With the “We create chemistry” strategy, BASF has set itself ambitious goals. We want to contribute to a sustainable future and have embedded this into our corporate purpose: “We create chemistry for a sustainable future.”
Chemistry is an enabler for solutions to the current and future needs of our society. While the world’s population and its demands will keep growing, the planet’s resources are finite. In order to protect our planet and to cope with the resources it provides us, the way people live has to become more sustainable. Chemistry will provide the products and technologies that will enable us to consume less input materials, be more efficient and produce better products for everyone.
We assume that global chemical production (excluding pharmaceuticals) will grow slightly faster than global gross domestic product over the next five years and be slightly below the previous five-year average. Through our market-oriented and broad portfolio, which we will continue to strengthen through investments in new production capacities, research and development activities and acquisitions, we aim to grow sales slightly faster than global chemical production. Should global economic growth unexpectedly decelerate, we would still expect our growth to be above the market average as a result of our high degree of diversification.
Innovations in chemistry are indispensable to meeting the needs of the growing world population on a long-term basis. The development of innovative products and solutions is, therefore, of vital significance for BASF. In the long term, we aim to continue to significantly increase sales and earnings with new and improved products. Effective and efficient research lays the foundation for this. We believe that the digitalization in research offers great potential and are driving this forward around the world.
We are engaged in intensive research and development activities in our established business areas. One focus of our research is on the enhancement and innovative application of specific key technologies. They pool the diverse competencies of our international Research and Development Verbund to strengthen our competitive ability in the long term. In addition, we are addressing clearly defined topics to drive forward innovation in new business fields and with new technologies above and beyond the current focus areas of our divisions. We are also working on overarching projects with high technological, social or regulatory relevance. With our research, we aim to make a decisive contribution to innovative solutions for global challenges and contribute to sustainable development.
Our three global technology platforms are based in our key regions – Europe, Asia Pacific and North America. We want to continue expanding our research and development activities on a global level. Our stronger research and development presence in key markets opens up new opportunities to find appropriate solutions for regional markets, actively participate in worldwide innovation processes and gain access to talent.
We continue to develop our portfolio through acquisitions and have defined a set of strategic criteria. We want to acquire businesses which generate profitable growth above the industry average. They should be innovation-driven, offer a special value proposition to customers and reduce earnings cyclicality for the BASF Group. Acquisitions also have to fulfill our strict financial criteria. They should be EPS accretive by year three at the latest and should provide a return on investment above the WACC. The minimum hurdle rate increases if the acquisition is made in countries which belong to a higher risk category.
By investing in our production plants, we create the conditions for our desired growth while constantly improving the efficiency of our processes. In the years 2011 to 2015, we increased our capital expenditures while at the same time reducing our spending on acquisitions. In 2015, capital expenditures peaked at over €5 billion. With several large projects in place, we are now ramping down capital expenditures to levels slightly above depreciation. In 2017, we invested €4.0 billion in property, plant and equipment. For the period from 2018 to 2022, we have planned investments in property, plant and equipment1 totaling €19.0 billion. In the differentiated commodity businesses, we will invest in new assets where we benefit either from proprietary technologies or Verbund advantages. In the specialties and solutions businesses, we will build plants to accompany the growth of innovative products. Furthermore, we will continue to broaden our regional base.
1 Excluding additions to property, plant and equipment resulting from acquisitions, capitalized exploration, restoration obligations and IT investments
In recent years, we have further improved our operational excellence. Our current program, called DrivE, will enhance efficiency. It runs from 2016 to 2018 and aims to achieve a yearly earnings contribution of €1 billion from the end of 2018 onward (baseline 2015). DrivE includes efficiency measures in production, engineering, maintenance, logistics, procurement and administration. With around €850 million in earnings contributions at the end of 2017 (run rate), DrivE is well on track. By the end of 2018, we are confident of achieving the targeted run rate of €1.0 billion.
In 2018, the global economy is expected to grow by 3.0%, about as fast as in 2017 (+3.1%). We expect economic momentum in the European Union to ease slightly. The United States will presumably grow at a slightly stronger rate. We anticipate a weakening of the high growth in China. This will probably negatively impact the Japanese economy as well. We forecast a continuation of the recovery already underway in Brazil and Russia. Global chemical production is forecast to grow by 3.4% in 2018, roughly at the same rate as in 2017 (+3.5%). For 2018, we predict an average price of $65 per barrel for Brent crude oil and an exchange rate of $1.20 per euro.