In the Chemicals segment, the adjusted operating result fell by half, in Materials by 41 percent, as the chemical giant announced when it presented its interim balance sheet in Ludwigshafen.
BASF confirmed the figures for the third quarter published six weeks ago. Thereafter, adjusted operating profit (EBIT) fell 28 percent to 1.348 billion euros, while sales increased by 12 percent to 21.95 billion euros thanks to higher prices in almost all segments and support from the strong dollar.
“Our customer-oriented downstream segments Surface Technologies, Agricultural Solutions, Nutrition & Care and Industrial Solutions increased their earnings significantly,” said CEO Martin Brudermüller. The contribution to earnings made by BASF-YPC, a subsidiary in China, also declined significantly.
The increased raw material and energy costs made things difficult for BASF. Brudermüller put the additional costs for natural gas in the first nine months at 2.2 billion euros compared to the same period last year.
The bottom line was a surplus of 909 (previous year: 1.253) billion euros after a write-down on the Wintershall holding in the amount of 740 million euros. Wintershall Dea had already spoiled BASF’s results for the first quarter.
BASF boss defends announced austerity program
BASF boss Martin Brudermüller wants to reduce costs in Europe and especially in Germany as quickly as possible. “On the one hand, the European chemical market has been growing only slowly for around a decade,” on the other hand the significant increase in natural gas and electricity prices has put the chemical value chains under pressure, said Brudermüller on Wednesday in Ludwigshafen, explaining the recently launched austerity program. In the first nine months of the year, the additional costs for natural gas at the European BASF sites amounted to around 2.2 billion euros compared to the same period last year.
“In order to cushion these additional costs, we have implemented further price increases,” explained Brudermüller in a conference call. In addition, BASF continues to work on projects to technically optimize the plants and processes, especially at the largest Verbund site in Ludwigshafen. Lower utilization of facilities in the third quarter helped limit the impact of high natural gas prices.
In the short term, costs could be saved primarily through fewer business trips, said Brudermüller. Today, a business class ticket to Asia is almost as much as a first class ticket used to be. Savings could also be made through fewer consulting activities. Services should be limited to the essentials. With these measures, costs could already be reduced in the fourth quarter.
However, even in the strong year 2021, Europe including Germany only contributed a third to the result, said Brudermüller. In the course of 2022, the earnings situation continued to weaken, with German business deteriorating in particular. In the third quarter, BASF reported negative earnings before interest, taxes and special items of 130 million euros in Germany.
Due to deteriorated business and more difficult framework conditions in Europe, BASF management recently launched an austerity program that is to be implemented between 2023 and 2024. The cuts are expected to reduce annual non-production costs by €500 million. The Executive Board wants to realize more than half of the savings at the Ludwigshafen site, where BASF employs around 39,000 of its approximately 111,000 employees worldwide. The company, service and research areas as well as the corporate headquarters are to be streamlined, it said. The company does not rule out job cuts.
“We are currently developing further structural measures to adapt BASF’s production network in Europe to the changed framework conditions in the medium and long term,” explained Brudermüller. The company is thus securing its future competitiveness and will significantly reduce its natural gas consumption. BASF is making “great progress”. Details are expected to be available in the first quarter of 2023.
As the economy weakened significantly in the third quarter, BASF adjusted its assessment of the global economic environment in 2022. However, BASF reconfirmed its annual targets. For the current year, the group continues to expect sales to increase to between 86 and 89 billion euros, after 78.6 billion in 2021. The company is aiming for 6.8 to 7.2 billion euros in operating profit. In 2021, BASF reported earnings before interest and taxes (EBIT) adjusted for special effects of 7.8 billion.
BASF boss – “Have to get away from China bashing”
The chemical giant BASF expects further growth in China and intends to continue investing there.
“Overall, we come to the conclusion that it is advantageous to expand our commitment there,” said BASF CEO Martin Brudermüller on Wednesday. There had recently been a debate in Germany about the consequences of a possible dependency on China, and there was criticism of the Chinese state shipping company Cosco entering the operator of a container terminal in the port of Hamburg. Economics Minister Robert Habeck had announced that the federal government would take a tougher course against China in trade policy in the future.
Brudermüller, on the other hand, called for a “resilience strategy” from the federal government. “You should look out into the world and see where something is not as it should be.” There are deficits and risks not only with regard to China. “I think it is urgently necessary that we get away from China bashing and look at ourselves a little self-critically.”
BASF expects further growth in China. The People’s Republic remains an important market for the group. “We’re not worried about the long-term development,” emphasized the BASF boss, who, according to his own statements, will be part of Chancellor Olaf Scholz’s tour group during his visit to China at the beginning of November. BASF is currently building a Verbund site in China, for which the group plans to invest up to ten billion euros by 2030, according to earlier information.
BASF share remains on an upward trend
The shares of the chemical group BASF shook off the weakness of the previous day on Tuesday according to quarterly figures and returned to the high reached at the beginning of the week since the end of June. VIA XETRA they temporarily gain 0.45 percent to 46.15 euros.
JPMorgan analyst Chetan Udeshi wrote that the key figures were largely in line with the preliminary data. The free cash flow has developed better than expected.
The papers of the chemical group have meanwhile recorded a price increase of almost 18 percent in October. Recently, the lower gas prices also helped.
FRANKFURT (Dow Jones/dpa-AFX/Reuters)
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