May 1, 2023

Covestro Earnings Call Urethane Highlights

Covestro AG (CVVTF) Q1 2023 Earnings Call Transcript

Apr. 28, 2023 4:02 PM ETCovestro AG (CVVTF), COVTY

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Covestro AG (OTCPK:CVVTF) Q1 2023 Earnings Conference Call April 28, 2023 10:00 AM ET

Company Participants

Ronald Koehler – Head, Investor Relations

Markus Steilemann – Chief Executive Officer

Thomas Toepfer – Chief Financial Officer

Carsten Intveen – Investor Relations, Director

Markus Steilemann

Thank you, Ronald, and hello and warm welcome also from my side to the results of our first quarter. Today we published our Q1 details after we had pre-released the headline figures two weeks ago.

Sales were down by 20% compared to last year to EUR3.7 billion, clearly indicating the global demand crisis we are currently facing. Against this trend, we achieved the first quarter EBITDA of EUR286 million, clearly beating the guidance of EUR100 million to EUR150 million given in early March. Free operating cash flow was also better than expected by us, despite the usual seasonal working capital buildup.

After positive trend in EBITDA during the first quarter and improved visibility going forward, we are now returning to a quantitative guidance for full year 2023 with a refined range for our financial KPIs.

Finally, as you recall, in the first quarter 2022, we initiated a EUR500 million share buyback program. The program was paused mid 2022 due to the recessionary environment. With more clarity on the outlook, we are now restarting the program in May.

Markus Steilemann

Thanks a lot, Thomas. And I would now like to come to a specific topic, as we are not only quantifying our full year guidance, but we are also resuming our share buyback program. Let me quickly remind you, we started the EUR500 million share buyback program end of February, 2022, and the reason for the buyback program was that major M&A acquisitions were out of scope. We fed our share to be undervalued, and as such a good investment in two sub tranches of each EUR75 million, we purchased around 3.5 million shares in the first half year of 2022. Yet, due to the recessionary environment with the start of the second half of 2022, we had then temporarily suspended the share buyback to protect our balance sheet and retained cash within the company until an economic rebound becomes foreseeable. However, it was always our strategic intention to execute the share buyback in an anti-cyclical manner.

Now, our raised EBITDA and free operating cash flow guidance and the improved visibility that the second quarter 2023 will sequentially result in higher volumes and a further raised EBITDA. We consider this to be the right point in time to reinitiate the buyback. We are still firm in our opinion that our share is currently undervalued and deemed the investment into our own shares as best investment for our shareholders. Consequently, the third sub charge of up to EUR75 million will be launched in May.

Let’s turn pages now to page number 19. A very busy chart. So let me guide you through it. As you know very well from the past and the current situation, Covestro’s business is a cyclical business. In times of an economic downturn or our core products, MDI, TDI and polycarbonate are usually strongly affected. Our products are an early indicator of a crisis as we are at the very beginning of the value chain and have strong exposure to multiple consumer industries. There are steps in the value chain between us and the consumer market. But in time of crisis, the stop of stock replenishments is regular in immediate action and progressing very fast throughout the different value chains. So our products are an early indicator to an economic downturn.

During a recession, the value chain empties through destocking. Upon the start of an economic recovery, a fast and efficient replenishment of the value chain is also required again. Rebounds often create a strong demand to quickly refill the supply chain. These high growth rates usually lead to supply shortages, allowing Covestro to execute the pricing power to again realize financially attractive margins.

So despite the cyclical behavior, the long-term growth drivers for our products remain intact or even improve. The current energy crisis will have a positive impact on the growth of MDI and polycarbonate. The trend for effective insulation to save energy can add one to two percentage point to the growth rate of MDI in the future as MDI is the best insulating materials for buildings and appliances. And MDI is so versatile, it can also be used in the manufacturing of wind turbine blades giving additional benefits of longer lifetimes and reduced maintenance rates. Our polycarbonates are an essential part of the battery pack in most electric vehicles as well as a contributor to lightweight and technically advanced electrical features. This results in a two to five times higher use of polycarbonates in modern EVs compared to a regular combustion car. With that, we believe that once the crisis is over, we will see again a strong rebound of demand for our products.

