Cost Savings Program

In October 2022, BASF was one of the first chemical companies to initiate a significant cost savings program to address the deteriorating competitiveness in Europe and Germany in particular. This was done mainly in view of the significant increases in electricity and natural gas prices. As a next step, one year ago, in February 2023, we launched a set of measures to save costs in non-production areas in Europe and to adapt production structures at the Ludwigshafen site. As confirmed in our third quarter 2023 reporting, total annual cost savings from all measures announced to date are expected to reach €1.1 billion by the end of 2026. At the end of 2023, we already achieved an annual cost reduction run rate of around €0.6 billion from these measures. One-time costs amounted to around €0.4 billion in 2023.

In the course of 2023, earnings at our largest production site in Ludwigshafen deteriorated further in an extremely weak market environment. There are two main reasons for this:

• First, the temporary low-demand environment, which is affecting the volume development in both our upstream and our downstream businesses.
• And second, higher production costs due to structurally higher energy prices, which predominantly burden our upstream businesses.

To restore and defend our international competitiveness, we must rigorously address these new market realities. Therefore, we have decided to introduce additional measures to adapt the cost structures at our Ludwigshafen site.

We aim to reduce costs annually by a further €1 billion by the end of 2026. The program will generate sustainable cost savings in both production as well as non-production areas. It will include further reductions in fixed costs by driving efficiency in company structures, adapting production capacities to market needs and significantly trimming variable costs by redesigning processes and when awarding external service contracts.

We are on track to achieve the targeted 2.1 billion euros annual cost savings by the end of 2026.

The implementation of the cost savings programs announced in February 2023 is in full swing. As of the end of June 2024, we achieved a cost reduction run rate of around 700 million euros, which is associated with one-time costs of around 500 million euros. By the end of this year, we expect a cost reduction run rate of around 800 million euros and one-time costs of around 550 million euros.

We are also making good progress with the program focused on the Ludwigshafen site that was announced in February 2024. The identification of cost savings measures is almost completed, and they will soon be implemented swiftly. On top of previously announced programs, this program will deliver annual cost savings of around 1 billion euros by the end of 2026. The related one-time costs are expected to be around 1 billion euros.