BASF proposes stable dividend despite pandemic, sees support from organic growth
Author: Nigel Davis
LONDON (ICIS)–BASF management on Friday said a €3.30/share dividend would be proposed to the annual meeting as the company generated what it called a solid cash flow in 2020 despite the pandemic.
The company reported strong earnings in the fourth quarter of the year after facing the difficult operating environment brought about by the coronavirus pandemic earlier in 2020
Financial analysts had been predicting a dividend cut. The pay out would be flat compared with 2019 but the yield would be 5.1% based on the year end share price of €64.72
The expected earnings power of the ongoing businesses and their cashflow will be sufficient to cover investments and dividend payments, CEO, Martin Brudermuller, said, outlining future dividend policy. BASF has also, effectively, put the brakes on capital spending in 2021.
“Based on our medium-term financial planning, we will also have scope to reduce our financial indebtedness,” he added.
BASF is developing what could be seen as a more sustainable business model. No major investments are planned, rather bolt-on acquisitions that add to the company’s technical expertise and regional manufacturing capabilities.
Currently, BASF is in the midst of its largest ever investment – at Nanjing in China – and is investing in battery materials.
The divestments it has on hand include the pigments business and the IPO (initial public offering) of Wintershall DEA.
“The new Verbund site in southern China and our investments in battery materials will provide additional momentum for BASF’s future growth. We will finance the strong organic growth in these areas with proceeds from our divestitures.” Brudermuller said.
“Despite high investments in these growth activities in the coming years, we expect that our portfolio will be less capital-intensive after this transformation.”
BASF has also agreed to pay performance bonuses to staff despite lower returns in 2020. The return on capital employed (ROCE) for the year sank to 1.7% compared with 7.7% in 2019, with earnings impacted by non-cash impairments of €2.9bn.
Employee performance-related compensation is determined by ROCE and for the year was below the pay-out threshold.
The BASF board, however, had agreed to pay bonuses totalling €360m as a sign it said of recognition and appreciation of work done through the pandemic. “With this bonus, we want to acknowledge the huge effort put in by the BASF team in the pandemic year 2020, which was difficult for everyone,” Brudermuller said.
The company’s share price dipped in early trading on Friday, falling 1.3% as of 12:30 GMT, despite the stable dividend and stronger fourth-quarter earnings. The tepid market response was due to conservative 2021 earnings projections undershooting analyst expectations, according to Baader Bank’s Markus Mayer.
“After BASF’s share price outperformed over the last weeks, we expect profit taking on today’s reporting,” he said.
“The reason might be prudent earnings guidance… which assumes significant disruptions to global supply chains,” he added.« Previous Post Next Post »