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BASF’s earnings significantly below strong prior-year quarter in tough market environment

Autor: Financial Market
4 min

In a tough market environment, BASF Group sales in the second quarter of 2023 declined by 24.7 percent compared with the prior-year period to €17.3 billion.

We faced low demand from our key customer industries, except for automotive,” said Dr. Martin Brudermüller, Chairman of the Board of Executive Directors of BASF, when presenting the results together with Chief Financial Officer Dr. Dirk Elvermann.

BASF had already adjusted its outlook for 2023 and released preliminary figures on July 12. The decline in sales was mainly driven by lower prices, primarily in the Chemicals, Surface Technologies and Materials segments.

The Agricultural Solutions segment was able to implement price increases. Lower sales volumes as a result of weaker demand weighed down the sales performance in all segments. In addition, currency effects dampened sales.

Income from operations (EBIT) before special items of €1.0 billion in the second quarter of 2023 was €1.3 billion below the figure of the prior-year period.

Almost all segments contributed to this with significant declines in earnings, in particular the Chemicals and Materials segments. EBIT before special items of the Agricultural Solutions segment decreased slightly.

Surface Technologies achieved slight earnings growth. EBIT before special items attributable to Other improved considerably. EBIT decreased by €1.4 billion to €974 million.

This figure includes income from integral companies accounted for using the equity method amounting to €22 million (prior-year period: €101 million).

Income from operations before depreciation, amortization and special items (EBITDA before special items) declined by €1.3 billion to €1.9 billion and EBITDA by €1.5 billion to €1.9 billion in the second quarter of 2023. Net income amounted to €499 million, compared with €2.1 billion in the prior-year quarter.

Development of cash flows in the second quarter of 2023

Cash flows from operating activities amounted to around €2.2 billion in the second quarter of 2023, €950 million above the figure of the prior-year period. Payments made for intangible assets and property, plant and equipment increased by €381 million compared with the prior-year quarter to reach €1.3 billion. Free cash flow thus amounted to €905 million in the second quarter of 2023, an improvement of €569 million compared with the second quarter of 2022.

Development of BASF’s segments in the second quarter of 2023

Sales in the Chemicals segment in the second quarter of 2023 decreased by 38.4 percent compared with the prior-year period and amounted to €2.7 billion.

Lower raw materials prices, combined with a massive excess of supply and weaker demand, led to lower prices in both operating divisions. Compared with the prior-year quarter, EBIT before special items declined by 76.3 percent to reach €202 million.

At €3.6 billion, sales in the Materials segment were 25.8 percent lower than in the strong prior-year quarter. The decline in sales resulted mainly from significantly lower prices in all regions due to decreased raw materials prices.

Sales performance was additionally weighed down in the second quarter of 2023 by a further deterioration in demand. EBIT before special items declined by 60.4 percent compared with the prior-year quarter and amounted to €265 million.

Sales in the Industrial Solutions segment declined by 22.5 percent compared with the prior-year quarter and amounted to €2.1 billion. This development was mainly attributable to a sharp decline in volumes resulting from weaker demand. EBIT before special items fell by 61.6 percent to reach €124 million in the second quarter of 2023.

At €4.2 billion, sales in the Surface Technologies segment were 22.4 percent lower than in the second quarter of 2022. The sales performance of the segment was primarily attributable to significantly lower precious metal prices in the Catalysts division.

The segment increased EBIT before special items by 1.5 percent compared with the prior-year quarter to €230 million.

A considerable earnings growth in the Coatings division more than compensated for the decline in EBIT before special items in the Catalysts division.

Sales of €1.7 billion in the Nutrition & Care segment were 17.4 percent lower than in the prior-year quarter. The sales performance was attributable to a sharp decline in volumes in all business areas as a result of lower demand. The segment’s EBIT before special items decreased by 84.8 percent to €33 million.

In the Agricultural Solutions segment, sales of €2.2 billion were 9.3 percent below the level of the prior-year quarter. The main reason for this was the decline in volumes due to higher channel inventories in individual core markets as well as lower agricultural commodity prices. At €213 million, EBIT before special items was 4.3 percent below the prior-year quarter, especially due to lower volumes.

Sales in Other declined by 30.0 percent compared with the prior-year quarter and amounted to €799 million. This was primarily due to lower sales in commodity trading.

Compared with the prior-year quarter, Other recorded a 64.1 percent improvement in EBIT before special items to minus €60 million. This was mainly attributable to an improved contribution from insurance companies.

BASF Group outlook 2023

Based on the adjusted expectations for further development in the second half of the year, the forecast for the BASF Group for the 2023 business year was adjusted as follows (previous forecast from the BASF Report 2022 in parentheses):

• Sales of between €73 billion and €76 billion (between €84 billion and €87 billion)
• EBIT before special items of between €4.0 billion and €4.4 billion (between €4.8 billion and €5.4 billion)
• Return on capital employed (ROCE) of between 6.5 percent and 7.1 percent (between 7.2 percent and 8.0 percent)