BASF SE (BASFY) Q2 2025 Earnings Call Transcript

Jul. 30, 2025 7:08 AM ETBASF SE (BASFY) Stock, BFFAF StockBASFY, BFFAF

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BASF SE (OTCQX:BASFY) Q2 2025 Earnings Conference Call July 30, 2025 2:30 AM ET

Company Participants

Dirk Elvermann – Member of the Board of Executive Directors, CFO & Chief Digital Officer
Markus Kamieth – CEO & Chairman of the Board of Executive Directors
Stefanie Wettberg – Senior Vice President of Investor Relations

Markus Kamieth

Thank you, Nina. Good morning, and welcome to our Teams or video call. Today, we are presenting our results for the second quarter and the first half year of 2025. On July 11, we pre-released some of our key figures due to the adjustment of our full year guidance. Dirk and I will provide you with more details today and the rationale for the revised outlook.

Before we take a closer look at the sales development, let me give you a brief overview of the quarter. BASF generated EBITDA before special items of around EUR 1.8 billion in the second quarter of 2025. The Agricultural Solutions segment considerably increased earnings. The Surface Technologies and Nutrition & Care segments achieved slightly higher earnings. In the base Chemicals businesses, margins remained under pressure due to high product availability on the market.

Let’s now take a look at the sales performance of BASF Group. Overall, sales were almost at the level of the prior year quarter, thanks to volume growth. Volumes grew particularly strongly in the Agricultural Solutions and Surface Technologies segments. Prices declined in 4 of 6 segments, particularly in the Chemicals segment. We managed to achieve price increases in the Surface Technologies and Nutrition & Care segments. Contrary to the first quarter, currency effects in the second quarter dampened sales in all segments and were mainly caused by the significant depreciation of the U.S. dollar.

Reflecting this underlying sales development EBITDA before special items came in at EUR 1.8 billion compared with EUR 2 billion in the prior year quarter. Here, you can see how the markets, volumes and specific margins of our segments developed in the second quarter of 2025. In general, the business environment in our business — upstream businesses was very challenging. Compared with the second quarter of previous years, we generated significantly lower EBITDA before special items in these divisions.

This can be attributed to the high level of uncertainty and cautiousness of our customers in most markets globally. I’d like to highlight some segment-specific aspects. As mentioned, the market environment for base chemicals remained difficult. Nonetheless, volumes in the Chemicals segment were almost stable. Specific margins declined in both divisions, particularly in petrochemicals. Despite the tough market environment, the Materials segment showed robust volumes and earnings performance.

I will touch upon the stand-alone businesses only briefly as we have more detailed slides coming up. According to the latest data, global light vehicle production increased by 2.6% in the second quarter of 2025 compared with the prior year quarter, mainly on account of production growth in China. In this environment, the Surface Technologies segment recorded robust volume growth and outperformed the automotive market. Specific margins in this segment were almost flat.

In the Agricultural Solutions segment, we achieved strong volume growth and were able to considerably increase specific margins.

Now let’s take a look at EBITDA before special items by segment. Considerable earnings growth in Agricultural Solutions and slight growth in Surface Technologies and Nutrition & Care partially offset lower earnings in the remaining segments. Earnings in Agricultural Solutions increased across all regions, particularly in North America, followed by South America and Europe.

In the Surface Technologies segment, the main earnings driver was the higher contribution from the Environmental Catalyst and Metal Solutions division, which added to a continued strong performance by Coatings. In the Nutrition & Care segment, EBITDA before special items increased thanks to improved earnings in the Nutrition & Health division. Here, earnings were supported by a low

double-digit million euro insurance payment related to the fire that occurred 1 year ago at the iso-Phytol plant at the Ludwigshafen site.

In the meantime, production has resumed at our plants for vitamin A and E as well as for Aroma Ingredients. Force majeure for most products has been lifted. This will support volume growth in the Nutrition & Health division as of the second half of 2025. By contrast, earnings declined, particularly in the Chemicals segment because of the still unfavorable supply and demand situation for base chemicals. In addition, start-up costs related to our new Verbund site in Zhanjiang burdened earnings by around EUR 70 million in the second quarter of 2025. These startup costs will ramp up considerably during the next quarters to total around EUR 400 million in the full year 2025.

