Q2 EBIT plunges as global outlook sours / Revised annual forecast confirmed
BASF CEO Martin Brudermüller currently has some concerns (Photo: BASF)
The world’s largest chemical producer BASF (Ludwigshafen / Germany;, already having issued a profit warning and launched an organisational realignment scheme that will see 6,000 job losses with around half in its home market (see of 11.07.2019 and 28.06.2019), has indicated that it will continue battening down the hatches before the biggest economic storm in a decade presses down with gale force winds. CEO Martin Brudermüller stressed, however, that this means continuing programmes already in place. He does not expect further job losses, especially as many employees are taking advantage of early attractive retirement packages. BASF has “enough instruments at its disposal to avoid compulsory redundancies,” the CEO noted.

In a telephone conference with journalists on 25 July 2019, Brudermüller and CFO Hans Engel upheld the dismal forecast published at the end of June, in which they corrected earlier guidance downward and predicted an EBIT decrease of as much as 30% for full-year 2019 against 2018 – instead of a 1-10% rise. The executives said the considerably weaker than expected business development in the second quarter confirms the trend. Suppliers of global industry will have to get used to slower economic growth and thus less growth in earnings and output.

Trade conflicts – in particular between the US and China, where BASF will suffer from its heavy exposure in the People’s Republic – will add to the uncertainty, Brudermüller remarked. In its first forecast for 2019, in February, he said the German group assumed that the trade disputes would be resolved by mid-year, but it now seems that this assumption was just as false as was the general economic forecast based on “certain macroeconomic and geopolitical assumptions that did not materialise.” Growth in the chemicals and plastics industry’s customer sectors is running “significantly” below expectations. No change in this picture is on the horizon in the near term, the BASF chief underscored. The automobile industry, a major customer of the plastics industry, is likely to see a global decline of 4.5%.
Earnings shrink sharply in the second quarter
BASF’s financial results for Q2 show sales revenue down 4% at EUR 15.2 bn. While EBITDA before special items shrank by 27% to EUR 2 bn, EBIT plunged by 47% to EUR 1 bn amid what Brudermüller said was “high uncertainty, low visibility and poor predictability.” The Chemicals and Materials business segments – including plastics and their feedstocks – were handed the blame for 83% of the worsened quarterly earnings performance. Along with maintenance turnarounds that took cracker products out of the market, poor margins on isocyanates were a major factor. In this business, however, the group said the comparison is distorted by the higher than usual margins on MDI and TDI over the past two years.

Among plastics-related operations, sales in the Chemicals segment, which takes in petrochemicals and intermediates, fell back by 22% to EUR 2.2 bn from April to June 2019. BASF was hit by a prolonged turnaround of its cracker at Port Arthur, Texas / USA and the shale gas-fed US market saturation. Sales of the segment’s Petrochemicals division deteriorated by 26% to EUR 1.46 bn. The performance of the Intermediates division was only slightly better, with a decline of 11% to EUR 717m. Overall, the Chemicals segment’s EBIT before special items plummeted by 74% to EUR 119m.

In the Materials segment, which includes engineering plastics (Performance Materials) and their monomers, sales sank 16% to just under EUR 3 bn, reflecting weaker business with the automotive industry as well as drastic declines in isocyanate prices. The Performance Materials division saw a sales decline of 8% to EUR 1.6 bn, while revenues of the Monomers division fell by 21% to EUR 3 bn. The segment’s EBIT before special items receded by 45% to EUR 334m.
29.07.2019 [243041-0]
Published on 29.07.2019
BASF: Misere der Petrochemie- und Werkstoffsparten setzt sich fortGerman version of this article...

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