BASF Shrugs Off Weaker Economies, Currencies to Keep Goal

BASF SE is standing by a target for a “slight increase” in profit this year even as economic growth falls short of forecasts and the chemical company struggles with unfavorable exchange rates.

Chief Executive Officer Kurt Bock is increasingly relying on an efficiency drive to help compensate for markets that he called “volatile and challenging” in a Bloomberg Television interview today. The performance-chemicals business supplying additives for foods, cosmetics and paper plans more than 2,000 job cuts by the end of 2017, the Ludwigshafen, Germany-based company said.

While Dow Chemical Co. and DuPont Co. look at which assets to keep amid pressure from activist shareholders, Bock is extending decades of fine-tuning at BASF’s integrated chemical complexes with only selective site closures and relocations. Bock is looking for efficiency gains to add 1 billion euros ($1.34 billion) to profit annually, as an oil-and-gas division and sales of basic chemicals in the U.S. help prop up results.

“What’s a concern is the currency situation,” Bock said. “It looks today that it will continue through the rest of this year.” Reaching the target for 2014 is a “bit more challenging than six months ago.”

BASF, the world’s biggest chemical maker, declined as much as 3.6 percent in Frankfurt trading and was down 1.2 percent as of 1:15 p.m., valuing the company at 75.7 billion euros. Before today, the stock had risen 7.9 percent this year while Germany’s benchmark DAX index gained 2.1 percent.

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Second-quarter earnings before interest, taxes and one-time items rose 12 percent to 2.05 billion euros. Analysts had estimated 2.09 billion euros in a Bloomberg survey. Revenue was little changed at 18.5 billion euros, compared with analysts’ average estimate of 18.6 billion euros.

While sales by volume have been recovering, prices are lagging behind in the absence of higher economic growth rates, according to the CEO.

Bock said on a call with analysts that BASF is working hard to achieve its 2014 targets and “as the year closes, we’ll get a better idea of how we see 2015 developing.”

Performance products reported a 3 percent decline in quarterly sales. Bock has said he’ll take a deeper look at operations to take out unnecessary costs in weaker market areas such as leather, paper, textiles and plastics. The revamp will help boost earnings by about 500 million euros as of 2017, at a cost of 250 million euros to 300 million euros, he said today.

Gazprom, Libya

By contrast, the Wintershall Holding GmbH oil-and-gas division reported a 13 percent jump in sales as BASF skirted the lack of infrastructure on land to export gas from Libya by “lifting” supplies from an off-shore platform.

BASF, Germany’s biggest producer of gas, tied its future to Russia through a partnership with OAO Gazprom, including taking a stake in the Nord Stream gas pipeline across the Baltic Sea.

An asset-swap deal with Gazprom is taking longer than initially planned because of the legal complexity of establishing new companies, Bock said, adding that the deal will probably be closed in the fall rather than summer.

BASF agreed in 2012 to transfer its gas-trading unit to Gazprom in return for stakes in two Siberian oilfields. More than half of BASF’s fuel will come from Russia once those fields go on stream from 2016.

The move is taking place even as Germans are increasingly concerned about relying on Russia for energy amid that country’s conflict with Ukraine.

The CEO said there are additional Siberian projects “in our draws.” In Ukraine, crop-chemical sales have been hurt by a need to be more cautious on payment deadlines for farmers.

“I hope we will see relief soon,” said Bock. “We do feel at ease with our Gazprom partner.”

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