BASF SE (BASFY.PK) Thursday confirmed its outlook for growth in fiscal 2012, after it reported an increase in its second-quarter adjusted earnings and sales. Amid growing economic risks, the German chemical giant, however, warned that it does not expect an upturn in demand in the second half than the first half. Pressure on margins will continue, although somewhat lessened, due to slightly lower raw material costs, the company said.
Commenting on the current economic scenario, Chairman of the Board of Executive Directors Kurt Bock said, "Our customers are continuing to act cautiously and are reducing their inventories, also in expectations of falling prices due to declining raw material costs."
For the second quarter, BASF's income from operations or EBIT before special items grew 11 percent to 2.5 billion euros and sales grew 6 percent to 19.5 billion euros.
In the quarter, sales declined in the chemicals business, as volumes were hurt mainly by weaker demand. Falling margins and the scheduled maintenance shutdown of several plants added to the woes.
In the Plastics and Performance Products segments, weaker sales volumes were more than offset by positive currency effects. Meanwhile, lower margins for some basic products led to a significant decline in earnings.
However, business was very successful in the Agricultural Solutions segment, resulting in higher sales volumes in all indications and regions. Higher sales prices and positive exchange rate effects also contributed to significant sales growth.
Oil & Gas segment's results reflected increased volumes due to greater demand on spot trading markets as well as higher gas prices. The company could continuously produce crude oil in Libya in the quarter after the suspension of production from February to October of the previous year.
Geographically, Europe sales climbed 9 percent and sales in the South America, Africa, Middle East region edged up 1 percent.
Sales in the Asia Pacific were up 9 percent in euro terms, as positive currency effects more than offset reduced sales prices. Sales were down 1 percent in local-currency terms as Chinese growth engine has started to stall.
Meanwhile, sales fell 15 percent in North America on lower volumes due to plant shutdowns and the optimization of the supply chain for steam cracker products, despite strong results in Agricultural Solutions thanks to high demand.
Looking ahead for fiscal 2012, the company said it continues to aim to exceed the 2011 sales of 73.5 billion euros and EBIT before special items of 8.4 billion euros.
Bock noted that the company's goal remains to increase sales and earnings in the second half, especially supported by the resumption of crude oil production in Libya. It is unlikely that the earnings from chemicals business will match the level of the previous year.
BASF added that it is more cautious about its expectations for the global economy in 2012 than originally expected at the beginning of the year
Further, the company said its excellence program, STEP, which is expected to contribute around 1 billion euros to earnings each year as of the end of 2015, is fully on track.
On Frankfurt's Xetra, BASF shares are currently trading at 55.75 euros, down 0.41 euros or 0.73 percent.
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