Lower earnings in the Industrial Solutions and Materials segments also contributed to the overall decline in earnings at group level. Compared with the second quarter of 2024, EBITDA before special items in Other was considerably weaker. This was mainly because of the reversal of bonus provisions in the prior year quarter. In BASF’s new remuneration system, the influence of group ROCE has been reduced, while EBITDA before special items, cash flows and nonfinancial targets are gaining in importance.

In the following, I’ll provide some additional color on the strong performance of the Agricultural Solutions and Surface Technologies segments. Compared with the prior year quarter, our Agricultural Solutions segment achieved remarkable growth of 21%. Volumes rose in all indications and sectors except for seed treatment. The absolute volume increase was most pronounced in herbicides. Compared with the second quarter of 2024, segment earnings improved by EUR 282 million to EUR 417 million. On a half year basis, earnings rose by a remarkable 8% to EUR 1.6 billion, resulting in a strong EBITDA margin before special items of 30%.

As forecasted in February, we continue to expect a slight increase in earnings for the Agricultural Solutions segment for the full year 2025.

Let’s move on to the strong performance in the Surface Technologies segment. All 3 divisions in this segment achieved volume growth. Overall, volumes increased by 6.5% even when excluding volumes from precious and base metals. Compared with the second quarter of 2024, EBITDA before special items in the Surface Technologies segment rose by around 10% to EUR 350 million. All divisions contributed to this increase. The highest contribution came from Environmental Catalyst and Metal Solutions.

Now I’ll provide a short update on our portfolio management. As announced at our Capital Markets Day in September 2024, our goal is to fully unlock the value of our stand-alone businesses. In the first step, we agreed in February to sell our Decorative Paints business to Sherwin-Williams. The purchase price amounts to USD 1.15 billion on a cash and debt-free basis. We are well on track to close the divestiture in the second half of 2025, pending approval from the relevant competition authority.

As planned and previously communicated, we approached the market in the second quarter of 2025 to explore strategic options for the remainder of our Coatings activities. These activities, which comprise automotive OEM coatings, refinish coatings and surface treatment generated sales of EUR 3.8 billion. We’ve received a considerable number of bids from private equity and strategic buyers and the process is well on track.

In the Agricultural Solutions segment, we are making good progress with our plans. This business has global scale, strong growth potential and attractive cash flow characteristics. We are currently focusing on executing the legal separation and the implementation of a dedicated industry-specific ERP system. In parallel, we are preparing for a potential listing. We remain committed to completing all internal preparations for a successful IPO by 2027.

Dirk Elvermann

Ladies and gentlemen, now let us talk about the measures we are taking to protect our balance sheet. Our top priority is maintaining BASF’s financial strength. We are fully committed to our financial policy. We aim for a single A credit rating, which is the best-in- class in the chemical industry. Standard & Poor’s recently confirmed our single A credit rating, which is also our rating at Moody’s and Fitch. Over the last 3 years, our financial debt and leverage ratio have increased. This was driven by lower earnings in a cyclical downturn and by our considerable investments, mainly in our Verbund site in South China.

This mega project is on time and below budget. We have already entered the commissioning phase and will start up most of the plants at the end of 2025. Our CapEx peaked in 2024, and we will bring it down below the level of depreciation as of 2026. At EUR 5 billion, payments made for property, plant and equipment and intangible assets in 2025 are expected to be EUR 200 million lower than forecasted in February. Furthermore, we will use part of the proceeds from divestitures to reduce our financial debt and to deleverage our balance sheet. We have also accelerated our cost savings programs.

We now expect to generate annual cost savings of EUR 1.6 billion by year-end 2025, EUR 100 million more than originally anticipated. Overall, we are well on track to achieve the targeted EUR 2.1 billion in annual cost savings by the end of ’26. And finally, we continue to have a strict focus on further reducing inventories while remaining a reliable and trusted partner for our customers also in challenging times.

