Despite tough operating conditions, the chemical giant gave shareholders plenty of direction in its annual report.
(Photo: BASF)
duesseldorf Whether it’s the aftermath of the corona pandemic, the fallout from Russia’s war in Ukraine, rising interest rates or high energy prices: in recent years, unexpected events have repeatedly disrupted the plans of company managers. The number of profit warnings and forecast withdrawals from chemical giant BASF rose to a record high last week.
However, this negative experience has not prevented most companies from continuing to make specific forecasts – although the more detailed the forecasts become, the risk they will have to be withdrawn.
Eighteen of the 40 companies in the leading index Dax achieved the highest level of transparency this year in providing shareholders with the best possible information about possible business developments, two more than in 2022. These include Dax index climbers Commerzbank, Porsche, Rheinmetall and Siemens Energy.
This is shown in an assessment by the consulting firm Kirchhoff Consult and the German Securities Protection Association (DSW). The analysis was provided to Handelsblatt in advance. The assessment is based on 15 criteria for future business development, including sales and profitability, investment and dividend policy.
Jens Hecht, Kirchhoff board member, said: “Investors’ trust in companies is largely influenced by the management of expectations. Transparent forecasts are one of the most important tools.”
BASF and Telecom discuss in detail
The other 19 companies showed “moderate transparency”. Only Deutsche Bank underperformed for “low transparency”. However, Airbus and Qiagen have not issued forecast reports at all, which may be at least as unsatisfactory from a shareholder perspective. “What investors expect is not a precise landing, but the positioning and presentation of underlying assumptions,” said Marc Tüngler, managing director of DSW.
Deutsche Telekom and BASF meet most of the evaluation criteria. In the current annual report, Telekom presents the quantitative management of the company’s key performance indicators in the form of clear tabulations and tables, in addition, the management explains the assumptions underlying the projections of key figures.
As with other companies, there is no forecast for net profit, but profit before tax, interest, depreciation and special items, even with a breakdown for Germany, Europe and the US.
That’s unusual: Almost all other companies don’t provide any information on profits in individual regions — not even after the fact. But this would be a high value-add for shareholders, such as being able to better weigh geopolitical risks and the impact on group earnings.
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In addition, Telekom provides a quantitative assessment of global economic and mobile communications market developments. In addition, the company provides comprehensive, detailed forecasts beyond the one-year statutory reporting period. Non-financial performance indicators such as employee and customer satisfaction, energy consumption and CO2 emissions are also taken into account.
Chemical giants offer safety with dividends
BASF released an above-average six-page forecast. In addition to text, the company provides a clear overview of important key figures in the form of tables and graphs. This includes quantitative forecasts of earnings and sales, real estate investments, financing, CO2 emissions and developments in the overall economic and industry environment for the Group and all divisions.
Additionally, management is discussing future dividend policy. That’s especially important for shareholders, especially when earnings are under pressure, as BASF is currently.
For years, Europe’s largest chemicals group has insisted on transparent forecasts, not least its dividend policy. Management has repeatedly stated that it will increase the dividend in good years, hold it steady in poor years, and finance it by selling non-core assets when necessary. This may also be one of the reasons why BASF’s latest financial report has little impact on the stock price.
>> Read also: New signs of crisis in the chemical industry: What does BASF’s profit warning mean?
Dividends and transparent, reliable distribution policies have become increasingly important as profits have stagnated over the years and share prices have fallen. At €3.40 per share, BASF’s dividend yields 7%.5. By at least this measure, BASF is one of the most profitable large companies in the world.
Deutsche Bank has no comment on 2023
Deutsche Bank, on the other hand, completely ignores the current year in its published annual report. There are neither qualitative nor quantitative forecasts for group or segment results. As such, the company is the only one in the “low” transparency category.
In the forecast report, the financial institution instead provided information on the mid-term return target for the 2025 fiscal year. It is expected that the after-tax return on average tangible assets will rise to more than 10% by then, and the annual income will reach more than 10%. Growth will be between 3.5% and 4.5% in 2021 and 2025. For shareholders, such assumptions are of little value because they are so far removed from reality.
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