Let’s turn pages to page number 20 to another topic of special attention. In the past year, the competitiveness of European TDI production compared to competitor imports from Asia-Pacific was always a point of discussion. And yes, there were times like in the third quarter of 2022 when gas prices peaked so that the import of TDI was cost-wise a better solution than local production in Europe. Consequently, and supported by a temporarily significant gap of toluene prices between Europe and China, the imports were peaking at this point in time, taking into account the shipment delay of about six week. Also, we were importing TDI from our plant in China.

You can clearly see an above chart that the landed cost advantage of imports from China in the third quarter peaked even considering logistics and import duties of EUR350 to EUR600 per ton. But as soon as the gas prices were coming down, this advantage quickly disappeared. And with the continuous gas prices declined since the January, 2023 disadvantage has now reversed. So Europe, as a TDI production location, is definitely competitive and has its place to cover the market demand.

If we take a look at the imports that have been coming in from Asia-Pacific in 2022 around 100 kilotons TDI have been imported, and market prices have nevertheless peaked during the time of high gas prices. This clearly indicates that the market needs the European asset base for reliable supply. And with the announcement of a 300 kiloton of European production disappearing towards third quarter of 2023, Europe will even require more imports to cover again rising demand. Demand as of 2024 will exceed the local European production. And customers are hesitant to rely on import, given the supply chain interruption seen in the past two years. We believe that we have a clear technological and cost advantage with our gas phase TDI technology, and additionally, an advantage of having a production in the heart of Europe being able to supply TDI competitively to our customers.

So now let’s turn to the last page of today’s presentation. Let me quickly summarize on page number 21. Volume decline is resulting in lower sales or has resulted in lower sales of EUR3.7 billion in the first quarter, and that was caused by weak demand and ongoing destocking across many industries. Our EBITDA came in with EUR286 million above guidance range of EUR100 million to EUR150 million, and that was driven by cost efficiency and improved pricing data across both segments. This negative free operating cash flow of minus EUR139 million still came better — came in better than expected, and it was held by ongoing strict working capital measures.

We also now quantified the guidance for full year 2023 with an expected EBITDA between EUR1.1 billion to EUR1.6 billion, and we resumed our — will resume our EUR500 million share buyback program with a third tranche up to EUR75 million starting in May.

Markus Mayer

And then the last question is on TDI, is that last year, roughly 100,000 tons have been imported to Europe, is this is net zero [ph]? Also the maximum of imports which can be imported to Europe given its chemical activity, or what would be theoretical maximum number which could be imported to Europe? That’s all for my side.

Thomas Toepfer

Markus Steilemann

Yeah. Absolutely. So, Markus, if you look at the TDI import capacity, what we are basically talking about is not only shipping capacity, but we — what we need, we need storage capacity and unloading capacity in respective harbors, which is a key challenge as we’re talking here about hazardous and very reactive chemicals. So having said that, it is not easy to build those capacity up. But even if it is built up, let me quickly recap on what I tried to explain a little bit earlier in one of the slides. It is absolutely necessary that we get this additional capacity imported into Europe as one of the largest sites in Europe, which represents roughly 40% of European based capacity is about to be shut down by third quarter of 2023. That means we have name played out 300,000 tons. How much real available capacity is represented by this? The jury is out. Nonetheless, we and our customers strongly believe in the growth opportunities and their demand for TDI, and therefore, we need import capacities. Otherwise we will have at least for some time temporarily maybe a shortage of TDI in Europe.

So we need this capacity, and therefore you can assume that there might be an upscaling within this year of another 50,000 tons of import capacity on top of the 100,000 tons that we have seen being imported last year. So, yeah, once again, it’s difficult to judge talking about, let’s say, the chemistry we are handling here. We need that import capacity and we feel in this overall situation as the — yeah, let’s say, one of the last two standing TDI suppliers with the IP protected leading cost position, let’s say, very well-positioned in that market.

Charlie Webb

Brilliant. It worked. Maybe just two questions from me. So first, just thinking about the spreads, maybe you can just walk us around a little bit obviously you kind of alluded to a slightly better kind of volume indication seasonally and sequentially, looking through the year. So just how do you see spreads shaping up in terms of that balance of supply/demand across some of your key commodities? Just a sense on that regionally, and by you those — kind of key commodities, NDI, TDI, polycarbonate would be really useful.

