BASF’s New Strategy Aims for Both Profitable, CO2-neutral Growth

BASF is concentrating on organic business growth. 

With the aim of becoming faster and more flexible, the company will significantly simplify structures and processes, sharpen its portfolio and strengthen the Verbund.

“With our new strategy, we are setting BASF on a course for growth,” said Dr. Martin Brudermüller at the presentation of BASF’s new strategy in Ludwigshafen. “Since 2012, our income from operations before depreciation, amortization and special items have grown on average by 8% per year, considerably faster than the 3% increase in fixed costs per year.”

BASF’s earnings growth thus also outpaced the 3.7% annual increase in global chemical production. Moreover, there was strong development in free cash flow in recent years and a high return on capital employed, most recently 15.4%.

The Asian market plays an important role in its growth strategy. With a world market share of more than 40%, China is the largest chemical market and drives the growth of global chemical production.
“By 2030, China’s share of the market will increase to nearly 50% and we want to participate in this growth,” said Brudermüller.

BASF wants to further increase profitability and targets an increase in EBITDA before special items of 3% to 5% per year.

To help achieve these ambitious targets, BASF is initiating a new excellence program which will run from 2019 until 2021. 

It targets annual earnings contributions of €2 billion from the end of 2021 onwards. The program will include measures focused on production, logistics, R&D, as well as digitalization and automation activities and organizational development.

“BASF commits to keeping its greenhouse gas emissions flat at the 2018 level until 2030 – even though we are targeting considerable annual production growth,” said Brudermüller. 

The target includes planned major investments, such as the new Verbund site in Guangdong province in southern China.

BASF will, wherever possible, purchase a greater share of electricity from renewable energy sources. BASF has already reduced its greenhouse gas emissions by 50% in absolute terms compared to 1990 levels – while doubling its production volumes in this period.

In addition to the target of CO₂-neutral growth until 2030, BASF wants to generate around €22 billion in sales with Accelerator products in 2025.

BASF is launching a series of measures which will, among other things, increase transparency for customers, enhance customer service and explore joint growth potential. BASF will concentrate on the following action areas: portfolio, people, innovation, sustainability, operations, and digitalization.

BASF undertook a review of its segment structure and will introduce changes as of the beginning of 2019.

As of Jan. 1, 2019, BASF will have 6 segments, each containing 2 operating divisions, with the exception of Agricultural Solutions which will continue to comprise 1 division:

• Chemicals
  Petrochemicals and Intermediates;
• Materials
  Performance Materials and Monomers;
• Industrial Solutions 
  Dispersions & Pigments and Performance Chemicals;
• Surface Technologies
  Catalysts and Coatings;
• Nutrition & Care
  Care Chemicals and Nutrition & Health;
• Agricultural Solutions

BASF will focus primarily on organic growth through capital expenditures and innovation but will make acquisitions where necessary.

Thanks to the integrated production in the Verbund, BASF achieves annual cost savings of at least €1 billion, for example, for raw materials, energy and logistics. At the same time, the company also avoids considerable emissions as a result of the Verbund.

BASF is creating leaner structures for services, in R&D and in governance functions.

Approximately 20,000 employees worldwide will be directly or indirectly affected by this reorganization. 

“We expect all these measures to result in better differentiation of the business units as well as substantial productivity gains,” CFO and Vice Chairman of the Board of Executive Directors Dr. Hans-Ulrich Engel said.
 
When appropriate, greater decision-making authority will be transferred to the business units. “This means we will enable more entrepreneurial freedom, but also assign clear responsibilities,” Engel said.

To ensure that BASF captures potential market opportunities in every country, the company will introduce complementary market development models. The operating divisions will decide which local markets they will treat as focus markets served by their own personnel and in which markets they will hand over the business mandate to local country organizations. 

BASF has increased its dedicated budget for boosting operational excellence to €400 million per year. 

Augmented reality is already being used to support the BASF workforce in daily operations. BASF aims to digitalize processes at more than 350 of its plants worldwide by 2022.

It will also increase creativity in R&D, not least owing to a more intensive use of its supercomputer Quriosity.