BASF CEO Sees Scope to Extend Savings Plan That Buoyed EarningsAlex Webb
BASF SE, the world’s largest chemical maker, has the potential to exceed its aim of improving profit by 1 billion euros ($1.4 billion) by extending and accelerating the savings plan that helped earnings beat analysts’ estimates.
BASF is on track to meet its goal of realizing 300 million euros in savings this year and is evaluating further measures, Chief Executive Officer Kurt Bock said in a Bloomberg Television interview. The performance products division is a focus, with restructuring planned in the stagnant market of paper chemicals.
“I do think we have the opportunity to improve further,” said Bock, who became CEO in May 2011. “We are in the midst of our budgeting discussions right now and we have to wait for the outcome, but I’m quite confident that we have additional ideas of what to do.”
As Bock works towards a revenue target of 110 billion euros by the end of the decade, he’s cutting jobs in Europe and adding production in Asia to counter increased competition in areas such as paper- and pulp-additives. BASF announced plans this week to scrap 650 positions at its pigment unit, while creating new positions in China and South Korea.
Under Bock, BASF is showing a more restrained approach to portfolio change than his peers at Dow Chemical Co. and DuPont Co. DuPont CEO Ellen Kullman yesterday announced plans to spin off its performance chemicals division, while Dow’s Andrew Liveris has earmarked as much as $4 billion in disposals.
Bock has been shifting BASF toward additives for health foods and other higher-margin specialty chemicals to help shield the company from economic swings. He acquired Pronova BioPharma ASA for $654 million last November to add Omega-3 fatty acid offerings.
Earnings before interest, taxes and one-time items jumped 15 percent to 1.69 billion euros, the Ludwigshafen, Germany-based company said today. The average estimate of six analysts surveyed by Bloomberg was 1.62 billion euros. Sales climbed 1.5 percent to 17.7 billion euros. BASF shares rose 0.8 percent to 74.77 euros in Frankfurt as of 10:00 a.m.
“The numbers are more or less in line or perhaps a little better than either we or consensus had expected,” Oliver Schwarz, a Hamburg-based Warburg Research analyst who rates BASF hold, said by telephone. “BASF had already reduced their macroeconomic expectations in the last quarter, so we hadn’t expected any further changes to the outlook.”
BASF reiterated today it expects full-year sales and earnings higher than last year’s 72.1 billion euros and 6.6 billion euros respectively. BASF has instigated a four-year plan to trim costs by 1 billion euros by the end of 2015, with about 300 million euros in savings realized this year.
“The increase in earnings was largely due to higher contributions from the Functional Materials and Solutions, and Performance Products segments” in addition to lower charges, Bock said in the statement. “Currency effects will continue to negatively impact sales and earnings in the fourth quarter.”
The 148-year-old company is joining rivals Saudi Basic Industries Corp. and Clariant AG in making cutbacks as the advent of low-cost producers in Asia and a renaissance in the U.S.’s commodity chemical industry on the back of shale gas changes the dynamics of the marketplace.