And then just second question, on TDI itself. Obviously, some talk around some of the limitations MOFCOM has put on TDI prices for one of your competitors to close the deal that they are currently undertaking. How do you think about that in terms of what it — has or what implications it has for the China TDI market? And how would you calibrate that into your kind of mid-cycle thinking in its current form? Does it reduce kind of your mid-cycle as it relates to TDI earnings in in China? Does that have a small impact or not? Just trying to understand that, would be great.

Thomas Toepfer

Yeah. Charlie, let me maybe start with the — with a spread question. So I think from an overall picture, you’ve seen that our mark-to-market stands at 1.4, our midpoint of the EBITDA guidance is at 1.35. So essentially what we’ve done, take the number and maybe reduce it slightly. I’m not going to call it a haircut, but it’s a slight reduction that we’ve made.

If you look into the immediate future, that’s also true for the second quarter. So we’re essentially assuming that the uplift that we’re expecting for Q2 in terms of EBITDA is purely coming from better sales volumes, which are seasonally driven. And as I said, the fact that China has no Chinese New Year, and that the construction season is kicking in, but we’re essentially assuming that the margins stay flat also in the second quarter of the year.

The upper end of the guidance 1.6 would require some meaningful upside of the margin to happen the second half of the year. I think this is in the cards if demand picks up, but of course, we’re not planning with it. As I said, our base assumption is still flat volumes and also, margins essentially flat forward. So — yeah, so I think that would be it from my side on the spread.

Maybe Markus you want to talk about TDI.

Markus Steilemann

Yeah. Thanks Charlie for your question and thanks also for once again hinting on TDI. So what’s the situation? One, the largest, let’s say, local producer of TDI in China has bought a smaller competitor. And one of the first measures is that they will shut down a smaller capacity in the order of magnitude, I think a 30 or 40,000 tons of TDI capacity. So a kind of a small consolidation is going on there. However, given the size of those players, that has called the anti-trust authorities on stage and they have gone through a rather, let’s say, sophisticated paper that kind of limits the opportunity of setting the price for TDI in China. However, that goes back, I think for, looking three to four years backwards on the pricing. And we must not forget that, for example, one of those years was 2021, where we have seen rather high prices.

So long story short, I would not expect that this overall regulation, including, let’s say, this potential price cap, if I may call it that way, will have any significant impact on our ability with regard to earn money with TDI. And secondly, also on our ability with regards to our mid-cycle earnings not only because of that very specifics that I just described, but it is just one country and it’s just one product which is not representing the major share of our entire product portfolio.

Let’s not forget about the wonderful products like MDI, polycarbonate and the Solutions & Specialty segment. I hope that answers your question.

Jaideep Pandya

And then the third question really is on MDI. If I just use furniture as a reference industry, do you expect growth to rebound to the sort of five-year historical average for all this MDI capacity that is coming? Or do you think that even if we under undergo maybe for the next 12 months, because it is coming from essentially one player and that player is expected to be disciplined, we won’t have overcapacity issue in MDI? Thanks a lot.

Thomas Toepfer

Markus Steilemann

Yeah. Maybe then, on — Jaideep, on the last topic with regards to MDI. So we believe that structurally MDI growth is fully intact. We also believe that — and you said, well, just let’s take the furniture example as one example, but to really look into the MDI growth, there’s two things that need to be considered. Number one is, we’re not only talking about newly constructed private and commercial buildings, but also about a significant market for refurbishment of buildings. And not to forget that about 25% to 40% of global energy demand is driven by cooling and heating of buildings. So there’s a huge need for more, let’s say, energy efficient buildings. And that is the key driver for retrofitting of homes and new built homes for insulation materials where MDI plays a major role. And that’s why looking at that demand pattern, first and foremost coming out of a crisis, there is a high chance that the market would show a very strong rebound pattern, which would then very fast lead into balanced markets.

