BASF warns of impact on business from coronavirus
Our expert's opinion:
"The chemical giant BASF warns for a significant effect on businesses from the corona virus. BASF is not only blaming Brexit and trade tension, also the corona virus will have an influence for hindering growth this year. While BASF still makes most of its revenues in Europe, it is expanding its business overseas. To prevent businesses from financial drops-and bottlenecks due to production slowdowns in China, they will be able to count on rapid backing from the bank KfW.
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- Julie Beyens, Associate Consultant
BASF warns of 'significant impact' on business from coronavirus
The world’s biggest chemicals company BASF has warned that coronavirus will have a “significant impact” on its business in the next few months, as it blamed Brexit and trade tensions for a 30 per cent drop in pre-tax earnings last year.
The German group is spending more than €10bn on building China’s first fully foreign-owned petrochemical complex, in Guangdong province, and plans to vastly expand its business in the country, which accounts for almost half of global chemical production.
“The coronavirus has added a new factor that is considerably hampering growth at the beginning of the year. Transport between provinces is very difficult. Our truckers aren’t allowed to get out of their vehicles, have to keep their windows closed, and they are often told to turn around.”
Martin Brudermüller, CEO BASF
The group’s pre-tax earnings fell by almost €2bn to €4.1bn in 2019, while overall sales dropped 1.5 per cent. Net income surged almost 80 per cent to €8.4bn, thanks to a one-off inflow of €5.7bn from the merger of oil and gas producer Wintershall with rival DEA. The new company will be floated in the second half of 2020, it said. BASF’s results were also buoyed by a late surge in its agriculture business, which was expanded by the acquisition of a range of crop-protection and biotech companies from rival Bayer. However, pre-tax profits in the Asia-Pacific region plunged 40 per cent last year, and Mr Brudermüller warned the company was “already experiencing a high level of uncertainty in the global economy”, in the first two months of 2020. BASF’s shares fell more than 4 per cent following the announcement.
The Ludwigshafen-based giant, which still makes most of its revenues in Europe, is in the middle of restructuring its business, in order to increase its investments in China and India. BASF is also ramping up its battery cell-manufacturing capabilities in Europe. Last month, it announced it would build a production site in Schwarzheide, in east Germany, to help meet the demand caused by the rise of electric cars.
But the company, which employs almost 120,000 people worldwide, cautioned that it anticipated a continued decline in production in the global auto industry, which contracted by more than 4 per cent last year. BASF’s warnings came as Germany’s chemical industry association the VCI said that coronavirus could threaten profits in the sector — which employs close to half a million people in the country — well into the year. Germany’s mechanical engineering body, the VDMA, called on the government in Berlin to come to the aid of the country’s mechanical engineering businesses, and help them deal with the “hardly calculable” burden of coronavirus.
"Companies need liquidity to bridge possible financial bottlenecks due to production stoppages. Here, for example, the state-owned development bank KfW could provide rapid assistance.”
Thilo Brodtmann, VDMA’s general managerSource: Financial Times
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