London — BASF Group said Thursday that it will not meet its 2020 business plan as demand in key sectors nosedived in the first quarter, even though overall sales increased.
BASF’s Q1 sales rose 7% year on year to Eur16.8 billion, with growth attributed to a 4% increase in volumes from segments where demand actually increased during the coronavirus pandemic or were unaffected. Pharma, detergents and cleaners and food industries saw additional demand, while demand in the agricultural industry was not particularly affected, BASF said in its Q1 results presentation.
However, the coronavirus pandemic caused sharp declines in other industries, particularly the key transportation and automotive sectors, leading to heavy losses. The Chemicals and Materials division was the hardest hit, with Q1 EBIT down Eur246 million at Eur383 million due to the lower margins year on year in the ethylene and propylene value chain as well as for isocyanates and polyamide precursors, according to the company statement.
“The first quarter of 2020 was not a normal quarter. The same will be true for the second quarter and likely for the entire year,” BASF CEO Martin Brudermueller said in the presentation.
“The coronavirus has turned the world upside down,” he said. “This decline in demand from our most important customer industry [automotive] is currently hitting us hardest.”
BASF said its operating cash flow in the first quarter was a negative €1 billion, from a positive €373 million in Q1 2019. Alongside the considerable decline in net income, this was primarily attributable to a €1.2 billion increase in cash tied up in net working capital, the company said.
Looking to the rest of 2020, BASF said that owing to the very challenging macroeconomic environment and the impact on key consumer industries, there was significant uncertainty in the markets, making it impossible to make statements on how sales and earnings would develop for the rest of the year.
“As a result, the company anticipates a considerable decline in sales volumes in the second quarter of 2020,” it said. “BASF currently expects a slow recovery for the third and fourth quarters of 2020; how the situation develops is, however, extremely uncertain and not predictable at this point in time.”