And looking a little bit further out, there is, from today’s perspective, an announcement, limited capacity built up to 2025 and 2026, and following years, in 2026 and following years, there is currently even no announcement about additional capacity being built or edited. So the market might even get short or very short in the midterm, and you cannot just turn on the tap and say, okay, let’s produce some more MDI, no matter how you do it, it takes a couple of years from the first planning/announcement to really get quality MDI out of the pipes. And that’s why from today’s perspective, you might come to a gloomy outlook. I would say with a quick rebound, limited announcements and also the need for structural need for MDI given, let’s say, the sustainable development and energy, let’s say, reduction targets, the MDI market is still intact.

https://seekingalpha.com/article/4597926-covestro-ag-cvvtf-q1-2023-earnings-call-transcript?mailingid=31320243&messageid=2800&serial=31320243.37

April 27, 2023

Urethane Highlights from Dow’s Investor Call

Dow Inc. (DOW) Q1 2023 Earnings Call Transcript

Apr. 25, 2023 11:15 AM ETDow Inc. (DOW)

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Q1: 2023-04-25 Earnings Summary

EPS of $0.58 beats by $0.20 | Revenue of $11.85B (-22.36% Y/Y) beats by $516.33M

Dow Inc. (NYSE:DOW) Q1 2023 Earnings Conference Call April 25, 2023 8:00 AM ET

Company Participants

Pankaj Gupta – Investor Relations, Vice President

Jim Fitterling – Chairman and Chief Executive Officer

Howard Ungerleider – President and Chief Financial Officer

Jim Fitterling

Thank you, Pankaj. Beginning on Slide 3. In the first quarter, Team Dow demonstrated its agility, delivering sequential earnings improvement in what continues to be a challenging environment. These results reflect our competitive advantages and operating discipline as we leveraged our structurally advantaged feedstock positions, proactively aligned our operating rates with market demand and focused on higher-value products where pockets of demand remain resilient, such as pharmaceutical applications, energy, commercial building and construction and mobility end markets. Additionally, our actions to deliver $1 billion in cost savings in 2023 are progressing with $100 million achieved in the first quarter. These actions will ensure we continue to focus on cash flow generation through our low-cost to serve operating model.

Turning to the details of the quarter. Net sales were $11.9 billion, down 22% year-over-year. Declines in all operating segments were driven by continued soft global macroeconomic activity. Sales were flat sequentially, as gains in performance materials and coatings and packaging and specialty plastics offset declines in industrial intermediates and infrastructure. Volume decreased 11% year-over-year, led by declines in Europe, the Middle East, Africa and India or EMEA. However, volumes increased 2% sequentially on gains in performance materials and coatings and packaging and specialty plastics.

Local price declined 10% year-over-year and 4% quarter-over-quarter, due to industry supply additions in some businesses amidst soft global economic conditions. Operating EBIT for the quarter was $708 million, down year-over-year due to lower local prices and volumes. Sequentially, operating EBIT improved by $107 million, with gains primarily driven by performance materials and coatings. Cash flow from operations was $531 million in the quarter. On a trailing 12-month basis, cash flow conversion was 85%.

Moving to the Industrial Intermediates & Infrastructure segment. Operating EBIT for the segment was $123 million compared to $661 million in the year ago period. Results were driven by lower pricing and demand, as well as higher energy costs, particularly in EMEA. Sequentially, operating EBIT was down $41 million. Lower energy costs were more than offset by decreased demand and pricing for propylene oxide, its derivatives, and in isocyanates, in polyurethanes and construction chemicals. Industrial Solutions experienced lower volumes due to weather-related impacts and a third-party supply outage combined with lower demand in industrial end markets.

hristopher Parkinson

Okay. Thank you so much. It’s obviously been a few years with China now finally emerging from COVID. But can you just kind of give us your latest and greatest thoughts on your three main segments regarding the potential for new Chinese supply across polyethylene, MDI, and then just the remainder siloxanes, which you’ve already been mentioning. Just given that they’re finally emerging from this, just any update on your thought process there will be incredibly helpful. Thank you so much.

Jim Fitterling

Sure. Let me try to do this MDI and siloxanes. Look, on siloxanes, there were about four additions in China last year on siloxanes capacity. You had each one of them range, they were between 100,000 and 200,000 tons each. And so — there are some more planned additions coming throughout this year. But I think the net total — the biggest year was last year that we saw about 650,000 tons added. So I think we’re through that.

