Basf releases financial results for the second quarter of 2020

As expected, the economic effects of the coronavirus pandemic had a much stronger impact in the second quarter of 2020 than in the first quarter of this year. Client industries were affected to varying degrees: Basf was particularly negatively affected by the collapse in demand in the automotive industry, while demand in the detergent, cleaning and food industries remained stable. Basf was able to continue production in all important locations around the world.

"The coronavirus pandemic is still a huge challenge for all of us," said Dr. Martin Brudermüller, Chairman of the Executive Board of Directors of Basf, who presented the second quarter figures together with Chief Financial Officer Dr. Hans-Ulrich Engel. Brudermüller, who also sees opportunities: "This situation is a catalyst for change and an opportunity to do many things differently. At Basf, we adapt quickly to new processes. Everyone is very open to virtual communication, internally and with our customers". According to the CEO, Basf is able, in times like these, to build on its many strengths: flexible and motivated employees, a diversified portfolio and solid finances.

Given the high level of uncertainty and low visibility surrounding economic developments, Basf does not yet make any concrete statement regarding the evolution of sales and earnings for the full year 2020. For the third quarter, Basf does not expect EBIT before special items improved significantly compared to the second quarter of 2020, in part due to generally lower demand in August and the seasonality of the Agricultural Solutions business.

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Sales in the second quarter decreased 12% to €12.7 billion. This was mainly attributable to lower sales volumes of minus 11%. Prices decreased by 1%, mainly due to lower prices for chemical production. Considerably higher prices in the Surface Technologies segment and slightly higher prices in the Agricultural Solutions segment could only partially compensate for this situation. Prices in the Surface Technologies segment were supported by higher prices for precious metals in the Catalysts division. Portfolio effects contributed another 1% and were mainly related to the acquisition of Solvay's polyamide business. Exchange rate effects amounted to minus one percent. The devaluation of the Brazilian real and the Argentine peso were the main reasons here.

Operating income (EBIT) before special items was €226 million, 77% below the level of the second quarter of 2019. With the exception of Nutrition & Care and Others, which increased earnings, and Agricultural Solutions, where earnings almost matched the level of the prior-year quarter, all other segments posted smaller gains. This was the result of the sharp drop in demand in most of Basf's client industries. The Chemicals and Materials segments accounted for 70% of the earnings decline.

Special EBIT items amounted to €167 million less, compared to €488 million less in the second quarter of 2019. Special charges were, for example, related to the division of the pigments business and Basf's coronavirus relief campaign "Helping Hands". In the same quarter last year, the special charges were primarily caused by one-time excellence program costs and the decline of a natural gas-based investment in the U.S. Gulf Coast. Thus, in the second quarter of 2020, EBIT decreased by 88%, to €59 million.

Net income was minus €878 million compared to almost €6 billion in the second quarter of 2019. In the second quarter of 2020, Basf incurred an effective non-monetary loss on its stake in Wintershall Dea. Lower long-term scenarios for oil and gas prices and changed reserve estimates resulted in a loss of €819 million. In the same quarter last year, net profit included an accounting gain of €5,7 billion on the deconsolidation of Wintershall.

Cash flows from operating activities increased from €1.9 billion to €2.2 billion in the second quarter of 2020. The increase was mainly due to cash released from net working capital, which increased by €336 million. Free cash flow increased by more than €500 million compared to the second quarter of 2019 and amounted to €1.5 billion.

Agricultural Solutions

Sales of approximately €1.8 billion in the Agricultural Solutions were slightly below the level of the second quarter of 2019. This was mainly attributable to negative currency effects, especially in the South America, Africa and Middle East region. Higher volumes in all regions except Europe and higher price levels had a positive impact on sales.

At €120 million, EBIT before special items almost equaled the level of the same quarter last year. EBIT before special items was negatively affected by currency effects and an unfavorable product mix. This was almost offset by significantly lower fixed costs. EBIT included special items for the integration of the businesses acquired from Bayer; these were lower than the same quarter of the previous year.