By Joseph Chang and Will Beacham
With US earnings season far in the rear-view mirror, it’s time to turn to Europe to get a sense on the global outlook. Europe is in full financial reporting mode, and guidance from two Europe-based chemical companies with big global footprints is rather optimistic on prospects for 2014.
The world’s largest chemical company, Germany-based BASF, sounded more sanguine than it’s been in years, upon releasing its fourth quarter and full-year 2013 earnings report on 25 February.
“We do not expect strong tailwinds this year either. Nevertheless, we are cautiously optimistic with regards to global economic development,” said BASF CEO Kurt Bock. “The world economy is expected to grow slightly faster in 2014 than in 2013, despite continuing volatility.”
BASF expects a slight increase in underlying sales volumes and operating profits in 2014 as higher growth kicks in for key end markets such as transportation, consumer goods and electronics. In 2013, sales rose 3% to €74.0bn, while earnings before interest (EBIT) were up 8% to €7.2bn.
Key macro assumptions for 2014 include global GDP growth of 2.8%, global industrial production growth of 3.7% and global chemical production growth of 4.4%. Regionally, it expects chemical production growth of 7.2% in Asia ex-Japan, with less than 3% growth for each of the other regions. Clearly China looms large in its growth outlook.
Guidance for 2014 from Belgium-based Solvay was also positive, citing an improving macro outlook.
“So far into the year some of Solvay’s end markets have shown early signs of improvement and the group is well-placed to benefit from better macroeconomic conditions,” it said on 26 February. “Although Solvay remains cautious, it is confident that 2014 will show REBITDA (recurring earnings before interest, tax, depreciation and amortisation) growth supported by the delivery of excellence programs.”
In 2013, Solvay’s REBITDA fell 12% to €1.66bn on 6% lower sales of €9.9bn. The company is targeting REBITDA of between €2.3bn-2.5bn in 2016.
In a press briefing the same day, CEO Jean-Pierre Clamadieu added: “For 2014 we’re starting to see some positive signs in our discussions with customers and have some confidence that we can increase REBITDA, with growth on top of the Chemlogics acquisition.” It acquired the US-based oil and gas chemicals group in October 2013.
Despite the improved outlooks from BASF and Solvay thus far, serious challenges remain for the European chemical sector. Clamadieu put it like this: “Europe has high energy prices, low-to-no-growth and a restructuring chemicals industry”. He described plans to restructure to focus where the energy impact is minimised. This means targeting value-added, specialty products, and joint-venturing its polyvinyl-chloride business.
Germany-based rubber and specialty chemicals company LANXESS announced on 26 February its preliminary results for the fourth quarter and 2013, along with an upcoming impairment charge of €257m in Q4 to reflect reduced values of certain business units – Keltan Elastomers and High Performance Elastomers (in its Performance Polymers segment), as well as Rubber Chemicals (in its Performance Chemicals segment).
For 2013, on a preliminary basis, LANXESS posted EBITDA pre-exceptionals of €735m – down 40% from 2012 on 9% lower sales of €8.3bn. This EBITDA figure was reduced by about €50m in 2013 due to what it calls one-off (as opposed to exceptional) items such as plant start-up costs, inventory writedowns and technology changes, explained Daniel Alexander-Smith, head of financial and business media relations for LANXESS.
For 2014, LANXESS expects “slight improved” EBITDA pre-exceptionals in 2014, on the fact alone that it does not anticipate these types of one-off expenses this year. Translation – don’t expect meaningful improvement in 2014 at this point. The company will publish full-year 2013 results on 20 March, including qualitative guidance for 2014 and quantitative guidance for Q1, said Alexander-Smith.
The company is in the midst of a major management transition with new CEO Matthias Zachert coming in no later than 15 May, replacing former CEO Axel Heitmann who was set to leave on 28 February.
Global overcapacity and depressed pricing in synthetic rubber overall is weighing on LANXESS. The company also faces increasing competitive pressure in its EPDM (ethylene propylene diene monomer) rubber business from US players benefiting from low-cost shale gas feedstocks.
Earlier on 6 February, Netherlands-based coatings giant AkzoNobel was also less optimistic when it reported results. CEO Ton Buchner said that while some of the company’s businesses saw early signs of stabilisation in the second half of 2013, “the economic environment remains fragile and foreign currencies volatile”. The company will continue to restructure and cut costs in 2014 to “offset continued expected soft demand”, noted Buchner.
For 2013, AkzoNobel’s underlying operating earnings fell 1% to €897m on 5% lower sales of €15.4bn.
So while it’s encouraging to see positive outlooks for 2014 from two major European and global players BASF and Solvay, it is still a mixed bag among companies and businesses.