Recently, BASF released preliminary data for the third quarter of 2020. Sales in the third quarter fell 5% to 13.812 billion euros (third quarter 2019: 14.556 billion euros), mainly due to unfavorable currency factors.
The BASF Group’s business operations in the third quarter of 2020 performed better than expected. Earnings before interest and taxes excluding special items reached 581 million euros, higher than the consensus forecast of analysts, but still lower than the same period last year (the third quarter of 2019: 1.056 billion euros). Compared with the second quarter of 2020, the EBIT in the third quarter of 2020 excluding special items increased by 355 million euros (the second quarter of 2020: 226 million euros).
The EBIT of surface treatment technology, materials, industrial solutions and chemicals business areas in the third quarter of 2020 excluding special items are all higher than analysts’ forecasts. Earnings before interest and taxes excluding special items in the agricultural solutions business were the same as analysts' forecasts; the nutrition and care business was lower than expected. Earnings before interest and taxes excluding special items in the "other" business areas are more negative than analysts' forecasts.
The BASF Group’s earnings before interest and taxes excluding special items decreased year-on-year, mainly due to the continued high profit pressure in the upstream chemicals and materials business, which led to weaker revenue contributions. The benefits of nutrition and care, agricultural solutions, industrial solutions and "other" business areas are also less than the same period last year. In the field of surface treatment technology, the EBIT excluding special items is almost at the same level as the same period last year.
The BASF Group’s EBIT for the third quarter of 2020 is expected to be negative 2.637 billion euros, mainly due to impairment and structural adjustment fee accruals that have no cash flow impact, which is lower than analyst consensus and the same period last year (2019). The third quarter: 1.336 billion euros). As the new crown epidemic has brought a more significant negative impact on macroeconomic development, the impairment test identified 2.8 billion euros of impairment of fixed assets. Weak demand in the automotive and aviation industries is the main reason for the impairment, which particularly affects the surface treatment technology business area, and brings a continuous surplus of basic chemicals, which brings pressure on profits in the chemicals and materials business area. In addition, the impairment is also reflected in a series of measures to simplify the production network in the agricultural solutions business area.
In the "other" business area, the relevant budget provisions involved in the structural adjustment of the Global Business Service Department have been reflected.
Due to impairment, BASF's net income for the third quarter of 2020 is expected to be negative 2.121 billion euros, which is lower than the current analyst forecast and the third quarter of 2019 (911 million euros). The divestiture of the chemical building materials business assets, liabilities and related disposal proceeds will only be reflected in BASF's 2020 fourth quarter performance report. However, payments related to the divestiture received before September 30, 2020 will be included in the cash flow from investment activities in the cash flow statement for the third quarter of 2020.
In the fourth quarter of 2020, BASF currently predicts that the group’s EBIT, excluding special items, will continue to improve compared to the third quarter, which will be better than the current analysts’ average forecast for the fourth quarter of 2020.
The BASF Group expects full-year sales in 2020 to be between 57 and 58 billion euros, mainly due to the weak demand caused by the new crown epidemic (2019: 59.316 billion euros). The BASF Group expects that the EBIT excluding special items will be between 3 and 3.3 billion euros in 2020 (2019: 4.643 billion euros). In addition to weak demand, the BASF Group expects that high profit margins will continue to exist, especially for basic chemicals. Saving fixed costs will partially offset the impact of high profit margins.
These outlook data are based on the following inferences regarding the global economic environment in 2020:
● GDP fell by 5%
● Industrial production fell by 5%
● Chemical production decreased by 2.5%
● The exchange rate is 1 Euro to 1.15 US dollars
● The average price of Brent crude oil will be US$40 per barrel
The above forecast by BASF assumes that measures to strictly control economic activities against the new crown epidemic, such as blockades of cities and towns, will not be implemented again.
As in previous years, BASF will make an outlook for the 2021 annual results and related conditions when it releases its 2020 financial report on February 26, 2021.
