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BASF unveils new strategy aiming to simplify structures and processes, sharpen portfolio

November 20, 2018
Chemical Value Chain

BASF today announced its new strategy with key points being growth above global chemical production; leveraging its total integration Verbund strategy; focusing on innovation, sustainability, digitalization and operational excellence.

The company also aims to achieve sales with products that make a substantial contribution to sustainability of €22 billion ($25.2 billion) in 2025 and to increase EBITDA before special items by 3-5%/year.

“With our new strategy, we are setting BASF on a course for growth,” said Martin Brudermüller at the presentation of BASF’s new strategy in Ludwigshafen today. “Since 2012, our income from operations before depreciation, amortization and special items has grown on average by 8% /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 (ROCE), most recently 15.4%. Above all, the new strategy aims to grow sales and volumes,” he said. BASF says it will significantly simplify structures and processes, sharpen its portfolio and strengthen the Verbund. “We will transform our organization to be more customer-focused and agile,” Brudermüller said.

The Asian market, where BASF is already very well established, 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,” Brudermüller said. “Our new Verbund site in Zhanjiang in Guangdong province and the expansion of the site in Nanjing will significantly enhance our growth in this dynamic market.”

With its new strategy, BASF is pursuing ambitious targets. “We want to grow stronger than the market and we aim to grow our sales volumes above global chemical production growth,” said CFO and vice chairman Hans-Ulrich Engel. BASF also wants to further increase profitability and targets an increase in EBITDA before special items of 3% to 5% per year. “Furthermore, BASF aims to achieve a return on capital employed well above the cost of capital percentage every year,” Engel said. To help achieve these 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, research and development 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,” Brudermüller said. “This means we will decouple our greenhouse gas emissions from organic growth.” The target includes planned major investments, such as the new Verbund site in Guangdong province in southern China. To achieve this, BASF will improve the management, efficiency and integration of its plants and, wherever possible, will purchase a greater share of electricity from renewable energy sources. “Given the already very high technological standards at our plants, this is a very ambitious goal that will require exceptional creativity to do things differently,” Brudermüller said. He added that this would require a suitable regulatory environment in Germany, Europe and around the world. 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. These are products that make a substantial sustainability contribution in the value chain. “We want our customers to have a new experience with BASF. Therefore, BASF will further develop its organization so it can work more effectively and efficiently and be even more customer-centric,” Brudermüller said. To this end, 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 also plans to introduce a change in segment structure following a review. “We will sharpen our portfolio and focus our capital allocation more towards growing business areas,” Brudermüller said. As of 1 January 2019, BASF will have six segments, each containing two operating divisions, with the exception of agricultural solutions which will continue to comprise one division: the chemicals segment will include petrochemicals and intermediates; materials will comprise performance materials and monomers; industrial solutions will include dispersions & pigments and performance chemicals; surface technologies will comprise catalysts and coatings; nutrition & care, care chemicals and nutrition & health; and agricultural solutions.

BASF says it aims to clearly position its businesses against their competitors to enable the company to be successful in an increasingly competitive market environment. BASF will focus primarily on organic growth through capital expenditures and innovation, but will make acquisitions where necessary. “Our main emphasis will be on designing processes to be efficient and reliable. Businesses where we cannot achieve such a position will eventually be exited,” Brudermüller said.

By Natasha Alperowicz

Source: Chemical Week

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