BASF announced new developments in the implementation of its corporate strategy and committed to Scope 3.1 carbon reduction targets

BASF is on the road to net-zero emissions and is committed to Scope 3.1 carbon reduction targets. At the investor and analyst conference in Ludwigshafen, Germany, Dr. Brudermüller, Chairman of the Executive Board of BASF AG. Martin Brudermüller) and Dr. Dirk Elvermann, Chief Financial Officer, report on the progress made since the launch of the corporate strategy in 2018. The duo outlined how to implement the corporate strategy to achieve cash priorities, and proposed to improve business profitability through differentiated management.

Implement cash use priorities

BASF's corporate strategy is based on organic growth. Between 2018 and 2022, about 60% of the company's expenditures were spent on capital expenditures and R&D.

Dr. Brudermüller noted that the BASF Group Executive Board attaches great importance to shareholder returns and attractive dividends. "BASF has increased its dividend in three of the past five years, and even in 2020 and 2022, when the external environment was unfavourable, the dividend remained at the same level as the previous year," he said. Since 2018, the company has paid a total of 15.8 billion euros in dividends, with an average annual dividend yield of 5.6 percent. Over the past decade, BASF's strong dividends have been built on the company's strong cash flow. Between 2013 and 2022, cash flow from operating activities averaged EUR 7.7 billion per year and free cash flow averaged EUR 3.4 billion per year.

BASF actively manages its business portfolio with a focus on innovative growth businesses, divesting €5 billion of businesses and acquiring €4 billion of sales over the past five years.

Differentiate your business and increase profitability

A key element of the corporate strategy, presented in 2018, is to transform BASF into a customer-centric organization by empowering its business units to better meet customer needs. Since then, BASF has taken various measures to improve the management capabilities of its business units.

"The company is taking a solid step forward in reorienting its management of its businesses to continue to increase BASF's competitiveness," said Dr. Elvermann. We will manage each business unit in a more differentiated way, combining the advantages of differentiated management, integrated business and an integrated organizational structure. ″

Through differentiated management, each business will further adapt its specific business model and processes, while adapting to the corresponding process structure, information technology system and management framework. For businesses that are less integrated with the integrated business, the company will provide them with more autonomy to better meet the needs of their customers' industries while maintaining their advantage as an integrated business. This approach will be applied to the company's Surface Technologies business area in the Battery Materials & Coatings business unit, as well as to Agricultural Solutions.

BASF will continue to create value by managing its integrated businesses in Chemicals, Materials, Industrial Solutions and Nutrition & Care in a value chain-driven manner to improve resource efficiency, integrate demand, and synchronize and deeply integrate production. Looking ahead, value chain management will become even more important, and companies will provide sustainable added value to their products such as product carbon footprint, biomass or recycled content.

From January 2024, BASF will guide the entire Group with new key performance indicators (KPIs). In the short to medium term, the company will place greater emphasis on EBITDA and cash flow before special items. At the same time, the company will continue to use return on capital employed (ROCE) as a medium-term management key performance indicator and continue to focus on asset profitability.

Under differentiated management, BASF will introduce different key performance indicators for its business operations. For businesses focused on a single industry, BASF will be guided more closely by industry-specific KPIs, and for businesses that are more integrated with the integrated business, they will be managed along the value chain.

BASF will also adjust its external reporting and forecasts in response to changes in its management approach. The BASF Group's 2023 earnings report is expected to be published on February 23, 2024. At the Group level, BASF will forecast EBITDA before special items and free cash flow, rather than sales, EBIT before special items and return on capital employed (ROCE). In addition, at the business area level, the company will forecast EBITDA and cash flows before special items.

Continue to move towards net-zero emissions

BASF also briefed investor representatives on its latest progress on the road to climate neutrality. In its 2018 corporate strategy, BASF set out for the first time the goal of growing its business while maintaining its CO2 emissions. In March 2021, BASF significantly increased this target, setting specific Scope 1 and Scope 2 emission reduction targets: 25% by 2030 compared to 2018 and net-zero emissions by 2050. To achieve this goal, BASF is focusing on renewable energy and carbon-reducing technologies.

BASF has made progress in obtaining reliable raw emissions data related to the raw materials it purchases. Based on this, BASF believes that there is a strong enough basis to set a Scope 3.1 emissions reduction target. BASF's latest target is to reduce carbon emissions from portfolio Scope 3.1 by 15 percent by 2030 compared to 2022, i.e. from 1.57 kg to 1.34 kg of CO2 per kilogram of purchased raw materials.

"Our focus is on improving the carbon footprint of the products we sell, so we have set this target and calculate the carbon footprint in terms of CO2 emissions per kilogram of BASF products," says Dr. Brudermüller. Our goals and directions for the short and long term are clear: BASF will work with customers and suppliers to find economical, environmentally friendly and practical solutions. Our long-term goal is also clear: we are committed to achieving Scope 3.1 net zero emissions by 2050. ″