FRANKFURT: Germany’s BASF will slash another 1 billion euros ($1.1 billion) in annual costs at its Ludwigshafen headquarters, citing weak demand and high energy costs in its home market, highlighting the country’s economic troubles.
The annual cost savings will be reached by the end of 2026, affecting both production and administrative activities at its largest chemical complex, but it was set to shrink further beyond that, the German chemicals giant said in a statement on Friday.
It also predicted that group earnings before interest, taxes, depreciation and amortisation (EBITDA), adjusted for one-offs, would rebound to between 8 billion and 8.6 billion euros in 2024. Last year, it fell 29% to 7.67 billion.
After gains of as much as 4%, the stock was down 1.6% at 1301 GMT on market disappointment over a 2024 free cash flow guidance of 100 million to 600 million euros, down from 2.7 billion last year.
CEO Martin Brudermueller, who will quit in April to become non-executive chairman of carmaker Mercedes-Benz , cited high competitiveness of the group outside of Germany under challenging conditions.
“On the other hand, the negative earnings at our Ludwigshafen site show the urgent need for further decisive actions here to enhance our competitiveness,” he added.
An economic downcycle at home is weighing on volumes affecting speciality chemicals and more basic petrochemicals known as its upstream business, BASF said. This would lead to more job cuts that are being discussed with shop stewards.
“It’s serious because you can really see Europe lost competitiveness. But within Europe, Germany in particular lost competitiveness,” said Brudermueller.
The German government this week cut its 2024 economic growth projection to 0.2%, from 1.3% previously, amid weak global demand, geopolitical uncertainty and persistently high inflation.
Ludwigshafen would remain by far the group’s largest production complex, but it would continue to shrink and shift from home-made to more imported basic chemicals coming from low-cost regions, said finance chief Dirk Elvermann, citing natural gas costs four to five times higher than in the United States.
A year ago, BASF laid out detailed plans to close sites, slash costs and shed about 2,600 jobs in Europe, affecting mainly Ludwigshafen.
In October, the company stepped up cost cuts further to around 1.1 billion euros annually from the end of 2026, having previously targeted a 1 billion euro reduction.
The standing of BASF’s Ludwigshafen site, still the world’s largest chemical complex run by a single company, has deteriorated over the years. Swapping cheaper Russian pipeline gas for shipped liquefied gas from the United States after Russia’s attack on Ukraine has weakened its cost position further.
BASF’s German business, which contributed a third of group operating profit before interest and tax in 2015, was a 600 million euro drag on last year’s global earnings of 3.8 billion. Brudermueller said the board continued to stand behind its headquarters.
BASF will propose an annual dividend of 3.40 euros per share, unchanged from a year earlier, it said on Friday.
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