BASF, the German chemical company, has announced plans to reduce its spending in the coming years following a net loss in the third quarter. Lower prices and volumes have prompted this decision. The company intends to cut its capital expenditure (capex) by 4 billion euros ($4.25 billion) for the five-year period until 2027 due to prevailing macroeconomic conditions.
Previously, BASF had planned to spend EUR28.8 billion, but they now plan to allocate EUR24.8 billion for the period from 2023 to 2027.
Chief Executive Martin Brudermueller emphasized that despite reducing overall investments, BASF remains committed to its growth projects and its transition to climate neutrality. Brudermueller further stated that the reduction in spending involves minimizing the number of projects and implementing alternative measures with lower capex requirements.
This year alone, BASF has already reduced its spending by EUR1 billion, bringing the total spending to EUR5.3 billion.
In terms of financial performance, BASF reported a net loss of EUR249 million compared to a profit of EUR909 million in the previous year. Revenue also witnessed a 28% decline, falling to EUR15.73 billion. Additionally, the company’s earnings before interest and taxes (EBIT) before special items suffered a significant decrease of 57% to EUR575 million.
Analysts had anticipated a net profit of EUR282 million and sales of EUR17.58 billion, according to a company-compiled consensus. Therefore, the actual results fell short of these expectations.
BASF explained that the decline in prices mainly affected its Materials, Chemicals, and Surface Technologies divisions, while prices in its Agricultural Solutions unit experienced an increase. Sales volumes also decreased across all customer end-markets except for the automotive sector.
Chemical Production Slows in Europe Amid Economic Challenges
Chemical production in Europe has experienced a significant slowdown, mainly attributed to decreased demand resulting from high inflation, increased interest rates, and soaring natural gas prices. Additionally, consumer spending has also been affected, leading to a 6.6% decline in chemical production on the continent compared to the previous year. Energy prices have been exceptionally high, hovering around 40% above the average between 2019 and 2021.
BASF, a prominent player in the industry, has been impacted by these conditions, with the third-quarter net loss of its majority-owned oil and gas company, Wintershall Dea. Concerning this matter, Chief Financial Officer Dirk Elvermann stated that BASF is actively exploring various options for selling its stake in the company.
Despite these challenges, BASF is actively implementing strategies to mitigate the situation. The DAX-listed company is targeting non-production cost savings of more than EUR600 million by the end of next year and aims to exceed EUR700 million by the end of 2026.
Although global chemical production is expected to stabilize in the fourth quarter, BASF remains cautious about the macroeconomic outlook. The company’s Chairman, Martin Brudermueller, warned of potential risks if chemical production fails to stabilize further. These risks include a decline in volumes and a more significant-than-anticipated price reduction. Consequently, BASF anticipates a challenging start to 2024.
Nonetheless, BASF reiterates its confidence in achieving its guidance for 2023. However, it anticipates that its sales and EBIT (earnings before interest and taxes) before special items would fall toward the lower end of their respective ranges.