BASF Sees Profit Dropping as Much as 10% With Oil at $40

Updated on
  • Full-year sales to fall `considerably' on gas-trading exit
  • Proposed dividend payment rises to EU2.90 even as profit lower

BASF SE expects earnings to drop as much as 10 percent this year as the crash in crude prices hurts its oil-and-gas unit and erodes margins in petrochemicals.

Earnings before interest, taxes and special items will fall from last year’s 6.7 billion euros ($7.4 billion) and sales will decrease at least 6 percent from 70.4 billion euros, the Ludwigshafen, Germany-based company said Friday in a statement. Analysts in a Bloomberg survey predicted a profit decline of 4.5 percent, with sales 14 percent lower.

The collapse in oil prices has already shaved 600 million euros off asset value at BASF’s Wintershall oil and gas arm, cutting last year’s Ebit to the lowest since 2009. The year started with subdued demand, the company said. Chief Executive Officer Kurt Bock is reducing costs, announcing the latest measure on Thursday with a plan to halve the research workforce at the plant biotechnology operation.

“They just don’t know how demand is going to develop,” Oliver Schwarz, an analyst at MM Warburg said. “The chemicals business has done significantly worse than expected.” Schwarz rates BASF shares at hold.

The shares rose 0.4 percent to 59.40 euros as of 9:02 a.m. in Frankfurt trading, contrasting with a gain of as much as 1.8 percent in the wider German market. Before today, the stock dropped 16 percent since the beginning of the year, cutting the chemical maker’s market value to 54 billion euros. Germany’s benchmark DAX index declined 13 percent in that time.


BASF is proposing to pay a dividend of 2.90 euros a share, up from last year’s 2.80 euros, even though net income dropped 23 percent last year.

“To increase the dividend in this difficult environment is a clear positive signal,” Peter Spengler, an analyst at DZ Bank AG, said in a note to investors. Spengler rates BASF hold.

For years, Wintershall propped up earnings and cash flow as other divisions making additives and materials suffered slowdowns in markets such as construction. Bock has repeatedly defended BASF’s energy business, saying it provides a strategic hedge for chemical operations, some of which also suffer periodic dips in demand.

The sales decline is primarily because of 12 billion euros in revenue given up to Gazprom PJSC in an asset swap, BASF said. The German company is also paying Gazprom cash compensation of about 50 million euros because the transaction is economically retroactive to April 1, 2013.

The lower profit goals for 2016 are because of an expected “significant” decrease in the oil-and-gas segment and a lower contribution from the chemicals division, BASF said. The company aims to increase earnings slightly in the specialty chemicals divisions, it said.

“This is an ambitious goal in the current volatile and challenging environment, and is particularly dependent on the development of the oil price,” Bock said in Friday’s statement. The company forecasts an average Brent oil price of $40 per barrel for the year.

(Adds share price in fifth paragraph.)
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