The Business Times

Germany's BASF 'cautious' after challenging 2016

Published Fri, Feb 24, 2017 · 02:46 PM

[FRANKFURT] German chemicals giant BASF on Friday said it expects higher oil prices to push up earnings this year after a challenging 2016, when its main Ludwigshafen plant was hit by a deadly explosion.

"We are cautiously optimistic for 2017. We want to grow further, with all segments contributing to this growth," chief executive Kurt Bock said after a weak performance by its oil and gas unit weighed on the group.

The world's largest chemicals maker said it made a net profit of 4.06 billion euros (S$6.072 billion) in 2016, up two per cent on the year before.

Underlying or operating profit was flat at 6.3 billion euros, while group sales saw an 18-per cent drop to 57.6 billion euros, still slightly beating analyst forecasts.

As expected, revenues were badly hit by the firm's divestiture of its gas trading and storage business as part of an asset swap agreed with Russia's Gazprom in 2015.

"This business had contributed 10 billion euros to sales in 2015," BASF said, adding that strong sales in Asia, particularly in the chemicals division, offset some of those losses.

A long stretch of low oil and gas prices also dented the firm's earnings, although that looks set to change in 2017 with the group saying it expects Brent crude oil prices to climb from US$44 to US$55 per barrel on average.

The turnaround already appeared visible in the final quarter of 2016, when net profit more than doubled to 689 million euros even after the explosion at its Ludwigshafen headquarters led to a slowdown in production.

Four people were killed in the blast and subsequent fire on October 17, which happened during work on a raw materials pipeline.

Several production facilities had to be temporarily shut down after the accident, but BASF stressed at the time the setback would not impact its 2016 outlook.

The incident was a painful reminder that "risks in the chemical industry cannot be ruled out", Mr Bock told reporters in a conference call, adding that an investigation was ongoing.

The damage initially caused "major disturbances" at the key site but "the economic consequences are considerably smaller than had been expected in the immediate aftermath of the accident," he said.

For the second year in a row, the group said it planned to raise dividend payouts by 0.10 euros to three euros per share for 2016.

Looking ahead, BASF said it expected "considerable sales growth" in 2017 and "slightly higher" underlying profits.

"We want to increase our earnings again, also in the oil and gas business," said Mr Bock, but he warned of challenges ahead.

"The global economy will presumably grow about as fast as in 2016. In light of significant political uncertainty, volatility will remain high," he cautioned.

The group's muted outlook comes as the fiercely competitive chemicals sector is bracing for huge changes, with a series of mega-mergers on the horizon.

BASF's homegrown rival Bayer is planning a takeover of US seedmaker Monsanto, while ChemChina is eyeing Switzerland's Syngenta and US giants Dow Chemical and DuPont have also proposed a tie-up.

BASF however has stayed above the merger fray, focussing instead on efficiency savings and consolidation in its existing business lines.

Shares in the group plunged 3.6 per cent to 86.70 euros in afternoon trading in Frankfurt, underperforming the DAX index of leading German firms which was down 1.8 per cent.


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