BASF’s Bock Pledges Cost Cuts to Push Back on Margin Decline
BASF SE (BAS) Chief Executive Officer Kurt Bock pledged further restructuring and cost cuts to stem weakening profitability amid lower demand for paper chemicals and cosmetic additives.
A cost-cutting program, which saved 100 million euros ($131 million) in 2012, will generate more than that figure this year and next, Bock said today at a press conference at BASF’s Ludwigshafen, Germany headquarters. Earnings before interest, tax and one-time items increased 5.1 percent to 8.88 billion euros last year. Analysts in a survey predicted 9 billion euros.
Bock is betting economic conditions will improve and the company will benefit from a shift to newer technologies such as battery materials for electric cars. The CEO is fighting to maintain margins which slipped to 11.2 percent last year from 11.5 percent amid deteriorating demand for cosmetic ingredients and paper chemicals. BASF already cut 400 jobs at construction chemicals and reduced capacity at paper ingredients in Europe.
“The focus on value over volume, innovation and restructuring will be important in a sluggish 2013,” Andrew Benson, an analyst at Citigroup Inc. said in a note to clients. Last year’s earnings were a “mixed set of numbers and reflect the slower activity in the second half. That said, BASF reacted quickly and decisively to these tougher markets with an acceleration of cost cutting and focus on cash management.”
The stock dropped as much as 3.7 percent to 72.25 euros in Frankfurt trading and was down 2.8 percent at 72.88 euros as of 12:05 p.m. local time. European stock markets tumbled on concern Italy’s elections will lead to renewed market turmoil.
The chemical maker is battling a shrinking paper market in Europe by expanding its activities in Asia and switching its focus more toward packaging, especially the environmentally friendly variety which is a “hot” area, Bock said today.
“The problems in the paper industry are material,” Bock said today. “We are really driving our research and development people for solutions for sustainable packaging. ‘‘There are opportunities for BASF’’ as customers look for ways to reduce packaging weight and damage to the environment.
BASF proposed an annual dividend of 2.60 euros per share, up 4 percent from last year’s payout.
‘‘The outlook is positive, although I would be careful because they didn’t give any specific figures,” Oliver Schwarz, an analyst at MM Warburg in Hamburg, said today by phone. “The dividend is less than I had expected.” Schwarz, who rates BASF buy, had forecast a payout of 2.70 euros.
Before today, the shares had gained 19 percent in six months, boosting the company’s market value to 68.9 billion euros. BASF has the largest weighting on Germany’s benchmark DAX index, which gained 10 percent in the same period.
Quarterly sales rose 9 percent to 19.6 billion euros compared with a 19 billion-euro estimate. Net income declined 13 percent to 980 million euros as the restart of oil production in Libya raised the company’s tax bill. Oil production in the country had been halted between February and October in 2011 because of political unrest.
BASF today forecast world economic growth will accelerate to 2.4 percent from 2.2 percent last year, with chemical production growing even faster at 3.6 percent.
Bock, who became CEO in May 2011, has pledged to generate a quarter of sales from products that are less than 10 years old by the end of the decade. He’s helping drive that goal by buying four battery-material companies as well as seed-treatment maker Becker Underwood Inc. and drug-ingredient supplier Pronova BioPharma ASA.
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