Despite criticism, the world’s largest chemical group, BASF, continues to focus on China as the growth market of the future. The People’s Republic accounts for around half of global sales in the chemical industry, explained CEO Martin Brudermüller the strategic orientation of the Dax group at the general meeting in Mannheim on Thursday. At BASF, however, China only accounts for less than 15 percent of total sales. The company is therefore striving to continue to grow highly profitably in China.
The planned multi-billion dollar investments in this market are important for the chemical company to compensate for the lack of growth in Europe. “We are increasingly concerned about our home market,” said the CEO. “Profitability is nowhere near what it should be.” Last year, a negative operating result of around 130 million euros was posted in Germany.
Critics have been warning for some time that BASF, with its growing business in China, is again making itself dependent on an autocratic regime after expensive write-downs in Russia. Observers fear an attack by China on Taiwan. In the southern Chinese province of Guangdong, BASF is building a huge new Verbund site – it is set to become the company’s third largest and the second of its kind in China. To this end, BASF is investing around ten billion euros by 2030.
No withdrawal from Europe
However, increasing commitment in China does not mean that BASF is withdrawing from Europe, emphasized Brudermüller. “Europe is the cradle of BASF.” However, the structures outside of production in Europe and Germany would have to be streamlined. “From the end of 2024 we want to save more than 500 million euros annually.” Production, especially in Ludwigshafen, will also be adjusted. However, the largest company location should continue to be the model location for climate-neutral chemical production in Europe.
After a significant drop in earnings in 2022, partly due to high energy costs and the weak economy, the Ludwigshafen-based company plans to cut 2,600 jobs worldwide. Almost two-thirds of this will be in Germany. Due to high gas prices, several chemical plants are also to be shut down.
Decrease in sales and operating result
At the start of the current year, the Dax group had to post a decline in sales and operating profit. At almost 20 billion euros, revenue was over 13 percent lower than in the first quarter of the previous year. Adjusted operating profit (EBIT) fell by almost a third to a good 1.9 billion euros.
All in all, according to the final quarterly figures presented on Thursday, BASF increased its after-tax profit by around 28 percent to almost 1.6 billion euros. However, this was due to a special effect in the prior-year period. BASF took a billion-dollar write-down on its majority stake in Wintershall Dea last year due to its withdrawal from its Russian business, dragging down net income.
“We decided to exit the oil and gas business well before the war,” said BASF CEO Brudermüller at the Annual General Meeting. With Russia’s attack on Ukraine, however, the framework conditions for this would have changed completely. Through Wintershall Dea, BASF is involved in joint ventures in Russia that produce oil and gas. The Russian government has de facto economically expropriated Wintershall Dea in Russia. The management is now working on different variants of the exit. An IPO by Wintershall Dea remains the preferred option, but a sale to investors is also conceivable.
