BASF SE (PNK:BASFY) Q1 2023 Earnings Call Transcript

BASF SE (PNK:BASFY) Q1 2023 Earnings Call Transcript April 27, 2023

Stefanie Wettberg: Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our conference call on the first quarter 2023 results. . This presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of facts. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in opportunities and risks of the BASF report 2022. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements.

With me on the call today are Martin Brudermüller, Chairman of the Board of Executive Directors; and Hans Engel, Chief Financial Officer. Please be aware that we have already posted the speech on our website at basf.com/Q12023. Now I would like to hand over to Martin.

Martin Brudermuller: Good morning, ladies and gentlemen. Hans Engel and I would like to welcome you to our analyst conference call on the first quarter 2023. 2 weeks ago, BASF released preliminary figures as we had a quite better start to the year than expected on average by analysts. Today, we will provide you with further details regarding our business development in the first 3 months of the year. Let’s start with the development of global chemical production. Based on currently available data, global chemical production stagnated in Q1 2023 compared with the prior year quarter. Compared with Q4 2022, chemical production recovered by around 2% globally, excluding seasonal effects. From a regional perspective, chemical production grew only in China at almost 8%.

However, this was due to a low baseline in Q1 2022. Chemical production declined in all other regions. The decline compared with Q1 2022 was most pronounced in Europe, followed by Asia, excluding China and North America. From the second quarter of 2022 onwards, high inflation and regulatory price levels reduced consumer demand, particularly in Europe. Globally, demand from BASF’s key customer industry in the first quarter of 2023 was rather disappointing with 2 exemptions. Global light vehicle production grew by an expected 5.7% compared with Q1 2022. Global agriculture production also continued to grow moderately in the first quarter of 2023. Moving on to BASF’s sales development. Sales decreased by 13.4% in Q1 2023 to around EUR 20 billion, mainly due to a decline in volume by 12.8%.

All segments recorded lower volumes except for Agricultural Solutions where volumes will remain stable. Sales prices decreased by 0.7% overall. While prices in the Chemicals, Surface Technologies and Materials segments declined, we increased prices, especially in the Agricultural Solutions segment but also in the Nutrition & Care and Industrial Solutions segment. Portfolio effects had a slightly negative impact on sales and were mainly due to the sales of the kaolin minerals business. Until the end of September 2022, this business had been part of the Performance Chemicals division. Currency effects were slightly positive and mainly related to the U.S. dollar. Let’s move on to our earnings development by segment. The decline in BASF Group EBIT before special items largely resulted from considerably lower contribution from the Chemicals and Materials segment.

In Q1 2023, these 2 segments contributed EUR 484 million to BASF Group EBIT before special items compared with EUR 1.6 billion in the prior year quarter. This decline was mainly due to considerably lower volumes and margins on the back of significantly lower demand overall. In Nutrition & Care, Industrial Solutions, earnings also decreased considerably. In both segments, EBIT before special items declined mainly due to lower volumes resulting from lower demand. The Surface Technologies segment recorded EBIT before special items almost at the level of the prior year quarter. The Agricultural Solutions segment achieved considerably higher earnings, reaching around EUR 1.3 billion in the first quarter, an increase of almost EUR 400 million. Let me provide you with further details regarding the very strong performance of our Agriculture Solutions segment.

We had a good start to the season in the Northern Hemisphere and showed a strong presence in South America. In the first quarter of 2023, sales increased by 14.5% to EUR 3.9 billion. We increased prices across the portfolio, particularly for fungicides and herbicides. All regions contributed to the positive sales development, especially North America and Europe. Overall, volumes remained stable compared with Q1 2022. This was due total volumes in Europe compared with the strong prior year quarter volume growth in this region. We raised volumes in all other regions. As already mentioned, EBIT before special items increased needed to almost EUR 1.3 billion. The sales growth more than compensated for high raw material and energy prices. Crop commodity prices are trending lower in 2022 but remain higher than the average of the last 5 years.

