Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EBITDA before special items matched the prior-year quarter level, indicating stable performance.
- Volume growth of 2.4% across most businesses, excluding precious and base metals.
- Strong performance in the Chemicals segment with considerable volume growth and improved margins in the Petrochemicals division.
- Industrial Solutions segment achieved considerable volume growth and margin expansion.
- Nutrition & Care segment saw a considerable increase in EBITDA before special items, supported by higher volumes and margin expansion.
Negative Points
- Sales declined by 7% to EUR16.1 billion, mainly due to lower prices.
- Considerably lower earnings in the Agricultural Solutions segment due to a difficult market environment.
- Net income decreased by EUR70 million compared to the prior-year quarter.
- Free cash flow dropped to EUR471 million from EUR905 million in Q2 2023.
- Net debt increased to EUR21.4 billion at the end of June 2024, up from EUR16.6 billion at the end of December 2023.
Q & A Highlights
Q: Markus, I wanted to ask about the timing of the Capital Markets Day in September. You've only been CEO since the end of April. So effectively giving yourself less than six months to come up with a plan. Is there a sense of urgency in the company?
A: Yes, thanks, Matthew. I’ve been on the Board of Executive Directors for seven years, so the topics and key questions are known to me. The Board has come together very well, and we have made good progress in defining our path forward. We think September is the right timing, no need to wait.
Q: Are you able to quantify the benefit from closing the two GA plants and the change in strategy? Is it fair to say that is currently a loss-making operation?
A: Yes, Matthew, good morning. This is Dirk. I don't have a specific number for you now today. But if you look into the segment's results and take into consideration that it was glufosinate ammonium predominantly driving down the segment, you can get an impression of the order of magnitude. We will book the one-timer in the third quarter, which is a low triple-digit number.
Q: What is your current order book visibility in your more traditional chemical activities? Would it be fair to assume four to six weeks? And what kind of demand trends do you see at present in automotive, construction, and electronics?
A: Yes, thanks, Christian. The current order book visibility hasn't changed dramatically. Four to six weeks is a good assumption. Automotive has been flat compared to prior year, and we expect the second half to be under more pressure. Construction is unspectacular right now, with positive developments in commercial construction and infrastructure, but residential construction is depressed. Electronics show continued good growth, especially in semiconductors.
Q: Is destocking in crop protection still happening, or are the channels at customer level now clear?
A: Yes, this one I take again. The overall market development shows cautious and leaner buying behavior. Channel inventory destocking is ongoing, and we see some normalizing of commodity price development, which goes together with further product price pressure.
Q: Could you give us some color about what is the sales exposure for GA for you these days? And will the shutdown lead to a quick improvement in results in 2025, 2026?
A: Glufosinate ammonium is about 20% of our herbicide sales. We will not forgo the sales but make it profitable again by securing third-party supply on competitive terms. This will replace our own manufacturing and improve margins and returns.
Q: Could you give us some more color on the volume and price development in both care and nutrition?
A: In Nutrition & Care, we had a positive development, especially in Care Chemicals, based on strong volume increase and lower fixed costs. In animal nutrition, we see continued price pressure but anticipate sequential price improvement, especially in vitamin E and vitamin A.
Q: Can you give a bit more color on what you think is the normal seasonality in Q3?
A: BASF's results are typically front-loaded to the first half of the year due to Ag. This year, with a weaker Ag result, it might be more balanced. Pricing power is essential for the second half of the year, and if easing of price pressure continues, we will have a stronger second half.
Q: Given the weak local demand and extra capacity, has China been responsible for a lot of the pricing pressure in the first half of the year?
A: Yes, China’s situation impacts global pricing due to its large chemical market. Overcapacities in China have built up due to lower-than-expected growth, leading to export pressure and price pressure in other regions. However, when China’s industrial activity strengthens, this capacity will be quickly absorbed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
