BASF’s new Asia Targets Reflect Slowdown

26.09.2016 -

With local markets not living up to previous expectations, BASF has corrected downward its earlier announced plans to achieve sales worth €25 billion in Asia-Pacific by 2020. Despite the recent slowdown, however, the German group said it still expects gross domestic product and chemical production in the region to continue to outpace other regions.

The target to produce around 75% of the products it sells in Asia-Pacific by 2020 “remains valid,” managing board member Sanjeev Gandhi said at a roundtable event in London for investors and analysts. Explaining the reasons for the revised plans, Gandhi said China did not grow as fast as assumed, while growth in mature Asian markets was slower than expected, and overcapacities in some product lines have “contributed to a changing business environment.” Nevertheless, he said, “We still see great potential for BASF, as the fundamentals have not changed.”

BASF now estimates the region’s compound annual growth rate (CAGR) for real chemical production through 2020 at around 5.6%, which Gandhi said is “still well above the world average of 3.7%.”

Although it participates in “innovative and growing markets,” including transportation, consumer products, electronics, construction, packaging and agriculture, BASF now acknowledges it will have to work harder to tap their full potential and may have to make adjustments to its business structure. Following “significant” capacity expansions between 2012, the world’s largest chemical producer now plans to build its network more selectively in the region in the coming years, concentrating on fields in which it has a competitive advantage or a technologically leading position.

With a capital spending budget of €3.5 billion from 2016 to 2020, the group will seek to strengthen its existing businesses while divesting activities that are not an ideal fit or face competition from local players, Gandhi said. BASF currently has 100 production sites with 17,562 employees in 16 Asia-Pacific countries, generating annual sales of €12.3 billion and EBITDA of €900 million before special items. The figures do not include the YPC joint venture in Korea with sales of €2.2 billion.

Following the recent expansion of its new innovation campus for Asia-Pacific in Shanghai, China, BASF is establishing a second campus in Mumbai, India. Scheduled to be in operation next year, the new facility will focus on crop protection and process engineering.