Full-Year 2023 Reporting: Sales of BASF Agricultural Solutions slightly below previous year as a result of volume and currency effects

In a market environment shaped by economic uncertainty, BASF Group reported sales of €68.9 billion in the 2023 business year, compared with €87.3 billion in the previous year. This sales development was mainly driven by considerably lower prices and volumes. Lower raw materials prices in particular led to lower prices in almost all segments. Sales volumes fell in all segments as a result of weak demand from many customer industries. Nevertheless, BASF demonstrated economic strength with cash flows from operating activities rising 5.2 percent year on year to reach €8.1 billion. The company had already released preliminary figures for the full year 2023 on January 19, 2024. On February 23, 2024, Dr. Martin Brudermüller, Chairman of the Board of Executive Directors of BASF, and Dr. Dirk Elvermann, Chief Financial Officer, presented the 2023 business development in detail and announced a further program for the Ludwigshafen site with additional annual cost savings of €1 billion by the end of 2026. This is in addition to the existing cost savings program in non-production units with a focus on Europe and the adaptation of production structures in Ludwigshafen.

Earnings development of BASF's Agricultural Solutions segment in 2023

In the Agricultural Solutions segment, BASF aims to further strengthen its market position as an integrated solutions provider. BASF's offer comprises seeds, traits and seed treatment products and biological and chemical crop protection solutions, complemented by digital farming products to help farmers achieve a better yield. BASF's strategy is based on innovation-driven organic growth and targeted portfolio expansion through acquisitions and collaborations. Customer needs, societal expectations and reducing environmental impacts are what motivate BASF to innovate.

At €10,092  million, sales to third parties in the Agricultural Solutions segment in 2023 were slightly below the figure of the previous year. Considerably higher prices in almost all regions and indications were not fully able to compensate for lower volumes and negative currency effects. The decline in volumes was mainly driven by a change in market dynamics over the course of the year, primarily due to the significant channel destocking at distributors.

In Europe, sales rose to €2,600 million due to considerably higher prices and were therefore €170  million higher than the prior-year figure. Considerably lower sales volumes for crop protection products and negative currency effects, mainly from the Turkish lira, had a negative impact on sales.

Sales in North America amounted to €4,002  million and were almost at prior-year level. This was mainly driven by both lower sales volumes, particularly of herbicides, and negative currency effects due to the Canadian dollar and U.S. dollar. Considerably higher price levels had an offsetting effect.

In Asia, sales of €1,072 million were €58 million lower than in the previous year. Considerably higher prices were unable to compensate for considerable negative currency effects, mainly from the Indian rupee and the Chinese renminbi, and significantly lower volumes, particularly for herbicides.

Sales in the region South America, Africa, Middle East amounted to €2,418 million, €294 million below the previous year. This was attributable to lower volumes in all indications and negative currency effects, mainly from the Argentine peso. Higher prices were unable to compensate for this.

Income from operations (EBIT) before special items rose considerably compared with the previous year, by €343 million to €1,563 million, due to price increases, among other factors. A onetime payment that was received also had a positive impact on earnings.

EBIT declined by €91 million compared with 2022 to €1,131 million. This included special items in the amount of €433 million. Special charges arose mainly from impairments on production facilities in Europe as well as for measures in the context of the cost savings program focusing on Europe.

Earnings at Ludwigshafen site weaken further in 2023

In 2023, in an extremely difficult market environment with low demand, EBIT before special items declined by double-digit percentages in all regions. ″In absolute terms, however, our teams delivered a positive earnings contribution in all significant countries – with the exception of Germany,″ Brudermüller said. Results in Germany suffered due to substantially negative earnings at the largest production site in Ludwigshafen. There are two main reasons for this: The temporary low-demand environment is affecting the volume development in both the upstream and downstream businesses. And higher production costs due to structurally higher energy prices predominantly burden the upstream businesses.

