BASF is Reorganizing the Group: Three Large Divisions Operate Independently

Chemical giant BASF announced last week that three large divisions will be separated from the company's original structure and transformed into legally independent units.

In addition to the agricultural sector, the battery materials business and coating production business will also be affected. These divisions are among the group's sales drivers: the agriculture division has sales of 10 billion euros in 2022, while the coatings division has sales of 4.2 billion euros. The coatings division will gain greater freedom within the new GmbH.

However, BASF emphasized that there are currently no plans to sell these units. The company will separate these three departments, which will be managed and controlled according to different standards in the future. However, employee representatives expressed concerns about the spin-off.

On the stock market, however, the news was welcomed, with BASF shares rising nearly 1.5% on last Thursday.

The electric vehicle battery materials business is one of BASF's main businesses in the future. BASF is one of the global leaders in coatings for the automotive and aerospace industries and a top four global player in the agricultural sector.

To date, BASF has tightly integrated these three business units in what is known as co-production. In the joint production system, various chemical plants are closely connected and interdependent. In this way, petrochemicals are increasingly processed into specialty products.

For most of BASF's chemical businesses, this is a decisive competitive advantage. However, the market has changed for the three divisions that have now been spun off. On the agricultural business side, seeds and services such as digital management of agricultural operations are becoming increasingly important.

BASF plans to invest more than 4 billion euros in the electric vehicle battery materials business in the next few years to establish a leading position in the global market. BASF is currently building a large-scale cathode materials factory in Schwarzheide, Brandenburg. The company plans to massively expand its battery business, especially in China. BASF has not yet provided any data. But by 2030, the segment's sales are expected to exceed 7 billion euros.

BASF Chief Financial Officer Dirk Elvermann said at an investor event on last Thursday that demand for battery materials and coatings is increasingly shifting to Asia as a reason why the company urgently needs to increase the independence of these business units.

Additionally, partnerships are more important in these businesses, and as an independent entity, it will be easier for these businesses to collaborate legally. The aim, Elvermann said, is to differentiate each division from the competition. But he did not specify what those partnerships might look like.

The German chemical, energy, mining and chemicals union IG BCE said the announcement was "bad news" for affected employees and would create uncertainty. However, the Management Board has assured the Works Council that it is simply a matter of improving the efficiency of the three business units. There are no plans for layoffs.

There is widespread concern among union members that the ongoing economic downturn could lead BASF to take further cost-cutting measures. They are pushing to extend the site agreement for the Ludwigshafen plant until 2030.

BASF announced a cost-cutting plan in the spring to eliminate 2,600 jobs worldwide. The program is expected to save around 300 million euros this year.

In the future, these three divisions will have their own information technology and control systems but will remain part of the BASF Group. The executive board has also set goals for them: the battery materials business will become the group's most profitable business, and the return on sales and operations will reach 30% by 2030.

In agrochemicals, BASF expects mid-term returns to be at or above 23% and in the coatings business to be at least 15%. The other businesses of United Production are expected to achieve a return rate of 17% over the economic chemical cycle. From next year, BASF management intends to use two indicators to manage the entire group: EBITDA and cash flow.

CEO Martin Brudermüller, who will leave his post next April, stressed on last Thursday the importance of an attractive dividend to BASF. He has promised shareholders that BASF will pay a stable dividend of at least 3.40 euros per share in fiscal 2023.