On November 4, German Chancellor Olaf Scholz will travel to China. On his inaugural visit to the Middle Kingdom, the head of government will be accompanied by high-ranking business representatives. Among others, the CEO of BASF, Martin Brudermüller, is part of the travel group. Shortly before the trip, the manager spoke positively about the prospects for the chemical company in China. He expects growth to continue in the most important emerging market. "We are not worried about long-term development," Brudermüller explained. Among other things, the Group is currently building a new Verbund site in Zhanjiang in Guangdong province. BASF plans to invest between EUR 8 billion and EUR 10 billion by the time this expansion measure is scheduled for completion in 2030. "The site would be the third largest BASF site worldwide after Ludwigshafen (Germany) and Antwerp (Belgium)," the company writes on its website.
China is interesting not only because of demand - in the first three quarters of 2022, the chemical giant generated more than 13% of sales in this market (Greater China). With the relocation of production, the company is also bracing itself against rising costs on the old continent. In particular, price increases for energy have weighed on the DAX member in the first nine months of 2022. According to the company, many European sites incurred additional costs of around EUR 2.2 billion for natural gas alone compared to the previous year. For the third quarter, BASF reported a double-digit percentage increase in sales to just under EUR 22 billion, thanks in part to price increases, but the company had to accept a significant drop in earnings. Adjusted for special items, earnings before interest and taxes (Ebit) came to EUR 1.35 billion - 27.7% less than in the same period last year.
Nevertheless, the CEO is sticking to his forecast for 2022. Among other things, Martin Brudermüller is targeting sales of between EUR 86 billion and EUR 89 billion for the full year. Even at the lower end of this range, he is assuming growth of more than 9%. In terms of EBIT before special items, however, the CEO expects a significant decline. By way of comparison, the earnings figure for 2021 was EUR 7.8 billion. In order to return to this level as soon as possible, the Group has announced a cost-cutting program. The focus here is on Europe and Germany - in its home market, BASF posted a negative result in the third quarter. In 2023 and 2024, management wants to implement measures that should reduce non-production costs by EUR 500 million annually. More than half of the savings are planned for the Ludwigshafen site. It will probably not stop at this program. "Further measures for the medium- and long-term structural adjustment of BASF's production Verbund in Europe are currently being developed and are expected to be communicated in the first quarter of 2023," the company said in mid-October.
Even before this announcement, BASF shares had been able to halt their slide. The general recovery on the stock markets gave the cyclical large cap a price gain of almost 15% in October. Even if the dividend stock does not manage a sustained upward turn, an attractive return is possible with Autocallable Barrier Reverse Convertible. The product pays out a quarterly coupon of 10.67% p.a. irrespective of BASF's further share price performance. The German blue chip starts the twelve-month term with a risk buffer of 50%. As long as BASF does not fall to or below this level, the nominal will be repaid in full at maturity. If the barrier is breached, the partial protection expires and the redemption is linked to the performance of BASF shares. The autocallable function must also be taken into account: it can lead to early termination and redemption of this issue.
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