Increased sales and price hikes helped BASF achieve record earnings in 2005, despite substantially higher raw material prices, Europe's subdued economy and hurricanes in the US.
BASF, the world's leading chemical company reported an overall sales increase of 14 per cent to €42.7 bn, and a sales earnings growth of 12 per cent, although profit margins remained flat compared to 2004's performance.
Sales grew 11 per cent in Europe, 17 per cent in the US and 23 per cent in Asia Pacific. Sales in South America, Africa, Middle East rose 7 per cent.
A strong performer in 2005 was BASF's Oil & Gas segment, which grew by double-digit amounts due to the significant rise in oil prices, increased oil and gas production and the expansion of the natural gas trading business.
This growth, in addition to cost-saving programs, improved the company's overall profitability in Europe compared with 2004.
In Asia, however, pre-tax earnings declined by 18 per cent, mainly due to a difficult market environment for intermediates as well as high and volatile raw material costs for styrenics, in addition to the planned closures of the THF and PolyTHF plants in Yokkaichi, Japan.
Earnings also declined slightly in the South America, Africa, Middle East region, where the agricultural products business was affected by dry weather in Brazil and Argentina.
However, pre-tax earnings growth in the US was particularly strong, tripling compared with the previous year.
Another solid performer was the company's Chemicals segment, with sales earnings up 15.4 per cent on last year, mainly due to a 3 per cent increase in volume and a 7 per cent rise in price.
In the Chemicals segment, the Petrochemicals subdivision led the charge, with a 21 per cent increase in sales to €5084m, due to strong product demand and the startup of plants in Nanjing, China.
The fourth quarter saw higher prices for olefins and an improvement in cracker margins in Europe, however, the hurricanes in the US had a negative impact, resulting in lower earnings below those posted in the fourth quarter of 2004.
Sales in the Inorganics subdivision were also 20 per cent higher in 2005, thanks to the contribution from the electronic chemicals business acquired from Merck, Germany, in April.
However, operating profit was not as high as in the same period in 2004, due to significantly higher costs for natural gas.
The intermediates subdivision remained fairly flat throughout the year, and the fourth quarter was the strongest in terms of sales, where demand in Asia picked up after having been subdued in the first nine months.
Significantly higher raw material costs worldwide put pressure on margins and as a result, earnings were below the level recorded in the same period of 2004.
In 2005 BASF also succeeded in reducing fixed costs by $250 m ahead of its planned schedule and has now set itself the goal of saving an additional $150 m per year by mid-2007.
Looking towards 2006, BASF said it would also continue to proceed with efficiency-enhancing measures and restructuring programs.