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Letter to the Editor

BASF Q1 Results Indicate a Good Start to 2003 but a Cautious Outlook

According to Dr. Jurgen F. Strube, Chairman of the Board of Executive Directors of BASF Aktiengesellschaft, BASF has made a good start to 2003. "Our numbers show yet again that with its clear strategy, BASF remains successful even in a difficult economic environment," he said, presenting the interim report for the first quarter of 2003. "In the period from January through March, our sales increased by 7.2 percent, and income from operations before special items rose by 15.4 percent. These good figures reflect the huge efforts we have made to improve our performance despite the difficult business climate."

"Lower costs and more efficient processes have played a major part in ensuring that all segments increased earnings compared with the same period in 2002," continued Strube. The sales growth was due to a substantial increase in volumes, in particular in the Chemicals and Plastics & Fibers segments. In the Oil & Gas segment, the high price of oil and higher volumes led to a substantial increase in sales (+21 percent). In addition to Oil & Gas, the Chemicals and Performance Products segments also reported significantly higher earnings.

Although margins remain under severe pressure in almost all business areas, it was possible to increase prices by more than four percent. However, currency effects, in particular the increase in the exchange rate of the euro against the U.S. dollar and the Brazilian real, reduced sales.

Earnings per share declined by almost 18 percent. This was due to the fact that the previous year's financial result contained extraordinary tax-free income from the sale of securities. In addition, income taxes for oil production, which are non-compensable with German taxes, increased in the first quarter of 2003 as a result of the higher price of oil.

Despite the company's positive first-quarter performance, Strube does not want to draw any premature conclusions for the rest of 2003. He said, "Economic developments are still subject to a great deal of uncertainty. Neither do we expect the end of the war in Iraq to bring a rapid economic recovery. Structural weaknesses in important economies continue to burden the global economic environment. In addition, prices for energy and raw materials remain volatile. As a result, the first quarter should not be taken as an indicator for further developments in 2003. In the second quarter, we expect sales and earnings to increase only slightly compared with 2002. We are continuing with caution, but are ready to act quickly and flexibly."

BASF has continued its share buy-back program in 2003 with the aim of reducing its equity ratio and cost of capital and increasing earnings per share. In 2003, the company wants to buy back shares for up to EUR500 million. In the period from January through to the end of March, BASF has bought back 6.9 million shares for EUR226 million or an average of EUR32.54 per share.

In the Performance Products segment, first-quarter sales declined 3.8 percent, predominantly due to negative currency and price effects (-10.5 percent) resulting from the weakening of the U.S. dollar and the Brazilian real. Sales volumes rose 6.5 percent. Compared with the same quarter of 2002, income from operations before special items climbed EUR27 million or 23.5 percent to EUR142 million. This was primarily thanks to the success of measures to reduce fixed costs as well as improved margins in some business units.

BASF does not consider the considerable increase in first-quarter sales and earnings as a result of the high price oil to be characteristic for further developments in 2003.

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