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Last Update:
March 1, 2012
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Long-term opportunities and risks

Long-term development

  • Annual growth of 4% in global chemical production expected; growth risks if long-lasting stagnation results from national debt crises
  • BASF aims for above-average growth
  • Active portfolio management: taking advantage of opportunities with targeted investments in production capacity, R&D activities and acquisitions; minimizing risks with divestitures

Long-term demand development: In our “We create chemistry” strategy, we expect chemical production (excluding pharmaceuticals) to grow worldwide by 4.0% annually until 2020, faster than global gross domestic product and also more rapidly than in the previous 10 years. We want our sales to increase significantly faster, by an average of 6% annually. We plan to accomplish this with our market-oriented and innovative portfolio, which we will further strengthen in coming years through investments in new production capacity, R&D activities and acquisitions. Our ambitious goal for 2020 is thus to reach sales of €115 billion and we expect to increase income from operations before depreciation and amortization (EBITDA) to €23 billion.

If the current national debt crises result in a long-lasting stagnation in the markets of the West, these goals could prove to be too ambitious. As a result of our high degree of diversification across various customer industries and regions, we would still expect our growth to be above the market average, even under these conditions.

Development of the competitive and customer landscape: We expect competitors from emerging markets to become increasingly important in the coming years. Furthermore, we anticipate that many raw material suppliers will broaden their value-adding chains.

We are addressing this risk through active portfolio management. In order to remain competitive, we continuously improve our operational excellence. We exit markets where risks outweigh opportunities, and in which we do not see satisfactory opportunities to stand out from our competitors in the long term. Examples of divestitures and carve-outs in 2011 and 2012 include the styrenics business, which was transferred to a joint venture with INEOS, as well as our fertilizer business.

In order to achieve long-term profitable growth, our research and business focus is on highly innovative business areas, which we sometimes enter into through strategic cooperative partnerships.

Investments

  • Investment decisions on the basis of assumptions regarding development of markets, margins and costs, as well as raw material availability and country, currency and technology risks
  • Opportunities and risks from deviations from expectations
  • Risks minimized in project implementation by making use of experience in project management and controlling

Portfolio development through investments: We expect the increase in chemical production in emerging markets in the coming years to be significantly above the global average. This will create opportunities that we want to exploit by expanding our presence in these economies; therefore, at least one-third of our investment volume between 2012 and 2020 will be spent in emerging markets.

Our decisions on the type, size and locations of our investment projects are based on assumptions related to the long-term development of markets, margins and costs, as well as raw material availability and country, currency and technology risks. Opportunities and risks arise when real developments deviate from our assumptions.

In the implementation phase, we make use of our experience in project management and controlling, in order to minimize the risk of cost overruns or missed deadlines.

Innovation

  • Major component of our growth strategy
  • Reduction of risks through Know-How Verbund as well as continuous review of the efficiency, chances of success and operating environment of research projects
  • Ongoing dialog with partners and customers to improve chances of success

Innovation: We are observing a trend toward more sustainability in our customer industries. We want to take advantage of the resulting opportunities with innovations – particularly in the growth fields we have identified. These include battery materials for electric mobility, Functional Crop Care to improve agricultural efficiency, solutions for water treatment and technologies for the use of renewable energy (wind, solar thermal and photovoltaic power).

New products launched on the market during 2011 or later should contribute €30 billion to sales in 2020. To achieve this goal, we continue to invest around 3% of our sales in research and development. We also address the risk of the technical or economic failure of research and development projects by maintaining a balanced and diversified project portfolio.

We optimize the effectiveness and efficiency of our research activities through our global Know-How Verbund as well as through collaboration with partners and customers. Furthermore, in a program and project management process, we continuously review the chances of success and the underlying assumptions of research projects; this review includes all phases from idea generation to product launch. The trust of customers and consumers is essential for the successful introduction of new technologies. That is why we enter into dialog with stakeholders at an early stage of development.

Acquisitions: In the future, we will continue to refine our portfolio through acquisitions that promise above-average profitable growth, are innovation-driven and offer added value for our customers while reducing the cyclicality of our earnings.

The evaluation of opportunities and risks already plays a significant role during the assessment of potential acquisition targets. A detailed analysis and quantification are conducted as part of due diligence. Examples of risks include increased staff turnover, delayed realization of synergies, and the assumption of obligations that were not precisely quantifiable in advance. If our expectations in this regard are not fulfilled, risks could arise, such as the need to impair intangible assets; yet there could also be opportunities, for example, from additional synergies.

Personnel

  • Intensified global competition for highly-qualified specialists and managers
  • Danger of loss of expertise from numerous retirements
  • More effective personnel recruitment and retention with the help of various measures

Recruitment and long-term retention of qualified employees: The continued improvement in the economic environment in the past two years has also led to an increase in global competition for highly-qualified specialists and managers. This will likely be intensified in the medium to long term due to demographic developments. As a result, there is an increased risk that job vacancies cannot be filled with suitable applicants, or only after a delay.

Business could be negatively affected in the medium and long term by the loss of expertise in North America and Europe due to disproportionately high retirement numbers, as well as by the challenge arising from additional recruitment demand in Asia as a result of our targeted growth.

We address these risks by making BASF an attractive employer and retaining our employees in the long term through our global programs Generations@Work and Diversity + Inclusion, the Employee Development BASF Group project, employer branding and a greater emphasis on human capital development as well as additional regional initiatives. Information relevant to the principles of the Global Compact

Sustainability: BASF is committed to integrating environmental protection and socially responsible conduct into its business activities. Infringements of our voluntary commitments and legal violations represent a reputational risk and could lead to operational or strategic risks. We use the results of our global issue management for sustainability to initiate change processes in the company in order to be prepared for any potential risks and to exploit opportunities. We have established global monitoring systems which also include our supply chain – these enable us to ensure adherence to laws and our voluntary commitments in the areas of environment, safety, security and health as well as to labor and social standards. In order to assure society’s acceptance of our business activities, we engage in ongoing dialog with relevant stakeholders. Before acquiring a company, we take into account its focus on sustainability and we consider this in the acquisition process. Information relevant to the principles of the Global Compact