- Fourth quarter of 2009: sales expected to be at the level of the previous quarter; earnings expected to be higher than in the fourth quarter of 2008, but lower than in the third quarter of 2009
- High cash flow and profitable business in all segments thanks to operational strength and strict cost management
- Rapid integration of Ciba, faster than planned in some areas; integration costs of more than €800 million in 2009, of which around €150 million will be cash costs
- Development difficult to predict due to ongoing risks; recovery will be slow and uneven
- Goal of earning cost of capital is unlikely to be achieved in 2009
Opportunities and risks
Risks result from the phasing out of economic stimulus packages, corporate insolvencies, rising unemployment, the increasing difficulty of supplying credit to businesses and the weakening U.S. dollar. The temporary non-availability of production capacities supported the market for some chemical products in the third quarter. Overall, however, there are still major structural overcapacities worldwide. Our customers are still placing small orders at very short notice, especially closer to the end of the year. We therefore do not expect our customers to increase their inventories in the fourth quarter.
We have demonstrated our ability to act quickly and decisively even in uncertain times by strictly managing costs, tailoring production to demand, idling plants and introducing flexible working time arrangements including short-time work where necessary. Despite unsatisfactory plant utilization, we have increased our cash flow. All segments are operating profitably.
We are adjusting capital expenditures to the changed market conditions. We are continuing to exploit opportunities in growth markets. We are also maintaining a high level of expenditures for research and development in 2009.
The integration of the businesses acquired from Ciba is proceeding rapidly, and is faster than planned in some areas. As a result, a greater proportion of the integration costs will be incurred in 2009. For the full year 2009, we anticipate a negative impact on earnings of €800 million, of which around €150 million will be cash costs. By 2012 at the latest, we expect the combined business to generate synergies of at least €450 million per year. We expect to achieve recurring savings of €350 million by the end of 2010.
We have updated our expectations with regard to the underlying economic conditions worldwide in 2009:
- Decline in gross domestic product (–2.5%)
- Decline in industrial production (–9.1%)
- Decline in chemical production (excluding pharmaceuticals) (–6.1%)
- An average euro/dollar exchange rate of $1.40 per euro
- Average oil price of $60 per barrel in 2009
Despite stabilization of the economic environment in the third quarter, we anticipate a significant decline in sales and earnings for full year 2009. Higher integration costs for the integration of Ciba will negatively impact earnings. BASF is therefore unlikely to reach its goal of earning its cost of capital this year.