BASF SE (BASFY) Q1 2024 Earnings Call Transcript

Apr. 25, 2024 5:48 AM ETBASF SE (BASFY) Stock, BFFAF Stock

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BASF SE (OTCQX:BASFY) Q1 2024 Earnings Conference Call April 25, 2024 1:30 AM ET

Company Participants

Stefanie Wettberg – SVP, IR
Martin Brudermuller – Chairman & CEO
Dirk Elvermann – CFO & Chief Digital Officer

Martin Brudermuller

Good morning, ladies and gentlemen. Dirk Elvermann and I welcome you to our analyst conference call. Today, we will provide you with details regarding our business development in the first quarter of 2024.

Let’s start with the development of chemical production by region. Based on the currently available data, global chemical production grew by 5.4% in Q1 2024 compared with the prior year quarter on account of a strong growth in China. As in previous quarters, the growth in China was driven by recovering domestic demand and exports. However, this volume growth in China was still associated with low sales prices and is influenced by positive base effects.

In North America, our chemical production was essentially flat. While in the European Union, production increased slightly compared with the weak prior year quarter. And in Asia, excluding China, production decreased slightly. To sum up, the volume recovery continued, but slowly this trend is also seen in a sequential comparison as volumes increased slightly in Q1 2024 compared with Q4 2023. Still, we cannot yet confirm a fundamental turnaround in industry dynamics. For this, we will need to see the current positive trend continuing in the coming quarters.

We now move on to BASF’s performance in the first quarter of 2024 compared with the previous — the prior year quarter. Overall, BASF Group sales were 12% lower at EUR 17.6 billion. This was mainly due to lower sales prices, which declined across almost all segments. Prices predominantly decreased on account of lower raw material prices.

In Agricultural Solutions, we were able to slightly increase prices. Currency headwinds dampened sales in all divisions. Volumes of BASF Group increased by 0.5%. Excluding pressures and base metals, volume increased by 2.1% compared with the prior year quarter.

In terms of earnings development, we had a solid start to the year. EBIT before — EBITDA before special items amounted to EUR 2.7 billion. This is slightly below the figure of the prior year quarter and slightly ahead of analyst consensus. Higher earnings in the Nutrition & Care, Materials, Industrial Solutions and Chemicals segments more than compensated for the decline in other Agricultural Solutions and Service Technologies.

Let’s take a closer look at the volume development by segment. Volumes in the Chemicals, Materials, Nutrition & Care and Industrial Solutions segments increased, while Agricultural Solutions and Service Technology recorded a decline. Higher volumes in our upstream businesses led to improved utilization rates at our major plans and positively impacted profitability.

Excluding precious and base metals, the Surface Technologies segment recorded a volume decline of only 0.9% on account of the — distribution. Volumes in the Coatings division increased, and Agricultural Solutions volume declined mainly to lower sales of herbicides and fungicides compared with the record prior year quarter.

Tony Jones

All the best, Martin. Only a few months ago, Martin, you talked about the need to review your production network, particularly in Germany, given high cost and low growth. How are you thinking about this now with the strongest start to the year? And a quick one for Q2. Maybe you could give a little bit of color about how you see the divisional outlook as we go into the second quarter.

Martin Brudermuller

I’ll take the first one, Dirk, you take the second one. I mean overall, let me say, I think our decisions that we have taken already to shut down plants and to trim the Fubon to basically competitiveness framework and also to the demand in Europe, I think it was all right decisions. But there will be more to come because I think we will have a fundamental topic in Europe because base chemicals will be for good because of structurally higher energy costs, less competitive. So we have to trim it more to the European demand. In our case, in BASF, we will trim it more to our own internal consumption and sell less to the market because you have also to take into account that the base candidates are the CO2-intensive products. That means we produce them, we sell them to the people, and then we have to reduce with high cost for CO2. That doesn’t make sense anymore. That’s why we will really use that to fuel basically our chains with the raw materials. And there’s a little bit more to come, and this is what the new Board will do when they talk about the target picture of [indiscernible], which is basically revised and renewed, I have to say, with the current framework. So I would expect that, particularly in the upstream area, the European chemical industry will be weaker in software and this lower participation in global share than it has been in the past. So that will be our work, and there’s still a little bit to be done, but I think we are very happy with the first step.

