Since the end of February this year, Europe’s energy supply has been tight, and electricity and natural gas prices have soared, which has put considerable pressure on Europe’s inflation situation and economy.
Affected by the surge in energy prices, German chemical giant BASF said that its third-quarter net profit will be “significantly lower” than analysts’ average expectations, less than half of the 2.1 billion euros in the second quarter.
In response to the deteriorating “framework conditions”, BASF launched a cost reduction plan to save 500 million euros per year and planned medium- and long-term structural adjustment measures.
Increase in revenue but no increase in profits in the third quarter
On October 12, local time in Germany, BASF Group released preliminary data for the third quarter of 2022. Its sales, earnings before interest and tax (EBIT) before special items, and EBIT were slightly higher than analysts’ average expectations, but Net profit dropped significantly.
BASF expects net profit in the third quarter to be 909 million euros, significantly lower than the 1.253 billion euros in the same period last year, and analysts’ average forecast of 1.105 billion euros, less than half of the second quarter net profit (2.1 billion euros). This result is mainly due to the impairment of Wintershall Dea’s equity investment in Nord Stream AG, which operates Nord Stream 1.
Due to rising end product prices and a stronger U.S. dollar, BASF’s sales in the third quarter increased by 12% year-on-year to 21.946 billion euros. However, sales were down compared to the same period last year.
The rise in raw material and energy prices can only be partially passed on through higher selling prices. In the third quarter of 2022, BASF’s EBIT before special items is expected to be 1.348 billion euros, significantly lower than the previous quarter’s level of 1.865 billion euros and slightly higher than analysts’ average expectations.
Similarly, BASF’s earnings before interest and tax in the third quarter are expected to be 1.294 billion euros, which is also significantly lower than the same period last year.
However, BASF said its outlook for 2022, released in July, remains unchanged. Sales in fiscal 2022 are expected to be between 86 billion and 89 billion euros, and EBIT before special items is expected to be between 6.8 billion and 7.2 billion euros.
Cost-saving plan will save €500 million annually
This year, the European region has been suffering from high energy costs. Among them, Germany, which has the most developed industry and is particularly dependent on Russian natural gas, has been hardest hit.
Due to the obvious weakness in European earnings, BASF announced the launch of a cost-saving plan for Europe, especially Germany, with the goal of saving 500 million euros in annual costs in non-production areas.
BASF stated that the implementation of this cost-saving plan comes against the backdrop of losses in Germany in the third quarter of 2022 and the deteriorating “framework conditions” in Europe.
BASF The cost-saving plan will be implemented from 2023 to 2024. Projects that provide short-term cost savings will be implemented immediately. More than halfof the cost savings will be realized at the Ludwigshafen base in Germany. Operations, service and R&D departments as well as the corporate center will be streamlined.
In addition, BASF said that mid- to long-term structural adjustment measures for its integrated production base in Europe are being planned and will be announced in the first quarter of 2023.
Employee representatives will be involved in these measures, the company said in a statement.
Currently, high energy costs are forcing energy-intensive companies in many European countries to reduce or suspend production, and Europe is facing the challenge of “deindustrialization.” Some European manufacturing companies have recently been forced to suspend production or decide to move production lines overseas.
Oliver Falk, head of the Center for Industrial Economics at the Ifo Institute of Economics in Germany, said: “If energy prices remain high for a long time, some industries will leave Germany.”
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