By Ludwig Burger
FRANKFURT (Reuters) -German chemicals giant BASF on Friday posted a 45% drop in 2023 operating earnings, worse than both the market and company anticipated, adding to the challenges the new CEO will face when he takes the reins in April.
In October, BASF ramped up cost cuts in Europe and scaled back investments as well as earnings projections, citing an "extremely uncertain" global economic outlook.
Operating income before special items fell to 3.81 billion euros ($4.15 billion), below the 4 billion euros at the bottom end of BASF's target range, as lower sales and prices overshadowed its cost-cutting efforts.
Net income was 225 million euros on sales of 68.9 billion euros, both also missing analyst expectations.
Net profit was hit by 1.1 billion euros in impairments in its Surface Technologies, Agricultural Solutions and Materials segments, BASF said in a statement citing preliminary figures.
The company would not comment further ahead of a detailed report scheduled for Feb. 23.
The shares, however, were up 1.2%, bouncing back from a rout of more than 10% so far this year, as brokerage Baader Helvea said the free cash flow of 2.7 billion euros may be just about enough to justify a stable annual dividend.
Analysts at Barclays (LON:BARC) said some investors had likely braced for even worse results and added that full-year free cash flow, what is left after investments, was slightly above their own estimate.
BASF last month announced an organisational overhaul to tackle falling earnings and sluggish economic growth in its European home markets. Shortly after, it appointed company veteran Markus Kamieth, now in charge of Asia, to become CEO later this year.
With sites in industrial centres across the world, BASF is exposed to high interest rates, uncertainty due to wars in Ukraine and the Middle East and a price surge for national gas, which it uses both as a feedstock and a fuel.
Chemical industry earnings react strongly to changes in the economy because of major cyclical customers such as carmakers and builders. Massive overhead costs also prevent a swift reduction of expenses in a downturn.
Germany's economic forecasting institute IFO on Friday cited a survey of chemical makers showing a deterioration in business expectations in December, adding that hopes of strong international demand had likely been dashed.
Germany's chemical industry lobby group VCI warned last month there were no signs of a recovery in 2024.
BASF is banking on demand in China, spending 10 billion euros on a chemical complex there, and on complex materials for batteries in electric vehicles to pull it out of its slump over the longer term.
Amid a whirlwind of restructuring activities ahead of the planned CEO changeover in April, BASF last month agreed to sell its Wintershall Dea energy business to Britain's Harbour Energy (LON:HBR) for $11.2 billion in cash and Harbour stock.
($1 = 0.9190 euros)