BASF Q2 EBIT to fall to low single digit million euros in ‘best-case’

Author: Tom Brown

2020/04/30

LONDON (ICIS)--A decline in earnings before interest, taxes (EBIT) and special items to low triple-digit digit hundreds of millions is the “best-case scenario” for BASF the second quarter of the year, with potential for levels to drop to zero or below, the CEO at the German chemicals major said on Thursday.

BASF is braced for a “clearer and  sharper” decline in the second quarter of the year than the first, according to CFO Martin Brudermueller, as the impact of the coronavirus pandemic and lockdown measures across much of the world continue to bite.

The company reported first-quarter EBIT before special items of €1.64bn in the first quarter of the year on Thursday, a 6% year-on-year decline but a substantial increase on the €842m generated in the closing three months of 2019.

Conditions are likely to be substantially worse between April and June, Brudermueller said, declining to rule out the possibility that numbers could slip into negative territory.

“In the best-case scenario we expect EBIT before special items in the low triple-digit million-euro range in the second quarter,” he said, speaking on an earnings call.

“At present I cannot rule out the possibility that BASF Group’s EBIT before special items may drop to zero or even lower,” he added.

Global GDP contracted by 1.7% in the first quarter, according to BASF estimates, driven by the impact in Asia then Europe, with the more severe effects in the US will likely be felt in the second quarter.

The decline for chemicals was substantially more pronounced, with demand falling 5.2%.

BASF reported a drop in earnings for chemicals and materials divisions, partially offset by firmer agricultural and surface technologies sales.

The biggest impact on earnings was the collapse in automotive sector demand, BASF’s largest customer industry, with products from materials, industrial solutions and coatings feeding into vehicle production.

Global automotive production fell 24% in the first quarter of the year, according to Brudermueller, compared to a 5.6% drop for 2019 as a whole.

“The hardest-hit sector was the automotive industry. Demand collapsed and supply chains were disrupted. Production lines are still shut down,” he said.

Automotive sector-facing production is the key area where BASF has introduced kurzarbeit, or short-term work, Brudermueller added.

At present, 3,700 employees in Germany and 3,000 in Europe are on shorter working hours, of which just 100 are located at BASF’s Ludwigshafen headquarters.

BASF's stock was trading nearly 2% down by 12:15 BST to €48.30/share.

Front page picture: BASF's main facilities in Ludwigshafen
Source: BASF