Chemicals company BASF says that it expects its ‘We create chemistry’ strategy to grow and make the company more profitable, despite a challenging environment, according to its chairman of the Board of Executive Directors.
Dr Kurt Bock made the statement at the BASF Investor Day 2015 in Ludwigshafen, saying that the Germany-headquartered firm expects chemical production to continue to grow well above global GDP until 2020.
However, BASF does note that the business environment has changed since the company introduced its ‘We create chemistry’ strategy in 2011, and that many challenges lie ahead.
« Major markets did not grow as fast as anticipated [since 2011]. The oil price has been unpredictable and has decreased substantially. Geopolitics have contributed to higher volatility, » says Bock.
As a result, BASF has slightly adjusted its expectations for the global economic environment from 2015 to 2020 (compound annual growth rates; assumptions from 2011 in parentheses):
• Growth of gross domestic product: 3.0% (3.2%)
• Growth in industrial production: 3.5% (3.7%)
• Growth in chemical production: 3.9% (4.0%)
What this means for the company is that the emerging markets will remain the global growth drivers, with Western Europe expected to get back on the growth path, but on a low level.
In the next years, the company says it aims to grow sales slightly faster than global chemical production; and wants to grow EBITDA well above global chemical production.
« We will continue to add value as one company. Our Verbund approach was the reason for our success over the past 150 years and it will serve us very well also in the future, » says Bock.
« We remain committed to deliver attractive returns. Our goal is to earn a significant premium on our cost of capital. We will continue our progressive dividend policy, » adds Dr Hans-Ulrich Engel, Chief Financial Officer of BASF.
As such, in order to achieve its goals, BASF has set the following priorities for its business:
Innovations: aims to achieve its target of generating €10 billion of sales with products and solutions that have been on the market since 2010, and maintain its R&D spending at around 3% of sales excluding Oil & Gas.
Investments: aims to bring down capital expenditures to levels slightly above depreciation in the coming years.
Continuous portfolio management: add new specialty and solutions businesses through its innovation pipeline as well as acquisitions.
Sustainability: aims to further increase the proportion of products and solutions, which make a substantial sustainability contribution in the value chain.
Operational excellence: BASF has announced a further operational excellence program called DrivE – Drive Efficiency. It will run from 2016 to 2018 and targets an annual earnings contribution of €1 billion by the end of 2018.”
Article by Andrew Mc Dougall
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