Frankfurt - BASF reported a bigger-than-expected drop in full-year profit as a steep decline in oil prices hurt the world’s largest chemical maker’s Wintershall unit.
Earnings before interest and tax dropped 18 percent to 6.2 billion euros ($6.7 billion) in 2015, the Ludwigshafen, Germany-based company said on Wednesday in a statement. This included a 600-million-euro charge in the fourth quarter due lower crude prices. The company’s previous outlook was for Ebit to be “slightly lower”.
“Clearly the lower oil price has had a more challenging effect than expected,” Citigroup analyst Andrew Benson said in a note. “Given the moves in oil at the end of the year, de-stocking is likely too. These are trough conditions.”
For years, Wintershall has propped up earnings and cash flow as other divisions making additives and materials suffered slowdowns in markets such as construction. Chief Executive Officer Kurt Bock has repeatedly defended BASF’s energy business, saying it provides a strategic hedge for chemical operations, some of which also suffer periodic dips in demand.
BASF stock fell 3.2 percent to 60.10 euros as of 9.11am in Frankfurt.
“BASF anticipates that prices for oil and gas will remain at a low level in 2016,” the company said in the statement. “The assumptions for oil and gas prices have also been reduced for subsequent years.”
Oil has resumed its decline near $30 a barrel after US industry data showed crude stockpiles increased, exacerbating a global glut.
Under Bock, BASF has shifted its focus further upstream to oil and gas production. An asset swap with Gazprom saw it gain stakes in Siberian gas fields in return for its half of a gas-trading joint venture in Europe. While the asset swap rid BASF of a low-margin business, it also meant the loss of 12 billion euros in annual revenue. BASF bought oil and gas assets from Norway’s Statoil ASA for $1.25 billion in 2014 to secure more European supplies.
Ebit before special items will probably come in at 6.7 billion euros, down from 7.4 billion euros the previous year. Sales for 2015 declined 5 percent to 70.4 billion euros. The figures are preliminary and haven’t been audited, BASF said.
BLOOMBERG