BASF: Sales and earnings Q4 considerably above prior-year quarter

Q4, 2016:
Sales €14.8bn (+7%yr-on-yr)
EBIT before special items €1.2bn (+15%)

Full year 2016:
Sales €57.6 billion (-18%)
EBIT before special items €6.3 billion (-6%)
Significant earnings increase in the chemicals business; considerably lower earnings in Oil & Gas and Other
Earnings per share €4.42 (+2%)
Dividend proposal for fiscal year 2016 €3.00 (2015: €2.90)

Outlook 2017:
Considerable sales growth through increases in all segments
Slightly higher EBIT before special items

In 2016, BASF achieved the growth and earnings goals it set for itself. The chemicals business grew successfully and profitability improved further. As expected, earnings in Oil & Gas did not match the previous year’s level. "As the year progressed, we were able to increase BASF’s growth. Our sales volumes rose from quarter to quarter. Particularly in Asia, we continually increased our sales volumes in the chemicals business. This shows that the high investments we made in research and development and new production capacity in recent years are paying off,” said Dr Kurt Bock, Chairman of the Board of Executive Directors of BASF SE, at the Annual Press Conference in Ludwigshafen.

In the fourth quarter of 2016, sales increased by 7% to €14.8bn compared with the same quarter of 2015, mainly due to higher volumes. For BASF Group, as well as the chemicals business, which comprises the Chemicals, Performance Products and Functional Materials & Solutions segments, volumes rose by 6%. Income from operations (EBIT) before special items was €1.2bn, €157M higher than in the prior-year quarter. Considerably higher earnings in Chemicals, Functional Materials & Solutions and Oil & Gas more than compensated for lower earnings in Agricultural Solutions and Other.

For the full year 2016, sales decreased by 18% to €57.6bn. This was mainly due to the divestiture of the gas trading and storage business as part of the asset swap with Gazprom at the end of September 2015. This business had contributed €10.1bn to sales in 2015. In total, portfolio effects lowered sales by 15%. In addition, lower raw material prices led to a drop in sales prices (-4%). The company was able to continually raise sales volumes over the course of the year. Compared with the previous year, volumes increased by 2%, and in the chemicals business, by 4%. Currency effects slightly dampened sales (-1%).

At €6.3bn, EBIT before special items was €430M below the prior-year level. This was largely a consequence of a decline of about €850M in the Oil & Gas segment, mainly resulting from falling prices and the divestiture of the natural gas trading and storage business. The activities transferred to Gazprom had contributed around €260M to EBIT before special items in 2015. In the Agricultural Solutions segment, EBIT before special items matched the previous year’s level. The chemicals business increased earnings considerably thanks to sharply improved contributions from the Performance Products and Functional Materials & Solutions segments.

At €4.1bn, net income exceeded the previous year’s level of €4.0bn. Earnings per share increased from €4.34 to €4.42.

Dividend proposal of €3.00
In a volatile market environment, BASF’s share price developed very positively, closing out the year at €88.31, around 25% higher than at the end of the previous year. With dividends reinvested, the performance of BASF shares rose by 30%, considerably outperforming the DAX 30 (+7%), the DJ EURO STOXX 50 (+4%) and the MSCI World Chemicals (+11%). "We are continuing our dividend policy and at the Annual Shareholders’ Meeting we will propose to raise the dividend again, by €0.10 to €3.00,” said Bock. BASF shares thus once again offer a high dividend yield of 3.4% based on the closing share price at the end of 2016.

Outlook for full year 2017
Bock: "We are cautiously optimistic for 2017. We want to grow further, with all segments contributing to this growth. More importantly: We want to increase our earnings again, also in the oil and gas business. The global economy will presumably grow about as fast as in 2016. In light of significant political uncertainty, volatility will remain high.” A considerable slowdown in growth in the European Union is expected. For the United States, a slight upturn in growth is anticipated. Growth in China is likely to continue to slow further. And it is expected that the recession in Brazil and Russia will end.

For its outlook, BASF assumes the following economic conditions for 2017 (previous year figures in parentheses):

Global economic growth: +2.3% (+2.3%)
Growth in global chemical production (excluding pharmaceuticals): +3.4% (+3.4%)
An average euro/dollar exchange rate of US$1.05 per euro (US$1.11 per euro)
An average oil price (Brent) of US$55 per barrel (US$44 per barrel)

In 2017, BASF Group sales are expected to grow considerably. This will be supported by slightly higher sales in the Performance Products segment and by considerable increases in the remaining segments as well as in Other.

Bock: "We want to slightly raise EBIT before special items compared with 2016. We anticipate considerably higher contributions from the Oil & Gas segment. In the Performance Products, Functional Materials & Solutions and Agricultural Solutions segments, we assume EBIT before special items will be slightly higher, while the contribution from the Chemicals segment will match the prior-year level.”

In light of the major political and economic uncertainties, BASF will continue its strict discipline with respect to expenditures and costs. The strategic excellence program, DrivE, contributes to this aim. Starting at the end of 2018, the company expects this program to contribute around €1 billion in earnings each year compared with the baseline 2015. The earnings contribution amounted to €350 million in 2016.

After a phase of high investments, BASF scaled these back in 2016 by more than €1 billion as previously announced. The company invested a total of €3.9 billion in capital expenditures (excluding additions to property, plant and equipment resulting from acquisitions, capitalised exploration, restoration obligations and IT investments). "In the coming years, we plan to invest at a comparable level. We are now filling the existing capacity in our new plants and thus building on the volume momentum seen last year,” said Bock.