Brudermüller: ″On the one hand, this situation demonstrates the high competitiveness and health of BASF Group under challenging conditions at the global level. On the other hand, the negative earnings at our Ludwigshafen site show the urgent need for further decisive actions here to enhance our competitiveness.″

Cost savings program already initiated in 2022

In October 2022, BASF was one of the first chemical companies to initiate a significant cost savings program. And in February 2023, the company launched a set of concrete measures to save costs in non-production areas in Europe and to adapt production structures at the Ludwigshafen site. As confirmed in BASF’s third quarter 2023 reporting, total annual cost savings from all the previously announced measures are expected to reach €1.1 billion by the end of 2026. An annual cost reduction run rate of around €600 million was already achieved by the end of 2023. The measures announced in October 2022 and February 2023 will achieve another €500 million in annual cost savings by the end of 2026.

Additional measures necessary at Ludwigshafen site

With an additional cost savings program, it is planned to reduce costs at the Ludwigshafen site by a further €1 billion annually by the end of 2026. The program will generate cost savings in both production as well as non-production areas. Fixed costs will be lowered by driving efficiency in company structures and adapting production capacities to market needs. Moreover, the company aims to significantly trim variable costs by redesigning processes. Brudermüller: ″The program will therefore also unfortunately lead to further job cuts.″ The details are currently being worked out. Employee representatives will be closely involved in this process going forward.

Besides the required cost reductions, BASF will do everything possible to again significantly increase the utilization rates of its competitive assets in Ludwigshafen. To generate solid earnings here, the company needs additional contribution margins from normal levels of plant utilization. At the Ludwigshafen site, the upstream plants in the Chemicals and Materials segments, in particular, are currently operating with utilization rates considerably below normal levels.

In parallel to this short-term program announced today, the Board of Executive Directors will update the longer-term positioning of the Ludwigshafen site. The target picture for the main site in Ludwigshafen will be presented in the second half of 2024. It will reflect both the regulatory framework and the changed market realities in Europe and Germany.

Brudermüller: ″The Board team will remain strongly committed to the Ludwigshafen site. We want to develop Ludwigshafen into the leading low-CO₂-emission chemical production site with high profitability and sustainability. We will focus Ludwigshafen on supplying the European market to remain the partner of choice for our customers. To achieve this, it is essential that we implement the program consistently and as quickly as possible. At the same time, we are systematically driving forward our business in those regions of the world that are growing more dynamically and offer attractive conditions for investments.″

BASF Group outlook for 2024

BASF expects the weakness in global economic momentum from 2023 to continue in 2024. Global economic growth is only expected to accelerate somewhat later in the year, meaning that BASF expects the global economy to grow by 2.3 percent overall in 2024 (2023: plus 2.6 percent). In Europe, the comparatively high energy prices and unfavorable framework conditions for industrial value creation continue to slow down economic development.

BASF also assumes that global industrial production will likely expand by 2.2 percent overall (2023: plus 1.4 percent). Global chemical production is expected to grow faster in 2024, by 2.7 percent (2023: plus 1.7 percent). This will be driven primarily by the expected growth in the Chinese chemical industry. BASF’s planning assumes an average oil price of $80 for a barrel of Brent crude and an exchange rate of $1.10 per euro.

The BASF Group’s EBITDA before special items is expected to rise to between €8.0 billion and €8.6 billion in 2024 (2023: €7.7 billion). BASF forecasts the free cash flow of the BASF Group will be between €0.1 billion and €0.6 billion (2023: €2.7 billion). This is based on expected cash flows from operating activities of between €6.6 billion and €7.1 billion, minus expected payments made for property, plant and equipment and intangible assets in the amount of €6.5 billion. The high investment-related cash outflow is mainly due to investments in the new Verbund site in China, which will reach their absolute peak in 2024 and then decline in the following years.

CO₂ emissions are expected to be between 16.7 million metric tons and 17.7 million metric tons in 2024 (2023: 16.9 million metric tons). Compared with the previous year, the company anticipates additional emissions from higher production volumes based on rising demand. BASF will counteract this increase with targeted measures to reduce emissions, such as increasing energy efficiency and optimizing processes as well as continuing the shift to electricity from renewable energies.