Operational Opportunities and Risks

Market growth

Opportunities and risks arise from the development of our sales markets. For more details on our assumptions regarding short-term growth rates for the global economy, regions and key customer industries, such as the chemicals, automotive and construction sectors, see Economic Environment in 2025.

We also consider opportunities and risks caused by deviations in assumptions. Macroeconomic opportunities arise from an easing of geopolitical conflicts and the resulting increase in the supply of energy, industrial raw materials and other intermediate goods.

Increases in energy prices caused, for example, by the wars in Ukraine and the Middle East, and the higher inflation rates resulting from this for manufacturer and consumer prices pose a risk to the economy. Additional macroeconomic risks result from the escalation of geopolitical conflicts and a further intensification of global trade conflicts, especially between the United States and its trading partners. We constantly monitor these risks and mitigate them as far as possible through our diversified customer and product portfolio.

Weather-related influences can result in positive or negative effects on our business, particularly in the Agricultural Solutions segment.

Compared with the previous year, we see lower market growth opportunities.

Margins

The greatest opportunities and risks for the BASF Group primarily result from higher or lower margins in all segments, particularly the Chemicals and Agricultural Solutions segments. Further declining margins for a number of products and value chains could increase pressure on margins. Additional shortages of raw materials could have both a negative and positive impact on margins. This would have a corresponding effect on our EBITDA. We counter margin risks with ongoing cost and price management as well as process optimization.

The year’s average oil price for Brent crude was $81 per barrel in 2024, compared with $82 per barrel in the previous year. For 2025, we anticipate an average oil price of $75 per barrel.

Compared with the previous year, we see higher margin opportunities.

Competition

We continuously enhance our products and solutions in order to remain competitive. The market entry of new competitors and increased price pressure may lead to lower margins and volumes, particularly in the Agricultural Solutions and Industrial Solutions segments. We counter these risks through our margin management and other measures, such as the targeted promotion of innovations, for example in the area of sustainability.

Compared with the previous year, we see lower competitive risks.

Regulation/policy

Risks for us can arise from intensified geopolitical tensions, new trade sanctions, a lack of global coordination for stricter emission limits for production plants and stricter energy and chemicals legislation as well as a lack of acceptance of new technologies in the EU. Furthermore, risks can also arise from regulatory delays in the expansion of capacities and infrastructure for electricity from renewable sources, the necessary CO₂ infrastructure and delayed product approvals.

However, political measures could also give rise to opportunities. For example, we view opportunities around the world to increase energy efficiency and reduce greenhouse gas emissions as a strategic opportunity for increased demand for products such as our insulation foams for buildings, catalysts, battery materials for electromobility, or our solutions for wind turbines. For more information on these measures, such as meetings with political decision-makers and social stakeholders, see General Disclosures.

Procurement and supply chain

Operational risks in procurement are a key topic for BASF, as they can impact the company’s supply capability and therefore its competitiveness. Operational risks in procurement include disruptions and delays in the delivery of raw materials due to supplier insolvencies, quality concerns, extreme weather or geopolitical events, for example. To counter these risks, BASF relies on comprehensive risk assessment and control along the entire supply chain, global diversification and close cooperation with suppliers (for more information, see S2 Workers in the Value Chain).

Investments/production

We try to prevent unscheduled plant shutdowns by adhering to high technical standards and by continuously improving our plants. We reduce the effects of an unscheduled shutdown on the supply of intermediate and end products through diversification within our global Production Verbund.

In the event of a production outage – caused by an accident, for example – our global, regional or local emergency response plans and crisis management structures are engaged, depending on the scope of impact. Crisis management teams at country level not only coordinate the necessary emergency response measures, they also initiate immediate measures for damage control and resumption of normal operations as quickly as possible.

Crisis management also includes dealing with extreme weather conditions such as hurricanes (for example, at the sites in Freeport, Texas, and Geismar, Louisiana) or significantly elevated water temperatures in rivers due to extended heat waves, which limit the available cooling capacity. Appropriate precautions are taken at the sites in the case of a change in risk associated with climate change. For example, due to an increase in heat waves, we have implemented several measures at the Verbund sites in Ludwigshafen, Germany, and Geismar in recent years to increase cooling capacity, such as expanding and optimizing the central recooling plants and optimizing cooling water flows. These optimization measures are designed to prevent production outages due to extreme heat waves.

Short-term risks from investments can result from, for example, technical malfunctions or schedule and budget overruns. We counter these risks with stringent project management and controlling.

