Despite the difficult business situation, the chemical giant offers its shareholders a lot of orientation in the annual report.
(Photo: BASF)
Dusseldorf Whether it’s the consequences of the corona pandemic, the effects of the Russian war of aggression in Ukraine, rising interest rates or high energy prices: unexpected events have repeatedly upset the plans of company managers in recent years. The number of earnings warnings and withdrawn forecasts, such as from chemical giant BASF last week, has risen to a record high.
However, this negative experience does not prevent most corporations from continuing to make concrete forecasts – despite the risk of having to retract them the more detailed they become.
18 of the 40 companies in the leading index Dax, two more than in 2022, achieved the highest level of transparency this year when it comes to providing shareholders with the best possible information about possible business developments. Among them are the Dax climbers Commerzbank, Porsche, Rheinmetall and Siemens Energy.
This is shown by an evaluation by the consulting firm Kirchhoff Consult together with the German Association for the Protection of Securities (DSW). The analysis was available to the Handelsblatt in advance. The evaluation was based on 15 criteria for future business development, including sales and earnings, investments and dividend policy.
“The trust of investors in a company is highly influenced by expectation management,” says Kirchhoff board member Jens Hecht: “Transparent forecasts are one of the most important instruments.”
BASF and Telekom go into detail
19 other corporations showed “medium transparency”. Only Deutsche Bank stood out negatively with a “low transparency”. However, Airbus and Qiagen did not publish a forecast report at all, which is probably at least as unsatisfactory from the shareholder’s point of view. “Investors don’t expect a precision landing, but rather an orientation and the presentation of basic assumptions,” says DSW Managing Director Marc Tüngler.
Deutsche Telekom and BASF meet most of the evaluation criteria. In its current annual report, Telekom presents key performance indicators for managing the company quantitatively in clear lists and tables. In addition, management explains the assumptions on which the forecast key figures are based.
As with the other companies, there are no forecasts for net profit, but for profit before taxes, interest, depreciation and special items – and even broken down for Germany, Europe and the USA.
This is unusual: Almost all other corporations do not provide any information about profits in individual regions – not even afterwards. But that would be a high added value for shareholders, for example to be able to better weigh up geopolitical risks and the consequences for group earnings.
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In addition, Telekom provides a quantitative assessment of the development of both the global economy and the mobile communications market. In addition, the company offers a comprehensive and detailed presentation of forecasts beyond the statutory reporting period of one year. Non-financial performance indicators such as employee and customer satisfaction, energy consumption and CO2 emissions are also taken into account.
Chemical giant offers security with the dividend
BASF has published an above-average six-page forecast report. In addition to the text, the company offers a clear overview of important key figures in table and diagram form. This includes quantitative forecasts of earnings and sales both for the Group and for all segments, investments in property, financing, CO2 emissions and the development of the overall economy and the industry environment.
In addition, the management is addressing the future dividend policy. This is particularly important for shareholders, especially when earnings are under pressure, as is currently the case at BASF.
For many years, Europe’s largest chemical group has stood for a transparent forecast and, above all, dividend policy. Management has repeatedly communicated that it will increase the payout in good years, keep it stable in weaker ones and, if necessary, finance it by selling non-core assets. This is probably one of the reasons why BASF’s latest earnings warning had little impact on the share price.
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With profits stagnating for years and share prices falling, dividends and a transparent, reliable distribution policy are becoming increasingly important. At EUR 3.40 per share, BASF achieves a dividend yield of seven and a half percent. Measured against this, at least, BASF is one of the most profitable large corporations in the world.
Deutsche Bank does not comment on 2023
Deutsche Bank, on the other hand, completely left out the current year in its published annual report. There is neither a qualitative nor a quantitative forecast for the result at group or segment level. As a result, the company is the only one in the “low” transparency category.
In its forecast report, the financial institution instead provides information on the medium-term return targets for the 2025 financial year. According to this, the after-tax return on average tangible equity should rise to more than ten percent by then and income should increase by 3.5 to 4.5 percent annually between 2021 and 2025. For shareholders, such assumptions are almost worthless because they are far too far removed from the present.
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