BASF’s Q4 earnings rise nearly 60% on higher prices, volumes

LUDWIGSHAFEN, Germany (ICIS)–BASF’s fourth-quarter earnings before interest and taxes (EBIT) before special items shot up by 57.5% year on year to €1.93bn on the back of higher selling prices and volumes, up 9% and 4% respectively, the German chemical major said on Tuesday.

Sales rose in all divisions apart from Oil & Gas, said the company, totalling €16.1bn during the quarter, up 8.4% year on year.

However, during the fourth quarter a strengthening euro against other major currencies had a negative effect in BASF’s sales of 5%.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at €2.98bn during the fourth quarter, up 20% year on year.

BASF shareholders will also benefit from a jump in net income – which more than doubled during the fourth quarter to €1.54bn, resulting in adjusted earnings per share for the quarter of €1.68, up from the 2016 fourth-quarter’s €0.79.

“The significantly higher earnings in the Chemicals, Agricultural Solutions and Oil & Gas segments [divisions] as well as in Other compensated for lower earnings in the Functional Materials & Solutions and Performance Products segments,” said the company.

For the full year, BASF confirmed the preliminary figures it had published in January: sales in 2017 rose by 12% compared to 2016 to €64.5bn, while EBIT before special items rose by 32% to €8.3bn.

The jump in EBIT surprised chemical analysts, whose consensus stood at €8bn.

Full-year net income rose by 50% compared to 2016 to €6.08bn, while EBITDA rose by 21% year on year to €12.72bn.

“[During 2017] We were particularly pleased with our strong growth in Asia, where our investments in recent years have paid off. Thanks to higher margins and increased volumes, we were able to double our earnings in Asia to €2.2bn, making the most profitable region for BASF,” said the company’s CEO Kurt Bock.

“In Europe, economic growth gathered steam. EBIT here grew by 31% to reach €4.7bn. This was chiefly attributable to higher earnings in the Chemicals and Oil & Gas segments. Although growth in the US was initially subdued at the beginning of 2017, it improved over the course of the year.”

The company said EBIT in North America had risen in 2017, up 9% to €1.2bn, while in the regions the company gathers under the name South America, Africa and the Middle East, EBIT fell by 22% to €335m.

BASF’s Chemicals division posted fourth-quarter sales at €4.2bn, up 21%, on the back of higher prices and volumes. The company said margins had increased across the board, especially for isocyanates, acids and polyalcohols, cracker products and acrylic monomers.

The division’s EBIT before special items of €1.1bn in the fourth quarter, up 67% year on year.

“Stronger margins in the Petrochemicals and Intermediates divisions also contributed to the increase in earnings; slightly higher fixed costs had an offsetting effect. The negative impact on earnings in 2017 caused by the North Harbour accident at the Ludwigshafen site in October 2016 was compensated by insurance payments,” said the company.

Higher prices helped the Chemicals division’s full-year sales jump to €16.3bn, up nearly 27% year on year, while EBIT before special items more than doubled to €4.2bn.

BASF’s Performance Products also benefited from higher selling prices and volumes, which offset the negative currency impacts on the back of a stronger euro. Sales in this division rose by 2% in the fourth quarter, year on year, to €3.8bn.

“Owing to ongoing pressure on margins, the temporary shutdown of the citral plant in Ludwigshafen and higher fixed costs, EBIT before special items declined from €237m to €111m,” said the company.

Full-year sales at Performance Product stood at €16.2bn, up by 4% compared to 2016, while EBIT before special items declined by 20% year on year to €1.4bn.

“This [fall in earnings] was largely due to lower margins, primarily as a result of higher raw materials prices that could not be fully passed on via sales prices,” said the company.

The Functional Materials & Solutions segment posted 7% higher sales during the fourth quarter to €5.3bn on the back of higher selling prices, but EBIT before special items fell sharply to €267m, down 42% year on year, on the back of higher fixed costs.

