European Firms Weather Crisis

The debt woes of European Union member nations and uncertainty over the fate of the euro dominated headlines in Europe for much of 2011, but you wouldn’t know it from the financial results of the continent’s large chemical makers. Their earnings in 2011 mostly went up.

At companies that recorded lower earnings in 2011 compared with 2010, the deterioration was due mainly to exceptional items that had boosted results in 2010 but did not recur in 2011. Of the companies C&EN tracks, AkzoNobel was the only one that did not register higher earnings from its continuing operations in 2011.

If there is a theme to the reasons European companies provided for their profit improvement, it is that demand for most of their products was strong, especially in emerging markets such as China. Raw material prices did rise, but several firms reported that they were able to pass on the increase to their customers. European companies mention EU member nations’ debt straits only in passing.

In a letter to shareholders, BASF Chairman Kurt Bock said that the major events affecting his company in 2011 were the earthquake in Japan, a shift in Germany energy policy, and the political turmoil in Libya, which rendered BASF unable to produce crude oil in the North African country from February to October.

Despite the headwinds, BASF boosted its sales 15.1% in 2011 to more than $100 billion at prevailing exchange rates. Net earnings surged 35.8% to $8.5 billion, resulting in a profit margin of 8.4%. Sales were strong across its product lines, BASF says, especially for plastics, catalysts, coatings, and other materials used by the auto industry.

Bayer, the other giant European chemical maker, also had a banner year. Although sales rose a modest 4.1%, net earnings jumped 35.9% to $2.2 billion. Bayer credits strong demand for health care and crop protection products. The firm’s MaterialScience unit, however, performed below expectations, primarily because it was not able to fully pass on higher raw material costs.

For 2012, a sense of modest optimism prevails among European firms. Solvay sees economic conditions generally recovering worldwide, although they remain sluggish in Europe and in some segments in the U.S. Bayer remains upbeat about its health care and crop protection businesses. And BASF believes the global economy will “pick up speed” in 2012.

CEFIC, Europe’s chief chemical industry association, noted in a February newsletter that chemical production in Europe in 2011 was 1.1% higher than in 2010. According to CEFIC, business sentiment worldwide is improving, but at 80%, capacity utilization in the overall European manufacturing sector remains low by historical standards.