MDI, I think, is a timing game, as we’ve said before, I feel good about where supply/demand is with MDI. In the short term, the operating rates have been between 75% and 80%. And it’s all depending on your view of how fast the Chinese capacity is going to come on. We think it’s going to be spread out a little bit more over time versus all coming on in 2023. And so, our view is that, the industry operating rates should hold up in that high 70s, almost 80% range, which historically is a constructive range for MDI.

https://seekingalpha.com/article/4596330-dow-inc-dow-q1-2023-earnings-call-transcript?mailingid=31277055&messageid=2800&serial=31277055.694

April 27, 2023

Stepan Earnings Call Transcript

Stepan Company (SCL) Q1 2023 Earnings Call Transcript

Apr. 25, 2023 2:05 PM ETStepan Company (SCL)

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Q1: 2023-04-25 Earnings Summary

EPS of $0.71 misses by $0.23 | Revenue of $651.44M (-3.53% Y/Y) beats by $1.70M

Stepan Company (NYSE:SCL) Q1 2023 Results Earnings Conference Call April 25, 2023 8:00 AM ET

Company Participants

Luis Rojo – Vice President and Chief Financial Officer

Scott Behrens – President and Chief Executive Officer

Scott Behrens

Good morning and thank you all for joining us today to discuss our first quarter results. To begin, I will share our first quarter highlights and strategic outlook, while Luis will provide additional details on our financial results.

The company reported first quarter adjusted net income of $16.4 million. Earnings was significantly impacted by a 14% decline in volume, driven by softening market demand, delays in the startup of new low 1,4 dioxane production assets, and continued customer and channel destocking across most of our markets.

Our margins were in line with expectations despite high cost inventory carryover from the fourth quarter and increased competitive activity within certain end use markets. Despite ongoing inflationary pressures and higher cash expenses related to the construction and pre-commissioning activities of our new alkoxylation investment in Pasadena, Texas, and the startup of our new low 1,4 dioxane capacity in the US, we kept cash expenses consistent year-over-year.

For the quarter, adjusted EBITDA was $48.7 million, down $31 million versus Q1 2022, primarily driven by the decline in sales volume.

Polymers operating income was $10 million, a decrease of $4 million versus the prior year or 28%. This decrease was primarily due to an 18% decline in global sales volume, led by a 19% volume decline in rigid polyols. Lower phthalic anhydride volumes were partially offset by slightly higher specialty polyol volumes. The lower demand in rigid polyols reflects customer and channel inventory destocking and lower construction related activities.

Luis Rojo

Now turning to Polymers on slide 7. Net sales were $161 million for the quarter, a 14% decrease versus the prior year. Global volume declined by 18%, primarily due to a 19% volume decline in rigid volumes. This was partially offset by double-digit volume growth in China and mid-single digit growth in North America CASE business. The lower demand reflects customer and channel inventory destocking and lower construction-related activities.

Selling prices increased 8% primarily due to the pass-through of higher raw material and input costs. Foreign currency translation negatively impacted net sales by 4%.

Polymers operating income was $10 million, a decrease of $4 million versus the prior year. The decrease is primarily due to the 18% decline in global volume. North America and Europe results were impacted by lower volumes. Asia results improved on increased demand following the reopening of China.

Scott Behrens

These slides describe our strategic priorities and operating principles for shareholder value creation. We believe our growth strategy is properly aligned to attractive growth vectors within our core markets, and we are committed to delivering greater productivity through efficient allocation of resources to increase value creation for shareholders.

Our customers will always remain at the center of our strategy and innovation. Our longstanding tier 1 customers value our technical capacity and the ability to manufacture and deliver quality products at the scale they need. We continue to diversify our customer base by expanding our global reach to tier 2 and tier 3 customers who highly value the technical support and services that Stepan can provide.

Insulation remains one of the most critical enablers to a more sustainable and energy efficient world. Our Polymers business continues to focus on developing the next generation rigid polyol technologies that can increase the energy efficiency and cost performance of our customers’ insulation products. We are also focused on the spray foam market as it offers attractive diversification and growth for Stepan’s polyol.

Moving to slide 11, construction on our new alkoxylation production facility in Pasadena, Texas, is approximately 25% complete and has surpassed 250,000 hours of construction without an injury. This asset will be a flexible state-of-the-art multi-reactor facility, with approximately 75,000 tons per year of annual alkoxylation capacity and will provide strategically located capacity and capability for long term specialty alkoxylate growth across our strategic growth end markets, including agriculture, oilfield, construction and household and institutional cleaning. We expect the plant to start up in the fall half of 2024.

