BUSINESS
2001 VERDICT: GLAD TO SEE IT GO European chemical companies pin hopes on 2002 for recovery in sales, profits PATRICIA L. SHORT, C&EN LONDON
M
ANFRED SCHNEIDER, O U T -
going chairman of Bayer, probably put it as well as anybody else. Speaking at the company's annual results press conference on March 13, he said the dismal year of 2001 "is now behind us once and for all. The experiences were not always pleasant, but we have learned from them." A quick scan through the results of the leading European chemical companies shows, in fact, that very few escaped unscathed. Most reported a decline in sales, with an even greater decrease in net profits, even when measured before the special charges that were common throughout the industry last year. Schneider, who retires at the end of April, is handing over to his successor, Werner Wenning, a company that came through fire last year. The company's sales were down 2%, and operating profits were down 51%. Schneider found a crumb of comfort
in the fact that sales from continuing operations rose by 1%, to $25.9 billion. That figure excludes sales from its 50% stake in Erdolchemie, which it sold to jointventure partner BP Chemicals midway through the year, and from the various units it now has up for sale, including flavors and fragrances producer Haarmann & Reimer,fibersoperations, and a rubber additives unit. However, Schneider pointed out that the company's problems in the pharmaceutical sector— its voluntary recall of cholesterol-lowering drug Baycol/Lipobay and production problems with its genetically engineered blood-clotting agent Kogenate—had a decided impact. The recall of Baycol alone, he said, cost the company an estimated $625 million in sales. With those problems behind the company, however, and with the cost savings and efficiencies Bayer expects to gain from its new holding-company structure, Schneider and Wenning both predict that
earnings will "improve significantly" in 2002. Up the Rhine River system from Bayer, executives at BASF are not as enthusiastic about their outlook for 2002. At BASF's results press conference, Chairmanjûrgen Strube said that "2002 will be a difficult year. Although the economies of the industrialized nations appear to have bottomed out, not all the signals are positive." According to Strube, 'All of our segments posted positive income from operations before special items in 2001, despite high raw material prices and despite the decline in demand." Nonetheless, a series of cost-cutting programs, including restructuring and plant closures, and provisions for antitrust fines in the vitamins business, hit the company's results. Only the money received in the sale of Knoll Pharmaceuticals at the beginning of 2001 enabled the company to show a net profit for the year. IF THE ECONOMY does pick up, Strube noted, BASF will benefit because of the restructuring it did in 2001. The company last year launched a plan to reduce costs by 1 billion euros—roughly $900 million-bytheendof2003. In 2001, he said, BASF reached a quarter of that goal, and it expects to achieve two-thirds of the targeted amount this year. Those measures "paid off under difficult conditions, especially in the second
DISMAL SHOWING Sales slide for European chemical industry, but profits fall even more
BASF (Germany) Bayer (Germany) Akzo Nobel (Netherlands) Degussa (Germany) BP Chemicals (U.K.) Shell Chemicals (U.K./ Netherlands)
TOTAL SALES 2001 CHANGE $ MILLIONS 2000-01 $29,094.0 -9.6% 27,102.2 -2.2 12,631.3 0.8 11,568.7 1.0 11,515.0 2.4
EARNINGS3 2001 CHANGE $ MILLIONS 2000-01 $-235.4 nm 1,150.3 -35.3% 832.5 -1.8 435.1 -16.0 128.0 -83.2
PROFIT CAPITAL SPENDING MARGINb 2001 CHANGE 2000 2001 $ MILLIONS 2000-01 def 3.4% $2,718.7 -16.4% 4.2% 6.4 2,342.7 -1.1 6.6 6.8 735.9 13.4 3.8 4.5 1,055.4 22.0 1.1 6.8 1,200.0 9.1
R&D SPENDING 2001 CHANGE $ MILLIONS 2000-01 $1,116.3 -18.3% 2,290.8 6.9 756.7 7.0 414.5 16.9 na na
10,616.0
-30.2
241.0
-73.9
2.3
6.1
685.0
-5.6
na
na
ICI (U.K.) Solvay (Belgium) Air Liquide (France) DSM (Netherlands) Rhodia (France) Syngenta (Switzerland)
9,249.4 7,810.6 7,455.5 7,134.7 6,516.2 6,323.0
-17.1 -1.6 2.8 -1.5 -1.9 29.7
358.5 360.8 628.3 330.3 61.7 642.0
-12.0 -6.9 7.7 -36.4 -68.1 18.0
3.9 4.6 8.4 4.6 0.9 10.2
3.7 4.9 8.0 7.2 2.9 11.2
410.3 645.0 689.1 589.0 na 253.0
22.3 -11.3 -15.4 10.0 na 36.8
227.5 305.3 na 266.8 na 723.0
-1J2 -5.3 na 12.9 na 34.6
Clariant (Switzerland) Celanese (Germany) Ciba Specialty Chemicals (Switzerland) Borealis (Denmark) Givaudan (Switzerland)
5,843.9 4,562.8
-6.7 -2.1
82.9 129.8
-72.3 66.6
1.4 2.8
4.8 1.7
298.9 208.6
-5.6 -63.4
241.1 85.0
-1.6 1.1
4,361.5 3,319.4 1,420.3
-6.8 -0.1 1.8
226.2 -36.7 162.2
-15.5 nm 3.4
5.2 def 11.4
5.7 1.1 11.2
153.3 131.6 67.5
4.0 -34.7 -12.3
163.4 na 118.4
-5.8 na 7.5
a After-tax earnings from total operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales, nm = not meaningful, na = not available, def = deficit.
