Company News, Financial News

BASF’s Sales Slump

But global economy will expand in 2016.

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By: Tom Branna

BASF’s Sales Slump

Blaming volatile and challenging market conditions, BASF reported 2015 sales fell 5% to E70.4 billion ($77.5 billion at current exchange rates). Higher earnings in the chemical sector were more than offset by declines in oil and gas.


The market environment continued to be volatile and challenging. Growth rates for the global economy, industrial production and the chemical industry in 2015 all lagged considerably behind the company’s expectations. “Over the course of the year, global economic growth slowed significantly. In this economic environment, we have taken decisive measures: We have significantly reduced our inventories, strengthened our cost management and pruned our portfolio,” said Dr. Kurt Bock, chairman of the board of executive directors of BASF SE at the annual press conference in Ludwigshafen.


In the chemicals sector, Q4 sales fell 22% to €3.2 billion mainly due to lower prices. Full-year sales declined 14% to €14.7 billion, largely due to lower prices on account of decreased raw material costs, especially in the petrochemicals division. Earnings fell 10% primarily due to declining margins in the monomers division as well as rising fixed costs from the startup of new production plants, such as in Camaçari, Brazil, and Chongqing, China.
 

As the world's biggest chemical producer, BASF's economic forecasts carry depth and weight. BASF assumes the following economic conditions for 2016 (previous year figures in parentheses):

  • Global economic growth: +2.3% (+2.4%)
  • Growth in global chemical production (excluding pharmaceuticals): +3.4% (+3.6%)
  • An average euro/dollar exchange rate of $1.10 per euro ($1.11 per euro)
  • An average oil price (Brent) of $40 per barrel ($52 per barrel)

“The turbulent start to the year on the raw material and stock markets shows just how many uncertainties there are in an outlook for 2016,” said Bock. “The year has begun subdued, mainly due to a weak volume development in China. Nonetheless, in 2016 we still expect the global economy to grow at about the same rate as in 2015.”


Growth in the European Union will remain comparable with prior-year levels. In the United States, growth is expected to slow down somewhat. The company forecasts that economic growth in China will continue to decelerate slightly and that the recession will ease up somewhat in Russia and Brazil. Global chemical production is likely to grow at a slightly slower rate than in 2015.


“Risks continue to rise for the global economy,” he concluded. “We nevertheless aim to raise sales volumes in all segments. BASF Group sales will decline considerably, however, especially as a result of the divestiture of the gas trading and storage business.”



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