BASF SE will cut 2,600 positions, about 2% of its global workforce, to reap cost savings as Europe’s biggest chemical firm adjusts to a future without cheap Russian gas. The company also ended a share buyback early.
(Bloomberg) — BASF SE will cut 2,600 positions, about 2% of its global workforce, to reap cost savings as Europe’s biggest chemical firm adjusts to a future without cheap Russian gas. The company also ended a share buyback early.
The chemical giant will close a number of factories, including two ammonia plants and related fertilizer facilities, resulting in 700 job cuts at its main Ludwigshafen plant in Germany, the company said Friday. BASF said the deterioration in the global economy prompted the termination of its €3 billion ($3.2 billion) share buyback program ahead of time.
“Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,” BASF Chief Executive Officer Martin Brudermüller said in a statement. “High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”
BASF’s gas bill surged by €2.2 billion last year compared to 2021, even as consumption fell by 35%. The company previously said it’s targeting annual cost cuts of €500 million as it doesn’t expect gas prices to return to pre-war levels.
Permanent Increase
While gas prices have retreated from highs but remain above what Germany’s energy-intensive industries are used to and higher than in rival manufacturing regions in the US and Asia. Europe’s biggest economy has come through a mild winter with relatively full gas storage tanks, switching from Russian pipeline gas to liquefied natural gas that has staved off the threat of rationing but will keep costs elevated.
BASF forecast lower operating profit this year with adjusted earnings before interest and taxes of as much as €5.4 billion, after earnings declined 12% in 2022 to €6.9 billion. Despite the challenges, BASF kept its dividend unchanged at €3.40 a share and expects a better second half of the year compared to the first, led by a recovery especially in China.
The company has also suffered several blows from Russia’s invasion of Ukraine that exposed decades-old ties as a wrong bet. BASF had helped fund construction of both Nord Stream pipelines via its Wintershall Dea subsidiary. Cutting ties with the venture in January prompted a €7.3 billion writedown and a historic loss for BASF, which also operated joint ventures with Gazprom PJSC and others.
The permanent hike in gas prices risks thousands of jobs and investment shifting elsewhere. A survey from Germany’s VCI chemical association in late January revealed that almost half of chemical companies plan to cut investment in Germany this year due to energy costs.
Germany’s chemical sector is particularly gas-intensive, accounting for around 15% of the country’s total annual consumption of the fuel before the war. Firms including BASF and Evonik Industries AG use natural gas to generate process heat and as the raw material from which other chemical products are made, making the industry an integral part of the automotive and other supply chains.
(Updates with dividend in sixth paragraph)
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