Company News

Mixed bag of results
The third quarter results announced by chemicals companies are an indication that things are not going to get any better in the fourth quarter in view of the global economic slowdown.

Citing reasons of higher raw material and energy prices, Bayer MaterialScience posted lower earnings that dropped by EUR166 million to EUR255 million, even after these were offset by higher selling prices, cost savings from the company’s restructuring programme and higher earnings from its Healthcare and CropScience divisions. Currency exchange effects cost the company EUR110 million and resulted in a 4.2% drop in the group's pre-tax profit. Bayer MaterialScience doesn’t expect things to get better in the next quarter and has predicted that 2008 will close well below its 2007 achievements. Nevertheless, Chairman Werner Wenning stressed that it remains on track despite the financial crisis and the weakening economy.

While Solvay's plastics business declined by 17% in the first nine months of the year, the third quarter results were stable with “good demand, improvement in performances for speciality polymers and increases in prices of vinyls compensating for the price increase of ethylene.”

Meanwhile, US additives giant Chemtura suspended payment of its dividend “to conserve cash and expand liquidity in a period of economic uncertainty.” While its Performance Specialties division (lubricants and PU products) posted a 14% increase in revenue, its additives revenue declined 13%, compared to the third quarter of 2007, due to lower sales in antioxidants and flame retardants (particularly in electronics applications), disruptions from the Gulf Coast hurricanes and rising raw material and energy costs.

On the other hand, Germany-based BASF SE reported it ended the third quarter with solid results. All its operating divisions increased their prices and volumes rose in almost all segments. Overall, sales rose by 13% to EUR15.8 billion although its income from “other” operations declined by 8%, in particular due to significantly lower earnings. But BASF is not content to rest on its laurels and it is responding to declining demand by adjusting capacity utilisation rates and bringing forward maintenance-related shutdowns. In addition to ongoing activities to reduce costs, the company has launched a new efficiency programme known as NEXT. It involves all regions, divisions and functions at BASF and encompasses more than 500 projects ranging from the simplification of processes and increased bundling of resources to the use of new IT technologies. NEXT is expected to contribute more than EUR1 billion to earnings per year by 2012, with a large proportion of this expected to be achieved as early as 2009 and 2010.

Another company that did well, Borealis, announced a net profit of EUR159 million for the third quarter, though this represented a 30% decline compared to the same period last year. Borealis benefited from its feedstock flexibility and the results also reflect a gain arising from contracts undertaken to secure feedstock advantage for the future.

Additives company Ciba posted stronger sales in Asia, especially in its water and paper treatment segment, compared to Europe, and its profit also improved significantly over the second quarter against an 18% increase in raw material prices. However, CEO Brendan Cummins warned that growth in Asia will start to slow over the coming months as the economies in the region begin to be affected by the global downturn and forecast a more challenging fourth quarter than previously anticipated. He said that additives demand dropped significantly in August in a number of industries, like automotive and construction, which severely impacted the results. With regards to the offer made by BASF to acquire the company, it was reported that Ciba’s Board of Directors has recommended that shareholders accept BASF’s offer and tender their Ciba shares.

As for the future, BASF Chairman Dr. Jürgen Hambrecht painted a bleak picture. "The impact of the global financial crisis on the real economy is speeding up and hitting harder. The economic skid marks can no longer be ignored. The decline in demand in important markets, stockpiling by our customers and the fall in oil prices are all signs of a recessionary trend that is likely to sharpen in 2009."

Meanwhile, Borealis Chief Executive Mark Garrett said that though the company is pleased with its third quarter results, it needs to step up its cost competitiveness. “Our strategic focus on innovation and commercial excellence in our value added key market segments of infrastructure, automotive and advanced packaging will ensure that we stay on course in the challenging times to come,” he added.