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Tuesday, 25 February 2020
Markets & companies, Raw materials market

BASF: Earnings and volumes increase in chemicals business

Friday, 28 October 2016

In the third quarter of 2016, BASF increased its earnings and volumes in the chemicals business.

Verbund site Ludwigshafen. Source: BASF SE

Verbund site Ludwigshafen. Source: BASF SE

"Demand from the automotive and construction industries in particular remained robust worldwide. In Europe, we saw moderate growth across all sectors. The summer lull in July and August was less pronounced than in prior years. In Asia, the upward trend continued in the third quarter. Growth in China was slightly higher than we had expected at the beginning of the year. Demand in North America developed modestly; however, we experienced continued positive momentum in the automotive and construction industries. Economic development in South America remained weak and business confidence low. Volumes decreased, especially in Brazil, our largest market in the region,” said Dr. Hans-Ulrich Engel, Chief Financial Officer of BASF SE.

Sales at EUR14.0 billion

The BASF Group’s sales decreased by 20% in the third quarter of 2016 to EUR14.0 billion, mainly as a result of the divestiture of the gas trading and storage business as part of the asset swap with Gazprom at the end of September 2015. This business had contributed EUR2.9 billion to sales in the third quarter of 2015. Portfolio effects were, in total, responsible for 18 percentage points of the decline in sales. Moreover, sales prices were reduced (minus 5%) by lower raw material prices. The volumes increase (plus 4%) was primarily supported by the Functional Materials & Solutions and Chemicals segments.

Income from operations (EBIT) before special items declined by EUR87 million to EUR1.5 billion, primarily as a result of smaller contributions from the Oil & Gas segment and from Other. In the chemicals business and the Agricultural Solutions segment, however, EBIT before special items increased.

Outlook for 2016

BASF’s expectations for the global economic environment in 2016 have only been adjusted in terms of the oil price (previous forecast in parentheses):

  • Growth in gross domestic product: 2.3% (2.3%)
  • Growth in industrial production: 2.0% (2.0%)
  • Growth in chemical production: 3.4% (3.4%)
  • Average euro/dollar exchange rate: $1.10 per euro ($1.10 per euro)
  • Annualised average price of a barrel of oil: $45 ($40 per barrel)

BASF assumes that the logistic and supply bottlenecks resulting from the fire at the North Harbor in Ludwigshafen will negatively impact earnings for the business year. They have not, however, resulted in a change in the BASF Group outlook for 2016.

Considerable sales decline 

The company confirms its forecast for sales and EBIT before special items of the BASF Group: Sales will decrease considerably in 2016. As a consequence of the asset swap with Gazprom, contributions to the Oil & Gas segment ceased from the gas trading and storage business in particular. In the first three quarters of 2015, these activities had contributed a total of around EUR10.1 billion to sales. Sales will be furthermore reduced by lower prices for oil and gas. BASF wants to increase sales volumes, excluding the effects of acquisitions and divestitures.

"We continue to expect EBIT before special items to be slightly below the level of 2015. This remains an ambitious goal in the current volatile and challenging environment, and in light of the fire of October 17 and its consequences,” said Engel.

Development in the segments

Sales in the Chemicals segment declined by 7% to EUR3.4 billion compared with the third quarter of 2015. This was essentially due to lower prices on account of decreased raw material prices, especially in the Petrochemicals and Intermediates divisions. Volumes were raised overall. At EUR497 million, EBIT before special items was EUR136 million below the level of the previous third quarter, mostly due to reduced margins in the Petrochemicals and Intermediates divisions. Margins increased in the Monomers division, however. Fixed costs rose as a particular result of the startup of new production facilities.

Sales amounted to EUR3.8 billion in the Performance Products segment, 3% below the previous third quarter’s level. Prices fell, owing primarily to the oil-price-related reduction in raw material costs, as well as ongoing pressure on prices in the hygiene business. The 2015 divestiture of parts of the pharmaceutical ingredients and services business and sale of the paper hydrous kaolin business also dampened sales development. All divisions raised their sales volumes. As a result of this and of significantly reduced fixed costs, as well as improved margins overall, income from operations (EBIT) before special items grew by EUR145 million to EUR464 million.

In the Functional Materials & Solutions segment, increased volumes led to sales growth of 3%, to EUR4.7 billion. Volumes especially rose in business with the automotive industry. Demand from the construction industry remained at an overall high level. Lower prices, negative currency effects and the divestiture of the global polyolefin catalysts business slightly dampened sales. As a result of the higher volumes and reduced fixed costs, income from operations (EBIT) before special items grew by EUR126 million to EUR497 million.

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