BASF SE (BASFY) Q3 2023 Earnings Call Transcript

Oct. 31, 2023 10:56 AM ETBASF SE (BASFY), BFFAF

SA Transcripts

141.27K Followers

BASF SE (OTCQX:BASFY) Q3 2023 Earnings Conference Call October 31, 2023 6:00 AM ET

Company Participants

Stefanie Wettberg – SVP, Investor Relations

Martin Brudermüller – Chairman

Dirk Elvermann – CFO

Martin Brudermüller

Good morning, ladies and gentlemen. Dirk Elvermann and I would like to welcome you to our analyst conference call on the third quarter of 2023.

Let’s start with the development of global chemical production. Based on currently available data, the chemical industry was under further stress in Q3 as all regions exhibited a decline in production versus the prior year quarter with the exception of China.

The development in China was driven by recovering domestic demand for a broad range of chemical products in association with low sales prices, whereas global chemical production in total grew by 4.8%, including China, it decreased by 4.4% without China.

In Europe, chemical production slowed considerably compared with the prior year quarter. This was due to lower demand resulting from high inflation, increased interest rates, and a renewed rise in natural gas prices as well as front-loading of durable goods consumption during the COVID years.

In Q3 2023, European natural gas prices were still around 40% higher than the average between 2019 and 2021 and four times higher than the Henry Hub quotation for the quarter. Consequently, European chemical production continued to decline in Q3 2023 and shrank by 6.6% compared with the prior year quarter.

In North America, chemical production also declined compared with the prior year quarter in an environment of weak domestic demand from industries and end consumers.

Compared with the prior year quarter, chemical production was also weaker in Asia, excluding China. Subdued consumer spending and a strong import competition from China were the main reasons for this.

Let’s again have a closer look on current and historic levels of indicators for inventory in the manufacturing industry. On the slide, values below 50 indicate declining inventories, values above 50 indicate restocking.

In our Q2 2023 conference call, we mentioned that these indicators were below their long-term averages and in the range of historical inflection points from destocking to inventory buildup for Western Europe and North America.

The figures for Q3 2023 broadly confirm our expectations. The indicator for Western Europe improved marginally, signaling a slightly lower decline in inventories. The indicator for North America has moved further towards neutral. In Asia-Pacific, the inventory indicator is continuing to edge up, pointing to increasing inventories, amid the ongoing slow recovery of industrial production.

Overall, these observations and statistical data remain in line with the current development of order entries in our developing divisions — operating divisions. Particularly in China and India, we see firmer demand, while order entries are stabilizing in the other regions.

We now move on to BASF performance. Overall, BASF Group sales declined by 28% to €15.7 billion in Q3 2023, mainly due to lower prices and volumes. Price fell particularly in the Materials, Chemicals and Surface Technologies segments. But we are able to increase prices in Agricultural Solutions. Sales volumes were considerably lower than in the prior year quarter across all industries with the exception of automotive.

Dirk Elvermann

In the Materials segment, the considerable decline in EBIT before special items was driven by significantly lower earnings in the Monomers division, particularly as a result of lower prices. Earnings in the Performance Materials division fell slightly, mainly due to lower prices and volumes.

In the Materials segment, the considerable decline in EBIT before special items was driven by significantly lower earnings in the Monomers division, particularly as a result of lower prices.

In the light of the current macroeconomic environment, we have significantly trimmed our CapEx for 2023 to €5.3 billion, €1 billion less than the figure of €6.3 billion announced in February 2023. In addition, we will reduce CapEx further by a total of around €3 billion over the next four years.

Thus, for the five years period from 2023 to 2027, planned CapEx will be €24.8 billion, €4 billion lower than our original budget of €28.8 billion. While reducing the overall CapEx, we remain fully committed to our growth projects and our transformation towards climate neutrality.

With the cut in CapEx, we are not only simply postponing projects and investments. We are reducing the number of projects, we’ll implement alternative measures that involve less lower CapEx, and take advantage of the subdued market environment to lower investment costs as our procurement team in China is impressively demonstrating. On February 23, 2024, we will present the new CapEx budget for the planning period from 2024 to 2028.

We are continuing to broaden the foundation for BASF’s future profitable growth. In this context, let me provide you with an update on our Verbund site project in Zhanjiang. The project execution is on time and in budget. Last month, the second downstream plant for thermoplastic polyurethane, in short TPU, successfully started up.

We are stepping up our construction activities according to plan, and there are currently more than 15,000 construction workers on the site every day. The photo of the side shows the impressive progress that our team in China has achieved.

We are taking advantage of the attractive financing conditions in China and are financing the Zhanjiang Verbund site with a combination of 20% equity and 80% debt.

The equity is funded by dividends from the BASF existing group companies in China. The debt financing will be based on the Chinese capital market and local bank financing. We are proud that BASF is able to independently execute such a megaproject in these challenging economic times.

Sam Perry

Hi, thanks for taking my questions. Two, please. Firstly, on inventories. You are around €1 billion lower than at the end of 2022. How much of that is a function of reducing your own volumes of inventory and how much mark-to-market for lower prices? And how much scope do you have to reduce this further by the year end?

Dirk Elvermann

Yes, thanks. Maybe I’ll start with the inventory question. So, we have it both. We have a significant portion in the inventory volume. So, the OIVs. We also have certainly, back wind from FX and prices, but a substantial part of the inventory reduction is coming from the volumes build down.

So, we really started here a structural inventory improvement program, which is a rolling program, this goes further and further and we are intending to continue with that.

Just to give you glimpse of an idea. We were in the years until 2017, running our inventory level of €10 billion and still able to generate EBITDA at a level of €10 billion to €11 billion. And I think this indicates now we’re currently sitting at €15.1 billion, that there is still room for improvement and we will vigorously continue with that. Yes, over to Martin.

https://seekingalpha.com/article/4645393-basf-se-basfy-q3-2023-earnings-call-transcript?mailingid=33204923&messageid=2800&serial=33204923.258