BASF Expects Third-quarter Net Loss on Impairments as COVID-19 Crushes Demand
2020-10-10    [Source:PUdaily]

    BASF has released preliminary figures for the third quarter and says it expects to post a net loss of €2.12 billion ($2.50 billion) compared with a net profit of €911 million in the year-earlier period due to non-cash impairments and restructuring provisions, below current analyst estimates. However, the company says its operating performance was “better than expected” during the third quarter and expects to record a 5% sales decline to €13.81 billion from €14.56 billion in the third quarter of 2019. This was mainly driven by negative currency effects, the company says.

    BASF also expects to record a third-quarter EBIT loss of €2.64 billion compared with a positive €1.34 billion in the prior-year quarter due to the impairments and restructuring provisions, below analysts’ consensus. The company says it identified fixed-asset impairments of €2.8 billion due to “considerably weaker macroeconomic developments as a consequence of COVID-19.” The impairments were largely the result of weaker demand from the automotive and aviation industries, which impacted the surface technologies segment in particular, and a continued oversupply of basic chemicals, which put pressure on margins in the chemicals and materials segments. In addition, impairments were recognized in the agricultural solutions segment as part of measures to streamline the production network. In BASF’s Other segment, provisions were recognized for the realignment of the global business services unit.

    The sale of the assets and liabilities of the construction chemicals business and the related disposal gain will not be reflected until BASF reports its fourth-quarter results, the company says. Payments received until 30 September in connection with the construction chemicals divestment are, however, included in BASF’s statement of cash flows for the third quarter under cash flows from investing activities.

    BASF says its third-quarter EBIT before special items is expected to be €581 million, above analysts’ consensus but well below the figure for the prior-year quarter, €1.06 billion. EBIT before special items rose by €355 million in the third quarter from €226 million in the previous quarter.

    The year-on-year decrease in EBIT before special items was primarily due to the continued weak earnings contributions from the chemicals and materials segments due to ongoing high pressure on margins, BASF says. The nutrition and care, agricultural solutions, and industrial solutions segments and Other segment also recorded lower earnings compared with the prior-year quarter. EBIT before special items in the surface technologies segment was almost on a level with the prior-year period.

    BASF’s surface technologies, materials, industrial solutions, and chemicals segments exceeded average analyst estimates for EBIT before special items in the third quarter, the company says. EBIT before special items was on a level with analyst estimates in the agricultural solutions segment but fell short of analyst estimates in the nutrition and care segment, BASF says. EBIT before special items of the Other segment “was more negative than analysts expected,” BASF says.

    BASF has provided an outlook for the fourth quarter and full year. It expects a further improvement in EBIT before special items compared with the third quarter of 2020. The expected result would exceed current average analyst estimates for the fourth quarter, BASF says. The company expects full-year sales of €57–58 billion, down from €59.32 billion in 2019, mainly due to weaker demand as a consequence of the pandemic. BASF anticipates EBIT before special items of €3.0–3.3 billion for 2020, down from €4.6 billion in 2019. “As well as weaker demand, the company expects pressure on margins to continue, especially for basic chemicals, which will be partially offset by fixed-cost savings,” BASF says.

    The outlook is based on various assumptions about the global economic environment in 2020, BASF says. The company assumes a decline in worldwide GDP and industrial production of 5.0%. It anticipates a worldwide decline in chemical production of 2.5% in 2020. It also bases its assumptions on an average euro/dollar exchange rate of $1.15 per euro in 2020 and an average annual Brent crude price of $40/bbl. “BASF’s forecast assumes that severe restrictions on economic activity to contain the coronavirus pandemic, such as lockdowns, are not re-introduced,” the company says.

    BASF is due to release third-quarter results on 28 October 2020 and full-year results on 26 February  2021.

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