Germany's BASF will cut another €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, the German chemicals giant said in a statement today.
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 in 2024.
Last year, earnings fell by 29% to €7.67 billion.
Market relief that the guidance was in line with analysts' consensus forecast of €8.3 billion shored up the shares.
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, citing a higher proportion of base chemicals made in Ludwigshafen compared with other sites in the region such as Antwerp.
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.
High interest rates and cost inflation have in particular burdened the construction industry, hitting BASF chemicals that go into insulation slabs, among other uses.
Major economic research institutes said in January that the 2024 outlook for the country's construction sector was grim, with spending by builders set to fall for the first time since the financial crisis.
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 annually from the end of 2026, having previously targeted a €1 billion 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 US 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 €600m 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 today.
