Following BASF Group’s profit warning, the company now expects a considerable decline of EBIT before special items for the second quarter 2019 of 47% compared with the second quarter of 2018. According to its outlook for the fiscal year 2019, BASF Group now expects EBIT before special items to fall by up to 30% below the last year’s level. This negative development is largely triggered by:

• Ongoing economic uncertainties: Trade conflicts between the USA, China and other countries, as well as the Brexit
• Cooling down of global industrial production, in particular the global automotive industry
• Weaker demand from the agricultural sector in North America, following difficult weather conditions in the first half of 2019
• Continued falling prices of isocyanates (TDI/MDI), as well as negative price developments for steam cracker products

Despite this lowered outlook for 2019, and weaker credit metrics that will result thereof, Scope sees no impact on its current credit rating. BASF Group’s credit metrics are likely to be stronger in 2020 and beyond. This is based on anticipated positive contributions from the company’s “excellence program 2019–2021” which should help the EBITDA margin to improve. BASF has benefitted from the merger of Wintershall and DEA on May 1, 2019. The deconsolidation of the Oil and Gas business will lower the sensitivity of profitability (EBITDA) to volatile oil and gas prices.

We continue to view the financial policy of BASF to be conservative, as evidenced by the continued commitment towards a credit rating in the category ‘A’ and a selective M&A strategy that avoids heavy usage of financial debt.

Rating implications

Scope anticipates leverage, defined by Scope-adjusted debt (SaD) to Scope-adjusted EBITDA and funds from operations to SaD to come in slightly weaker at around 2.5x and 32% in 2019F versus 2.3x and 34% in 2018. 

This publication does not constitute a credit rating action. For the official credit rating action release click here. On September 12, 2017, Scope assigned BASF SE an issuer rating of A. The short-term rating is S-1. The Outlook is Stable.