The underlining alkoxylation business that supports the Pasadena investment continues at strong double-digit volume growth and at attractive margins. As you know, we are increasing North American capability and capacity to produce ether sulfates that meet new regulatory limits on 1,4 dioxane with network completion expected by the end of the second quarter. While we have had some challenges and delays associated with the startup of the initial investments, we believe key learnings will afford efficient commissioning and startup of the remaining new installations. New contracted volume associated with the second quarter asset startup should drive volume growth in the second half of 2023.

Once completed, Stepan will have the largest installed low 1,4 dioxane production capacity serving the North American merchant market, which will enable Stepan to maintain and grow our North American sulfonation business in 2024 and beyond.

Mike Harrison

I was wondering if we could maybe start with some discussion on the raw material and inflationary front. I’m just curious, is the inflationary pressure that you saw in Q1 related to working through some of the high cost inventory that you still have within your system? Or is it related to changes in market prices for your raw materials? I guess I’m curious, are you seeing market pricing today for raws stable, increasing or decreasing?

Luis Rojo

You are 100% correct. What you saw in Q1 was we are still depleting high cost raw materials that we have in the system. Also, because of the fact that volumes have been depressed in Q4 and Q1. So, just to provide more perspective to that point, we saw an impact of around $7 million to $10 million pretax in Q1 due to high raw cost. And we believe we’re going to need at least Q2 to finish the depletion of some of these materials, especially in the polymers business.

So, now to your questions on raw materials, we saw the deflation in Q4 and a little bit more in Q1 and what we see now is more stable prices. And these can continue to be very volatile. We have seen oil going back up. So, we’re going to see more volatility up and down probably in the next few quarters, but right now what we see is very stable raw materials versus Q1. But again, one of the key impacts of our results in Q1 is this high raw material.

Vincent Anderson

What exactly do you need to do to position yourself in spray foam? Is that just about like finetuning a formulation to include blowing agents or a purity component? I’m just wondering what that requires of you and what that might mean for time to market?

Scott Behrens

It’s a slightly different formulation than what we’re historically been supplying into the rigid market. So our formulation chemists are obviously working with customers in that market to meet their specific performance requirements. Some of those customers have very specific and unique formulation. So this is a traditional technical service collaboration with customers in the Springfield market that view Stepan as potentially bringing value, consistency, high quality product to their businesses. So it’s a standard process. And it takes many months and qualification trials before you become approved and start supplying.

Vincent Anderson

But at the end of it, this was a collaboration effort. So the sales will be there.

Scott Behrens

Correct.

ike Harrison

Just a couple more. First on the Polymers business. It seems like you expect destocking to continue at least into the second quarter. Can you talk a little bit more broadly on what you see happening with underlying demand? It seems like from what we’re seeing in the headlines, residential housing is a big concern heading into the rest of this year. But the non-resi side of construction seems like it’s holding up a little bit better. I was curious what you guys are seeing in your business, given that it’s mostly non-residential?

Scott Behrens

You’re correct. The underlying demand in the market seems to be healthy. If you look at Q1, there were a lot of weather events. When you think about the rain on the West Coast, you think about the strong winter up in the upper Midwest and Northeast, that did have an impact on the ability to get jobs done, replacing or building new roofs. But underlining that, as Luis mentioned a little bit earlier, there is a lot of inventory throughout the chain. When you look at those contractors, which is a very fragmented market across the United States, we’re understanding there was a lot of inventory sitting around the country as jobbers would be bidding on work, but needed to guarantee that they had supply of materials. So that is what we believe the industry is working through.

The good news is I think there’s pent up demand. The activity for reroofs and new roofs is out there. We need to continue to work through that destocking of inventory in Q2 and then I think we’ll see recovery in the second half.

Mike Harrison

Also, in Polymers, you noted that the CASE business or that specialty polymers business in North America was showing some volume growth. Is there a chance that we see you guys reemphasize that specialty side of the polymers business, as we kind of navigate this challenging period for the rigid polyols side of the polymers business?

