BASF slumps after massive writedowns in Russia trigger €4.8 billion loss

© Reuters.

By Geoffrey Smith

Investing.com -- BASF (ETR:BASFN) stock fell to its lowest in eight weeks on Friday after the German chemicals giant followed through with threats to cut thousands of jobs in response to huge losses caused by last year's energy spike.

Europe’s largest chemicals company said it will cut 2,600 jobs worldwide - including 700 at its Ludwigshafen headquarters - after losing €4.85 billion (€1 = $1.0588) last year, mainly due to spiking energy prices and the write-off of its huge investments in Russia.

In a stark illustration of the damage done by the war to Europe's industrial base, BASF said on Friday it will close one of its two ammonia plants at Ludwigshafen, along with the associated fertilizer production operations. It will also stop making soda ash, as well as cyclohexanol and cyclohexanone, two building blocks in the production of artificial fabrics, paints, and varnishes.

BASF’s fuel bill rose by €3.2B last year as the company was forced to scramble for alternative sources of gas at unprecedented prices. At Ludwigshafen alone, BASF ended up paying €1.4B more for gas in 2022 than in 2021, even though it cut its consumption by 35%.

The group had already warned that the spike in energy prices had badly hurt the global competitiveness of its sites in Germany. These had profited for years from cheap and reliable natural gas from Russia which it used both as a fuel and a feedstock for its organic chemistry operations.

The group's net loss was much larger than the group had flagged in January, due in part to its decision to write off the Russian assets of its upstream Wintershall Dea subsidiary costing it €6.5B. Some €4.7B of that hit the fourth-quarter income statement.

Earnings before interest and taxes all but dried up in the fourth quarter, falling 90% to €119 million. Revenue fell 2.3%, as a 15% fall in sales volumes was partly offset by a 9.2% increase in average prices. The results were also flattered by a 4.5% tailwind from foreign exchange, reflecting the euro’s weakness against the dollar.

For the current year, BASF said it expects sales to fall about 2% to a range around €85.5B, while earnings before interest and taxes are set to fall by more than 20% to some €5.1B.

The group was also a shareholder in the consortiums that built the two Nord Stream gas pipelines, which were destroyed last summer after Russia unilaterally halted supplies of gas to Germany in an effort to pressure Europe into accepting its aims in Ukraine.

Despite the writedowns, the company kept its dividend proposal at €3.40 a share. That didn’t stop the stock price from falling 6.9% by 04:30 ET (09:30 GMT) to its lowest since early January.