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After giving billions of valuation allowances in the third quarter, BASF continues to expect slightly better business in the final quarter. The DAX company confirmed its recently issued new annual targets in Ludwigshafen on Wednesday. In early October, BASF released key data for the third quarter and a new outlook for 2020 as a whole.
For the current year, the Ludwigshafen-based company is aiming for a turnover of between 57 and 58 billion euros after the 59.3 billion of the previous year. Operating profit before special items is likely to be between € 3 and € 3.3 billion (2019: € 4.6) billion. In forecasts, however, BASF assumes that there will be no renewed severe restrictions on economic activity to contain the crown pandemic, such as the lockdowns.
In view of the massive increase in the number of corona infections, the federal government wants to drastically limit contact. Based on a draft federal government resolution for the Chancellor’s videoconference available to the German News Agency Angela Merkel (CDU) with the prime ministers of the federal states this Wednesday, these measures will take effect across Germany from November 4 and will apply until the end of the month. Other European countries are also relying on stricter measures.
As already known, in the third quarter the group had to make write-downs of 2.8 billion euros. Therefore, the company recorded a loss before interest and taxes (EBIT) of 2.6 billion euros for this period. If you take the negative effect out of the equation, BASF achieved an operating profit of 581 million euros after just over one billion euros in the previous year.
After taxes and minority interests, there was a loss of € 2.1 billion after a profit of € 911 million a year earlier. Due to the aftermath of the corona pandemic, sales fell 5% yoy to € 13.8 billion.
The chemical company’s final results would fall within the framework of previously published key data, analyst Chetan Udeshi of US bank JPMorgan wrote in a study. Free cash flow was stronger. The recovery in demand continued in October. During the Corona crisis, the price slipped below the 40 euro mark in March. Despite the recovery since then, inventories have consistently decreased significantly since the beginning of the year.
BASF has been concerned about the corona virus and weak demand from the automotive industry for several months. The group recently stepped up its austerity course. The company plans to cut up to 2,000 jobs worldwide in its “Global Business Services” service unit, created earlier this year, by the end of 2022. With the job cuts, BASF aims to save more than 200 million euros per year from 2023.
CEO Martin Brudermller had already instituted an austerity program before the Corona crisis to make the group more profitable. In the course of a refurbishment, 6,000 jobs will be cut by the end of 2020, of which around half will be at the Ludwigshafen site. With this, BASF’s management wants to improve operating profit (Ebitda) annually from 2021 by two billion euros. Cancellations in “Global Business Services” are not included in the number of 6,000 positions. In total, BASF currently has more than 117,000 employees worldwide.
BASF places a question mark behind progressive dividends
BASF may have to test its progressive dividend policy. “If the future macroeconomic environment reduces BASF’s growth opportunities and significantly affects BASF’s profitability, the dividend distribution may need to be adjusted,” CEO Martin Brudermller said in a third-quarter data conference call.
The decision will only be made in February next year – “on the basis of our actual cash flow in 2020 and a stronger mid-term forecast”. Brudermller has actually promised BASF shareholders that the dividend will be increased every year. Nothing has changed in that sense, he assured me. “BASF supports its ambitious dividend policy”.
For 2019, despite the pandemic, BASF paid € 3.30 per share, 10 cents more than in 2018.
Blocks and gloomy economic outlook weigh on BASF shares
New blockades looming in Europe and thus a clouding of the economic outlook weighed heavily on BASF’s documents on Wednesday. Inventories of cyclical chemicals were avoided overall. In the late morning, BASF shares lost 4.42% to € 48.11 more than the DAX, which slipped 2.7%.
Analysts said there were no more surprises when the final key figures were unveiled.
BASF shares had a good run at the beginning of October, but did not exceed their high of EUR 58.40 since the beginning of June. The drop in prices this Wednesday brings it back to the price level since the beginning of August.
(dpa-AFX / Dow Jones)
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