Scott Behrens

No, I wouldn’t expect to see significant movement on the specialty CASE side. We an important player in the market, but our strategy remains focused on the energy efficiency within our polymers business.

https://seekingalpha.com/article/4596423-stepan-company-scl-q1-2023-earnings-call-transcript

April 27, 2023

Highlights from the BASF Earnings Call

Call Transcript

Apr. 27, 2023 6:12 AM ETBASF SE (BASFY), BFFAF

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BASF SE (OTCQX:BASFY) Q1 2023 Earnings Conference Call April 27, 2023 2:00 AM ET

Company Participants

Stefanie Wettberg – SVP, IR

Martin Brudermuller – Chairman & CEO

Hans Engel – CFO

Martin Brudermuller

Good morning, ladies and gentlemen. Hans Engel and I would like to welcome you to our analyst conference call on the first quarter 2023. 2 weeks ago, BASF released preliminary figures as we had a quite better start to the year than expected on average by analysts. Today, we will provide you with further details regarding our business development in the first 3 months of the year. Let’s start with the development of global chemical production. Based on currently available data, global chemical production stagnated in Q1 2023 compared with the prior year quarter. Compared with Q4 2022, chemical production recovered by around 2% globally, excluding seasonal effects.

From a regional perspective, chemical production grew only in China at almost 8%. However, this was due to a low baseline in Q1 2022. Chemical production declined in all other regions. The decline compared with Q1 2022 was most pronounced in Europe, followed by Asia, excluding China and North America. From the second quarter of 2022 onwards, high inflation and regulatory price levels reduced consumer demand, particularly in Europe.

Globally, demand from BASF’s key customer industry in the first quarter of 2023 was rather disappointing with 2 exemptions. Global light vehicle production grew by an expected 5.7% compared with Q1 2022. Global agriculture production also continued to grow moderately in the first quarter of 2023.

Moving on to BASF’s sales development. Sales decreased by 13.4% in Q1 2023 to around EUR 20 billion, mainly due to a decline in volume by 12.8%. All segments recorded lower volumes except for Agricultural Solutions where volumes will remain stable.

Sales prices decreased by 0.7% overall. While prices in the Chemicals, Surface Technologies and Materials segments declined, we increased prices, especially in the Agricultural Solutions segment but also in the Nutrition & Care and Industrial Solutions segment. Portfolio effects had a slightly negative impact on sales and were mainly due to the sales of the kaolin minerals business. Until the end of September 2022, this business had been part of the Performance Chemicals division. Currency effects were slightly positive and mainly related to the U.S. dollar.

Let’s move on to our earnings development by segment. The decline in BASF Group EBIT before special items largely resulted from considerably lower contribution from the Chemicals and Materials segment. In Q1 2023, these 2 segments contributed EUR 484 million to BASF Group EBIT before special items compared with EUR 1.6 billion in the prior year quarter. This decline was mainly due to considerably lower volumes and margins on the back of significantly lower demand overall.

The automotive-related business of BASF also developed well. As mentioned earlier, close light vehicle production increased by 5.7% in Q1 2023 according to IHS Markit. Volume growth was most pronounced in Europe and North America with 17% and 10%, respectively, while market in China declined by 8% due to weak demand.

In the first quarter of 2023, BASF’s sales in the automotive industry, excluding sales in precious metal trading and precious metal sales, in the mobile emissions catalyst business amounted to EUR 1.9 billion, again, an increase of 5.7%.

Matthew Yates

Just one question. Perhaps it will be a topic of conversation at the AGM later today, but I’d like to ask you about the restructuring that was announced with the full year results and the plan to reduce headcount by 2,600 jobs. I think that equates to just over 2% of your workforce. This week, I actually saw Dow announced a 2,000 headcount reduction, which is more like 5% of their workforce. So in the context of the challenges European Chemicals face to be competitive, does the Dow announcements suggest that BASF actually isn’t being radical enough in its restructuring? Your EUR 1 billion fixed cost target is not really so different to the EUR 1 billion target, and they’re obviously a much smaller company than you? So I’d appreciate any further thoughts on that.

