ROUNDUP 2: BASF expects earnings growth in 2021 – ‘Exceptionally high risks’ | 02/26/21

(New: statements from the conference call with journalists and analysts, more background, share price)

LUDWIGSHAFEN (dpa-AFX) – After declines in 2020, the world’s largest chemical company, BASF, expects better business again in the current year. “For the year 2021 we expect that the global economy will recover from the severe slump as a result of the corona pandemic,” said company boss Martin Brudermüller on Friday in Ludwigshafen when the detailed figures for the past year were announced. However, the uncertainties about the further development remained exceptionally high. The global economy will need time to return to pre-pandemic levels.

In 2021, the company is aiming for earnings before interest and taxes (EBIT) adjusted for one-off effects of 4.1 to 5 billion euros. Analysts had so far on average an operating profit of more than five billion euros on the list. In 2020, the operating result fell – as already known – by 23 percent to just under 3.6 billion euros. Sales are expected to rise to between 61 and 64 billion euros in 2021 after around 59 billion euros in the previous year.

According to Brudermüller, BASF stated broad ranges in the forecasts in order to also take into account the risk of renewed interruptions in global supply chains and the associated negative effects on the entire economy. “However, we are confident that without such negative effects we can generate a result that is at the upper end of our forecast range,” he added.

The outlook was not well received by the stock market. The papers of the chemical company listed in the Dax lost up to three and a half percent in early trading, but were able to recover somewhat and recently fell by almost 2 percent. Conservative forecasts by the chemical company are not unusual, noted a trader. But the profit forecast is now well below market estimates. JPMorgan analyst Chetan Udeshi also believes that the outlook may disappoint some in the market despite the conservative tone. BASF is now also rated highly.

In the current year, the customer industries and in particular the auto industry are likely to grow, said BASF. The world economy is expected to grow considerably by 4.3 percent compared to 2020. For global chemical production, BASF expects growth of 4.4 percent, well above the level of the previous year.

BASF does not want to make acquisitions worth billions for the time being. The company will mainly grow on its own, said Brudermüller. But that doesn’t mean that BASF won’t make acquisitions at all. There will be medium and small acquisitions. These could also be worth a few hundred million euros. However, there are no longer any major changes in the portfolio following the sale of the construction chemicals and pigments business.

Brudermüller expects growth above all from the new Verbund site in southern China and the battery chemicals business for electric cars. “Despite high investments in these growth activities over the next few years, we expect that our portfolio will be less capital-intensive after this transformation,” said the BASF boss. In the current year, BASF plans to invest around 3.6 billion euros.

Last year, BASF suffered a loss of a billion euros due to depreciation worth billions. In 2019, there was still a profit after taxes and minorities of 8.4 billion euros. However, this included a book profit of around 5.7 billion euros. BASF still wants to keep the dividend stable and, as in the previous year, pay EUR 3.30 per share. Experts had expected less on average. In addition, there should be bonus payments of around 360 million euros for employees. BASF had already presented key data for 2020 as a whole at the end of January.

As already known, sales fell slightly in 2020 to around 59 billion euros. In the first few months of 2020 of the corona pandemic, BASF was particularly concerned about the weak demand from the auto and aviation industries. Recently, however, business has been better again thanks to increasing demand, especially from car manufacturers. Sales and operating profit (adjusted EBIT) increased significantly in the final quarter of 2020 compared to the previous year.

The group tightened its austerity course again because of the problems. The company intends to cut up to 2000 jobs worldwide in its “Global Business Services” service unit, which was created at the beginning of the year, by the end of 2022. With the job cuts, BASF wants to save more than 200 million euros annually from 2023. Around 8,400 people work at the unit worldwide, around 1,400 of them in Ludwigshafen. The unit takes care of finances, logistics and personnel, among other things.

CEO Martin Brudermüller had already set up an austerity program in 2019 by cutting 6,000 jobs in order to make the group more profitable. The management wants to improve the operating profit (Ebitda) from 2021 by two billion euros annually. Most of this downsizing has already been completed. According to the company, the group recently employed 110,000 people, a good 7,000 fewer than at the end of 2019.

Meanwhile, BASF continues to plan to list the oil and gas company Wintershall Dea, in which BASF holds more than 70 percent, on the stock exchange. However, this depends on the market conditions. The IPO could possibly take place in the second half of the year and there sooner from September, said CFO Hans-Ulrich Engel in a conference call with analysts. Wintershall Dea emerged in 2019 from the merger of the former BASF subsidiary Wintershall Holding GmbH and Dea AG.

The focus is on BASF’s majority stake, also because of its financial stake in the Nord Stream 2 Baltic gas pipeline, which has been heavily criticized by the USA in particular. This is to transport gas directly from Russia to Germany. This is a thorn in the side of the USA, as they fear that Europe is too dependent on Russia and would also prefer to sell more of their own gas to Europe. The United States is therefore threatening to impose sanctions on companies involved and has already implemented some of them. In the EU and in this country, too, many politicians are calling for a construction freeze./mne/eas/nas

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