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European Decline Persists

Reports show poor earnings, but some positive signals are on the horizon

by Melody Voith
August 10, 2009 | A version of this story appeared in Volume 87, Issue 32

European chemical firms report that second-quarter results were terrible compared with last year's, although not quite as bad as those in the first quarter. Demand was still weak but no longer dropping, and some firms saw the shadows of a recovery.

In its report to investors, DSM wrote that the global economic downturn had "a very adverse effect" on all of its businesses except nutrition but that it saw improved demand compared with the first quarter. Overall, the company booked just $14 million in earnings, a huge 94.8% drop from second-quarter 2008.

Although DSM's revenues remained leaden, cost-cutting activities that began late last year put a floor under operating results. "Early and aggressive action to reduce costs, a focus on cash, stringent management of working capital, and the ongoing resilience of our life sciences businesses" kept DSM in the black, Chairman Feike Sijbesma said. The firm is accelerating its cost reduction program, adding 250 job cuts to the 1,000 layoffs it announced in December 2008.

Specialty chemical firm Clariant is also focusing on cash and cutting costs. The firm, which in June announced 500 layoffs in addition to 1,400 previous ones, posted a loss of $66 million for the quarter and reported that volumes were down 23% from last year's quarter. However, Clariant saw destocking ease and says it has started to increase output in some businesses.

Kemira was able to boost earnings even while revenues declined 12.3%. The company had implemented price increases last year and eliminated $33 million in fixed costs. In addition, steady demand for municipal water treatment products and specialty chemicals for agriculture and pharmaceuticals helped the firm weather the crisis.

At Bayer, health care and crop science businesses saw increased revenue, but a continued slump in demand for plastics and coatings hurt overall earnings. CEO Werner Wenning warned that additional shutdowns may come for the polycarbonates business.

Although its sales stayed level, Merck KGaA reported much higher operating expenses for pharmaceutical R&D and marketing compared with last year's, leaving it with a 47.9% drop in earnings. The company said it is seeing some recovery in its struggling liquid-crystals business, but demand for pigments is not improving.



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