at $37 (€31) per share, giving Engelhard a value of around $4.9bn (€4.1bn), although the US company's shares have since risen to in excess of $40 (€33) as a result of the speculation.