Sector News

BASF issues profit warning, citing downturn in automotive, North American agchems sectors

July 9, 2019
Chemical Value Chain

BASF on Monday significantly cut its 2019 earnings expectations, blaming a downturn in automotive markets and the North American agricultural sector for weaker second-quarter results. The company recently announced plans to reshape the organization, including 6,000 job cuts worldwide by the end of 2021 with half the total in Germany. The program is expected to deliver a positive contribution to EBITDA of €2 billion annually from the end of 2021.

The company says significantly weaker-than-expected industrial production hurt volumes and margins. BASF shares were trading 5% down on Tuesday, having recovered slightly from the lower initial opening price. The downturn in the global automotive industry was particularly strong, BASF says. Global auto production declined by around 6% in the first half of 2019. In China, the world’s largest automotive market, the decrease was more than twice as high, at around 13%. About 20% of BASF’s sales are geared toward automotive OEMs.

The weak development of the agricultural sector in North America was an additional burden, the company says. Due to difficult weather conditions, the planting of key field crops in the region was down from the previous year and far below the historical average. The decrease in earnings prospects for farmers and the trade disputes led to lower demand for crop protection products. To date, the conflicts between the US and its trading partners, particularly China, have not eased. The G20 summit at the end of June has shown that a rapid détente is not to be expected in the second half of 2019, BASF says, adding that uncertainty remains high.

Year-on-year declines

BASF’s second quarter financial results will be significantly below current analyst estimates and BASF’s expectations at the beginning of the year. Earnings before interest and tax (EBIT) before special items are expected to be €1.0 billion ($1.12 billion), 47% down on the year-earlier quarter and 32% below analysts’ expectations, due mainly to considerably lower earnings in the materials, chemicals, and agricultural solutions segments. Sales declined by 4% to €15.2 billion.

Significantly lower isocyanates prices led to a considerable year-on-year decline in the materials segment’s EBIT before special items in the second quarter of 2019. In the chemicals segment, the decrease was primarily due to the scheduled turnarounds of the steam crackers in Port Arthur, Texas, and Antwerp, Belgium; furthermore, margins for steam cracker products, especially in North America, were considerably lower than BASF forecast.

EBIT before special items in the agricultural solutions segment was hurt by the weak development of the agricultural sector in North America as a result of unpredictably difficult weather conditions and the trade conflict between the US and China. Despite the challenging environment, EBIT before special items in the remaining segments was either considerably or slightly higher year on year. One-time costs for the restructuring program and the impairment of a natural gas-based investment on the US Gulf Coast, which BASF is no longer pursuing, have had an impact on profitability, the company says. The investment relates to BASF’s methanol-to-propylene project, which has now been cancelled. The company announced in 2015 that it was to build the complex at Port Arthur but put the project on hold following a decline in the price of oil. It would have been BASF’s largest-ever investment in a single plant.

Net income, on the other hand, is expected to increase to €6.5 billion in the second quarter of 2019 from €1.5 billion in the year-earlier quarter, due to the book gain from the deconsolidation of Wintershall with the closing of the merger of Wintershall and DEA on 1 May 2019.

For the whole of 2019, BASF now anticipates considerably lower EBIT before special items of up to 30% below the prior-year level. This compares with its previous forecast of a slight increase in EBIT before special items of 1–10% and analysts’ expectations of a 25% decline. Sales are expected to record a slight decline compared with full year 2018. In its previous forecast, BASF forecast sales growth of 1–5%. Return on capital employed (ROCE) for the full year is expected to decline considerably compared with 2018. Previously BASF said it expected ROCE to be 0.1–1.0 percentage points lower than in 2018.

By Natasha Alperowicz

Source: Chemical Week

Join the discussion!

Your email address will not be published. Required fields are marked *

Related News

January 23, 2021

Bayer AG appoints Sarena Lin as Chief Transformation and Talent Officer

Chemical Value Chain

Lin will become the company’s Chief Transformation and Talent Officer. She will be responsible for Human Resources, Strategy and Business Consulting and drive the accelerated transformation of Bayer.

January 23, 2021

Johnson Matthey’s battery plant in Poland to be powered by renewable electricity 

Chemical Value Chain

Johnson Matthey plc (JM; London) has confirmed that its battery cathode materials plant in Konin, Poland, will be powered solely by electricity from renewable sources from day one of production.

January 23, 2021

Oxford given £100m for antibiotic resistance research

Chemical Value Chain

Britain’s Oxford University has received a donation of £100 million (112 million euros, $136 million) to research growing resistance to antibiotics, the university announced on Tuesday. The sum, from British chemicals multinational Ineos, is one of the largest donations given to Oxford University in its long history.

Send this to a friend