BASF’s profits and sales plummet surprisingly sharply

The chemical company BASF missed its forecasts last year. Sales and profits decline. The business prospects for the entire industry have recently deteriorated significantly.

The chemical company BASF is increasingly under pressure due to weak demand and high costs. Last year, sales and profits fell well short of its own expectations, as the group admitted today. Earnings before interest and taxes (EBIT) and special items were probably 3.8 billion euros in 2023, which is below the range of 4.0 to 4.4 euros that the group itself had set as a target. In the previous year, BASF generated profits before interest, taxes and special items of almost 6.9 billion euros.

The decline compared to the previous year is due to lower margins due to sales. The cost reductions achieved so far have not been able to compensate for this. In addition to the generally weak demand, a value adjustment of one billion euros weighed on the result. Sales fell from 87.3 to 68.9 billion euros.

Investors remain positive

In the morning, BASF investors overlooked the surprisingly significant drop in profits and are relying on stable dividends. Although the shares fell slightly before XETRA started, the chemical company’s shares rose again in early trading and are currently at an increase of around 0.3 percent.

The available cash of 2.7 billion euros is high enough to pay a stable dividend this year, “considering that the CEO does not want to cut the dividend,” said analysts at Baader Helvea. Another explanation for the price increase is that investors’ expectations for 2023 were already low, said a trader. “In addition, the numbers are distorted by many special factors.”

Another difficult year is looming

Nevertheless, the German chemical industry is facing a difficult year in 2024. The business climate in the export-heavy industry deteriorated before the turn of the year: the corresponding barometer fell to minus 15.2 points in December, after minus 13.0 points in November, as the Munich ifo Institute announced today in its company survey. “Although the chemical industry seems to have bottomed out, there is still no sign of an upward trend in the near future,” commented ifo industry expert Anna Wolf on the development.

Companies rated their current business situation less negatively in December than in the previous month. However, business expectations for the next six months have deteriorated significantly: this indicator fell from minus 6.5 points in November to minus 14.6 points at the end of the year. The chemical industry is particularly affected by high energy costs. She now considers her order backlog to be very low.

Foreign business does not fulfill hopes

Most recently, the companies had relied on foreign business, which was supposed to provide new momentum. “But these hopes have apparently been dashed, as expectations regarding orders from abroad have deteriorated,” said the institute. At BASF, too, the hoped-for recovery in business in China after the corona pandemic did not materialize.

The companies’ pessimism is now also reflected in their personnel planning. According to the Ifo Institute, expectations here have slipped to their lowest level since the financial crisis of 2008/2009. “The chemical industry is threatened with even greater job losses,” said industry expert Wolf. The business climate has also deteriorated in other energy-intensive sectors.