Hans Engel

Thanks. Matthew. I think we explained our plans with respect to the restructuring that we intend to do. The EUR 1 billion is a figure that’s related to the program in itself. As always, ongoing cost reduction is part of land tackling. That’s something that you do on an ongoing basis. What we provided you with is really this restructuring package and related cost reductions that we’re expecting and the related headcount reductions. So from my perspective, I think, as mentioned, this is a program, but it is supported by a number of additional initiatives that you keep doing on an ongoing basis as an enterprise.

Markus Mayer

Two questions from my side. Firstly, again, on Q2, it’s a challenging Q2 ahead. Regarding the destocking we had in Q1, do you see that now this [indiscernible] has ended, and it’s basically the underlying demand has not yet started to recover? Or is it still going to be stocking you still see in Q2? That would be my first question.

And the second one is on the adoption of Verbund structure and will any kind of view on the timing of the plant closures. That’s all from my side.

Martin Brudermuller

Markus, the destocking, I mean, this is always difficult because you have to rely on that customer tells normally have to go into their shops and look how many pallets are in there.

As I mentioned already, I think on the chemicals raw material side, I don’t think that there’s so much as for destocking anymore into the customer industries. But I’m not so sure about the finished goods. And they have to flow also first before they are really the production. So I mean, I think in the consumer area, as I said earlier, I think it’s still a little bit above the normal average like is filled this is most probably also why it needs to really pick up again. And this is why we are a little bit cautious and have our question marks when it comes to Q2. It is not really super transparent in a moment that a little bit more prudent with my statements. What was the second?

Stefanie Wettberg

The of Ludwigshafen.

Martin Brudermuller

So I mean, I think we mentioned that basically, the last part will be in 2026, but there were some plants that are actually are down now. So CDI is down, ammonia is down, and that depends then on how you do that. But I would say the major contributions are basically down now.

https://seekingalpha.com/article/4597158-basf-se-basfy-q1-2023-earnings-call-transcript?mailingid=31297199&messageid=2800&serial=31297199.155

April 21, 2023

Urethane Sciences Partners with Sanitized AG

SANITIZED AG completes EPA registration for
BBIT in the US

Burgdorf, April 20, 2023: Swiss-based SANITIZED AG receives EPA registration for Butylbenzisothiazolinone (BBIT) offering local stock availability to support the domestic market. BBIT is a best-in-class antimicrobial that provides effective protection against microbial attack, being a solution to degradation, loss of physical properties, and unpleasant odors.

BBIT is a powerful, safe, and versatile antimicrobial that has been designed to control the growth of microorganisms in a wide range of applications. It is highly effective and extensively commercialized in various formulations, including plastic compositions such as PVC, polyurethanes, silicone, polyesters, polyolefin, acrylics, rubber, etc.

“We are thrilled to be able to supply BBIT to the US market,” said Eduardo Costa, Head of Business Unit Polymers Additives of SANITIZED AG. “Over the last years we have invested and developed infrastructure to ensure continuity supply to the growing demand in the US. Furthermore, BBIT offers a safe choice for controlling the growth of microorganisms. The EPA registration is proof of the safety and effectiveness of our product, and we are confident that it will meet the needs of customers across the country.”

Sanitized has partnered-up with Urethane Sciences to supply BBIT to the polyurethane foam industry in North America. BBIT is available for purchase through our authorized distributor Urethane Sciences, in Berlin, NJ. For more information about the product, contact them at orders@usci.net.

Urethane Sciences LLC is an innovation partner, providing research and development, technical service support, supply of chemicals, and testing capabilities for the polyurethane foam comfort space.  In our world class Berlin NJ facility, we work closely with our clients to design, create, prototype and support “top of the bed” products that create consumer value.  Our extensive experience in providing solutions to problems now includes capabilities to bring a fresh, new relationship approach to improving understanding and application knowledge to the complex anti-microbial world. www.urethanesciences.com

Sanitized^® adding value since 1935

Sanitized^® enhances textiles, polymer products as well as paints and coatings. The company develops its innovative technologies in Switzerland and markets them worldwide. The Sanitized^® additives ensure odor-free textiles, the responsible protection of paints and treat polymers permanently with a hygiene function and material protection. The all-embracing service for customers is unique: Standardized tests in the TecCenter, technical and regulatory advice, marketing support. Manufacturers and consumers have relied on the globally trusted Sanitized^® brand for decades. It enables differentiation in the market and creates tangible added value for customers. www.sanitized.com