BASF Q1 net profit dips on taxes, forex, despite chemicals rally

04 May 2018 11:00 Source:ICIS News

BASF Ludwigshafen

LONDON (ICIS)--BASF’s first-quarter net income fell 2% year on year to €1.68bn, as a higher overall tax rate and foreign exchange impacts offset strong gains for the Germany-headquartered major’s chemicals and oil and gas divisions, it said on Friday.

Sales dropped by €211m year on year during the quarter to €16.65bn despite a 2% increase in volumes and a 5% uptick in pricing, as a result of currency headwinds, BASF said.

Earnings before interest and taxes (EBIT) pre-special items for the quarter rose slightly to €2.51bn, but the final profit for the period was hit by an increase in earnings in higher-tax countries such as Norway, which pushed up the overall group tax rate rose from 22.9% in first-quarter 2017 to 24.7%.

First-quarter chemicals division EBIT rose 16% year on year to €1.13bn, significantly outstripping a 4% rise in sales to €4.29bn, as a result of higher margins and volumes, driven by continued strong isocyanates pricing.

Petrochemicals EBIT fell, as a weaker steam cracker margins offset firmer pricing for acrylic monomers, plasticizers and oxo alcohols, particularly in Europe. Intermediates earnings rose over the same period.

The Performance Products division’s EBIT dropped 3% year over the same period to €482m despite successful pricing hikes and improved margins, as a result of currency headwinds, which impacted on pigments and performance earnings. Sales fell 6% to €3.99bn.

Functional Materials division EBIT slumped 38% year on year to €325m on lower margins and higher costs, with annual declines noted for construction chemicals, coatings, performance materials and catalyst products. Sales totalled €5.14bn, down 1%.

Oil and gas division earnings more than doubled over the period to €392m on the back of the recovery in crude pricing, offset in part by a weaker US dollar against the euro. The company projects that the average Brent crude price for 2018 will stand at $65/bbl.

First-quarter agricultural solutions earnings fell 21% to €417m as a result of a bitter and protracted winter in Europe. Sales fell 7% to €1.73bn.

Income from operations rose for the company in Europe during the quarter but fell sharply in its home market of Germany, while North American income fell 38% on the back of lower contributions from all segments.

Performance products and chemicals drove an 19% increase Asia Pacific income, while firmer oil and gas earnings drove a 71% increase in income for South America, Africa and the Middle East.

Outgoing CEO Kurt bock, who is set to retire from the company following the conclusion of the annual shareholders meeting on Friday, restated earnings guidance for the year at a slight increase in EBIT before special items but a decline in overall earnings.

“We want to slightly increase EBIT [operating profit] before special items in 2018. This is ambitious because 2017 was a very good year for BASF,” he said.

Analyst Bernstein noted that the company’s overall earnings per share (EPS) at €1.93 came in slightly below market consensus at €1.95 apiece.

“The results continue to be driven by strength in Chemicals and Oil & Gas, with a beat in PP [Performance Products] offset by continued weakness in FMS [Functional Materials & Solutions], Ag [Agricultural Solutions] remains weak,” the firm said in an investor note.

BASF’s shares were trading 1.20% up on Friday 11:00 London time to €86.80.

Pictured: BASF's Ludwigshafen site in Germany
Source: BASF

(Updates leads, adds division and geographical performance, analyst commentary)

By Tom Brown