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Chemical giant BASF, massive profit drop

2023-07-28 22:59:00, Kosova & Bota CNA

The chemical group BASF announced for the second quarter a massive drop in profits of 76 percent, to 499 million euros. In the same quarter a year ago, the drop was still just over two billion euros. "We saw weak demand from our main customer sectors, with the exception of the automotive industry," said BASF CEO Martin Brudermüller.

According to the figures presented recently and already confirmed, turnover fell by a quarter in the second quarter compared to a year ago, reaching 17.3 billion euros. This is due to significantly lower prices and volumes of circulation. The negative effects of inflation also brought drag. Like the entire industry, BASF is experiencing sluggish demand, especially in China. A recovery in the second half does not seem to be expected anymore. Therefore, the BASF group has recently significantly lowered its targets for the year as a whole.

For the current year, BASF expects a drop in turnover to 73-76 billion euros, against 87.3 billion euros a year ago. Previously, BASF still expected a turnover of 84 to 87 billion euros. In terms of the operating result, BASF only expects an amount of 4.0 to 4.4 billion euros, instead of a decline of 4.8 to 5.4 billion euros.

Chemical giant BASF, massive profit drop

Extension of the savings program

In response, the chemical giant is expanding its already announced savings program. By the end of 2023, BASF wants to save more than 300 million euros per year. "With the initiatives already underway in our global service units, we will reduce fixed costs by the end of 2026, so that from this date forward they will be around one billion euros less each year." said CFO Dirk Elvermann.

"We are paying increased attention to cash management in order to optimize our free cash flow. Later in the year, we will continue to reduce our inventories." By the end of 2026, fixed costs should be about a billion lower per year.

Continued investment in China

Despite undynamic demand in China, BASF continues to focus on the People's Republic: 13 percent of BASF's turnover currently comes from the region, CEO Brudermüller told the Rheinpfalz newspaper. This roughly corresponds to the share of income generated by activities in Germany. By 2030, BASF aims for around 20 percent sales in China.

Chemical giant BASF, massive profit drop

"The business there is very profitable. The growth of the market there and the current performance argue that BASF can benefit more from its business there," explained the manager. "That's why we decided to invest". According to him, China is the largest chemical market in the world. The region's market makes up 50 percent of the total chemical market.

"It will continue to grow, and much more than in all other regions."

For BASF, the opportunities in this market outweigh the risks. In southern China's Guangdong province, BASF is building a giant new combined cycle center - it will be the company's third largest and already the second of its kind in China. BASF will invest around ten billion euros in it until 2030.

BASF shares on the stock market reacted today at the beginning of the day with moderate losses. Over the course of a year, BASF shares rose twelve percent in value./ DW