Pressure still on at Degussa
chemicals industry in the third quarter, with both sales and pretax
earnings continuing to slide.
Degussa today reported third-quarter results that reveal the continued impact of the economic downturn, with sales down 3 per cent to €2.7 billion year on year and earnings before income tax (EBIT) slumping 10 per cent to €244 million.
However, the company stressed that EBIT was better than in the first and second quarters of this year, suggesting that it was keeping the decline in operating result in check.
Compared to last year, Degussa said it is facing reduced market demand, even less favourable exchange rate factors and continuing high raw materials costs, although the latter issue has eased somewhat now that the conflict in Iraq has abated.
The group's pretax income, which included a non-operating loss of €623 million, was significantly affected by the €500 million charge related to the restructuring of its fine chemicals unit, according to Degussa. With this factored in, the group put in a loss of €132 million in the first nine months of 2003.
Overall, Degussa posted a net loss from continuing operations of €190 million in the first nine months of the year, compared with a profit of €134 million in the same period of 2002.
The group's recently-restructured Fine & Industrial Chemicals division, which includes its activities in pharmaceutical exclusive synthesis, catalysts and building blocks and accounts for 28 per cent of group revenues, reported sales of €712 million in the third quarter, a drop of 1 per cent year-on-year. For the first nine months, this division lifted sales 3 percent to €2.23 billion.
EBIT slipped 8.5 per cent to €54 million in the third quarter as a result of a substantial reduction in demand, said the company. Hardest hit were the Fine Chemicals and Bleaching & Water Chemicals business units, both of whichwere affected by exchange rate movements and lower volumes, while C4-Chemistry and Catalysts & Initiators posted a year-on-year improvement.
Degussa's chairman, Utz-Hellmuth Felcht, noted in the results statement that that market conditions in the fine chemicals segment have deteriorated considerably, with substantial global overcapacity exacerbating the effects of the current downturn.
"We responded to this situation by announcing plans to shut down our site in Radebeul (Germany) and introducing extensive restructuring at the facilities in Lülsdorf (Germany), Trostberg (Germany), Knottingley (UK) and Jayhawk(USA)," he added.
Looking to the full-year, Prof Felcht said that there was no expectation of an improvement in the operating environment in the fourth quarter, but the company is still expecting to keep its decline insales and EBIT to the single-digit percentage range.
On REACH and CO2 emissions
Prof Felcht also took the opportunity presented by the results statement to give his take on the European Union's REACH proposals, which were published in their latest form on 29 October.
"The revised draft regulation is a step in the right direction, but the changes compared with the initial proposal are by no means sufficient," he commented. "If the EU plans on chemicals policy take effect in their present form, this would be a heavy burden not only for the European chemicals industry, but also for European industry as a whole."
Prof Felcht said that the legislation would make innovation more difficult and greatly reduce competitiveness compared with non-EU companies, encouraging a shift in production and investment to countries outside the EU.
And he also expressed concerns about EU plans to introduce an emissions trading system on 1 January, 2005, to reduce CO2 emissions in Europe, claiming that "adequate attention has not yet been paid to the fundamental requirements of the chemicals industry."