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C&EN / MARCH 25, 2002
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half of the year," Strube said. "We are now well positioned as a result ofexpanding our profitable oil and gas business, strengthening our agricultural products business, and focusing on cost leadership in our chemicals activities." Restructuring also helped Solvay contain a decline in sales for the year. During 2001, the company launched a new strategy of emphasizing growth in pharmaceuticals and specialties. This resulted in the acquisition of specialty polymers from BP and apian to acquirefluorinatedproducts maker Ausimont. One of the results: In the first half of 2001, Solva/s net profits were down 18% compared with the same period of 2000, but in the second half, profits were 10% above the comparable period of the year before. The improvements came, the company pointed out, "despite the generally recognized decline in the world economy, which was worsened by the Sept. 11 events." PHARMACEUTICALS also helped buoy Akzo Nobel's sales and earnings in 2001. Chairman and Chief Executive Officer Cees J. A. van Lede maintained that the company "held steady in a difficult global environment thanks to a resilient mix of businesses," as well as restructuring measures. He noted that chemicals, a sector that "has the highest sensitivity to the economic situation," turned in agood performance— a drop of 3% in sales from the previous year—given the circumstances. Akzo's pharmaceuticals unit, however, showed 12% growth for 2001 for continuing operations; the company's coatings business eked out a 1% increase in sales in continuing operations. At compatriot Dutch firm DSM, reported net profits reached a record $1.27 billion. However, that was chiefly the result of a $935 million contribution from the sale of its energy division and engineering plastics unit. At a press briefing, DSM Chairman Peter A. F. W Elverding noted that, although the company posted a record net profit, "the profit on ordinary activities was unsatisfactory But this is hardly surprising against the background of an unfavorable economic climate and tough market conditions. Considering these circumstances, the profit decline remained within reasonable limits." He, too, was cautious about the current year, and does not expect the economy to bounce back in thefirsthalfof2002. 'This means that sales volumes and margins in various end-use markets will continue to HTTP://PUBS.ACS.ORG/CEN
realis, which suffered a complete turnabout in profitability: A net profit after tax of $37.6 million in 2000 turned to a loss of $36.7 million in 2001, although operating profits were essentially unchanged at $47.0 million. Borealis said it suffered because of lower polyolefins profits and increased financial charges. However, CEO John Taylor added, "although 2001 was a difficult year for the polyolefin industry, Borealis made progress on a number of fronts." Chief among them was Borouge, Borealis' joint venture with Abu Dhabi National Oil Co. in the United Arab Emirates, which in December started up a new $1.25 billion petrochemical complex. At oil giants Royal Dutch Shell and BP, chemicals turned in what executives called disappointing performance. BP Chemicals' operating profits, for example, were $242 million when adjusted for special items—better than the net profitfigure,but still a sharp declinefromthe $ 1.04 billion in operating profits reported in 2000. The decline, the company noted, was a result of a weaker market environment, operational problems in the first half of the year, and restructuring charges. One casualty of the downturn: BP's chemicals unit has put capital expenditures on temporary hold, with plans for 2002 limited to finishing projects under way Similarly, Shell attributed the decline in chemicals operating profits to "significantly lower unit margins in all businesses, and particularly in the U.S." The fourth quarter was especially troublesome, the company said, because the weakness in ethylene cracker margins in the U.S. "was exacerbated by the reversal of the normally favorable economics" of the naphtha feedstocks used by Shell's crackers compared to that of ethane. Plant capacity utilization was lower than in the previous year, the company added. Following a strategy pursued by a number offirms,Shell Chemicals tried to make the most of a difficult year by carrying out some $700 million in cost improvements. THE COMMODITIES END ofthe European At Shell and the other chemical compaindustry—petrochemicals—was particu- nies, executives are hoping that cost cutting during unpleasant times will make the larly hard hit last year. Case in point is polyolefin producer Bo- recovery all the more enjoyable. •
be under pressure," Elverding said. "The I situation will probably improve in the second half of 2002, but so far, business in the first quarter of 2002 seems to be developing in line with the fourth quarter of2001." One of the most buoyant results was | posted by Syngenta, although that was to a large extent the result of its merger with the agrochemicals unit of AstraZeneca, which boosted sales by nearly 30% over 2000. Using pro forma figures, sales were down 8% in 2001. Likewise, profits were up 18% with the AstraZeneca unit, butflatwithout it. According to Syngenta CEO Michael Pragnell, "Early and decisive action in response to the challenging market conditions in agriculture Strube last year enabled us to mitigate the worst effects, particularly in Latin America." Pragnell said the company was able to merge operations faster than originally forecast: The company had an August 2001 target of $150 million in cost savings, but that was exceeded by $15 million. And in its first full year of independence,flavorsand fragrances supplier Givaudan recorded a sales increase of 4.2% in local currencies and 1.8% in Swiss francs, its home currency, compared with 2000. CEO Jurg Witmer noted that the company's operating profit was down 7% primarily because of new commercial and R&D projects begun in 2001. Nevertheless, net profits showed an increase of 3%. Flavors accounted for 54% of sales and posted a 7% increase in local currencies; the company expectsflavorsperformance to be boosted this year by the recent acquisition of theflavorsunit of Nestlé. Fragrances accounted for the remaining 46% of Givaudan's business, an increase of 1% over 2000 in local currencies. Speaking to reporters, Witmer would not elaborate on plans for acquisitions in the fieldsuch as Haarmann & Reimer— noting only that "our attitude toward external growth is, where it fits, opportunistic. But we are also focusing on innovation and organic growth."
C & E N / MARCH 25, 2002
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