BASF Agricultural Solutions reports sales of €2.2 billion in 2nd quarter 2023, below prior-year quarter due to lower volumes

BASF Group 2nd quarter 2023:

• Sales decline by 24.7 percent to €17.3 billion

• EBIT before special items down by €1.3 billion to €1.0 billion

Adjusted outlook 2023:

• Sales of between €73 billion and €76 billion expected

• EBIT before special items of between €4.0 billion and €4.4 billion expected

In a tough market environment, BASF Group sales in the second quarter of 2023 declined by 24.7 percent compared with the prior-year period to €17.3 billion. ″We faced low demand from our key customer industries, except for automotive,″ said Dr. Martin Brudermüller, Chairman of the Board of Executive Directors of BASF, when presenting the results together with Chief Financial Officer Dr. Dirk Elvermann.

BASF had already adjusted its outlook for 2023 and released preliminary figures on July 12. The decline in sales was mainly driven by lower prices, primarily in the Chemicals, Surface Technologies and Materials segments. The Agricultural Solutions segment was able to implement price increases. Lower sales volumes as a result of weaker demand weighed down the sales performance in all segments. In addition, currency effects dampened sales.

Income from operations (EBIT) before special items of €1.0 billion in the second quarter of 2023 was €1.3 billion below the figure of the prior-year period. Almost all segments contributed to this with significant declines in earnings, in particular the Chemicals and Materials segments. EBIT before special items of the Agricultural Solutions segment decreased slightly. Surface Technologies achieved slight earnings growth. EBIT before special items attributable to Other improved considerably. EBIT decreased by €1.4 billion to €974 million. This figure includes income from integral companies accounted for using the equity method amounting to €22 million (prior-year period: €101 million).

Income from operations before depreciation, amortization and special items (EBITDA before special items) declined by €1.3 billion to €1.9 billion and EBITDA by €1.5 billion to €1.9 billion in the second quarter of 2023. Net income amounted to €499 million, compared with €2.1 billion in the prior-year quarter.

Development of cash flows in the second quarter of 2023

Cash flows from operating activities amounted to around €2.2 billion in the second quarter of 2023, €950 million above the figure of the prior-year period. Payments made for intangible assets and property, plant and equipment increased by €381 million compared with the prior-year quarter to reach €1.3 billion. Free cash flow thus amounted to €905 million in the second quarter of 2023, an improvement of €569 million compared with the second quarter of 2022.

Development of BASF’s Agricultural Solutions segments in the second quarter of 2023

In the Agricultural Solutions segment, sales of €2.2 billion were 9.3 percent below the level of the prior-year quarter. The main reason for this was the decline in volumes due to higher channel inventories in individual core markets as well as lower agricultural commodity prices. Sales performance was also weighed down by currency effects. Significant increases in prices in all regions and indications had a positive effect.

A slight sales increase in Europe was mainly driven by considerably higher prices compared with the prior-year quarter. This more than compensated for lower volumes, primarily in fungicides, and negative currency effects, in particular in Turkey, Russia and Ukraine.

In North America, sales were considerably below the level of the prior-year quarter due to lower volumes, especially of herbicides, and negative currency effects, mainly from the Canadian dollar.
Significantly higher prices had a positive impact.

Sales in Asia declined considerably, primarily due to lower volumes of herbicides and fungicides. Currency effects, particularly in China and India, also had a negative impact on sales performance. Prices, on the other hand, were increased considerably.

Sales declined significantly in the region South America, Africa, Middle East. This was mainly driven by lower volumes, particularly in fungicides in Brazil, as well as negative currency effects, especially in Argentina. This could only be partially offset by considerably higher prices.

At €213 million, Income from operations (EBIT) before special items was 4.3 percent below the prior-year quarter, especially due to lower volumes. Negative currency effects and slightly higher fixed costs also reduced earnings.

Measures to increase competitiveness

BASF is implementing a number of measures to improve competitiveness. As announced at the end of February, the company is executing a cost savings program with a focus on Europe and is adapting its Verbund structures in Ludwigshafen, Germany. ″Together with the initiatives that were already underway in our global service units, we will reduce fixed costs by the end of 2026 so that they will then be around €1 billion lower annually,″ said Elvermann. By the end of 2023, BASF expects to achieve annual savings of more than €300 million from the cost savings program. ″In addition, we continuously and strictly control our fixed costs and avoid discretionary costs wherever possible. We have a sharper focus on cash management to optimize our free cash flow. Over the course of the year, we will continue to reduce our inventory levels,″ Elvermann added.

BASF Group outlook 2023

″We do not expect a further weakening in demand at the global level for the second half of 2023, as the inventories of chemical raw materials in most customer industries have already been greatly reduced,″ Brudermüller said. ″However, we are assuming only a tentative recovery because we expect that global demand for consumer goods will grow slower than previously assumed. Margins are therefore expected to remain under pressure.″

The assumptions for the global economic environment in 2023 were adjusted due to the changed economic developments as follows (previous assumptions from the BASF Report 2022 in parentheses; current growth assumptions are rounded):

• Growth in gross domestic product: 2.0 percent (1.6 percent)

• Growth in industrial production: 1.0 percent (1.8 percent)

• Growth in chemical production: 0.0 percent (2.0 percent)

• Average euro/dollar exchange rate of $1.10 per euro ($1.05 per euro)

• Average annual oil price (Brent crude) of $80 per barrel ($90 per barrel)

Based on the adjusted expectations for further development in the second half of the year, the forecast for the BASF Group for the 2023 business year was adjusted as follows (previous forecast from the BASF Report 2022 in parentheses):

• Sales of between €73 billion and €76 billion

  (between €84 billion and €87 billion)

• EBIT before special items of between €4.0 billion and €4.4 billion

  (between €4.8 billion and €5.4 billion)

• Return on capital employed (ROCE) of between 6.5 percent and 7.1 percent

  (between 7.2 percent and 8.0 percent)

• CO2 emissions of between 17.0 million metric tons and 17.6 million metric tons

  (between 18.1 million metric tons and 19.1 million metric tons)