Degussa turning a corner in 2Q?
chemicals group reports continued growth into the second quarter
with an increase in demand pushing up sales and earnings.
However, the firm warned that a hike in raw material prices is likely to impact the bottom line for the rest of the year.
Professor Utz-Hellmuth Felcht, chairman of Degussa, said that the core businesses - Fine & Industrial Chemicals, Performance Chemicals, Coatings and Advanced Fillers, Speciality Polymers and Construction Chemicals - had raised sales for the first half by 2 per cent to €5.4 billion, just above the €5.3 billion accrued in the same period in 2003.
"This was mainly due to a 5 per cent rise in volume sales, while selling prices were unchanged and exchange rate movements trimmed sales by 3 per cent," continued Professor Felcht in a statement released yesterday.
Degussa's Fine & Industrial Chemicals division increased sales by 5 per cent to €720 million in the second quarter, although sales for the first six months were down 2 per cent year-on-year to €1,399 million due to the clear decline registered in the first quarter of the year.
EBIT rose 27 per cent to €65 million in the second quarter and totaled €123 million in the first half, some €5 million less than in the first half of 2003.
The cumulative earnings of the Exclusive Synthesis & Catalysts and Peroxygen Chemicals business units were down year-on-year, while C4 Chemistry reported good earnings and the Building Blocks business unit performance was above the previous year's weak result in EBIT.
The Performance Materials division, which contains Degussa's ingredients activities, had sales of €527 million. Its two business lines - Flavours & Fruit Systems and Texturant Systems - generate about a fifth of the group's revenue. The flavouring systems generally target the food, dairy and beverage markets while texturant systems supply a range of formulations based on hydrocolloids, blends, and lecithins.
For the group, net income for the first half of 2004 came in at €191 million, a massive 72 per cent year-on-year rise from 2003 that posted €111 million. Earnings per share rose from €0.54 to €0.93.
Looking ahead to the rest of the year, Felcht said he was cautiously optimistic, expecting "the recent sharp hike in raw material costs will dampen EBIT momentum in the second half of the year." But the chemicals firm said it expected core businesses to report a slight rise in sales and EBIT. In 2004 the number of employees for the group fell to 45,040, down from 46,297 in 2003.
Like many international players in the fine chemicals arena Degussa said earlier this year that it had targetted China as a key area for sales growth. The Dusseldorf-based firm said it will invest €10 million in a new 6,900-square metre research and development centre in Shanghai, China where its numerous business units, including food ingredients, will seek to develop products targeted for the Chinese market.
"We are seeking to considerably step up our activities in China over the medium term, and are holding extensive talks with a series of Chinese companies in pursuit of this aim," commented Professor Felcht at the time.
Degussa increased its sales in China in 2003 by 17 per cent to around €280 million. The group currently has 17 companies operating there, and plans to set up an additional 'multi-user site', where new operations from several different business units will be established.
