Double digit sales and earnings rise for filler maker Degussa

By Liz White, ERJ staff

Duesseldorf, Germany--Degussa AG, which earns some 19 percent of its sales from its carbon-black-, silica- and silanes-producing unit, Coatings and Advanced Fillers, saw double digit rises in sales and earnings across its chemicals businesses in the third quarter.

"Thanks to a strong rise in volumes and perceptible price increases,we were able to lift sales 12 percent. Earnings (EBIT) rose 10 percent, partly as a result of successful cost savings," said Professor Utz-Helmuth Felcht, Degussa chairman,speaking atthe group's third quarter results meeting in Duesseldorf, 8 Nov.

The good results came despite energy costs for natural gas and electricity which have risen 12 percent this year, with an anticipated rise of 20 percent for 2006. Degussa paid Euro 500 million for energy in 2004, will pay Euro 550 million this year and predicts energy costs of Euro 670 to 680 million for 2006, commented Heinz-Joachim Wagner, Degussa board member.

Referring to "the drastic increase in energy and raw materials prices" as developments causing convern, Felcht said the price for the oil needed to make the tyre and rubber filler carbon black has risen "by double-digit rates" this year, along with that of other key materials--C4 crack, propylene and methanol, for example.

Despite attempting to deal with these increases via good cost management and raising efficiency, Felcht explained that by autumn, "these cost hikes had increased to such an extent that we had no other choice but to pass them on to our customers across the board."

Degussa's Coatings and Advanced Fillers business posted Q3 sales of Euro 658 million, 4 percent up on last year, while EBIT dropped 16 percent to Euro 70 million. Part of this drop comes from the segment which makes fillers, Advanced Fillers and Pigments, where, Degussa said, "price rises did not fully compensate for the sharp rise in raw materials and energy costs," adding that there is a time lag for pushing price rises through.

Total sales for the chemicals group grew 8 percent to Euro 8700 million, in the first nine months (2004, Euro 8100 million)and Q3 sales were Euro 3100 million (2004, Euro 2700 million).

Earnings grew 2 percent in the nine months to Euro 738 million (2004, Euro 723 million), while for Q3 EBIT was Euro 268 million (2004, Euro 260 million).

Felcht referred to Degussa's combination of "carbon black, performance silica and silane specialities," which enhances fuel economy by lowering a car tyre's rolling resistance, as one of Degussa's top innovations. These tyres lower fuel use by some 8 percent, without lowering wet grip, he said, saving the average driver several hundred Euros a year. A set of these green tyres pays for themselves in "a mere year of use," he added. Lower fuel use also reduces carbon dioxide emissions, reducing environmental impact, generally, the Degussa chief added.

Asked for specifics on raw materials cost rises, Wagner said Degussa does not publish individual raw materials prices, but follows an index, which last year "rose by just under 20 percent." Over the last five to six months, this increase has slowed, he added, and "particularly for Q3 raw materials costs are only 2 percent up."

This is one reason for the good Q3 results, Felcht said: "raw materials did not go up as much as in the previous quarter."

But medium term it is hard or impossible to predict what sort of price rises will happen, Wagner added. Felcht stressed that "in individual businesses price hikes have been much more drastic," added to which, he pointed out, there are, "some where we could not raise prices at all."