BASF booms on price increases

German chemical giant BASF achieved one of its best ever results in 2004, with sales climbing 13% to €37.billion. In many cases, according to chairman Juergen Hambrecht, increases in sales values owed more to the company increasing prices, to take account of rising raw materials costs, than to increases in sales volumes.

And, with the company about to celebrate its 140th anniversary and in the process of opening it first major petrochemicals complex in China, there was another cause for celebration: BASF managed to hit its business goal for the first time since the mid-1990s, earning a premium on its cost of capital.

‘The entire BASF team put in a top performance,’ Hambrecht said. However, he sounded a note of caution over proposed national and EU legislation on corporate social responsibility, saying that companies should not be ‘placed under suspicion just because they make a profit.’

The chemicals sector was a particularly strong performer, with sales up 22% and earnings before interest and taxes (EBIT) and special items rocketing up 167% to €1.24billion. Prices rose by 10% overall, with volumes up 13%. Investments also rose in the sector, with spending up 5.3% over 2003, to €555million.

The construction of the site in Nanjing, a joint venture with Sinopec, was a large contributor to this: three of the plants at the site, the methacrylate and butylacrylate production units and the complex power station, are now on stream, with the rest to follow in the coming months. ‘For me, Nanjing is symbolic of BASF’s long-term planning and action,’ says Hambrecht. ‘The start-up of this project is well-timed to tap into the growth potential in Asia.’

In petrochemicals, the rapidly-increasing price of raw materials – linked to the oil price – was again largely offset by price increases. There was also a high availability of production capacity, and high capacity utilisation helped to improve margins and boost earnings. In the plastics sector, however, even the price increases were not sufficient to fully offset the raw materials increases. ‘Plastics prices increased considerably, but volumes have not grown in some cases, have hardly grown in others, and in some have even contracted,’ Hambrecht says.

Hambrecht expects growth to continue through 2005 and into 2006, with Asia as the ‘main engine of growth.’ Growth rates in Europe, hovering around 1%, are ‘nothing… you can hardly do anything with that,’ he commented. However, he says, restructuring has helped and wil continue to help make the business as efficient as possible, as will implementation of new technology. ‘If we had not taken steps to improve our cost structures back in the early 1990s, then BASF might no longer exist in its current form,’ he comments. ‘Only a strong, successful and healthy BASF can pay its shareholders an attractive dividend, offer its employees performance-related bonuses, and invest €2billion per year in the future of the Ludwigshafen site.’

Of this €2billion, Hambrecht estimates that €700million is spent on R&D, with some €450million-500million on improving existing plants and building new ones, and the remainder on maintenance. The company is particularly keen to implement innovations in control and measurement technologies, he says. ‘We need those, as they are the best way of ensuring that efficiency improves.’

Despite all the restructuring and success in passing on price increases, Hambrecht isn’t content to stand still. ‘We cannot build two or three Nanjings at a time, but we have plans in place for future investments,’ he says. ‘We’re still not perfect – far from it. But we know where we can continue to improve our standing.’