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BASF suspends work and cuts profit target

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BASF suspends work and cuts profit target
Photo: DPA
15:29 CET+01:00
The world's biggest chemical company, BASF, said Wednesday it would cut global output and suspend operations at 80 plants, affecting 20,000 workers and dropping its 2008 operating profit target. Shares in the company plunged in mid-day trading on the Frankfurt stock exchange as a result.

"BASF is taking measures to avoid the creation of overcapacities as a result of a massive decline in demand," primarily in the automotive construction and textile industries, the company said in a statement. The group "is temporarily shutting down around 80 plants worldwide. In addition, BASF is reducing production at approximately 100 plants," following decisions that had already been revealed in part.

The group said it would seek where possible to diminish the effects of the decisions with the use of "flexible working time arrangements." On October 30, the chemical giant had already lowered 2008 earnings targets and voiced concern about a possible recession next year, while saying it would cut 1,000 jobs by 2012.

"Since then, customer demand in key markets has declined significantly. In particular, customers in the automotive industry have cancelled orders at short notice," the statement said Wednesday. "In 2008, BASF does not expect to achieve the previous year's excellent EBIT (earnings before interest and tax) before special items," it added.

Chairman Juergen Hambrecht "explained that it was difficult to foresee how the coming year would develop and said that BASF was preparing for tough times." The production decreases were expected to last until January for some plants, the statement said. But it warned that "should the period of weak demand continue and if all other flexible working time models have been exhausted, the company cannot rule out the need for short-time working at individual sites worldwide."

In early afternoon trading, BASF shares plunged by 16.91 percent to €21.13, while the DAX index of German blue-chips was down by 3.25 percent overall.

The decision was expected to affect around 5,000 workers at BASF headquarters in Ludwigshaven in southwestern Germany.

"We are responding flexibly to market developments and are acting quickly," the statement quoted Hambrecht as saying. BASF would now focus on cost and budget discipline, and "also proceed swiftly with the planned acquisition and integration of Ciba to further optimize our business."

The German group is taking over the Swiss specialty chemicals company in a deal that values Ciba at around €3.8 billion. BASF said on November 12 that it sought through the purchase to boost activities in niche markets such as coverings, water treatment and products used in paper manufacturing. On Wednesday it explained that the production processes that would be affected by the latest measures include "ammonia, styrene and polyamide, which manufacture precursors for engineering plastics, coatings and fibres.”

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