Wasag hints at price hikes despite profits quadrupling

By Gregory Roumeliotis

- Last updated on GMT

Related tags Material Benchmark Cost

Specialty chemicals group H&R Wasag witnessed tremendous growth
in the first quarter of 2006, as stable crude oil prices allowed it
to increase prices and volumes in the pharmaceutical raw materials
it sells.

The German company experienced total sales growth of 45 per cent and saw its profit margins rise from 4.4 per cent in Q1 of 2005 to 8.8 per cent in Q1 of 2006, leading to pre-tax profits of €15.2m, an impressive fourfold rise from a year ago.

Driving growth was the expansion of sales volumes, mainly from Asia and Europe, in Wasag's Chemical Pharmaceutical Raw Materials Division, where the vast majority of revenue stems from.

There, prices for chemical-pharmaceutical specialties shot up, finally passing on the cost of the higher price level for raw materials, resulting from crude oil, to the company's clients.

In the last two years, fierce competition, fixed prices costs and a time lag, had held Wasag back from directly passing on the rising material costs.

"Prices still do not reflect the high operating costs we are faced with, which the company aims to bring further down,"​ Wasag spokesman Oliver Konig told In-PharmaTechnologist.com​.

"Eventually prices will have to go up to reach the desired profit margins."

Nevertheless, in chemical/pharmaceutical raw materials, margins reached 9.6 per cent from 3 per cent a year ago, as pre-tax profits soared to €16.6m from €3.6m.

Nonetheless, Wasag is targeting even higher margins and is implementing a comprehensive restructuring programme, called Project 18, which calls for cost reductions, increasing added value by focusing on niche markets, and higher sales volumes powered by its two special refineries in Salzbergen and Hamburg.

Meanwhile, restructuring operations in the UK were largely concluded, as production activities that were part of core business were bundled at a single location due to the shutdown of a BP specialty refinery.

The supply of feedstock, raw materials and sales products will now be provided by Wasag's specialty refineries based in Germany as well as by external refineries.

The company claims that measures introduced already in the Q1 of 2006 to expand capacity in bottlenecked facilities will lead, over the course of the year, to a continuous rise in the production volumes of chemical-pharmaceutical specialty products.

Indeed, Wasag's order book appears to be running out of pages, as both its special refineries are expected to be fully utilised until the end of the year.

As a result of more sales and new synergies from Project 18, Wasag expects the Chemical Pharmaceutical Raw Materials Division to offer similar earnings in the coming months.

Still the company cautions that it is not possible to predict how the crude oil market will develop in future, in particular in view of the rising tensions in the Middle East.

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