The automotive-related business of BASF also developed well. As mentioned earlier, close light vehicle production increased by 5.7% in Q1 2023 according to IHS Markit. Volume growth was most pronounced in Europe and North America with 17% and 10%, respectively, while market in China declined by 8% due to weak demand. In the first quarter of 2023, BASF’s sales in the automotive industry, excluding sales in precious metal trading and precious metal sales, in the mobile emissions catalyst business amounted to EUR 1.9 billion, again, an increase of 5.7%. Excluding precious metal trading activities, EBIT before special items in the Service Technologies segment increased considerably. This was driven significantly higher earnings contributions from the automotive catalyst business and the strong EBITDA increase in EBIT before special items in the Coatings division.

In Coatings, this was mainly due to price driven higher margins. The 2023 outlook for the automotive industry remains favorable. For the full year, global light vehicle production is expected to grow by 3.8% according to IHS Markit. And now I hand over to Hans for further details on our financial performance.

Hans Engel: Thank you, Martin, and good morning, ladies and gentlemen, also from my side. In the following, I will provide with further details of BASF Group’s financial figures in the first quarter of 2023 compared to a strong prior year quarter. I will start with EBITDA before special items, which decreased by 23.5% and amounted to EUR 2.9 billion. EBITDA amounted to around EUR 2.8 billion, a decrease of almost EUR 900 million. At EUR 1.9 billion, EBIT before special items declined by 31.5%. Special items in EBIT amounted to minus EUR 65 million compared with minus EUR 34 million in the first quarter of 2022. Special items were mainly related to the carve-out of the recently established BASF Environmental Catalyst & Metal Solutions unit and BASF Group’s cost savings program with focus on Europe, decreased by 33% to EUR 1.9 billion in Q1 2023.

Net income from shareholdings increased from minus EUR 797 million to EUR 183 million in Q1 2023. In the prior year quarter, net income from shareholdings was negatively impacted by noncash effective impairments, resulting from the Russia-related business of Wintershall Dea. Net income rose by 27.9% to EUR 1.6 billion in the first quarter of 2023. Let’s turn to the development of energy prices and the financial impact on BASF. Compared with Q1 2022, energy costs came down from very high levels, but nevertheless remained considerably above the level of the first quarter of 2021. In the first quarter of 2023, BASF’s global energy costs were around EUR 700 million lower than in the prior year quarter. Of this amount, EUR 600 million were related to lower natural gas costs.

Most of the reduction in natural gas costs was achieved in Europe due to lower natural gas prices and lower production volumes compared with Q1 2022? Let me add that in Q1 2023, European natural gas prices. was still trading at EUR 53 per megawatt hours, more than 3x higher than the 2015 to 2020 average of EUR 16 per megawatt hours. To mitigate these higher costs, we have implemented and will continue to implement measures to reduce our natural gas consumption. We already presented several such measures as part of our full year 2022 reporting in February. Let’s now look at the details of our cash flow development in Q1 2023. Cash flows from operating activities amounted to minus EUR 1 billion, a decrease of EUR 725 million compared with the prior year quarter.

Net income improved by EUR 340 million compared with Q1 2022, which had included noncash effective impairments of EUR 1.1 billion on the equity holding in Wintershall Dea. Excluding the equity results, which are connected via miscellaneous items, net income declined by EUR 579 million year-over-year. This was the main driver for the decline in cash flows from operating activities. Cash flows from investing activities amounted to minus EUR 73 million in the first quarter of 2023 after minus EUR 579 million in the prior year quarter. Payments for property, plant and equipment and intangible assets rose by 44% to EUR 867 million in Q1 2023. Cash flows from financing activities amounted to plus EUR 1.8 billion, a decrease of EUR 877 million compared with Q1 2022, mainly caused by lower net additions to financial and similar liabilities.

Free cash flow declined by almost EUR 1 billion to minus EUR 1.9 billion in Q1 2023. The equity ratio remained strong and increased to 48.8% compared with 45.3% at the end of the prior year quarter. And with that, back to you, Martin.

Martin Brudermuller: Thank you, Han. BASF Group outlook for the full year 2023 published on February 24 remains unchanged. We anticipate only moderate growth in the majority of our customer industries in 2023. We forecast BASF Group to generate sales of between EUR 84 billion and EUR 87 billion in 2023. EBIT before special items is expected to decline to between EUR 0.8 billion and EUR 5.4 billion. We continue to expect a weak first half of 2023 followed by an improved earnings environment in the second half of the year due to recovery in the global economy, driven especially by more dynamic demand development in China. Based on the weaker earnings and a slightly higher cost of capital basis, forecast for BASF Group in 2023 compared with 2022, we anticipate a raise of between 7.2% and 8.0%.

