Profits have collapsed, sales have shrunk: At the chemical company BASF, the board of directors is responding to the crisis with another savings program. The entire chemical industry has problems.
The chemical and pharmaceutical company BASF is reacting to the acute weakness in sales and earnings with a new savings program. This also includes job cuts at the Ludwigshafen site, as management announced today. Overall, the company wants to save an additional one billion euros in costs there alone by 2026. There should be savings both in production and in areas outside of it. It is said that fixed costs should be reduced by increasing efficiency and production capacities should be adapted to market requirements.
The BASF management had already announced an austerity program in 2022 due to worsening business and more difficult conditions in Europe. The main reason for this was the sharp rise in gas prices. The most recent plan was to reduce annual costs by a total of 1.1 billion euros by the end of 2026. The measures also include job cuts and the closure of several chemical plants.
According to the group, costs have already fallen by around 600 million euros at the end of 2023. The remaining 500 million euros in savings from the program will be added from 2026, the company said.
Businesses are being spun off
In order to make the chemical company more profitable again, BASF announced last December that it would separate the agricultural chemicals, battery materials and paints and coatings businesses from the integrated system. These are to be converted into legally independent subsidiaries. The areas are less closely related to the rest of the group. Company boss Martin Brudermüller rejected a sale.
“Ultimately it’s about improving performance and being closer to the customer and competing even harder,” said CFO Dirk Elvermann. A growth business must be managed differently than a business that is essentially focused on returns. BASF can do this with a new structure.
Ludwigshafen falls behind
According to CEO Martin Brudermöller, the current annual figures require further cost-cutting measures, especially in Germany: “In absolute figures, our teams made a positive contribution to earnings in all important countries, with the exception of Germany,” said Brudermüller. The result in the home market suffered from the significantly negative result at the largest production site in Ludwigshafen. It is therefore necessary to take further measures to improve competitiveness at the headquarters.
In 2023, sales shrank by a fifth year-on-year to almost 69 billion euros. The decisive factor here was significantly lower prices and quantities. Sales fell in all segments as a result of weak demand from many customer sectors, it said.
The operating result fell by almost 29 percent to almost 7.7 billion euros. The bottom line was 225 million euros. In 2022, BASF reported a loss of 627 million euros, due to depreciation worth billions in connection with the Russian business.
Problems in the chemical industry
The problems at BASF reflect the currently difficult economic situation in German industry and the economy. In the fourth quarter of last year, gross domestic product shrank by 0.3 percent compared to the previous quarter.
The chemical industry, one of Germany’s key industries, does not expect any improvement in the current year: “We are in the middle of a deep, long valley. And it is still unclear how long we have to go through it,” said the President of the Association of the Chemical Industry (VCI ), Markus Steilemann, said in December.
Germany’s third largest industrial sector is suffering from increased energy prices due to Russia’s war of aggression against Ukraine and the weak economy. In 2023, sales in the chemical and pharmaceutical industries fell by twelve percent to around 230 billion euros. Production fell by eight percent, and in chemicals alone it was eleven percent.