BASF braces for lower operating profit as Chinese chemical sales slump

By Ludwig Burger

LUDWIGSHAFEN, Germany, Feb 26 (Reuters) -- BASF, the world's largest chemical company by sales, has warned of a drop in operating income this year on weak chemical sales volumes in China, and as lower crude prices weigh on its oil and gas division.

Earnings before interest and tax (EBIT), adjusted for one-off items, will decline by up to 10%, BASF said on Friday.

"This is an ambitious goal in the current volatile and challenging environment, and is particularly dependent on the development of the oil price," CEO Kurt Bock said in a statement.

Slight profit gains in farming pesticides, and specialty chemicals and plastics, will be overshadowed by considerable declines at its basic petrochemical businesses and at its Wintershall oil and gas division, hurt by crude prices now about one third below year-earlier levels.

In a nod to shareholders, who have seen the shares slide 24% over the last three months, BASF upped its annual dividend to 2.90 euros/share, dispensing two thirds of net income, the highest proportion since 2009.

That was higher than some analyst had expected, with forecast ranging between 2.80 and 2.90 euros.

"To increase the dividend in this difficult environment is a clear positive signal," said DZ Bank analyst Peter Spengler, pointing to a dividend yield of 4.9%.

The shares were indicated 1.1% higher in premarket trades, in line with the broader market.

In China, where BASF makes about 8% of group sales and operates a petrochemicals and specialty chemicals joint venture, BASF expects economic growth to continue to decelerate slightly.

BASF, whose products include catalytic converters, engineering plastics and absorbent diaper material, saw net income drop 23% to 4.0 billion in 2015, slightly above the average analyst estimate but the lowest full-year result since 2009.

Following several years with large capital projects such as a 300,000-ton foam chemical plant at its Ludwigshafen headquarters, BASF will slash expenditures on plant and equipment by 1 billion euros to 4.2 billion this year.