Personnel

Due to BASF’s worldwide compensation principles, the development of personnel expenses is partly dependent on the amount of variable compensation, which is linked to the company’s success, among other factors. The correlation between variable compensation and the success of the company has the effect of minimizing risk. Another factor is the development of interest rates for discounting pension obligations. Furthermore, changes to the legal environment of a particular country can have an impact on the development of personnel expenses for the BASF Group. For countries in which BASF is active, we therefore constantly monitor the relevant developments in order to identify potential risks at an early stage and enable suitable measures to be taken (for more information, see Operational opportunities and risks and S1 Own Workforce).

Information technology

BASF employs a large number of IT systems. We use technologies such as artificial intelligence, big data and the Internet of Things to develop new business models, corporate concepts and strategies and to respond appropriately to changing customer behavior. The global cybersecurity team is tasked with protecting these IT systems and the data and business processes they handle. In a connected, ever-evolving world, the challenge of protecting BASF against attackers is becoming increasingly difficult.

The threat environment has changed in recent years, as attackers have become better organized, use more sophisticated technology and have far more resources available. This development reflects the fact that a variety of vulnerabilities in software and hardware products constantly provide new incentives to develop malware, and anonymization technologies make it almost impossible to trace and punish attacks.

A successful attack can, for example, negatively affect asset reliability, delivery quality or the accuracy of our financial reporting. Unauthorized access to sensitive data, such as personnel records or customer data, competition-related information or research results, can result in consequences under liability law or jeopardize our competitive position. This could also cause monetary losses, a potential loss of reputation or even a loss of customers’ and partners’ confidence in the security of our products and services.

To minimize such risks, BASF uses globally uniform processes and systems to ensure IT availability and IT security, which are based on the recognized ISO 27001 standard. These include stable and redundantly designed IT systems, backup processes, virus and access protection, encryption systems, and integrated and standardized IT infrastructure, applications and processes. The systems used for information security are constantly tested, continuously updated, and expanded if necessary. In addition, our employees receive regular training on information and data protection. Cybersecurity-related risk management is conducted using Group-wide regulations for organization and application, as well as an internal control system based on these regulations.

Our modern protection concepts range from efficient detection and professional response to defense against attacks and minimizing their potential impact. Strong cybersecurity alliances are also crucial here. BASF works closely with security authorities and associations, for example as a founding member of the German Cyber Security Organization (DCSO) and the Cyber Security Sharing and Analytics (CSSA) platform in Berlin, Germany. BASF has also established an information security management system and is internationally certified according to DIN EN ISO/IEC 27001:2017.

With respect to the outlook for the 2025 business year, short-term opportunities or risks have been identified but possible impacts on EBITDA have not been quantified.

Compliance/legal

We constantly monitor current and potential legal disputes and proceedings, and regularly report on these to the Board of Executive Directors and the Supervisory Board. In order to assess the risks from current legal disputes and proceedings and any potential need to recognize provisions, we prepare our own analyses and assessments of the circumstances and claims considered. In addition, in individual cases, we consider the results of comparable proceedings and, if needed, independent legal opinions. Risk assessment is particularly based on estimates as to the probability of occurrence and the range of possible claims. These estimates are the result of close cooperation between the relevant operating and service units together with Corporate Legal and Corporate Finance. If sufficient probability of occurrence is identified, we recognize a provision for the proceeding concerned. Should a provision be unnecessary, we continue to assess whether these litigations nevertheless represent a risk for the BASF Group’s EBITDA as part of general risk management (for more information, see Risks from litigation).

We use our internal control system to limit risks from potential infringements of rights or laws. For example, we try to avoid patent and licensing disputes whenever possible through extensive clearance research. As part of our Group-wide Compliance Program, our employees receive regular training.

Tax

The recognized tax-related opportunities and risks only concern taxes that impact the BASF Group’s EBITDA in the short term. These arise when BASF has taken a position that differs from the opinion of a competent administrative authority. If a tax payment has already been made and could be reclaimed, we present this as an opportunity. Conversely, if a potential payment is outstanding in accordance with the administrative opinion, this is a risk. We primarily evaluate opportunities and risks with regard to their probability of occurrence and, if necessary, set up a provision for the relevant risk. If a provision is not necessary, we take this into account in determining EBITDA-relevant risks for the BASF Group.

Exchange rate volatility

Our competitiveness on global markets is influenced by fluctuations in exchange rates. For BASF’s sales, opportunities and risks arise in particular when the U.S. dollar exchange rate fluctuates. On the production side, we counter exchange rate risks by producing in the respective currency zones.

Financial currency risks result from the translation of receivables, liabilities and other monetary items in accordance with IAS 21 at the closing rate into the functional currency of the respective Group company. If necessary, we hedge these risks using derivative instruments.

Based on market expectations, we see greater currency risks due to greater volatility in the U.S. dollar exchange rate compared with the previous year.

Other financial opportunities and risks

Financial risks arise from unplanned cost increases, for example due to higher inflation than assumed. In connection with the war in Ukraine, further financial risks arise from potential asset losses.