The division’s full-year sales stood at €20.7bn, up 11% year on year, as the division increased volumes on the back of healthy end demand in the construction and automobile industries, but EBIT before special items at €1.6bn came in nearly 17% lower year on year due to lower margins and higher fixed costs, the company said.

“This [increase in sales] was due to higher prices and volumes as well as the Chemetall business, which was acquired from Albemarle in December 2016; sales were slightly reduced by currency effects,” it added.

“Special charges in 2017 mainly related to integration costs in connection with the Chemetall acquisition as well as the acquisition of the western European building material business for professional users from the Henkel group,” BASF added.

The Agricultural Solutions division’s sales rose 4% in the fourth quarter to €1.3bn thanks to “significantly” higher volumes, which were able to offset lower selling prices and negative currency effects. EBIT before special items, however, rose to €207m, up from €79m in the same quarter of 2016.

Full-year sales in Agricultural Solutions rose by 2% to €5.7bn on the back of higher volumes, although the company conceded the crop protection sector still faced during 2017 an “ongoing difficult market environment” which took a toll on BASF due to lower selling prices, especially in South America, and negative currency effects.

EBIT before special items stood at €1.03bn, down 5% year on year, affected by lower margins and a “difficult market situation” in Brazil, the farming powerhouse in South America.

“Earnings were also negatively impacted by the shutdowns of production facilities in Beaumont, Texas, and Manati, Puerto Rico, because of the hurricanes,” said the company

In the Oil & Gas division, fourth-quarter sales declined by 7% to €862m due to lower volumes, although higher prices for crude oil benefited EBIT before special items, which rose by 60% to €260mn.

Full-year sales at this division, however, rose by 17% to €3.2bn, while EBIT before special items rose by 53% to €793m.

“Gas prices on European spot markets rose by 25% [in 2017] compared with the previous year. Volume growth was mainly driven by higher gas sales volumes… This [increase in earnings] is primarily attributable to the increase in oil and gas prices as well as the higher earnings contribution from BASF’s share in the Yuzhno Russkoye natural gas field,” said the company.

Sales in what BASF classified as the Other division, rose in the fourth quarter by 17% to €608m, while operating loss before special items narrowed to €38m from €386m in the fourth quarter of 2016, “mainly because of valuation effects” for BASF’s long-term incentive program, the company said.

Full-year sales in Other rose to €2.2bn, up 11%, on the back of higher sales prices in the raw materials trading business, but EBIT before special items remained in the negative at €764m, although narrowing the losses posted in 2016 of €1.05bn.

Looking ahead, BASF said it expects the global economy to continue performing strongly this year, although the company fell short of giving concrete figures for sales or earnings.

Moreover, the company said it expects the Brazilian and Russian economies to continue their recovery during 2018, and anticipated growth in all the regions it operates in.

The negatives will come from currencies, as the euro continues strengthening against other major currencies, and BASF showed concerns about “increased” market volatility in coming months.

The company’s assumptions for global GDP growth in 2018 stand at 3%, compared to 3.1% in 2017, while chemicals production will rise at a slightly higher rate at 3.4%, compared to 3.5% in 2017, it said.

While the euro is already hovering around the $1.25 mark, BASF said for the full year it expects the exchange rate to average $1.20, while it expects the crude oil international referential Brent to average this year the $65/bbl mark, compared to an average price of $54/bbl in 2017.

“In this environment, we want to continue to grow profitably and achieve a slight increase in BASF Group’s sales and EBIT before special items in 2018,” said Bock.

“The rise in sales should result chiefly from volumes growth. The increase in earnings will mainly be driven by significant contributions from the Performance Products, Functional Materials & Solutions and Oil & Gas segments. After a strong result in 2017, the company expects considerably lower EBIT before special items in the Chemicals segment, primarily as a result of lower margins.”

The company said its forecast for 2018 already included the acquisition of Bayer’s seeds and non-selective herbicide businesses, expected to close in the first half of 2018, after announcing in October 2017 it was to pay €5.9bn for the assets.

(Adds divisional performance, outlook from paragraph 13)

Pictured above: BASF’s Ludwigshafen citral plant
Source: BASF