BASF 2022 write-downs ‘breath taking’, further risks ahead – Baader

LONDON (ICIS)–The magnitude of write-downs BASF is expecting to book for its Wintershall Dea oil and gas operations and its chemical business in its 2022 financial results has come as a shock, and risk remains of further energy-related impairments, analysts at Baader Bank said on Wednesday.

The Germany-headquartered chemicals major announced late on Tuesday that it expects to report a €1.376bn net loss for the year, more than €5bn below the analyst consensus projections of €4.768bn, driven by €7.3bn of impairments to be booked on its stake in Wintershall Dea.

BASF also announced that non-cash impairments on an unidentified chemicals plant are likely to be a factor in annual earnings before interest and taxes (EBIT) coming in at €6.548bn, compared to analyst projections of €6.836bn.

The Wintershall Dea write-downs are due to the oil and gas business moving to completely pull out of Russia, triggering a re-evaluation of the financial fundamentals of its European gas transportation business. €5.4bn of the total write-downs will fall in the fourth quarter 2022, BASF added.

“Wintershall Dea intends to fully exit Russia in an orderly manner complying with all applicable legal obligations,” BASF said in a statement.

BASF, which owns a 67% stake in Wintershall Dea, announced impairments earlier in the year after writing off cash spent financing the halted Nord Stream 2 pipeline project.

The scale of the full 2022 impairments reflects “the deconsolidation of the Russian exploration and production activities of Wintershall Dea due to the extensive loss of actual influence and economic expropriation,” BASF added.

There is a risk that the company, which has moved to slow some European production, particularly for low-margin, energy-intensive products such as ammonia, could face further impairments, according to Baader Bank.

“We see additional impairment risks which is depending on the political decisions on subsidised industrial power prices in Europe,” said Baader chemicals analyst Markus Mayer.

“If there will be further impairments might be decided over the coming weeks, in our view,” he added.

A spokesperson for BASF said that, at least for 2022, the company is not expecting to announce further impairments when its full 2022 financial results are released in late February.

“The impairment tests as of 31 December 2022 reflect currently available information and the management’s expectations. We thus consider the risk of further impairments in the near future as immaterial,” the spokesperson told ICIS.

Full-year 2022 sales for the company are expected to be €87.327bn, a substantial increase on €78.598bn reported in 2021, driven by exchange rate tailwinds and higher prices, partially offset by lower volumes.

Shares in BASF SE were trading at €52.73 apiece as of 10:30 GMT, steady with the Tuesday’s closing price.

(Update adds response from BASF spokesperson)

Thumbnail image: BASF’s main plant in Ludwigshafen, Germany (credit: Michael Probst/AP/Shutterstock)