BASF Interim Report 3rd Quarter; Better Equipped for Market Challenges; Profit Before Taxes: Up 14% in First Nine Months.

LUDWIGSHAFEN, Germany--(BUSINESS WIRE)--Nov. 10, 1998--

Earnings per share DM 4.14 (1997: DM 3.66)

BASF Group


Survey          3rd quarter   Change    1st - 3rd quarters  Change Year
DM Million      1998   1997               1998      1997           1997

Sales         12,635 13,658   -7.5%     41,373    41,455   -0.2% 55,780
- Germany      3,202  3,445   -7.1%     10,547    10,581   -0.3% 14,380
- Outside
    Germany    9,433 10,213   -7.6%     30,826    30,874   -0.2% 41,400
Income from
  operations   1,315  1,310   +0.4%     4,067      3,807   +6.8%  5,342
Profit before
  taxes        1,491  1,329  +12.2%     4,306      3,787  +13.7%  5,331
Net income
  after taxes
  and minority
  interests      959    847  +13.2%     2,576      2,264  +13.8%  3,236
Cash flow      1,933  1,690  +14.4%     5,864      5,207  +12.6%  7,349
Capital
  expenditures 1,385  1,069  +29.6%     3,415      2,681  +27.4%  4,359
Personal
  expense
  (without
  pension
  benefits)    2,701  2,756   -2.0%     8,236      7,990   +3.1% 10,803
Number of
  employees                           104,224    106,502   -2.1% 104,979

Quarterly development

Outlook for 1998

Business conditions have not improved to the degree as hoped after the seasonal slowdown in the middle of the year. We are not expecting an improvement in the economic situation in the fourth quarter. We still expect, however, our pre-tax profit for 1998 to be slightly above the previous year's level due to lower special charges in comparison to 1997 and the clearly better financial result.

Despite difficult economic conditions, we are well-equipped for the challenges due to our improved strategic position.

Survey of 3rd quarter of 1998

Sales

Sales in the 3rd quarter still showed satisfactory volume growth. A decline in selling prices and the weaker U.S. dollar, however, were responsible for sales falling 7.5% below the very good quarter of the previous year. This decline also canceled out the increase in sales achieved during the first two quarters of 1998. The development of sales in the first nine months resulted from the following components:

                                                           %

Volumes                                                 + 2.7 %
Prices                                                  - 4.8 %
Currency and translation                                + 0.3 %
Scope of consolidation                                  + 1.6 %

Total                                                   - 0.2 %

In Europe, our home market, sales in the 3rd quarter fell by 8.2% in comparison with the same quarter last year. The sharp drop in sales of Oil & Gas caused by falling prices is reflected here. In addition, the Comparex Group was removed from the scope of consolidation at the beginning of August 1998.

Considerable increases in sales were achieved in Spain and France, particularly as a result of the restructuring of the polyolefin business. In Italy and the United Kingdom, however, we had to accept lower sales. Business in eastern Europe remained generally stable, although the trend varied from country to country.

In North America, we increased sales by 3.5% on a dollar basis in the 3rd quarter. The consolidation of Micro-Flo Company, which was acquired in June to strengthen our crop protection business, had a positive effect. Sales in DM, however, were slightly below the 1997 figure on account of the lower conversion rate.

In the period from January to September, we increased sales by 6.9%. The main contributor here was Health & Nutrition with a rise of 12.6%.

In South America, business in Brazil suffered from the impact of the drastic interest rate rises to support the currency and measures announced to reduce the budget deficit. Business in Health & Nutrition did well here, posting growth of 6.5% in the first nine months.

In Asia, Pacific Area, Africa, the economic crisis is having an impact on our business in various countries. Sales converted to DM fell sharply in Indonesia, Thailand and Singapore. Colorants & Finishing Products as well as Plastics & Fibers were increasingly affected. Chemicals failed to match the previous year's level in the first nine months. Sales from Health & Nutrition, however, again recorded a gratifying increase.

BASF Aktiengesellschaft

At BASF Aktiengesellschaft, we achieved sales of DM 16,288 million in the first nine months, which is 7.9% less than in the same period of last year. When adjusted to structural changes, the decline in sales is 4.9%. Business abroad declined more sharply than sales in Germany. This applies particularly to business with our overseas customers. Exports as a proportion of sales fell by nearly two percentage points to 68.0%. Selling prices declined, especially in September. The decline in revenues contrasted with falling raw material prices.

