LDN - Business

BASF to stick to investment plans after profit warning

[July 25, 2019] By Ludwig Burger

FRANKFURT (Reuters) - German chemicals maker BASF <BASFn.DE> on Thursday stuck with its investment budget and future earnings forecasts to try to move on from a surprise cut to its profit outlook for 2019 earlier this month that hit its shares.

BASF, the world's largest chemicals group after the breakup of rival DowDuPont <DD.N> <DOW.N>, in July warned of a fall of as much as 30% in 2019 operating profit instead of a rise, partly because of U.S./China trade friction.

But Chief Executive Martin Brudermueller, who has launched asset sales and cutbacks since taking office last year, said the guidance cut would not make him more cautious in the future.

"Our response to this can't be to be without ambition to avoid having to review our targets. The management team remains committed to an ambitious development at BASF," Brudermueller told reporters on a conference call.

The CEO said ongoing investment projects would continue as planned and reaffirmed a payout policy to increase dividends year by year.

He has faced criticism from analysts for sticking with what they categorized as "aspirational targets" for too long, and for catching the market off guard with the profit warning.

BASF on Thursday also cut its 2019 growth expectations for global industrial production and for global chemical production to 1.5% from a previous forecast of 2.7%.

The CEO said the trade dispute showed no sign of abating, rattling its customers, but long-term growth prospects of the chemical industry remained intact.

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A cyclist rides his bike past the entrance of the BASF plant and former Ciba production site in Schweizerhalle near Basel, Switzerland July 7, 2009. REUTERS/Christian Hartmann/File Photo/File Photo

But he also said new plant and equipment projects due to break ground next year and in 2021 might be postponed depending on how the business cycle developed.

BASF is shedding its construction chemicals and pigments businesses, is carving out its oil and gas business, and in June unveiled plans to cut 6,000 jobs as Brudermueller seeks to stem an earnings decline.

BASF, which also reported this month that second-quarter adjusted group operating income had almost halved, on Thursday said that lower volumes and margins at its basic petrochemicals businesses accounted for most of the weakness in the second quarter.

The Chemicals and Materials businesses accounted for 83% of the overall earnings decline in the second quarter.

BASF shares were down 1.3% at 0941 GMT at 63.04 euros, underperforming a 0.5% decline in the STOXX Europe 600 Chemicals <.SX4P> but were still trading above levels before the profit warning on July 8.

(Reporting by Ludwig Burger; Editing by Michelle Martin and Jane Merriman)

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