Good start for BASF in 2018

Outlook for the year 2018

For 2018, BASF expects the global economy and chemical production to grow at roughly the same pace as in 2017. Further growth is expected in all regions and BASF anticipates a continuation of the recovery already underway in Brazil and Russia. In addition to these generally positive baseline conditions, however, BASF also sees increased market volatility. Furthermore, the U.S. dollar is having a negative impact on sales and earnings.

For its outlook, BASF assumes the following economic conditions for 2018 (prior-year figures in parentheses):

• Global economic growth of +3.0% (+3.1%)
• Growth in global chemical production of +3.4% (+3.5%)
• An average euro/dollar exchange rate of $1.20 per euro ($1.13 per euro)
• An average oil price (Brent) of $65 per barrel ($54 per barrel)

“In this environment, we want to continue to grow profitably and achieve a slight increase in BASF Group’s sales and EBIT before special items in 2018,” said Bock. The rise in sales should result chiefly from volumes growth. The increase in earnings will mainly be driven by significant contributions from the Performance Products, Functional Materials & Solutions and Oil & Gas segments. After a strong result in 2017, the company expects considerably lower EBIT before special items in the Chemicals segment, primarily as a result of lower margins.

The forecast for 2018 takes into account the agreed acquisition of significant parts of Bayer’s seed and non-selective herbicide businesses, which is expected to close in the first half of 2018. Based on the timing of the acquisition, the seasonality of the businesses to be taken over and the anticipated integration costs, this is likely to have a positive impact on sales and a negative impact on earnings for the Agricultural Solutions segment and the BASF Group in 2018.

The forecast does not take into account the intended merger of the oil and gas activities of BASF and LetterOne. On signature of the transaction agreements, the Oil & Gas segment’s earnings would no longer be included in sales and EBIT for the BASF Group – retroactively as of January 1, 2018 and with the prior-year figures restated. Rather, this would be presented in the income before minority interests of the BASF Group as a separate item, “income from discontinued operations.” From the transaction closing date, BASF’s share of income generated by the joint venture - Wintershall DEA - would presumably be accounted for using the equity method and included in EBIT for the BASF Group.

Development of the segments

In a favorable market environment, sales in the Chemicals segment grew in the fourth quarter of 2017 by 21% to €4.2 billion, driven by higher prices and volumes. BASF increased its margins, especially for isocyanates, acids and polyalcohols, cracker products and acrylic monomers. At €1.1 billion, income from operations (EBIT) before special items was 67% higher than in the fourth quarter of 2016. All divisions posted higher earnings.

In the full year, sales in the Chemicals segment rose by €3.4 billion in 2017 to reach €16.3 billion. This was primarily attributable to higher prices, especially in the Monomers division. BASF also increased volumes in all divisions. EBIT before special items rose by €2.2 billion to €4.2 billion, mainly as a result of higher margins for isocyanates in the Monomers division. Stronger margins in the Petrochemicals and Intermediates divisions also contributed to the increase in earnings; slightly higher fixed costs had an offsetting effect. The negative impact on earnings in 2017 caused by the North Harbor accident at the Ludwigshafen site in October 2016 was compensated by insurance payments.