Bloomberg News

BASF’s Bock Propagates Wisdom of Caution as Global Growth Slows

October 27, 2011

Oct. 27 (Bloomberg) -- BASF SE Chief Executive Officer Kurt Bock said companies are becoming more cautious about their growth opportunities, a sentiment he said is healthier than charging full-speed ahead as global economic prospects diminish.

BASF is keeping a close watch on inventories and pushing ahead with a 1 billion-euro ($1.4 billion) cost-saving program, Bock said today, as the world’s largest chemicals maker reported third-quarter earnings that exceeded analyst estimates. BASF, based in Ludwigshafen, cut its outlook for the global economy in 2011, and said growth next year will be slower.

Bock, the BASF chief financial officer until earlier this year, is taking a break from acquisitions as he integrates recent purchases and puts the finishing touches on a strategy plan to map out how he aims to run BASF in the next five years. The slower growth that BASF experienced in the third quarter has continued into the last three months of the year, Bock said.

“It would be amazing if BASF was not well positioned even in an economic downturn due to its experience with crisis management as well as a broad and more downstream-oriented product portfolio compared to 2008” said Nadeshda Demidova, an analyst at Equinet AG, who has a “buy” rating on the stock.

Rising Stock

Earnings before interest, tax and items such as costs from acquisitions and restructuring fell 11 percent to 1.96 billion euros in the third quarter, beating a 1.85 billion-euro estimate. Sales gained 12 percent to 17.6 billion euros. Net income dropped 4.3 percent to 1.19 billion euros, also beating analysts’ 1.11 billion-euro estimate.

BASF rose as much as 3.2 euros, or 6.3 percent, to 53.80 euros in Frankfurt as of 1:48 p.m., as European shares rallied after the region’s leaders agreed to expand a bailout plan to halt the sovereign-debt crisis.

The stock has fallen by about 26 percent from this year’s high of 70.22 euros on May 2 on concern that Greek debt, bank writedowns and sluggish economic growth will hurt earnings. The company has a market value of about 48 billion euros.

There are first signs of customers facing liquidity constraints, particularly in China, Chief Financial Officer Hans-Ulrich Engel said today on the call

Acquisitions

Bock reduced his forecast for worldwide gross domestic product, predicting 2.5 percent to 3 percent growth this year instead of as much as 4 percent. Chemical production is now expected to increase by a maximum 5 percent instead of as much as 6 percent.

“Now they have to defend their price increases and the question is how well they do that,” said Oliver Schwarz, a Hamburg-based analyst at M.M. Warburg with a “hold” rating on BASF stock. “It will depend on demand and that is the question everyone is looking at.”

Recent acquisitions have accelerated the shift toward specialty chemicals at BASF, which uses refined oil products and natural gas as a base for petrochemicals. Those in turn are used in products ranging from plastics to shampoo and car paint ingredients. The German company bought Cognis for $3.8 billion last year to boost its cosmetic ingredients operations, and dye- maker Ciba the year before for $5 billion.

The trend became marked under former CEO Juergen Hambrecht, who spent more than 18 billion euros on acquisitions to help shield the company from economic swings, lessening the relative importance of commodity chemicals that form the basis of the so- called Verbund, BASF’s integrated chemical facilities that are set up to save resources and energy and cut back on logistics costs.

BASF said it has started ramping up oil production again in Libya following the overthrow of Muammar Qaddafi. The company said it’s too soon to say when it may reach maximum oil output of 100,000 barrels a day. BASF predicted it will probably begin earning money from extraction toward the end of the year.

--Editor: Benedikt Kammel

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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