April 30, 2020 / 5:27 AM / a month ago

BASF cuts investment plans as crisis consumes car industry

FRANKFURT (Reuters) - BASF (BASFn.DE) scaled back its investment budget on Thursday and said it could not rule out a second quarter operating loss as the coronavirus crisis hit automakers, who are the chemicals giant’s largest customers.

FILE PHOTO: A general view of the German chemical company, BASF Schwarzheide GmbH in Schwarzheide, Germany, December 10, 2019. REUTERS/Annegret Hilse

Profits in the chemicals industry react strongly to a downturn because of its exposure to cyclical sectors such as carmakers, while massive overheads prevent swift cost cutting.

The transportation and automotive sector was most heavily affected by weak demand, production outages and supply disruptions, BASF said, while European rivals Umicore (UMI.BR) and Clariant (CLN.S) are also feeling the pain.

Germany’s BASF, which is the largest chemicals and plastics maker by sales, said 2020 expenditure on plant and equipment would be cut to 2.8 billion euros ($3.1 billion), from 3.3 billion last year and from a previous 2020 goal of 3.4 billion.

Operating income in the second quarter would likely drop to the low hundreds of millions of euros from 1 billion a year earlier, but a loss could not be ruled out under an extreme scenario, Chief Executive Martin Brudermueller said.

“That is not our base scenario but who can predict how fast we get out of the lockdown?” he told a media briefing.

A slump in demand for basic petrochemicals as well as plastics and coatings used in manufacturing cars led to BASF’s adjusted group earnings before interest and taxes falling 6% to 1.6 billion euros in the first quarter.

However, BASF beat average analysts’ projections of 1.47 billion as farm supplies and ingredients for food, cleaning products and drugs cushioned the blow.

BASF’s shares fell 1.8% to 48.35 euros at 0835 GMT.

On Wednesday, BASF withdrew its 2020 outlook, saying it was impossible to estimate the length and severity of the coronavirus crisis. But it stood by an earlier proposal to pay a dividend of 3.30 euros per share for 2019.

A previous plan to float Wintershall DEA, the oil and gas business it owns jointly with LetterOne, during the second half of 2020 was now off the table, BASF added.

Additional reporting by Patricia Weiss; Editing by Michelle Martin and Alexander Smith

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