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Chemicals: BASF: Loss of billions due to Russian withdrawal from subsidiary

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The consequences of the Russian war of aggression against the Ukraine have left their mark on the chemical giant BASF – the company has surprisingly slipped into the red.

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The BASF subsidiary Wintershall Dea is withdrawing from Russia – and causing its parent company to lose billions in 2022. The bottom line was that BASF had a deficit of around 1.4 billion euros, as the Dax group surprisingly announced in Ludwigshafen.

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The main reason was write-downs on Wintershall Dea in the amount of 7.3 billion euros. The subsidiary complains about the factual expropriation of its holdings there in Russia. According to the information, she is planning a complete withdrawal from the country in compliance with the legal provisions. The stock dropped 3.6 percent after hours on the Tradegate trading platform.

“Joint ventures de facto expropriated”

“Continuing our business in Russia is not sustainable,” said Wintershall Dea boss Mario Mehren, according to a separate statement. The war destroyed cooperation between Russia and Europe. In addition, the Russian government has restricted the activities of Western companies in the country. “The joint ventures were de facto economically expropriated,” said Mehren.

Wintershall Dea referred to Russian regulations from the end of December. These retrospectively reduced the prices at which the joint ventures can sell the hydrocarbons they produce to the Russian company Gazprom.

In the future, Wintershall Dea no longer wants to show the key figures of its Russian joint ventures in the consolidated financial statements. Excluded are changes in the fair value of financial assets, it said.

At the level of the parent company BASF, depreciation on Wintershall Dea totaled 5.4 billion euros in the fourth quarter alone. The group also made value adjustments on the company’s European gas transport business and completely wrote off its stake in the pipeline company Nord Stream AG.

Sales up, profits down

Day-to-day business was also rather gloomy for BASF. Thanks to currency effects and higher prices, sales in the past year rose by eleven percent to 87.3 billion euros and thus reached the range targeted by the Management Board. Before special items and before interest and taxes, BASF earned a good eleven percent less than in the previous year at almost 6.9 billion euros. The group thus only slightly missed the average expectations of analysts.

According to the information, analysts had not expected a net loss. In 2021, BASF had earned around 5.5 billion euros. However, burdens as a result of the Russian war of aggression in Ukraine and the resulting sharp rise in energy prices, especially in Europe, had already become apparent. The top management around CEO Martin Brudermüller had therefore already announced an austerity program. Chemical companies had to struggle primarily with the sharp rise in gas prices.

Source: Stern

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