BASF plans to cut costs by roughly €1bn over two years, as the world’s largest chemicals company by revenue warned of “significantly weaker earnings in Europe”.
The German company said on Wednesday that it had initiated a cost-saving scheme in “non-production areas” such as IT, communications, and research and development. It hopes to save €500mn both next year and in 2024, and said it was talking to “employee representatives in the relevant bodies”.
BASF, which produces a wide range of chemicals such as solvents, glues and basic petrochemicals, is among many European companies that have suffered a blow from the energy crisis that has engulfed the continent.
The company said it expected net income to reach €909mn in its third quarter, compared with €1.25bn in the same period last year. This, it added, was “considerably” below the average analyst consensus of €1.1bn.
Its cost savings would “focus on Europe and particularly Germany due to deteriorating framework conditions”, with more than half affecting its headquarters in Ludwigshafen. BASF said it was also planning to restructure its chemical sites in the region, with plans to be announced in the first quarter of 2023.
The hit to profits, which the company said would not affect its full-year guidance for earnings before interest and tax of €6.8bn to €7.2bn, was partially the result of a €740mn writedown on its stake in oil and gas business Wintershall Dea.
Shares in BASF were up by just under 2 per cent on Wednesday afternoon.
Sebastian Bray, analyst at Berenberg, attributed the “modest rally” to results being “without big hiccups, notwithstanding the expectedly weaker volumes”.
This is not the first time that BASF has been burned by its exposure to Russia. Wintershall Dea, which is a shareholder in the Nord Stream 1 pipeline and helped finance the building of Nord Stream 2, said this year it would have to write off the €1.1bn it had lent to the Nord Stream 2 project, which was in effect cancelled by the German government days before Russia’s full-scale invasion of Ukraine.
BASF’s chief executive Martin Brudermüller has been one of the most vocal opponents of an embargo on Russian gas, having warned that such a move would plunge Europe’s largest economy into its greatest crisis since the second world war.
