Ludwigshafen After a significant drop in earnings last year and high burdens from the energy crisis, BASF is cutting 2,600 jobs worldwide. In addition, significant cuts in the production network at the Ludwigshafen site are planned. BASF wants to close several plants there, which will affect around 700 production jobs. The Handelsblatt reported exclusively on Wednesday.
“The competitiveness of the European region is increasingly suffering from over-regulation. It is also suffering more and more from slow and bureaucratic approval procedures and, above all, from high costs for most production factors,” said BASF CEO Martin Brudermüller on Friday. Workers in production should be offered work in other companies.
As the largest industrial gas consumer in Germany, BASF felt the effects of the increased prices for energy and raw materials last year. The energy costs for the group increased by 3.2 billion euros in 2022, of which 1.7 billion were attributable to the main plant in Ludwigshafen, according to the company. In addition, the economic environment for the chemical giant has clouded over significantly from the second half of the year.
BASF shares extend losses after weak outlook
For 2023, BASF therefore expects a further significant decline in adjusted operating profit (EBIT) to between EUR 4.8 billion and EUR 5.4 billion. Last year, the result had already fallen by 11.5 percent to 6.9 billion euros. Sales are likely to fall to 84 to 87 billion euros from the last 87.3 billion. Margins have come under severe pressure, especially for basic chemicals and plastics.
In view of the weak outlook, the BASF share increased its losses on Friday morning and was quoted around four percent at around 50 euros.
The group had already announced last October that it would reduce administration, service and research costs at its European locations by 500 million euros. These measures have now been specified.
There are also significant cuts in production. In addition to one of two ammonia plants, BASF also intends to shut down plants for the production of fertilizers and the plastic precursors caprolactam and TDI. In addition, the group plans to reduce capacities for a number of other chemicals.
The cuts are intended to reduce fixed costs by a further 200 million euros and are unusually severe and painful for BASF. Above all, the abandonment of the relatively new TDI plant is a major setback for the chemical company. It only went into operation in 2018 and involved investments of around 1.5 billion euros, including numerous retrofitting works due to technical problems.
The BASF boss complains about “over-regulation” in Europe.
(Photo: dpa)
The group justifies the shutdown with weak European demand and increased energy costs. In addition, however, the technical problems may have played a role, with which the plant struggled again and again. TDI is a precursor for the plastic polyurethane. BASF also operates TDI plants in the US, South Korea and China. The group is the world’s second-largest supplier in this field after the Leverkusen-based Covestro.
Overall, according to BASF, the adjustments in production affect ten percent of the replacement value of the systems in the Ludwigshafen plant. At its main site, BASF operates a total of around 200 closely networked chemical plants and employs around 39,000 of its 111,500 employees there. According to the current site agreement, redundancies in Ludwigshafen are excluded until the end of 2025.
Regardless of the closures in Ludwigshafen and the gloomy economic outlook, BASF is continuing its ambitious investment strategy on a global level. For the next five years, the group is planning investments in property, plant and equipment of EUR 28.8 billion, compared to EUR 25.6 billion in the previous planning period from 2022 to 2026.
According to BASF, the share of investments in Asia will rise to 47 percent, primarily due to the construction of the new large plant in the Chinese city of Zhanjiang, while Europe will only account for 36 percent and North America 15 percent of the investment budget.
In view of the growing political tensions between the United States and China, the major project in China is being viewed with increasing skepticism by investors and analysts and was also recently controversial on the BASF board. Top manager Saori Dubourg, who spoke out against the investments, is leaving the group at the end of February.
>> Read about this: Change in the BASF board: Saori Dubourg leaves the chemical giant
Many investors and analysts were already prepared for declining earnings at the chemical company. Analysts expect adjusted EBIT for 2023 to average EUR 5.2 billion. In addition, BASF’s net loss of 627 million euros was lower than the group had announced at the end of January.
At that time, the company had assumed a loss of almost 1.4 billion euros due to the multi-billion dollar write-downs on the subsidiary Wintershall Dea. Meanwhile, depreciation on Wintershall turned out to be somewhat lower than initially expected. The BASF subsidiary complains that its holdings in Russia have been expropriated and is planning a complete withdrawal from the country. In 2021, BASF had earned around 5.5 billion euros after taxes.
BASF is also demonstrating a certain amount of confidence by proposing a constant dividend of EUR 3.40 per share. The group will thus again pay out a total of around three billion euros. The sum is covered by the relatively solid free cash flow of 3.3 billion euros last year. Some analysts had feared that the group could be forced to cut dividends in the current year given weak prospects and an expected significant drop in free cash flow.
More: BASF facing severe cuts – chemical group also shuts down plants.