We’ve noted before in this column that when analysing even the most powerful and influential German industrial giants, it pays to have a short memory.
However, it says much about the German dynamic that once war was a thing of the past, those dark days were quickly set aside. Sensational growth was resumed and the German genius for organisation matched the German corporations’ belief that the world could be their oyster, like our company this week, BASF.
Founded 150 years ago, BASF today is the largest chemical company in the world. It currently sells to the great industrial sectors, agriculture, autos, chemicals, paints and plastics industries.
It employs 113,000, (53,000 in Germany alone), has 350 production facilities worldwide, enjoys a valuation of €80bn (four times that of CRH) and has been quoted on the Frankfurt Stock Exchange since 1959.
The company owes its origins to coal tar from which it produced dyes and aniline. The Great War saw its resource used for the war effort. But during fascist domination of the German nation, BASF was an integral part of the chemical giant IG Farben; a key part of Hitler’s planning which so devastated Europe.
Yet when IG Farben was broken up after the war, BASF and other parts, including Bayer and Hoechst, were spun off and played a not-insignificant part in the German economic miracle before they decided to take on the world.
The company had an inventive genius, it came up with indispensable 20th century inventions (polystyrene and magnetic tape for instance) and this facilitated its post-war global expansion. It also broadened its product range by acquisitions. Ten years ago, it purchased a leading US supplier of surfacing-finishing, Englehard, followed by the purchase CIBA a global supplier of chemicals.
Since then, it has bought a German specialist chemical company, a US enzyme company and an ingredients provider for heart drugs. Last year, it bought Tullow and Statoil’s oil and gas assets in the North Sea and the enzyme business of Henkel.
At the same time, some of its divestments included its sports surface, insulation, global textiles chemicals and sprayed concrete. It plans to divest part of its pharma business to focus on its pain-killing products.
Today, BASF’s portfolio of products is enormous, ranging from crop protection, ingredients for soaps and washing powder. Its plastics are used in cars and construction and its chemicals for the mining and fuel industry. If that’s not enough, it is also involved in oil exploration. It has five divisions — chemicals, materials, agriculture, oil and gas and performance products. BASF’s chemical division is its most profitable at €2.3bn and revenues of €17bn. This division provides a range of products for specific industries. Its materials division had profits of €1.4bn. Oil and gas business has revenues of €15bn, but over 80pc is natural gas trading, the remainder being oil exploration and production. The company planned to offload its trading operation to Gazprom but was scuppered by EU sanctions.
Its performance products division margins have fallen for four straight years. As a result, the company has disposed of 35 facilities with 4,500 redundancies.
However, the division still generated profits of €1.4bn on €15bn sales. Its smallest division is agricultural products, which are focused on crop care and seed treatment with revenues of €5bn. The company expects sales this year will match the €74bn of 2014. Earnings at €7bn have been helped by the massive drop in raw materials and the weak euro. Recently, the company’s shares reached a 10-year high of €97 but have since dropped back to the mid €80s. Investors, while happy with dividend increases and the rise in the share price, have some concerns with the increase in pension provisions. Its shares are not cheap and while BASF is a great company, the share is not one to chase right now.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.