Opportunities and risks report

audited

The goal of BASF’s risk management is to identify and evaluate opportunities and risks as early as possible and to take appropriate measures in order to seize opportunities and limit business losses. The aim is to avoid risks that pose a threat to BASF’s continued existence and to make improved managerial decisions to create value. We understand risk to be any event that can negatively impact the achievement of our short-term operational or long-term strategic goals. We define opportunities as potential successes that exceed our defined goals.

Opportunities

Potential successes that exceed our defined goals

Risks

Events that can negatively impact the achievement of our goals

Risk management

Identifying opportunities and risks as early as possible and planning effective courses of action

In order to effectively measure and manage identified opportunities and risks, we quantify these in terms of probability and economic impact in the event they occur. We use statistical methods to aggregate opportunities and risks into risk factors. This way, we achieve an overall view of opportunities and risks at a portfolio level, allowing us to take effective measures for risk management.

Overall assessment

  • Significant risks and opportunities arise from overall economic developments and volatility in exchange rates and margins

For 2017, we expect the global economy to continue to grow at around the same pace as the previous year. Important opportunities and risks for our earnings are associated with uncertainty regarding market growth, the development of key customer industries, and volatility in foreign currency exchange rates and margins. A considerable slowdown of the Chinese economy continues to pose significant risks. Such a development would negatively impact demand for intermediate and investment goods. This would impact the emerging markets that export raw materials as well as the advanced economies. This is especially true for Europe. Further risks to the global economy arise from an escalation of geopolitical conflicts and an increased tendency toward protectionism.

Potential short-term effects on EBIT of key opportunity and risk factors subsequent to measures taken1

Possible variations related to:

 

Outlook
−   2017   +

< €100 million

≥ €100 million < €500 million

≥ €500 million < €1,000 million

≥ €1,000 million < €1,500 million

1

Using a 95% confidence interval per risk factor based on planned values; summation is not permissible.

 

 

 

 

Business environment and sector

 

 

 

Market growth

 

Margins

 

Competition

 

Regulation/policy

 

 

 

 

 

Company-specific opportunities and risks

 

 

 

Purchasing/supply chain

 

Investments/production

 

Personnel

 

Acquisitions/divestitures/cooperations

 

Information technology

 

Law

 

 

 

 

 

Finance

 

 

 

Exchange rate volatility

 

Other financial opportunities and risks

 

According to our assessment, there continue to be no significant individual risks that pose a threat to the continued existence of the BASF Group. The same applies to the sum of individual risks, even in the case of another global economic crisis.

Ultimately, however, residual risks remain in all entrepreneurial activities which even comprehensive risk management cannot exclude.