The chemical giant slipped net due to high losses oil– and gas producer Wintershall DEA even fell significantly into the red. The chemical giant expects production to stabilize in the fourth quarter and confirmed its annual forecast at the lower end of the previous range.
“Sales volumes in all customer industries were significantly lower than in the same quarter last year – with one exception: the automotive industry,” said BASF CEO Martin Brudermüller.
BASF recorded a decline in sales of 6.2 billion euros to 15.7 billion euros in the third quarter. EBIT before special items reached 575 million euros – the previous year it was 1.348 billion euros. According to a consensus from Vara Research, analysts had expected 601 million euros. Net and after third-party shares there was a deficit of 249 million euros, after a surplus of 909 million was recorded in the previous year. In addition to Wintershall Dea’s proportionally high loss, structural measures also impacted the result by 181 million euros.
The forecast that BASF had lowered in mid-July due to the extreme weakness in demand was confirmed, albeit at the lower end of the target range. The ranges are 73 to 76 billion euros in sales and 4 to 4.4 billion euros in adjusted EBIT. BASF also expects cost savings of 1.1 billion euros from the savings measures announced in February by the end of 2026.
BASF wants to reduce costs even further
Due to sluggish demand worldwide, the chemical company BASF wants to reduce its costs even more in the coming years than previously planned. “In view of the macroeconomic environment, we have significantly reduced our capital expenditure for 2023 by one billion euros, to 5.3 billion euros after the 6.3 billion euros announced in February,” said company boss Martin Brudermüller in a conference call with journalists on Tuesday. In addition, the company will also reduce capital investments by a further three billion euros over the next four years.
For the five-year period from 2023 to 2027, the BASF board is now planning capital investments of 24.8 billion euros, four billion euros less than originally planned. Brudermüller made it clear: “We are not simply postponing investments.” The company is reducing the number of projects and taking alternative measures that require less material resources. The group is also using the weak market environment to reduce its investment costs. On February 23rd, the board wants to present the new capital expenditure budget for the planning period from 2024 to 2028.
Furthermore, the company wants to save even more costs each year through its savings programs. “We continue to work consistently on our cost structures to improve BASF’s competitiveness, especially in Europe,” said CFO Dirk Elvermann. He assumes even greater savings outside of production. Overall, annual costs are to be reduced by around 1.1 billion euros by the end of 2026. BASF had previously targeted cost savings of around one billion euros. BASF had already launched an austerity program in February due to weaker business and difficult conditions in Europe Job cuts.
Jefferies leaves BASF on hold – target of 42 euros
According to quarterly figures, the analysis house Jefferies left BASF on “Hold” with a price target of 42 euros. The chemical company’s adjusted operating profit (EBIT) is well above its consensus estimate, but slightly below the consensus estimate, wrote analyst Chris Counihan in a study available on Tuesday. The share is therefore likely to come under pressure.
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BASF CFO: Continue to sell Wintershall DEA
The world’s largest chemical company BASF still wants to separate from its subsidiary Wintershall DEA. “We are continuing to pursue our strategic goal of selling BASF’s 72.7 percent stake in Wintershall DEA and are working on various options for this,” confirmed CFO Dirk Elvermann in a conference call with journalists on Tuesday. Wintershall DEA wants to legally separate its Russia-related businesses by mid-2024. BASF wants to monetize the non-Russian part. The group holds a good 70 percent of Wintershall DEA. The rest belongs to the investment company LetterOne.
The Russian part of the subsidiary has already been completely written off, Elvermann explained. The company could get some of the money back from the state, among other things. The manager referred to significant government investment guarantees in the lower billion range. However, the associated claims are currently not shown as receivables in BASF’s balance sheet.
Last year, BASF incurred a loss of 627 million euros due to billions in depreciation on its subsidiary Wintershall DEA. In January, Wintershall DEA announced the end of its business in Russia, which recently accounted for 50 percent of total production.
Meanwhile, BASF does not want to part with its catalyst business for combustion engines. There are currently no sales plans for the coatings division either, emphasized company boss Martin Brudermüller. BASF produces vehicle and car refinish paints in the business. Speculation has repeatedly arisen that the group wants to separate from both areas.
BASF at the top of the DAX according to numbers – ‘Weakness was expected’
BASF’s recent strong cash inflow convinced investors on Tuesday and gave the shares significant price gains. The otherwise rather dismal business development was hardly surprising; in fact, some investors seem to be betting that the worst is behind the price.
The share took the lead in the moderately rising DAX in the morning with a gain of 4.98 percent to 43.76 euros. It is now back to where it was at the end of September.
The chemical company suffered a quarterly loss because of its oil and gas subsidiary Wintershall and became a little more cautious for 2023. But even the adjusted forecast was an open secret, said one trader. Accordingly, he advised before trading started to take advantage of possible price weaknesses to buy. Because: With a current minus of 6.5 percent in 2023, BASF performed significantly worse than the leading German index. However, support recently continued to hold in the area around the 40 euro mark.
Analyst Chetan Udeshi from the US bank JPMorgan also commented positively. Free cash flow was strong between July and September. The value was ten percent higher than his estimate, he stated. The quarterly results themselves corresponded to the previously significantly reduced market expectations and are therefore not surprising.
There is no need to adjust the consensus, said analyst Peter Spengler from DZ Bank, summarizing the figures and the group’s annual outlook for 2023. He will hardly change anything either. Spengler also sees no negative impact on BASF’s stock story, “since the situation as of the second quarter of 2023 remains unchanged due to the macroeconomic circumstances,” as he wrote.
FRANKFURT (Dow Jones) / (dpa-AFX Broker) / LUDWIGSHAFEN/MANNHEIM(dpa-AFX)
Image source: BASF SE