The sales and earnings forecast for the 2020 business year provided by BASF on February 28, 2020, will not be able to be met. The company is therefore withdrawing its outlook. It is currently impossible to reliably estimate both the length and the further spread of the coronavirus pandemic, as well as future measures to contain it.
Consequently, concrete statements on the future development of sales and earnings cannot be made at present.
BASF expects to be severely impacted by the economic consequences of the global drop in demand and production, in particular as a result of the ongoing production stoppages in the automotive industry. The effects of the coronavirus pandemic will also impact other customer industries. As a result, the company anticipates a considerable decline in sales volumes in the second quarter of 2020. BASF currently expects a slow recovery for the third and fourth quarters of 2020; how the situation develops is, however, extremely uncertain at this point in time.
BASF will quantify its expectations for the future development of sales and earnings as soon as it is again possible to make a reliable forecast.
For 2020, we expect global economic uncertainty to be very high and that growth will be significantly depressed by the drop in demand and production outages in connection with the coronavirus outbreak. Consequently, the global economy is forecast to grow by 2.0%, considerably slower than in 2019 (+2.6%). Global chemical production is expected to expand by 1.2%, well below the 2019 level (1.8%). We anticipate an average oil price of $60 for a barrel of Brent crude and an exchange rate of $1.15 per euro. Despite the challenging environment characterized by a high level of uncertainty, we aim to increase our sales to between €60 billion and €63 billion (2019: €59,316 million). The BASF Group’s income from operations (EBIT) before special items is expected to be between €4.2 billion and €4.8 billion (2019: €4,536 million). The return on capital employed (ROCE) should reach between 6.7% and 7.7% (2019: 7.7%) and thus be below the cost of capital percentage of 9%.
We expect growth in most of our customer industries. For the automotive industry, however, we anticipate a continued decline in production. Our outlook assumes that the trade conflict between the United States and its trading partners does not intensify, and that Brexit will not have any larger economic repercussions during the transition phase.
Our forecast for 2020 takes into account the agreement between BASF and an affiliate of Lone Star on the sale of BASF’s construction chemicals business. The transaction is expected to close in the third quarter of 2020, subject to the approval of the relevant competition authorities. Until closing, the income after taxes of the construction chemicals business will be presented in the income after taxes of BASF Group as a separate item (“Income after taxes from discontinued operations”); it will not be included in the sales or EBIT before special items of the BASF Group.
The agreement between BASF and DIC on the sale of BASF’s global pigments business is likewise reflected in this outlook. The transaction is expected to close in the fourth quarter of 2020, subject to the approval of the relevant competition authorities. Until closing, the assets and liabilities to be divested will be presented in a disposal group in the Dispersions & Pigments division.
This outlook also includes the acquisition of Solvay’s integrated polyamide business on January 31, 2020, which will be integrated into the Performance Materials and Monomers divisions.
In 2020, we expect the BASF Group as a whole to increase sales to between €60 billion and €63 billion (2019: €59,316 million). The main drivers should be volumes growth and portfolio effects from the acquisition of Solvay’s integrated polyamide business, which closed in January 2020. Lower prices will presumably have an offsetting effect. We expect considerable sales growth in the Materials, Agricultural Solutions and Nutrition & Care segments. We anticipate slightly higher sales in the Chemicals, Surface Technologies and Industrial Solutions segments, and sales at prior-year level in Other.
The BASF Group’s EBIT before special items is expected to reach between €4.2 billion and €4.8 billion (2019: €4,536 million). We expect considerably higher contributions from the Industrial Solutions segment and Other. Our planning assumes that EBIT before special items will be slightly above the prior-year level in the Surface Technologies, Nutrition & Care and Agricultural Solutions segments. By contrast, we anticipate a considerable decline in EBIT before special items in the Materials and Chemicals segments.
The average cost of capital basis will increase in 2020 due to the inclusion of the assets acquired from Solvay. As a result, we expect the BASF Group’s ROCE to reach between 6.7% and 7.7% (2019: 7.7%). In both the Materials (2019: 10.7%) and Industrial Solutions (2019: 12.5%) segments, we forecast a considerable decline in ROCE compared with the previous year. We expect ROCE to be at the prior-year level in the Surface Technologies segment (2019: 5.7%). By contrast, we anticipate a slight year-on-year increase for the Agricultural Solutions (2019: 5.3%) and Chemicals (2019: 6.8%) segments. In the Nutrition & Care segment (2019: 10.0%), we expect a considerable increase in ROCE compared with 2019.
The significant risks and opportunities that could affect our forecast are described under Opportunities and Risks.
1 For sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. “At prior-year level” indicates no change (+/–0%). For earnings, “slight” means a change of 1–10%, while “considerable” is used for changes of 11% and higher. “At prior-year level” indicates no change (+/–0%). At a cost of capital percentage of 9% for 2020, we define a change in ROCE of 0.1 to 1.0 percentage points as “slight,” a change of more than 1.0 percentage points as “considerable” and no change (+/–0 percentage points) as “at prior-year level.”
This page contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors; they involve various risks and uncertainties; and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in Opportunities and Risks of the BASF Report 2019. BASF does not assume any obligation to update the forward-looking statements contained in this outlook above and beyond the legal requirements.