FRANKFURT (Reuters) -German chemicals giant BASF on Tuesday mapped out further cost cuts, scaled back investment spending and said 2023 earnings and sales would be at the lower end of its target ranges due to an uncertain global outlook.
“The macroeconomic outlook remains extremely uncertain in the current interest rate policy environment and in view of increasing geopolitical risks,” the company said, adding that rising raw materials prices could weigh on demand.
Investors though were encouraged that BASF was making more cost cuts and viewed its full-year guidance as better than some had feared, sending shares in the group up 4% in early trade.
BASF said its guidance for this year hinges on a scenario that global chemical industry production, a key driver of its business prospects, will further stabilize during the remainder of the year.
The company said 2023 operating income would be at the lower end of a previous target range of between 4 billion euros ($4.24 billion) and 4.4 billion, down from 6.9 billion in 2022, citing lower sales volumes across its chemicals and plastics businesses.
“The start into 2024 will also not be really easy,” CEO Martin Brudermueller, who will quit BASF to become non-executive chairman of Mercedes Benz next year, told a media call.
BASF, which in July cut its 2023 budget for investment in plants and equipment to preserve cash amid a global downturn, said on Tuesday that investments earmarked for the five years to 2027 would be cut by 4 billion euros to 24.8 billion.
Analysts at brokerage Stifel said the cutbacks were welcomed by the market.
“The vigorous actions are certainly positive news,” they said.
CHINA PLANT
CEO Brudermueller said that BASF’s policy of either raising annual dividends or keeping them stable remained intact.
“An attractive dividend is of high importance for the BASF Board,” he said.
BASF, which has laid out plans to slash costs and about 2,600 jobs in Europe amid structurally weak demand there, also stepped up efforts to reduce spending on non-production activities on Tuesday.
It is now eyeing a reduction in annual total costs by around 1.1 billion euros from the end of 2026 at the latest, where it had previously targeted a 1 billion euro reduction.
It has banked on long-term growth in China and on Tuesday stuck with plans to build a 10 billion euro chemical complex in Zhanjiang, southern China, despite a push by the German government to ease the country’s economic reliance on the Asian powerhouse.
“The chemical industry remained under further stress in the third quarter,” CEO Brudermueller said, adding that this was happening in all regions with the exception of China, where considerable recovery in domestic volumes, albeit at low prices, was underway.
BASF also reported that third-quarter operating income dropped 57%, mainly because of lower prices and sales volumes of basic petrochemicals.
Quarterly earnings before interest and taxes, adjusted for one-offs, fell to 575 million euros, slightly below an analyst consensus of 601 million euros posted on the company’s website.
($1 = 0.9438 euros)
(Reporting by Ludwig Burger, Editing by Friederike Heine, Rachel More, Michael Perry and Susan Fenton)
