The chemical company Ems, managed by Magdalena Martullo-Blocher, is feeling the effects of the strong downturn in the auto sector and many other branches of industry. It no longer sees itself in a position to generate a higher operating profit than in the previous year.
Last June it came across as a hidden profit warning, now it’s a real one: The Ems chemicals group no longer sees itself capable of surpassing last year’s operating result (EBIT) in the current year. He now expects an operating profit that should be “slightly lower” than in the previous year. Sales, on the other hand, should continue to be “slightly above” the 2021 level.
problems around the world
In early summer, the company had already announced in an unscheduled report that it was seeing a significant deterioration in the global economy. At that time, however, the forecast for business development for the year as a whole was left unchanged.
Now the group led by Magdalena Martullo-Blocher is again talking about a “significantly worse global economic development”. Consumer sentiment in the important sales market of China has “downright collapsed” due to unresolved problems in the real estate market and ongoing rigorous lockdowns. Business for Ems is also going badly in Europe and the USA.
According to the company, which serves a large number of sectors such as the automotive sector, manufacturers of capital goods or manufacturers of household appliances with its granulates for the manufacture of plastic products, there is a lack of demand from customers worldwide. In addition, they are faced with rising costs and more limited financing options. “This also affects the orders from Ems,” it says in the most recent communiqué the company.
Growth only thanks to price increases
The group is only likely to increase this year’s sales thanks to price increases. Ems reacted early to the sharp rise in raw material prices after the Corona crisis was overcome last year and at times raised the prices of its own products almost every week.
In the meantime, however, Ems, like most chemical companies, is struggling with declining volumes due to the sharp drop in demand. Customers have not only reduced their production, but are also reducing inventories, the company writes.
Industrial companies are planning extended Christmas holidays
The third negative effect that Ems expects in the current fourth quarter will be the extension of company holidays. Many industrial companies reduce production between Christmas and New Year to give their employees additional days off. This year, however, some companies are likely to grant their employees longer vacations than usual.
As Ems explains on request, customers are affected differently by the extended company holidays depending on the country, industry and the level of energy prices. The company itself is not planning any general company holidays for its employees over the holidays. Apparently no personnel measures are planned either. Fluctuations in workload can be compensated for with the flexible working time model.
In view of the adverse market environment, Ems is likely to have to accept a significant deterioration in the operating margin in the current year for the first time in years. The analysts at the big bank UBS assume that the decline compared to the previous year will be more than three percentage points to around 25 percent. In an industry comparison, however, Ems would still show an extraordinarily high level of profitability.
Unexpectedly strong slump
An open question is how far the reduction in inventories will continue. According to the analysts at UBS, a weak start to the new financial year is to be expected.
Industry observers from Baader Helvea Equity Research recently listened to the entire European chemical industry and came to the conclusion that destocking was much stronger than everyone expected. Sales volumes in November fell by a double-digit percentage compared to the same month last year, in some cases by up to 25 percent.
The sharp drop in volume harbors the risk that prices will also slide in the specialty chemicals segment, as has already happened with basic chemicals. In addition to Ems, Clariant is also active in this line of business.
The Ems share price initially lost up to 4.7 percent on Wednesday morning. By the close of trading, however, the loss had been limited to less than 1 percent. Compared to the beginning of the year, however, the company has lost more than a third of its market value. Apparently, investors are expecting a longer dry spell.