We expect CO2 emissions of between 18.1 million and 19.1 million metric tons as a result of moderate growth in production and slightly higher capacity utilization and emission-intensive plans. I would like to provide you with one additional piece of information. We further trended our capital expenditures for this year compared with the figures we announced at the end of February. Instead of this EUR 0.3 billion, we now expect CapEx of around EUR 6.0 billion for the BASF Group in 2023. Let me conclude by reiterating the measures we are currently implementing to not only safeguard, but also improve our global competitiveness. We’ve launched a cost savings program with focus on Europe and are smartly adapting our Verbund structures in Ludwigshafen.

Together with these initiatives already underway in our global service unit, we will reduce our fixed costs by around EUR 1 billion by the end of 2026. These measures are part of the continuous improvement BASF is driving. We are convinced that this will position BASF as well for future profitable growth. Thank you. And now Hans and I are ready to take your questions.

Christian Faitz: Two quick questions, please. First of all, what caused you to cut your CapEx spend by around EUR 300 million versus your review? And then thanks for providing your energy price question on that. It looks like your energy supply mix has not really changed year-on-year as gas costs were down almost to the same amount as your overall costs. Is that a correct assumption? And what measures are you taking particularly short term to become less gas dependent. I mean obviously, we are of your cracker electrification projects and the gas-intensive plant shutdowns. Thanks for that. And before I forget it, it’s all the best for your post-BASF time. And thanks for the good discussions we had overall these years.

Q&A Session

Martin Brudermuller: So maybe I’ll take the first question about the CapEx, Christian, if I understand you, you wanted to get some background for the EUR 300 million.

Christian Faitz: Yes.

Martin Brudermuller: So it is a mixture. It is on one hand, that the orders that coming in and the offers that coming in for the China projects are lower than we expected. So I think this is a very positive message. We have also the 1 or the other project time scale delayed over the quarter back and forth, also in battery materials. And this, I would say, are the major 2 components. But as we can imagine, I think this is the signal we want to send this we always that we look into our CapEx expenditure and in the optimal, let’s say, rundown of our projects all the time. So this is — this year a little bit bigger contribution in this difficult environment, which comes from the 2 big investment areas, battery materials and China.

Christian Faitz: Thank you, Christian, first of all, for your kind words. And I think there’s some reciprocity. So I always enjoy the conversations with you. On your question with respect to energy prices and natural gas prices. In fact, EUR 70 million less than the last year quarter. Out of that, roughly EUR 600 million coming from natural gas. And there again, predominantly from our European activities. If I look at the split between impact from volume and impact from prices, considering the significant price decreases, there’s a bit more coming from price than from volume overall. Gas consumption reduced to the prior year quarter. Order of magnitude roughly by 20%. And that gives you, hopefully, the answer to the questions that you have.

Stefanie Wettberg: So we move on to Matthew Yates, Bank of America.

Matthew Yates: Just one question. Perhaps it will be a topic of conversation at the AGM later today, but I’d like to ask you about the restructuring that was announced with the full year results and the plan to reduce headcount by 2,600 jobs. I think that equates to just over 2% of your workforce. This week, I actually saw Dow announced a 2,000 headcount reduction, which is more like 5% of their workforce. So in the context of the challenges European Chemicals face to be competitive, does the Dow announcements suggest that BASF actually isn’t being radical enough in its restructuring? Your EUR 1 billion fixed cost target is not really so different to the EUR 1 billion target, and they’re obviously a much smaller company than you? So I’d appreciate any further thoughts on that.

Hans Engel: Thanks. Matthew. I think we explained our plans with respect to the restructuring that we intend to do. The EUR 1 billion is a figure that’s related to the program in itself. As always, ongoing cost reduction is part of land tackling. That’s something that you do on an ongoing basis. What we provided you with is really this restructuring package and related cost reductions that we’re expecting and the related headcount reductions. So from my perspective, I think, as mentioned, this is a program, but it is supported by a number of additional initiatives that you keep doing on an ongoing basis as an enterprise.