Now I would like to share some information about our energy and feedstock supply. To safeguard our long-term competitiveness and operational resilience in Europe, we have established a very robust and flexible setup for procuring natural gas with 2 cornerstone supply agreements. The first agreement with Equinor will start this October. Equinor will supply us with up to 23 terawatt hours of Norwegian natural gas annually for the next 10 years. This contract ensures long-term supply security, competitive terms and a lower product carbon footprint due to Norway’s efficient infrastructure. It covers a substantial share of BASF’s European gas needs, particularly for our major sites in Germany and Belgium.

The second agreement signed with Cheniere will start in mid-2026. BASF will receive up to approximately 12 terawatt hours of liquefied natural gas per year through 2043. This agreement introduces strategic price diversification via Henry Hub indexing and gives us full control over an end-to-end LNG supply chain. It offers a critical hedge against European gas price volatility and complements our pipeline gas portfolio. These 2 agreements ensure long-term energy and feedstock security as well as high volume flexibility for demand-driven operations.

Further advantages include diversification across geographies, pricing models and delivery modes and last but not least, a lower carbon footprint. Together, these 2 agreements form the backbone of our gas supply strategy, balancing reliability, cost efficiency and sustainability.

Markus Kamieth

Okay. I will now comment on the outlook for the BASF Group that we pre-released on July 11. To account for the elevated macroeconomic and geopolitical uncertainties, we are now providing ranges for our assumptions regarding GDP, global industrial production and global chemical production in 2025. Particularly relevant for us is the continued high product availability in the chemical market, which is resulting in ongoing margin pressure, especially in the upstream businesses and base chemicals. Consequently, BASF expects earnings development to be weaker than previously forecasted and had adjusted its outlook for the full year 2025.

We now anticipate EBITDA before special items to reach between EUR 7.3 billion and EUR 7.7 billion. For free cash flow, we continue to expect a figure of between EUR 0.4 billion and EUR 0.8 billion due to lower expected payments for property, plant and equipment and intangible assets, among other reasons. The forecast for CO2 emissions remains unchanged.

As at our press conference in February, I’d like to emphasize today what we are focusing on in 2025. First, we will continue to execute our value-enhancing portfolio measures. We will also be starting up our new Verbund site in China. And we are working on structural cost reduction and establishing a winning culture across the entire BASF team. These are the things that are within our control, and we want to get them right, especially in this challenging environment.

To conclude, I have some news about the publication of our annual report and the format of our ASM. The audited BASF report 2025 will again be published at the end of February as you were accustomed to in the past. After successfully tackling the extended sustainability reporting requirements this year, the team is confident in its ability to accelerate the process. Furthermore, on the basis of the positive experience with the first virtual Annual Shareholders’ Meeting, the Board of Executive Directors has decided to annually alternate the format of the ASM of BASF SE over the next 4 years. We will thus hold an in-person ASM again in 2026 and ’28.

Unidentified Analyst

Two questions. First of all, regarding tariffs, Mr. Kamieth, maybe you can comment on the tariff situation for BASF and the industry as a whole. And secondly, your portfolio strategy. If we look at the interim report, we see that in the stand-alone businesses, the traffic light is green and in the core businesses, amber and red. So excluding the stand-alone businesses, BASF finds itself in a weak situation, a very weak situation. Does it concern you? And does this mean you will revise your portfolio strategy?

Markus Kamieth

Thank you, Mr. Freitag. Well, let me answer right away. First of all, tariffs. From my point of view, there are no big news. In recent months, we have stressed time and again that the direct impact of tariffs, especially tariffs between the EU and the U.S., but the overall tariff regime, which is being changed all the time, is limited for BASF because we have a good local footprint in every region, so we don’t rely on sending products or precursors through the region. So limited impact on part of tariffs.

This remains with the new deal that we probably have since Sunday. On the other hand, specifically the figures of the second quarter show that there is more and more uncertainty in global economy, which means that there is a restrained situation regarding our customers buying. And this volatility, of course, will reduce global growth. We all see this in the second quarter. And this will not change in the second half of the year.

Now we have to wait and see what the beginning deal between Europe and the U.S. looks like regarding our customers’ industries. I guess we will see a few weeks of high uncertainty. Over the last 24 hours, we’ve seen that things are pending. And so I advise everybody to wait, and we think that the uncertainty will not disappear immediately. And we think the second half of the year will be governed by this restrained economic situation. This is why we adjusted our forecast.

