BASF Lowers Mid-Term Profit Goals on New Accounting Standards

BASF SE has lowered its medium-term profit and sales forecasts to reflect new accounting rules that change how the company includes Libyan oil exploration activities and the YPC Chinese joint venture in Nanjing in its books.

Earnings before interest, taxes, depreciation and amortization in 2015 will probably be 14 billion euros ($18 billion) instead of the originally planned 15 billion euros, the Ludwigshafen, Germany-based company said today. Sales are now predicted to be 80 billion euros instead of 85 billion euros. The forecast for earnings per share of 7.50 euros remains unchanged.

BASF is adopting the new accounting rules, called IFRS 10 and 11, a year earlier than required. The Libyan exploration arm Wintershall AG, which was fully included in the books, and BASF’s joint venture with Sinopec in China, which was partially included, will now only be reported under the so-called equity method. That means that the sales from those units won’t be reported, while their share of net income is included in Ebit.

“The new targets are purely a result of the accounting changes,” Manfredo Ruebens, head of BASF’s finance department said today at a press conference. The new rules stipulate that you can consolidate a unit if you actually control it. “It doesn’t just go by voting rights anymore,” he said.

BASF has also changed its forecast for 2020 based on the new rules. Ebitda will probably be 22 billion euros instead of 23 billion euros, while sales will come in at 110 billion euros instead of 115 billion euros, the company said.

Even though the new accounting rules will be used from the start of this year, the chemical maker has restated figures for 2012 to provide a comparison. Under the new rules, sales were 72.1 billion euros instead of 78.7 billion euros. Ebit before one-time items were 6.65 billion euros instead of 8.88 billion euros, the company said.

This year’s outlook for earnings and sales to increase is unchanged, BASF said.