Stefanie Wettberg: So now it’s Mubasher Chaudhry from Citi. We will then have Chetan Udeshi and then Markus Mayer. But now Mubasher Chaudhry, Citi.

Mubasher Chaudhry: Just a couple. I assume that the gas price assumption for the year was a little bit higher at the start when you provided the guidance of EUR 4.8 billion to EUR 5.4 billion I just wanted to get a feel for how the gas price assumption is moving for FY ’23? And how we should be thinking about that for the full year positive impact if it is lower year-on-year, which I expect — I assume it is? And then the second is around the price increases impact. How much of those price increases should we expect to stick in the coming years? Is that — or is that mainly driven by tightness in the market, and therefore, we should expect an unwind should the coal prices come down?

Martin Brudermuller: Hans, gas price.

Hans Engel: On your — as far as you know, we don’t guide on the gas price. In fact, gas price in Q1 is lower than what we had expected going into the first quarter Does that have considering all the uncertainty that we have currently? Does not have an impact on our guidance at this point in time? No, it will not. You saw that we left the guidance unchanged. And I think that’s a reasonable move considering, as I said, the overall uncertainty.

Martin Brudermuller: Russia pricing power in the group, I mean, minus 0.7% now in Q1, but you see that also that this is fairly unequal distributed also between the segments. I mean the major price decreases came from the upstream part, which is very much demand related. I mean, you know how the game is over there.

Mubasher Chaudhry: As particularly on petchem.

Martin Brudermuller: Okay. Sorry. Okay. in. Well, I think in ECM, I think we have a good environment from the market perspective, I think it will be a solid year. If you take out surprises that could come from weather. I think from the price side, this is a little bit down from the high, but above average. That means farmers have a good income. So for that reason, I think that the price increases they have brought through without pushing volume too much because volume is basically flat, I think we have a good chance that this is actually the price increases are sticking for the rest of the year.

Stefanie Wettberg: Okay. So now Chetan Udeshi, JPMorgan.

Chetan Udeshi: I will ask three quick questions on First one is just looking at Q2. Can you maybe help us get some flavor of what you see in Q2 as regards to versus the low base of demand in Q1? I think the question is, we all know that there is a seasonality in the ag business where Q2 typically is lower than Q1, but ex that seasonality, would you expect the BASF earnings in Q2 to be better than Q1 or — any sort of color on Q2 versus Q1 would be useful in terms of trajectory. The second question, just going back to Mubasher’s point, but my math, it seems on a BASF Group level, the net pricing, when I mean — what I mean my net pressing is just the selling price minus raw material cost seems to have been rather flattish. And in general, BASF is seen to be one of those chemical companies, whether it’s very limited pricing power.

I’m just curious, is there a difference in how you manage or are you managing the business in the current environment maybe to demonstrate better pricing as a group than in the past? Or is it just a function of temporary benefit from lower energy prices that you think you will have to eventually pass through in the current context? And last quick question on cash flow, the working capital is up almost EUR 3 billion, which is a similar increase that we saw in Q1 last year. Of course, the environment today is far weaker. So can you talk about why we did not see a much milder seasonal working capital increase in Q1?

Martin Brudermuller: Chetan, maybe I’ll try a little bit on the Q2. I mean in the guidance we gave is at a weak first half year and a better second half year. That includes Q2 to be part of the first half year. I would say it is a challenging quarter coming ahead because if we look a little bit in the macro environment and then we tested the ground loads with all our divisions, I would say if you look at the media, we — let’s say, mood is getting a little bit better. But if you look in the details and also what consumers do, and I think this is true for around the world, there’s very much a focus on services and less on buying goods. So the TDP part is very much driven by the service part, which is not helping us. If you go through the different industries, I would say the overall consumer line is still cautious.

You see retail sales going up in China now. But also there, if you ask people still a little bit cautious in spending. If you look on the supply chain, I would say, several supply chains are still a little bit higherly loaded with also finished goods when actually normal. So I think it takes a little bit more to flow out until basically people start to order and then start to produce again. So I would say don’t expect too much on Q2. It is a challenging quarter. So we actually, the China dynamics are catching up already in Q2. I think it might even — it might take Q3, so would be a little bit more induction time. So for that reason, we do not expect that we see a major demand increase in Q2. With that, Q2 is a challenge because, as you rightfully said, we cannot repeat the AP performance, which is very much seasonally driven.

