Oil prices impact Degussa earnings

By Lindsey Partos

- Last updated on GMT

Related tags Degussa Petroleum

Record oil prices bite hard into earnings for ingredients firms
with Degussa, Germany's third largest chemicals group, warning of
the impact a one dollar price rise for crude oil can have on the
firm's books.

Degussa's chief executive Utz- Hellmuth Felcht told Financial Times Deutschland​ that it loses €10 million before taxes and interest if the price for crude oil climbs by one dollar.

Oil is a key raw material for the chemicals industry, but prices for crude oil recently topped a record $70 a barrel. Hurricane Katrina that ripped through the Gulf of Mexico last week, an important area for the extraction of oil, has exacerbated prices over supply and stock scares.

The Center for Global Energy Studies expects oil prices to remain above $50 a barrel throughout 2006.

Degussa that includes flavours, food thickeners and health ingredients in its portfolio is in the final stages of talks to shed its food ingredients unit, the firm's chief financial officer Heinz-Joachim Wagner said last month.

Speaking recently at the firm's first half results conference, Wagner told analysts he could not comment on whether "there will be a book loss or book gain on the sale of the food ingredients business, because we are in the final negotiations."

Citing insufficient leverage to match the performance of larger commercial players, at the end of last year Degussa announced plans to divest the food ingredients arm of its business, that pulled in sales of €527 million in 2003, generating a small slice of overall revenues for the group that peaked at €11.4 billion last year.

Degussa told FoodNavigator.com at the time that the food ingredients division is "too small to be able to attain a leading market position on its own".

Earlier this year Degussa shrugged off its fruit preparation business, that pulled in €64 million in sales last year, to private US firm Speyside Equity for an undisclosed price.

In June number four flavours and fragrance group Symrise announced it was heading into the second round of bidding for the food chemicals arm of Degussa, together in a consortium with its owner, Swedish private equity firm EQT.

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