Basf records slight increase in sales in 2018

BASF recorded sales of €62,7 billion last year, representing an increase of 2% compared to the previous year. Results from operating activities before interest and taxes (EBIT) fell compared to 2017, from €7,6 billion to €6,4 billion, mainly due to the Chemicals segment, which accounted for approximately two thirds of the drop total profits. Isocyanate profit margins suffered a sharp drop in the second half of the year. In addition to the margins of cracker were lower than expected in all regions in 2018.

Overall, 2018 was a year marked by difficult global economic and geopolitical scenarios and trade conflicts. In the second half of the year, BASF felt an economic downturn in its main markets, especially in the automotive industry, the company's largest customer sector. Demand from Chinese customers, in particular, has decreased significantly as a result of the trade conflict between the United States and China. Uncertainties have increased globally and therefore many market participants have acted with great caution.

“We are dealing with these challenges. With our new corporate strategy, we will use 2019 as a year of transition to emerge even stronger. This year, we are adapting our structures and processes, focusing our organization expressly on the needs of our customers”, said the chairman of the BASF Board of Directors, Dr. Martin Brudermüller, who presented the financial data for the 2018 financial year together with the Chief Financial Officer Dr. Hans-Ulrich Engel.

BASF implemented price increases across all segments and divisions in 2018. There was a slight increase in volumes compared to the previous year. The highest volumes were recorded in the Functional Materials and Solutions and Agricultural Solutions segments, which were partially offset by low volumes in the Performance Products and Chemicals segments. The main underlying reason for the lower volumes in the Performance Products segment was the shutdown of the citral plant in Ludwigshafen, which restarted production in the second quarter. Sales volumes in the Chemicals segment were negatively influenced by the low water level of the River Rhine. Overall, exchange rate effects showed a decrease of 4%, while portfolio effects recorded an increase of 1%.

Lower profits in the Functional Materials and Solutions, Agricultural Solutions and Performance Products segments also contributed to the decline in EBIT. In the Agricultural Solutions segment, negative currency effects in all regions decreased profits. Furthermore, there was a strong negative contribution from the companies acquired from Bayer, whose control was taken over by BASF only in August. This period led to a disadvantage due to the seasonality of the seed business, which generates profits predominantly in the first half of the year, added to the fact that costs were incurred to integrate the acquired activities.

Furthermore, the long period of low water levels in the Rhine River was a challenge for BASF. At the Ludwigshafen site, for much of the third and fourth quarter, receiving raw materials by river was practically impossible. Consequently, BASF was forced to reduce capacity utilization rates at its Ludwigshafen plant, restricting 2018 earnings by around €250 million.

Extraordinary items totaled €320 million, mainly due to the acquisitions of new businesses in the Agricultural Solutions segment. The result, compared to 2017, decreased by €58 million. EBIT decreased by 20% to €6 billion. At 9,5 billion, EBITDA before special items was 12% below the previous year's result. EBITDA totaled €9,2 billion, compared to €10,8 billion in 2017.

Earnings per share fell from €6,62 to €5,12 in 2018. Adjusted for interest, taxes, depreciation and amortization of intangible assets, earnings per share totaled €5,87, representing a drop of €0,57 compared to to the previous year.

Outlook for the year 2019

This year, the expectation is that the world economy will grow 2,8%, a considerably slower pace than in 2018 (3,2%). In the European Union, the company predicts weaker growth in domestic demand and also in export demand. On the other hand, BASF assumes that the United States will show solid growth, although the stimulatory effect of the tax reform is expected to be less significant than in 2018. Growth in China will likely continue to slow, but will remain high compared to advanced economies. On the other hand, the economic recovery in Brazil should persevere.

The outlook is based on the following additional economic assumptions for the year 2019:

-   2,7% growth in global chemical production in 2019 (2018: +2,7%)

-  Average oil price of US$70 per barrel of crude Brent

-  Average exchange rate of U$$1,15 per euro

“We also expect growth in our customers’ industries to continue. For the automotive sector, we foresee a slight recovery after the lower production that occurred in the previous year”, said Brudermüller. BASF's outlook also takes into account that trade conflicts between the United States and its trading partners will ease throughout the year, and that Brexit will occur without major economic repercussions.

“Although the environment is challenging and marked by a high level of uncertainty, we intend to grow profitably. We expect a slight increase in sales, mainly due to portfolio effects. We want to increase EBIT slightly. Furthermore, we expect the return on capital employed (ROCE) to be slightly higher than the cost of capital percentage, but will decrease slightly compared to the 2018 level”, said the chairman of the BASF Board of Directors.

Brudermüller emphasized that the first two quarters of 2019 will be relatively weak: “Firstly, in the first half of 2018 we still benefited from high isocyanate margins, which increases the basis for comparison. Secondly, the costs associated with implementing our strategy will have an impact on profits, as will a greater number of scheduled factory shutdowns compared to the previous year. The decisive factors in achieving our goals for 2019 are improved business performance, solid customer demand, as well as the first contributions from our strategic excellence program in the second half of the year. The structural changes we have initiated at BASF will also result in notably higher negative extraordinary items in 2019.”