So I would say, don’t expect too much for Q2. We don’t think we see more of the effect than in Q3. So this is the other two point.

Hans Engel: Yes, Chetan, first of all, your question with respect to price — I mean, pricing in the current environment, obviously, a key topic and a difficult one because the demand is significantly lower in most of our businesses than where we were last year around this time. So with that, you see also a different kind of pricing power than where we were in Q1 of last year, in particular, but also in the second quarter of last year. Do we manage the businesses in a different way? I’d say, no. We continue and with a very diligent approach that we are taking. On your working capital question, with respect to inventories, we are sitting at almost exactly the same level of inventories where we were at, at the end of December.

Are we satisfied with our inventory situation? No, we are clearly not and we are addressing this. With respect to accounts receivable, you see the usual increase that we have in Q1 due to the seasonality of the Ag business, but you also see another effect. When you look back to Q4, Q4 was a very weak quarter. And compared to that, you see some improvement in Q4 week in BASF business also has to do with the seasonality. But again, also in Q4, we experienced a low demand. So from that perspective, the increase there in the accounts receivable, I think is at least nothing that worries me. In particular, if I compare March 31 of last year, were at EUR 15.4 billion with currently at EUR 14.3 billion. So that’s EUR 1 billion on lower than where we were at the end of the prior year quarter.

So from that perspective, accounts receivable in line with the overall business development lower than last year around this time. On the inventory side, we are taking the measures to bring the inventories down.

Stefanie Wettberg: So now it will be Markus Mayer, Baader-Helvea. He will be followed then by Laurent Favre and will start. But first now, Markus Mayer, Baader-Helvea.

Markus Mayer: Two questions from my side. Firstly, again, on Q2, it’s a challenging Q2 ahead. Regarding the destocking we had in Q1, do you see that now this has ended, and it’s basically the underlying demand has not yet started to recover? Or is it still going to be stocking you still see in Q2? That would be my first question. And the second one is on the adoption of Verbund structure and will any kind of view on the timing of the plant closures. That’s all from my side.

Martin Brudermuller: Markus, the destocking, I mean, this is always difficult because you have to rely on that customer tells normally have to go into their shops and look how many pallets are in there. As I mentioned already, I think on the chemicals raw material side, I don’t think that there’s so much as for destocking anymore into the customer industries. But I’m not so sure about the finished goods. And they have to flow also first before they are really the production. So I mean, I think in the consumer area, as I said earlier, I think it’s still a little bit above the normal average like is filled this is most probably also why it needs to really pick up again. And this is why we are a little bit cautious and have our question marks when it comes to Q2. It is not really super transparent in a moment that a little bit more prudent with my statements. What was the second?

Stefanie Wettberg: The of Ludwigshafen.

Martin Brudermuller: So I mean, I think we mentioned that basically, the last part will be in 2026, but there were some plants that are actually are down now. So CDI is down, ammonia is down, and that depends then on how you do that. But I would say the major contributions are basically down now.

Stefanie Wettberg: So now Laurent Favre, BNP.

Laurent Favre: Thank you, Stefie. First, I’d like to echo the comments of Christian. So all the best for the retirement Hans. And the first question for you, I guess, on a, can you give us a bit more color on the dynamics between seeds and protection, please? So the price and volume, I guess, details you’ve given us at divisional level, is it the same for seeds and crop protection. In the second quarter of ’19, can you talk a little bit more about the carve-out of auto catalysts and metals management? I’m assuming this must be close to completion now. What are the intentions for the business sales process.

Hans Engel: Yes, thanks to you and all the best also to you. I’ll address your ag question. We’ve seen actually similarly strong developments in both parts, both in the seeds and in the Crop Protection business. So both very satisfying in the first quarter and also now going into Q2, this is looking overall good. But as always, we’ll look at the full 6 months for the Northern Hemisphere to assess the overall development. But again, in both parts of the business, good strong development.