Sales by segments in the 1st - 3rd quarters/(3rd quarter) of 1998
Million DM

Health & Nutrition                        Plastics & Fibers
9,187       +8.7%                         11,287       +5.4%
(2,625      +9.8%)                        (3,544       -7.6%)

Colorants & Finishing Products                    Oil & Gas
9,129       -5.3%                          3,982      -10.3%
(2,938      -8.4%)                        (1,161      -17.8%)

Chemicals                                             Other
6,404       -0.3%                          1,384      -22.8%
(2,020     -10.2%)                          (347      -38.3%)

Income from operations by segments

                     3rd quarter  Change   Jan-Sept.     Change
Million DM           1998   1997  Mill. DM 1998  1997    Mill. DM

Health & Nutrition      8      3    +5     726   681      +45
Colorants & Finishing
  Products            414    288  +126     984   699     +285
Chemicals             530    679  -149   1,381 1,496     -115
Plastics & Fibers     272    274    -2     734   534     +200
Oil & Gas              97    180   -83     415   662     -247
Other                  -6   -114  +108    -173  -265      +92
- thereof costs of
  exploratory
  research            -60    -64    +4    -187  -190       +3
                    1,315  1,310    +5   4,067 3,807     +260

Income from operations, therefore, dropped by only 1.6% to DM 1,305 million. The financial result was considerably better than in the previous year, and consequently profit before taxes rose by 14.9% to DM 2,070 million.

Segments

Sales in the 3rd quarter declined in all segments, except in Health & Nutrition, as against the very good quarter in 1997. In spite of the lower sales, income from operations improved slightly.

In Health & Nutrition, we again achieved higher sales in the 3rd quarter. With the exception of fertilizers, all divisions participated in this improvement. Of the 8.7% increase in sales as of September, acquisitions and additions to the scope of consolidation accounted for 3.5 percentage points. Pharmaceuticals made a major contribution to improved earnings in this segment. The previous year's results were adversely affected by the provisions for the Synthroid lawsuit.

In Colorants & Finishing Products, business did not achieve the previous year's level. Overall, sales in the first three quarters were down 5.3% on the previous year's figure, partly because of divestitures in the Coatings Division. However, earnings in the segment made very gratifying progress, both in the 3rd quarter and for the first nine months of 1998. The sustained turnaround in the Coatings Division, in particular, contributed to the improvement in Group earnings.

In Chemicals, the first half-year's growth in sales could not be maintained. The reason for this was the continuing fall in selling prices, especially for industrial and basic chemicals. For the period as a whole, sales fell slightly below the reference figure for last year. Although the previous year's very healthy earnings could not be matched, this segment continues to make the strongest contribution to Group earnings.

In Plastics & Fibers, sales in the 3rd quarter were lower than in the same quarter of 1997. A growth of 5.4% remains for the first nine months, this being attributable in particular to acquisitions and restructuring in the polyolefin business. Income from operations was again stable in the 3rd quarter. The increase in earnings in the first three quarters, mainly in engineering and styrene plastics, helped to stabilize Group earnings.

Sales by regions (locations of customers) in the 1st - 3rd
quarters/(3rd quarter) of 1998

Europe                                        North America (NAFTA)
25,104     -0.4%                               9,443       +6.9%
(7,459     -8.2%)                             (2,869       -1.0%)

                                              South America
                                               2,323       -2.8%
                                                (840       -9.5%)

Thereof Germany                          Asia, Pacific Area, Africa
10,547         -0.3%                           4,503      -10.2%
(3,202         -7.1%)                         (1,467      -14.3%)



Sales and income from operations by regions (locations of companies)

                                 Sales

                3rd quarter        Change      Jan.-Sep.      Change
Million DM          1998             %            1998           %

Europe             8,342           -10.8        27,920        -2.9
- thereof Germany  5,611           -12.5        18,394        -5.9
North America
  (NAFTA)          2,871           - 0.5         9,415        +6.7
South America        664           - 7.1         1,813        +0.3
Asia, Pacific
  Area, Africa       758           + 7.4         2,225        +7.0
                  12,635           - 7.5        41,373        -0.2

                           Income from Operations

                3rd quarter        Change      Jan.-Sep.      Change
Million DM          1998          Mill. DM        1998      Mill. DM

Europe             1,048            - 38         3,119         -38
- thereof Germany    728            + 23         1,971         -40
North America
  (NAFTA)            182            +  5           737        +267
South America         50            - 13           116         -24
Asia, Pacific
  Area, Africa        35            + 51            95         +55
                   1,315            +  5         4,067        +260

In Oil & Gas, developments in the 3rd quarter were again marked by lower prices for crude oil and natural gas. In spite of falling prices, higher volumes helped us to achieve higher sales and improved income from operations in the natural gas retail business. However, this was not sufficient to compensate for the decline in oil business revenues, which led to lower sales and income from operations in the segment. The oil production taxes, which we have to pay in some production regions, also declined. Since they are dependent on revenues and included in taxes on income, the fall in the contribution of this segment to Group earnings after taxes is lower than the decline in income from operations.

