Performance dropped! BASF announces further layoffs!

On February 23, global chemical giant BASF announced its 2023 financial report. Sales in fiscal year 2023 were 68.9 billion euros, a year-on-year decrease of 21%. Sales were primarily affected by significant price and volume declines. In particular, the fall in raw material prices has led to lower prices in almost all business areas. Weak demand in many customer industries also led to lower sales across all business areas.

On the same day, BASF also announced further plans for the Ludwigshafen site to achieve an additional annual cost savings of €1 billion by the end of 2026. This is in addition to the existing cost reduction plan for non-production sectors in Europe and the adjustment of the production structure at the Ludwigshafen site.

It is understood that BASF's EBIT excluding special items in fiscal year 2023 was 3.8 billion euros, a decrease of 3.1 billion euros compared with the previous year. This was mainly due to a significant decline in profit performance in the chemicals business area and materials business area.

Among them, EBIT before special items in the chemicals business declined, mainly due to a decrease in unit profits and sales volume, as well as a decrease in equity investment income calculated using the equity method. The decline in earnings in the Materials segment was mainly due to lower profits in the Polyamides and Ammonia businesses. In the Nutrition & Care and Industrial Solutions business areas, EBIT before special items was significantly lower than in the same period last year, mainly due to lower volumes and unit profit. In contrast, EBIT before special items in the Agricultural Solutions business area improved significantly, benefiting from higher prices and the receipt of a one-time payment. Earnings in the Surface Treatment Technologies business area increased slightly, mainly due to a significant increase in EBIT before special items in the Coatings business unit due to price and volume growth, which largely compensated for a significant decrease in earnings in the Catalysts business unit. The other business area's EBIT before special items increased significantly, benefiting from the increase in revenue from other businesses and the reduction of corporate research and development expenses.

The financial report shows that in 2023, BASF's coatings business revenue is 4.387 billion euros, a year-on-year increase of 3.9%. In 2023, BASF's coatings division increased prices in all business areas while achieving sales growth, especially in the automotive OEM coatings and surface treatment business.

In October 2022, BASF became one of the first chemical companies to launch a significant cost reduction plan. In February 2023, the company launched a series of specific measures to reduce costs in non-production areas in Europe and adjust the production structure of the Ludwigshafen base. According to BASF Group's third quarter 2023 financial report, all previously announced measures are expected to reduce costs by a total of 1.1 billion euros per year by the end of 2026. By the end of 2023, annual costs have been reduced by approximately €600 million. By the end of 2026, the relevant measures announced in October 2022 and February 2023 will reduce costs by an additional 500 million euros per year.

Through another cost reduction plan, BASF's Ludwigshafen base is expected to reduce costs by another 1 billion euros per year by the end of 2026. The program will reduce costs in both production and non-production areas. Reduce fixed costs by improving the efficiency of the company's structure and adjusting production capacity to market demand. At the same time, BASF aims to significantly reduce variable costs by redesigning its processes. Dr. Brudermüller, Chairman of the Executive Board of BASF AG, said: "Unfortunately, this plan will also lead to further layoffs." Specific details are being worked out. Employee representatives will be closely involved in this process.

In addition to the necessary cost reductions, BASF will do everything possible to significantly increase the utilization of its competitive assets in Ludwigshafen again. To realize significant gains here, the company needs additional profit contributions from normal unit utilization levels. Utilization rates at the Ludwigshafen site, particularly in the Chemicals business area and in the upstream operations of the Materials business area, are currently well below normal levels.

Looking forward to 2024, BASF expects that the weak global economic growth momentum in 2023 will continue in 2024. Global economic growth is expected to accelerate later this year, which means BASF expects the global economy to grow by 2.3% overall in 2024 (2023: 2.6%). In Europe, energy prices are relatively high and regulatory framework conditions are not conducive to the creation of industrial value, which will continue to slow economic development.

BASF expects overall global industrial production to grow by 2.2% (2023: 1.4%); global chemical production is expected to grow faster in 2024, reaching 2.7% (2023: 1.7%). This is mainly driven by the expected growth of China's chemical industry. The company forecasts that the average price of Brent crude oil per barrel will be US$80, with an exchange rate of US$1.10 per euro.

BASF expects the Group’s EBITDA before special items to increase to between 8 billion and 8.6 billion euros in 2024 (2023: 7.7 billion euros). BASF forecasts that the group's free cash flow in 2024 will be between 100 million and 600 million euros (2023: 2.7 billion euros). This is based on expected cash flow from operating activities of approximately 6.6 billion to 7.1 billion euros, net of an estimated 6.5 billion euros in expenditures on property, plant, equipment and intangible assets. The high investment-related cash outflows are mainly investments in new integrated bases in China. Related cash outflows will peak in 2024 and will fall back in subsequent years.