Martin Brudermuller: When it comes to the automotive catalyst, I think you’re right. We are getting closer to the finalizing . I think wonderful just done from both sides from the new team, but also from our team. I mean we have some experience when you think about construction chemical and all that, how actually to handle that. They are on the light of footing because we have really when we decided about the carve-out and the conditions they have I think we brought a setup that makes them very agile in the market and very well positioned. Actually, the business is developing very nicely as we say from a volume side. Certainly with a little bit lower precious metal prices. But overall, I think the business is very well positioned.

We have not started anything about things, and I don’t want to comment further because the prime focus we have now is that they can work on their own foot and optimize and get the maximum out of this business. And I’m very confident that the team does this. A highly motivated people under circumstances now, and I think the business numbers speak for themselves.

Stefanie Wettberg: Okay. So now it’s Andrew Stott, UBS. We will then have Georgina Fraser and then Andreas Heine. But now, Andrew Stott, you’re next.

Andrew Stott: A couple of questions, please. First of all, can you comment at all on plans for Wintershall at this stage? And then a very specific question on Nutrition. I see Nutrition volumes are down 16%, which just looked like a particularly large drop. Could you just detail that? Are there any sort of production-related issues there? And just to finish off, that was a similar comment, Hans, thank you very much for the dialogue over the years and best wishes for the future.

Hans Engel: And maybe let me also thank you, Andrew. It was always a pleasure. All the best to you. On , have plans changed. No plans have not changed. Strategic decision is crystal clear. Implementation requires, as you know, a solution for the Russian part of the business. That is what Wintershall DEA is working actively on.

Martin Brudermuller: When the boiling development in the nutritional care, I would say basically almost everything ahead from weaker demand, except the personal care element, so I don’t think that there is anything related with our production situation. We are ramping up our vitamin A volumes again. The plants are all fine. But I would say it is really a strong drop also on the pricing side with vitamins, which makes us to play how we play is the volume and the price, so I would say there’s no BASF specific element in there, I would say, is generally a very weak market.

Stefanie Wettberg: Now Georgina Fraser, Goldman Sachs.

Georgina Iwamoto: Andrew asked almost exactly the questions I had for you. So maybe one bit more medium term on Nutrition & Care. Do you think the part of the reason for the pricing weakness is also that we’re seeing your competition now appearing kind of low capacities in China? And how do you think the production landscape for the vitamin supply chains will look 5 to 10 years from now? Do you think we’ll still have such a Europe-centric base? Or is that something that is also going to kind of shift to other regions?

Martin Brudermuller: Well, I think if you look into Q2 for Nutrition Care, I think it still stays rather soft. I think when it comes to the demand. I don’t expect that there’s a huge pick up on that. When it comes to volumes, I think that the same also contributed ourselves with higher vitamin A capacities, which certainly stress the market a bit when it comes to supplier demand. And it’s also true that certainly, and this is also something, I think, going on over years that there is also pressure certainly from Asia with additional capacity. It has been traditionally in the past, obviously in the European business, basically all the capacities have been in Europe. So that changed quite a bit, but I think it’s also fair to say that the consumption pattern changed.

There’s also a lot to do with habits of people meet consumption. That is always a major part for the vitamins, which is also not very strong in this moment. So I would say overall, yes, that might be a little bit stressed, but I think the main component is here the demand, which is still at least as much as we can see in Q2 is a little bit soft.

Georgina Iwamoto: That’s great. And also thank you, and best of luck to you, Hans. Cheers.

Hans Engel: Thanks a lot.

Stefanie Wettberg: So now Andreas Heine and then we have two more analysts in Jaideep Pandya, but now Andreas Heine first.

Andreas Heine: The first is on Agro. If I look on the increase in the first quarter, in relative terms, it’s obviously most difficult to increase earnings in the seasonal strength. If I look to the wording for Q2, which is also strong and that half is rather line in earnings, then I would assume that overall, with these trends, the earnings increase might be even a percentage-wise as what we have seen in the first quarter. Maybe you can comment on this? And then secondly, on battery materials, I was surprised to see the battery materials saw lower earnings. I thought that this is a business with strong growth and that basically each and every year. Maybe you can give me an update where you stay here on opening up the facilities and the trading conditions you see in the better material in 2023?