Portfolio, you are right. Right now, what we call stand-alone businesses, especially Ag Solutions and Surface Technologies, these segments are running very well. We are glad about this, and it shows that we have a strong market position. And compared to competitors, we are faring well. This is why we say these businesses have an extraordinary value, and this is why they are entitled to expect a premium in the evaluation. Of course, we have to understand that in what we call core businesses, a lot of cyclical business is included like basic chemicals. This is part of the strategy. Of course, in a cyclical business, there are some elements where you have a down cycle. This definitely is the case for base chemicals at the moment. But it doesn’t change our general assumption that due to our portfolio strategy, we can tap value by using other options for the stand-alone businesses and maybe looking at different owner structures.

So we are not getting nervous. It’s part of the ordinary business. And the performance that we see in a difficult environment in the core businesses also is an incentive to continue to make our businesses more competitive. So we regard this as a confirmation of our portfolio strategy.

The third question was tariffs, whether we already know which chemicals have exceptions. Well, Ms. Weiss, with the tariffs, it’s quite astonishing really. So on a daily basis, you get new information. What we said 3 or 4 months ago or 3 months actually is still holding true today. So the direct effects on the tariffs for us are still low. That is — well, a nonsignificant million figure, I will say. And what we really feel are the indirect effects, the uncertainty with the customers is very high. We typically have an order book visibility of 3 to 4 months. And now we are glad if we can look into it for a month’s time. And that, of course, also shows the exemption.

Some of the chemicals are privileged in part with lower tariffs. Sometimes they are completely exempt, but that’s a moving target. I’m still waiting for the day where we can say, okay, that’s it. And that’s the solution for us, for example. So the solution that we saw on the weekend, the alleged solution is not the final point yet, I guess. So we are absolutely — we see it as absolutely system critical. So the negotiators on both sides look at the chemical sector very closely and then choose which chemicals can be tariffed in order not to stop the entire apparatus.

But a final — well, view on it, we don’t have. Well, maybe a short story. When on 2nd of April, the Liberation Day, the U.S. tariffs were announced, there was an annex 2. So an annex to this, well, executive order and all the exceptions were listed. And I looked at it, it was, I think, 30 pages and an 80% — 90% of these pages were chemicals really. So the Americans look at very closely at which products cannot be produced in the United States. And so I expect that there will again be a long list of exceptions, which will be written, which we, however, don’t know yet. And we just heard about it on the weekend, and we don’t have any details whether the list is going to change, and we will learn about it over the next days and weeks and months.

Unidentified Analyst

I also have a question on an analyst conference question. Mr. Kamieth, you were talking repeatedly about a stagnant, a flat demand. And have I understood you correctly that basically real growth is only possible in China and the rest of the world is somewhere down there. And Mr. Elvermann, maybe you can say you said you are significantly below budget in South China. Maybe you can give us some figures there?

Markus Kamieth

Well, Ms. [ Doster ], maybe very briefly on the chemical industry and how I described it. This morning, I tried to put it into perspective because looking at the global figures in the chemical industry global growth, 2.5% to 3% was forecasted for this year is the best that we can read from the situation. And that only takes place or almost only in China. This is because China shows 50% of the worldwide chemical market. And if China grows as it grows, that leads to high growth figures worldwide or good figures, 2.5% to 3%. But if you separate it in China and rest of the world, you can see that just now our forecast for 2025 is that a slightly shrinking Chinese market, 0.2% or 0.3% is the shrinking here.

But it’s a difficult figure because there are so many subcategories, so we shouldn’t overinterpret it. But it shows the different dynamics, different momentum that we find in the market, no or very low growth in the rest of the world and growth in China. The problem is

that there is volume growth in China. But as I said, the margins in China are very low because there is a high product availability and in part also overcapacity. So the incremental volume that you can win there in terms of growth doesn’t lead to incremental profit so much. So that’s difficult.

And for the rest of the world, particularly in Europe, we see a contradicting or a contracting chemical market. We will have a negative growth in Europe because of the weakness of our customer industry — our industries here in Europe. And that shows how important it is to be successful in China because this is where growth will take place also in difficult global times.

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