Economic conditions drive down Degussa profits

Related tags Chemical industry Euro Profit

German speciality chemicals company Degussa sees a downturn in
profits and sales as it fails to realise the potential of its
restructured activities in the current economic climate.

German speciality chemicals firm Degussa is facing considerably lower profits this year as it fails to achieve returns on current activities.

The group, which has recently restructured its food and health ingredients division, saw operating profit fall 7 per cent during the first half of the year compared to last year's first six months, and overall sales dropped 3 per cent to €5.8 billion. This included the good 10 per cent rise from the first quarter.

The strength of the euro, higher raw material prices and a drop in demand in some areas were all cited as factors in the downturn."Although we took prompt action to cut costs, we were not able to offset these factors in full,"​ said Professor Utz-Hellmuth Felcht, chairman of Degussa's management board yesterday.

Fine and Industrial Chemicals was the only division to report higher operating profits. Performance Materials, which includes the Food Ingredients division, saw sales slip 8 per cent to €939 million for the first half, while operating profit was down to €78 million from €107 million the previous year's same period.

Group net income improved significantly however from €11 million last year to €119 million, mainly due to far lower one-off expenses. Expenses relating to legal proceedings concerning the mergers when the company was formed were offset by gains from the sale of Polymer Latex and the former Laporte site in Hythe, UK.

Interest expense also improved thanks to reduction in debts and lower interest rates in major currencies.

Degussa​ is not anticipating a significant improvement in its earnings position in the second half of the 2003. "Since global economic conditions deteriorated further in the second quarter and there are still no signs of a cyclical upswing, we now assume that the sales, EBIT and operating result reported by our core businesses at year end will be below the good level achieved in fiscal 2002. In percentage terms the difference is expected to be in the single-digit range,"​ added Felcht.

Last year, Germany's third-largest chemical company saw net income slip to €227 million, a substantial 64 per cent drop from €627 million in 2001. The company predicted sales in core operations this year to amount to €11.5 billion.

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