BASF Group third quarter 2022: BASF achieved solid EBIT before special items despite continued high raw materials and energy prices

Date:10-26-2022

″Despite the continued high raw materials and energy prices, BASF achieved solid earnings in the third quarter,″ said Dr. Martin Brudermüller, Chairman of the Board of Executive Directors of BASF SE, presenting the results for the third quarter of 2022 together with Chief Financial Officer Dr. Hans-Ulrich Engel.

At €21.9 billion, sales were 12 percent higher than in the prior-year quarter. The sales increase was mainly driven by much higher prices in almost all segments. Only the Surface Technologies segment recorded lower price levels as a result of lower precious metal prices. Currency effects had a positive impact in all segments. Sales growth was also boosted by portfolio effects. Sales development was significantly dampened by lower volumes in all segments except for Agricultural Solutions.

Income from operations (EBIT) before special items declined by €517 million compared with the third quarter of 2021 to €1.3 billion. ″Our downstream segments Surface Technologies, Agricultural Solutions, Nutrition & Care and Industrial Solutions increased their earnings considerably,″ said Brudermüller. However, earnings in the Chemicals and Materials segments declined significantly compared with the very high levels of the prior-year quarter.

At €1.3 billion, EBIT was considerably below the prior-year quarter (€1.8 billion). This figure includes income from integral companies accounted for using the equity method, which declined by €124 million to €76 million, mainly due to the lower earnings contribution from BASF-YPC Company Ltd., Nanjing, China.

Compared with the third quarter of 2021, income from operations before depreciation, amortization and special items (EBITDA before special items) decreased by €446 million to €2.3 billion and EBITDA declined by €474 million to €2.3 billion.

Net income from shareholdings rose by €16 million compared with the prior-year quarter to €102 million. Income from non-integral companies accounted for using the equity method included special charges for impairments of approximately €740 million recognized in connection with damages to the Nord Stream 1 pipelines, in which BASF holds an indirect interest via Wintershall Dea AG. The operational result (after tax) of Wintershall Dea attributable to BASF rose by €533 million compared with the third quarter of 2021 to €630 million.

Overall, income before income taxes decreased by €538 million compared with the prior-year quarter to €1.2 billion in the third quarter of 2022. Net income declined by €344 million compared with the third quarter of 2021 to €909 million.

Cash flows from operating activities amounted to €2.3 billion in the third quarter of 2022, €405 million better than in the prior-year quarter. Free cash flow amounted to €1.3 billion in the third quarter of 2022, €218 million higher than in the prior-year quarter.

Announced cost savings program of €500 million annually

When releasing its preliminary figures on October 12, 2022, BASF also announced a cost savings program. The cost reduction measures will be implemented until the end of 2024. When completed, the program is expected to generate annual cost savings of €500 million.

Martin Brudermüller described the program as a response to deteriorating earnings development in Europe and Germany as well as challenging framework conditions: ″First, the European chemical market has been growing only weakly for about a decade. Second, the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains.″ In the first nine months of 2022, the additional costs for natural gas at BASF’s European sites amounted to around €2.2 billion compared with the same period in 2021. ″Moreover, uncertainties due to the enormous number of regulations planned by the E.U. are weighing on the chemical industry,″ Brudermüller added.

″These challenging framework conditions in Europe endanger the international competitiveness of European producers and force us to adapt our cost structures as quickly as possible and also permanently. We, as a company, must act now. Our cost savings program aims to safeguard our medium- and long-term competitiveness in Germany and Europe. We must take decisive action to fulfill our responsibilities to our employees, shareholders and society,″ said BASF’s Chairman of the Board of Executive Directors.

BASF Group outlook for 2022

In the third quarter of 2022, global economic activity weakened more significantly than expected. Against this background, BASF has adjusted its assessment of the global economic environment in 2022 (values rounded to half percentage points, previous forecast from BASF’s Half-Year Financial Report 2022 in parentheses):

• Growth in gross domestic product: +2.5% (unchanged)

• Growth in industrial production: +2.5% (+3.0%)

• Growth in chemical production: +2.0% (+2.5%)

• Average euro/dollar exchange rate of $1.05 per euro ($1.07 per euro)

• Average annual oil price (Brent crude) of $100 per barrel ($110 per barrel)

Despite the significant weakening of the economic environment since the third quarter of 2022, the BASF Group’s forecast for the 2022 business year published in the Half-Year Financial Report 2022 remains unchanged:

• Sales of between €86 billion and €89 billion

• EBIT before special items of between €6.8 billion and €7.2 billion

• Return on capital employed (ROCE) of between 10.5% and 11.0%

• CO₂ emissions of between 18.4 million metric tons and 19.4 million metric tons

Agricultural Solutions

Sales in the Agricultural Solutions segment rose considerably compared with the third quarter of 2021. This was mainly attributable to significantly higher prices in all regions and for all indications as well as positive currency effects. Slightly higher volumes, especially in herbicides, also contributed to the positive sales development.

In Europe, sales increased significantly compared with the same quarter of the previous year. Higher prices more than offset negative currency effects, mainly from the Turkish lira, and slightly lower volumes.

Sales in North America rose considerably as a result of positive currency effects, higher prices and increased volumes, especially for herbicides.

The strong sales growth in Asia was primarily driven by significantly higher volumes and positive currency effects, especially in India, China and South Korea. Higher prices also contributed to sales growth.

Sales rose considerably in the region South America, Africa, Middle East due to a successful start to the 2022/23 season. This was primarily the result of higher prices and positive currency effects, especially in Brazil. Higher volumes, especially in herbicides, supported the positive sales development.

Income from operations (EBIT) before special items was considerably above the level of the prior-year quarter due to the positive sales development.