BASF sales boom, but profits hit by oil supply problems

By Simon Pitman

- Last updated on GMT

Related tags United states dollar

BASF has reported double digit sales gains on an improved global economic environment, but profitability is hit by oil supply problems.

The company reported second quarter sales were up 13.9 per cent to reach €18.5bn, which reflected what the company termed a 'solid’ second quarter, after a strong first quarter.

However income from operations before special items (EBIT) took a tumble, registering just a 1.4 per cent increase to reach €2.2bn, a performance the company blamed on problems with oil supply relating to the current political situation in Libya during the second quarter.

Results below expectations

Analysts polled in a Bloomberg survey had on average predicted an EBIT profit of €2.4bn, against sales of €18.8bn, which meant both figures missed expectations.

On the back of the stronger first quarter performance, sales for the first half of the year were up 19.4 per cent to €37.8m, while EBIT was up 19.4 per cent to €5bn.

“Compared with the extraordinary growth in the first quarter, the growth rates have normalized in the second quarter as expected,”​ the company said in a statement accompanying the results.

Currency translations also take a toll

BASF was also hit by currency translations for the first time since the first quarter of 2010, with the strength of the US dollar impacting the overall result by approximately 6 per cent.

Counterbalancing this, the inclusion of the Cognis business, which was acquired at the beginning of this year, did have a positive impact on the results.

Dr. Kurt Bock, CEO

“The economic risks remain: We continue to be concerned about the development of the euro as well as the debt situation in some European countries and the United States,”​ said the company’s newly appointed CEO Dr. Kurt Bock.

Oil prices lead to customer caution

“Added to this is the persistently high oil price, which is having a negative impact on margins across our value chains and is leading to some customers being more cautious in their orders.”

Bock’s intention is to shift the company’s business model away from cyclical commodity chemicals by moving closer to the end consumer, which has already been demonstrated by the acquisition of the Cognis fine chemicals and ingredients business.

“Based on the positive business growth in the first half, we remain confident for 2011. Despite the reduction in oil production, we expect significant sales growth for the BASF Group in 2011,”​ Bock added.

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