"We had a good start to the year in our chemicals business and in the Agricultural Solutions segment. We sold more. This more than compensated for the negative effects on sales from the comparatively weak U.S. dollar and currencies in emerging markets," said Dr. Kurt Bock, Chairman of the Board of Executive Directors, at the Annual Shareholders' Meeting of BASF SE in the Congress Center Rosengarten in Mannheim. Sales declined considerably in the Oil & Gas segment, however. At €19.5 billion, BASF Group sales were down by 1% overall.
Income from operations (EBIT) before special items amounted to €2.1 billion, 3% below the level of the first quarter of 2013. While earnings in the Performance Products and Functional Materials & Solutions segments improved significantly, the contribution from the Oil & Gas segment fell considerably.
EBIT included a total of €109 million in special items in the first quarter of 2014. This was largely attributable to special income from the divestiture of shares in non-BASF-operated oil and gas fields in the British North Sea. EBIT therefore grew year-on-year by €80 million to reach €2.2 billion. EBITDA rose by €96 million to €3.0 billion. The financial result decreased by €57 million to minus €183 million.
Income before taxes and minority interests improved year-on-year by €23 million to €2.1 billion. Net income grew by €31 million to €1.5 billion. Earnings per share were €1.61 in the first quarter of 2014, compared with €1.57 in the same period of 2013.
Outlook for 2014 confirmed
The company's expectations for the global economic environment in 2014 remain unchanged:
Growth of gross domestic product: 2.8%
Growth in industrial production: 3.7%
Growth in chemical production: 4.4%
An average euro/dollar exchange rate of $1.30 per euro
An average oil price for the year of $110 per barrel
Bock: "For 2014, we anticipate somewhat faster growth in the global economy than in 2013. We expect to perform well in a market environment that remains volatile and challenging. We therefore stand by our outlook for 2014 despite unfavorable currency developments. We expect a slight rise in EBIT before special items, especially as a result of considerably higher contributions from the Performance Products and Functional Materials & Solutions segments." Sales are likely to decrease slightly due to the divestiture of the gas trading and storage business planned for the middle of 2014. EBIT will likely considerably increase. The special income arising from the planned divestiture of the gas trading and storage business should make a significant contribution here.
World-scale investment in the United States being evaluated
BASF is evaluating an investment in a world-scale methane-to-propylene complex on the U.S. Gulf Coast. "The production of propylene would allow us to take advantage of low gas prices due to shale gas production, considerably improve our cost position and improve our backward integration in the United States," said Bock. This would be BASF's largest single-plant investment to date. Propylene is one of the most important basic chemicals in the petrochemical industry and is used in the production of a wide range of higher-value chemicals. Details on the potential investment are currently under evaluation.
Business development in the segments in the first quarter
In the Chemicals segment, sales matched the level of the previous first quarter. Lower prices and negative currency effects were offset by increased volumes. Sales volumes grew, particularly as a result of stronger demand in the Intermediates division as well as higher volumes in the Petrochemicals division, especially in North America. Earnings decreased slightly, mainly due to margin pressure.
Sales in the Performance Products segment were at the level of the previous first quarter despite negative currency effects and slightly lower sales prices. This was attributable to higher sales volumes. Strict fixed cost management contributed to a considerable rise in earnings.
In the Functional Materials & Solutions segment, sales were slightly higher on account of increased volumes, thanks primarily to strong demand from the automotive industry. Negative currency effects reduced sales growth. In the Construction Chemicals division, sales declined slightly as a result of portfolio effects, as well. Earnings considerably surpassed the level of the first quarter of 2013. All divisions contributed to this.
Sales grew considerably in the Agricultural Solutions segment. This was mainly because of the strong start in the Northern Hemisphere. Negative currency effects were more than compensated for by raising volumes and prices. Earnings rose slightly thanks to these higher volumes and prices.
Sales in the Oil & Gas segment were considerably below the level of the previous first quarter. In the Natural Gas Trading business sector, sales volumes were significantly down year-on-year as a result of the mild winter in Europe. Despite lower prices for crude oil and missing volumes from offshore production in Libya, sales levels remained stable in the Exploration & Production business sector. This was largely due to additional volumes from Norway. Margin pressure and lower volumes in natural gas trading as well as the smaller contribution from Libya led to a considerable earnings decline in the segment.
Sales in Other rose slightly compared with the first quarter of 2013. This was mainly the result of higher volumes in raw materials trading. EBIT before special items declined considerably, however. Currency losses and valuation effects for the long-term incentive program played a significant role here. Whereas provisions had been reversed in the first quarter of 2013, the positive development of the BASF share led to expenses for increasing provisions in the first quarter of 2014.
Business development in the regions in the first quarter
Sales at companies located in Europe decreased year-on-year by 3%. The considerably lower level of sales in the Oil & Gas segment was responsible for this. In the Natural Gas Trading business sector, above-average temperatures in the winter months led to a mostly volumes and price-related decline in sales. On the other hand, weather conditions were favorable for the business with crop protection products; sales rose considerably in the Agricultural Solutions segment. EBIT before special items fell by €19 million to €1.5 billion due to the considerably lower contribution from the Oil & Gas segment.
In North America, sales grew as a result of significantly higher volumes, rising by 9% in U.S. dollars and by 5% in euro terms. Sales volumes in the Petrochemicals and Catalysts divisions increased especially sharply. Besides currency effects, lower prices also reduced sales growth in the region. At €491 million, earnings surpassed the level of the first quarter of 2013 by €37 million thanks primarily to higher contributions from the Petrochemicals division and the Agricultural Solutions segment.
Sales in the Asia Pacific region rose by 7% in local-currency terms and by 1% in euro terms. Sales volumes increased in all segments. Negative currency effects and declining prices weakened sales growth. At €174 million, earnings were €71 million below the same quarter of 2013. This was largely on account of a considerably smaller contribution from the Chemicals segment as well as currency losses reported in Other. By contrast, the Functional Materials & Solutions segment was able to considerably improve earnings.
Sales in the South America, Africa, Middle East region grew by 10% in local-currency terms but declined by 10% in euro terms. Higher prices and improved sales volumes were only able to partly offset highly negative currency effects. Sales decreased considerably in the Agricultural Solutions segment. Here, negative currency effects as well as declining volumes and sales prices put a strain on sales development. Despite a considerably higher contribution from the Oil & Gas segment in Argentina, earnings for the region amounted to €17 million, down by €21 million compared with the level of the previous first quarter. This was due to the currency losses reported in Other.
