BASF upbeat on 2019 guidance despite weak start to the year – CEO

Source: ICIS News

2019/02/26

LUDWIGSHAFEN, Germany (ICIS)–Despite a weak start to the year, BASF remains confident that global economic headwinds will ease in the second half of the year, the CEO at the German chemicals major said on Tuesday.

Martin Brudermuller said that BASF expects a “slight” growth in sales for 2019, compared to 2018, driven by higher sales volumes and portfolio effects. Earnings before interest and taxes (EBIT) would also come “slightly” above 2018 levels.

Despite falls in earnings for all divisions during the fourth quarter of 2018, Brudermuller said that BASF “is tackling these challenges” with a costs-saving programme which will have a positive impact in 2019 earnings of €500m.

The German chemical major took a major hit in earnings to the tune of €250m during 2019 due to logistical woes related to low water levels on the River Rhine, of which €200m occurred in the fourth quarter.

Moreover, with the €5.9bn acquisition in August 2018 of Bayer’s seeds assets, Brudermuller said that the company “only had costs, a negative contribution” from the transaction, instead of earnings, because the high season for seeds normally falls in the first half of the year.

“Our outlook assumes the trade conflict [between the US and China] will ease … The trade war between the US and China is paralysing everything else, and the two superpowers feel that too in their own countries … [We also assume] Brexit will occur without wider economic repercussions,” said Brudermuller, speaking to reporters in Ludwigshafen.

“[Despite these] high levels of uncertainty, we aim to grow profitability and slightly grow sales from volumes, and we want to slightly increase EBIT [earnings before interest and taxes].”

The CEO said that, as part of BASF’s restructuring, the company would push ahead with the divestments of its construction chemicals business – although he said he could not disclose any potential bidders for it as the company is analysing several offers – as well as its paper chemicals and pigments.

“The pigments business is not driven by innovation any longer, the market is growing rather slowly, and it needs to be led in a different way in the future,” said Brudermuller.

“This business is not linked to the Verbund [structure, the way BASF manages its chemicals parks] and that’s why we have resolved we have to find a better owner who can lead the business into the future.”

CHINA SLOWDOWN
Slower GDP growth in 2018  in China – which accounts for half of BASF’s sales in Asia Pacific, nearly €14bn in 2019 – should not lead to a misinterpretation of the figures, said Brudermuller, as China is still growing at a rate of more than 6%.

Moreover, he said that the Chinese government is always ready to act and prop up the economy in times of difficulty, a factor that gives certainty growth in the long term will remain robust.

“I lived in China for 10 years and this is not the first time growth slows down. But the Chinese government is very good in directing and facilitating long-term growth. GDP will slow down compared to last year but, in absolute numbers, we should not be worried about one year or two of slowdown,” said Brudermuller.

“We are very optimistic in the long-term Chinese industrial set up.”

The company announced in 2018 its intention to build a €10bn Verbund site in the Guangdong province, which would add to its many other production facilities in the country.

RHINE WOES
BASF’s CEO recognised that, in the past, the company had to deal “once in a while” with low water levels in the River Rhine, by which its flagship Ludwigshafen site is located and which is highly dependable on barge transport.

From the summer of 2018 until December, water levels in the key chemical transport route were too low due to a prolonged and severe drought, putting a strain on logistics as BASF was not able to receive all the necessary raw materials by barge.

“[The once in a while situation] had never been that bad and so long like in 2018. Will all summers be like this? I don’t think so, but we may have more summers like this and it could be associated with climate change,” said Brudermuller.

“That’s why we take our responsibility and that’s why we have to prepare this site [Ludwigshafen] for this: it is in our own interest to strengthen the site.”

Among other measures, Brudermuller said the company is investing more in facilities for cooling water, which the company takes from the Rhine but, when temperatures are too high, would not be usable for such a purpose.

He also mentioned an idea the company already circulated in 2018 – to explore, together with transport companies, the possibility of using barges that can navigate at very low levels, although he would not disclose more details.

2016 ACCIDENT COURT PROCEEDINGS
More than two years since BASF suffered its worst accident, a fire and explosion at Ludwigshafen’s harbour which left five dead and several injured, court proceedings have only started.

Because of that, Brudermuller said he could not expand much on the actual proceedings, but admitted that this is still an “emotional issue” which BASF employees watch as “an internal movie”, especially the fire brigade, which was the department most affected by the human losses.

“It’s very important that we have these court proceedings, and we can’t comment. But it’s good that it’s been dealt with and [will] come to an end. We will never forget it, and it will be part of our history and the anniversary will remind us of this,” he said.

“But we need to understand what happened, and this is important for us. We have changed some measures and have become stricter in some [safety] measures.”

Pictured: BASF’s Ludwigshafen site by the River Rhine, Germany
Source: BASF

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