Earnings

Declining sales in the 3rd quarter are also reflected in income from operations, which was lower than in either of the previous two quarters. However, earnings did again match the level of the same quarter last year, one contributing factor being special earnings, particularly from divestitures.

In the current year, we have been able to improve our income from operations by DM 260 million, or by 6.8%. Since special charges as a whole were lower, it was possible to compensate for increased charges, especially those related to adverse currency market developments. The contributions made to earnings by our companies in North America and Asia, Pacific Area, Africa were particularly gratifying. The improvement in earnings there more than compensated for the declines in the other regions.

Profit before taxes increased by 13.7% to DM 4,306 million. Net income after taxes and minority interests improved by 13.8% to DM 2,576 million. This corresponds to earnings per share of DM 4.14 (1997: DM 3.66).

Capital expenditures

In the first three quarters, we spent DM 3,415 million on capital expenditures on tangible fixed assets, representing an increase of 27.4% over the same period last year. For 1998 as a whole, we expect capital expenditures to amount to DM 5,100 million. Of the funds invested, 44% went to Germany and 13% to other European sites. The North American sites accounted for 38%, South America for 3% and Asia, Pacific Area, Africa for 2% of total capital expenditures.

Employees

Since the end of 1997 the number of people employed within the BASF Group has fallen by 755 to 104,224. Changes in the scope of consolidation, as well as acquisitions and divestitures, accounted for an addition of 276 employees to the Group. Employee levels rose in Japan, Korea and the United States, but fell mainly in Europe as a result of the deconsolidation of the Comparex Group. Without these structural changes, the number of employees fell by 1,031.

Since the end of 1997, the number of employees, including trainees, at BASF Aktiengesellschaft has fallen by 573 to 44,277. The decline is primarily due to working agreements for those nearing retirement, retirements and transfers to the Elenac joint venture. In comparison to the end of June 1998, the number of employees at BASF Aktiengesellschaft has risen by 514 as a result of trainees being added to the payroll.

In the BASF Group, 57.7% of all employees work in Germany, 15.1% at other European sites, 15.2% in North America, 6.1% in South America and 5.9% in Asia, Pacific Area, Africa.

Further reporting

Year 1998 Mar. 15, 1999 First Quarter of 1999/ Annual Meeting Apr. 29, 1999 First Half of 1999 Aug. 05, 1999 Third Quarter of 1999 Nov. 9, 1999

Financial statements of the BASF Group (abridged version)

           January-September

Million DM              Change
                         1998        1997      in %    Year 1997
Profit and loss account

Sales (without petroleum
and natural gas taxes)    41,373    41,455     - 0.2   55,780

Cost of sales             25,518    26,184     - 2.5   35,520

Gross profit on sales     15,855    15,271     + 3.8   20,260

Selling expense            7,136     6,897     + 3.5    9,355

General administration
expense                    1,144       969     +18.1    1,397

Research and development
expense                    1,949     1,879     + 3.7    2,549

Other operating expense/
income (balance)           1,559     1,719     - 9.3    1,617

Income from operations     4,067     3,807     + 6.8    5,342

Financial results            239      - 20         -     - 11

Profit before taxes        4,306     3,787     +13.7    5,331

Income taxes               1,771     1,535     +15.4    2,126

Minority interests          - 41      - 12         -     - 31

Net income after taxes     2,576     2,264    + 13.8    3,236

Balance sheet
(million DM)

Assets                  Sept. 30, Sept. 30,  Change  Dec. 31,
                            1998      1997      in %    1997

Fixed Assets              26,654    23,800    + 12.0   24,848

Inventories and
 receivables(a)           20,129    19,608    +  2.7   19,530

Cash and cash items        3,917     6,317    - 38.0    3,610

Current assets            24,046    25,925    -  7.2   23,140

Assets                    50,700    49,725    +  2.0   47,988

Equity and liabilities

Subscribed capital
and capital surplus        8,137     8,008    +  1.6    8,131

Revenue reserves and
other equity              16,531    14,063    + 17.5   15,399

Equity                    24,668    22,071    + 11.8   23,530

Provisions(a)             15,201    15,647    -  2.9   14,252

Liabilities               10,831    12,007    -  9.8   10,206

Liabilities(a)            26,032    27,654    -  5.9   24,458

Equity and liabilities    50,700    49,725    +  2.0   47,988

(a) Including prepaid expenses, deferred income and special reserves

    The interim balance has not been audited.