Dirk Elvermann

Yes, Tony, and just speaking — talking a little bit about the divisional outlook going forward. So starting with Chemicals and Materials, as I said already that the first quarter was okay, was good. And we have also benefited here from the one or the other special effect. Rest of World already mentioned, one of the other turnaround for outage of the competitor, which we benefited from.

Now second quarter of fundamentals, I would say, more on this unchanged, but now also we will have some turnaround. So I’d rather see that flat. Then for Industrial Solutions, I think full year, we are forecasting here a considerable increase, have nice a trend in both businesses is a volume to a large extent right now like dispersions and for instance, benefiting from that. So positive trend going forward.

Surface Technologies comprising of Catalysts, the Batteries, but also the Coatings business here for the entire segment, the site was on prior year level, depends also a little bit on development of the precious metals prices, which are, again, at a very low level, as we appreciate.

Nutrition & Care, we see a positive trend also going forward with the measures that we have taken now gaining traction. And Agricultural Solutions, we said early, after a record year last year, this will be lower volumes, while certainly, price is also getting more under pressure. But as I said, we have a more favorable mix now with higher portion of seats in our sales. So I’d rather say slight decrease and nothing dramatic happening there. So that would be my short summary of the outlook.

Laurent Favre

Yes. I guess, comments to not Christine and the others from and it’s certainly been a fun ride. My first question to you, Martin, is regarding what you — I guess what you told Jaideep. You said that there’s a clear path forward for BASF. And I guess for years, the path has been to go more downstream, and there was a lot of M&A, and I guess that was before 2018. And when we look back to 2018 and we think about your time as CEO, obviously, there’s been a lot of mess to deal with decarbonization, COVID, et cetera, and the investment in China. My question to you is, what is that clear path going forward in terms of upstream versus downstream because it’s certainly not clear to me.

And the second question for Dirk as you’ve gone through all the — all the business lines. On the other line itself, I understand there was a higher provision for the LTIP mark-to-market in Q1. Is there also a provision for higher bonuses that we should assume will be sent back to the divisions later this year?

Martin Brudermuller

Laurent, first of all, let me say, I will not communicate the strategy of the new Board team. That will be happening in a couple of months when Marcus and his team will tell you how they it, basically, what they have on their minds for the next years. I mean it will be a kind of an evolutionary thing. This is very clear. That is, I think, what was always BASF. There’s also some considerations they have, which differ from what I had. I mean I can only say when I started 2018, I had hoped for different 6 years than we actually had that we handle from one crisis to the other was really not what I had in mind, also not presenting the numbers in 2023 as they are. I hope we have a better result here, but life is as it is.

I think what is important that my team, which is very much also, to a large extent, Markus’ team, we have been working on trimming the structures of BASF. And I think this is the basis also for going forward that we really have been looking how we get closer to the customers, how we get more efficient, how do we get cost out, how we differentiate between the businesses. And I think this is my pride, I have to say, that we got along with all these targets despite of the crisis. So we have not made compromises on that, and that includes also the decisions to close down plan. So I think that’s a great basis, but have a little bit more excitement for what is coming then as the new strategy update for Marcus and the team.

Dirk Elvermann

Laurent, your question to others, you seized right. So provisions in — due to bonus accruals, due to — or to take them results proportional, but there’s also the longer-term elements in it, the LTI part. And then there are some things like the captive insurance payments. There was one that is booked here in others. And then it’s typically also to a minor extent, some consolidation effects. So that will be the 4 buckets that you’ll find another.

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