BASF set to miss 2023 financial guidance as margins, weak chems bite

LONDON (ICIS)–BASF is expecting to undershoot its earnings and sales guidance for 2023 as the squeeze to margins outpaced cost reduction savings, the firm said on Friday, although investors are taking some comfort from a stronger cashflow than in 2022, according to sources.

The Germany-based chemicals major expects operating income before special items of around €3.81bn for the year, compared to its forecast range of €4bn-4.4bn and consensus analyst estimates of €3.9bn.

A weak December may be a factor in missing that €3.9bn target, according to Konstantin Wiechert, a chemicals analyst at Baader Bank.

“According to the company before knowing the December figures it still looked like [EBIT pre-specials] guidance of ~€3.9bn could be achieved, so it is likely one month that really was below expectations,” he said.

in € millions*	2023	2022	% Change
Group Sales	68,902	87,327	-21.1
EBIT before special items	3,806	6,878	-44.7
EBIT	2,240	6,548	-65.8
Net income	225	-627

BASF had already cut back financial performance guidance for the year, cutting projections for  operating income before special items to €4bn-4.4bn from earlier projections of €4.8bn-5.4bn in July.

Full-year sales are likely to come in around the €68.9bn mark, the company added, compared to revised estimates of €73bn-76bn, or initial forecasts of €84bn-87bn.

Sales-related low margins are the cause for the company likely undershooting its guidance, with chemicals division operating income pre-specials falling “considerably short” of analysts estimates, BASF said.

The chemicals division is the key cause for below-expectations profitability during the year, with smaller drops reported for surface technologies and nutrition and case division earnings.

Industrial solutions and materials – the former housing BASF’s performance chemicals and dispersions and resins operations, the latter its polymers and monomers businesses – and agricultural solutions are expected to beat analyst  expectations, the company added.

Overall operating income is expected at €2.2bn compared to analyst expectations of €3.7bn, due in large part to €1.1bn of non-cash impairments in the surface technologies, agricultural solutions and materials segments, the company added.

At €225m, group net income is likely to be stronger than the €627m loss posted for 2022, but profitability that year had been hit by a €6.5bn non-cash impairment on the Russian assets of oil and gas subsidiary Wintershall Dea.

Despite the year on year increase, the projected 2023 net income figure is significantly below analyst consensus estimates of €2.2bn, BASF added.

BASF shares were broadly stable in Friday trading, valued 0.30% below Thursday’s closing price at €43.53 as of 12:30 GMT.

The limited share price movement may be due in part to investors having been prepared for worse news, according to Berenberg chemicals analyst Sebastian Bray.

With cash from operations likely to reach €8.1bn in 2023 compared to €7.7bn in 2022, expectations of a stable dividend has supported the company in the eyes of financial market investors.

“I think that investors in many cases were braced for results to fall below guidance, but the strong free cash flow performance has provided support for the shares,” he said.

“Good cash flow makes it likely that the current dividend will be maintained,” he added.

“Investors did like the free cash flow,” added Wiechert. “While it is below consensus it seemed to at least in line or even slightly better than feared on the streets.”

BASF reports its full-year results on 23 February.

Focus article by Tom Brown

Additional reporting by Nurluqman Suratman.

Thumbnail photo: BASF’s Ludwigshafen, Germany headquarters (Source: BASF)