PARIS -- Total Fina Elf SA Chairman Thierry Desmarest said his company must cut costs in its chemicals business in response to its 34 percent fourth-quarter profit decline, reported earlier today.
According to the company, the chemicals unit employed 58 percent of Total's workforce yet represented less than a fifth of all sales in 2000, after Total SA bought France's Elf Aquitaine SA and Belgium's Petrofina SA.
Investors expect companies to lower costs and boost oil output after London crude oil prices fell by a quarter over the last 12 months. Desmarest says he will add 4.4 billion euros ($3.81 billion) to the 2003 operating profit from 1999 levels, two-fifths of which was completed by the middle of last year. Not enough of those savings have come from chemicals, analysts said.
For 2001, Total's operating income from chemicals fell 34 percent to 1.08 billion euros. Operating income from producing oil and gas slid 11 percent, while profits from fuels refining declined 6 percent.
In comparison, Royal Dutch/Shell Group, which has sold two- fifths of its chemicals business to cut costs since 1998, had fewer than one-sixth of its workers in chemicals, with about 8 percent of sales. Similarly, Eni SpA of Italy has targeted a third of its cost savings goal during the last three years from the sale of a majority stake in its chemicals unit.
In chemicals, cost savings may be difficult to achieve. About three-fifths of the unit's sales are in Europe, and the 56- year-old chairman will be reluctant to take on the continent's labor unions, according to published reports. French presidential elections in April will also make any cuts at home politically difficult.
Desmarest said he intends to sell 1.5 billion euros of chemical assets by 2003, out of total asset sales of about 12 billion euros. He set a goal of improving operating profit at the unit by 300 million euros a year. Revenue of closed or divested chemical activities in 2001 stood at 800 million euros.