Hans Engel: Yes, Andreas, it’s Hans. I’ll start with your battery material. Now on battery materials, we had strong impact from favorable lithium supply in the first quarter of last year, which we don’t have in the same way in the first quarter of this year. That’s one reason. The second reason that we have the — in particular, the Chinese battery materials business was weaker in Q1 of this year then it falls in Q1 of the last year, and that goes hand in hand with the production figures for both light vehicles and in particular, EV in car where penetration has gone clearly up, but the production numbers in Q1 were relatively low. So that’s battery materials. Was your question with respect to earnings development? Did I understand that correctly, that was an ag related question?

Andreas Heine: Yes.

Hans Engel: Good. So a very strong Q1. What’s going to happen now in Q2, frankly, remains to be seen you know my view of the world. I always say you need to look at ag in the first half of the year, not just in the first quarter. There’s always seasonality in that business. I’ll give you one thing here, which is our sales in Eastern Europe were significantly higher in Q1 of last year than they were in Q1 of this year. In particular, in Ukraine, this year, it looks like the sales will be closer to the actual application time. Last year, we saw a certain amount of prebuying, which I think had to do with the assessment of the overall situation in Ukraine. Last year’s farmers just came to the conclusion to buy earlier than they do under normal circumstances.

So everything else, as you know, in seasonal in Northern Hemisphere will depend on weather developments overall the northwestern part of Europe, Eastern Europe looks pretty good, in particular with respect to the fungicide business. Southern Europe, very dry at this point in time, remains to be seen what kind of an impact that has. So lots of moving pieces which lead me to say, very strong first quarter. No indications really for a decline other than the seasonal decline of the business now in the second quarter, soft commodity prices are holding. So from that perspective, I would think that should be a good business environment for ag also in the second quarter.

Stefanie Wettberg: Okay. So now it’s Sebastian Bray, Berenberg.

Sebastian Bray: I have two, please. The first is seeds pricing in agriculture. I don’t think those seats have ever been more expensive than they are now and historically, it’s been quite rare to see deflation. But if we go back to an environment, and I appreciate is not really relevant for BASF, but let’s say, we have $4 a bushel of corn. Can the company in this charge scenario where seed pricing turn significantly deflationary? My second question is on the battery facilities, and it builds on Andreas’ early question on the performance of the business. When exactly are these battery facilities coming online? There’s a precursor facility that I believe was delayed in Finland. When is the Capa facility now due to be completed and start adding to earnings?

Martin Brudermuller: Sebastian, on the second one, yes, there will be some delay in the Finland plant, which has also to do with pending situation. But that is not hindering the in time operations in . We will have one of the lines coming up actually now in the next week, 1 or 2 months, and then the second line towards second half of the year. And basically, these facilities are finishing construction and they are preparing for the start-up. Basically, in fact, peak come from other sources from our basically global and not out of Finland. So that will not have any impact on the operation or on the operations in swap side.

Hans Engel: Now on your seats prices question, Sebastian, I don’t have all the details in front of me here. But if I look at this, as I see, our business there driven also by pricing that you’re talking to with respect to deflationary developments remains to be seen. I think, as mentioned before, soft commodity prices stay on what I would call, if you look at the 5-year average — last 5 years average stay on an elevated level that should provide a good background. If that changes significantly, that may then obviously have an impact on seed prices too, but I don’t want to speculate here. We’re operating nicely currently.

Stefanie Wettberg: Okay. So we have Jaideep Pandya. And in the meantime, one more final question will then come from Peter Clark. But first now Jaideep Pandya, On Field Research.

Jaideep Pandya: The first question, I guess, is for Martin, on China longer term. We sort of see significant increase in sort of the plant size for several products, right, from crude to chemicals to caprolactam and chronic acid. So how do you see the profitability of European assets in this context? I know you have already taken some steps to address this, but as you build your China cracker, do you think that in the longer run, you will have to reduce or rather shift focus more downstream for the European asset, that’s my first question. And the second question is a little bit more short term around the price versus raw material dynamic for downstream. As raw materials are trending down, do you see further margin expansion scope in your downstream businesses, including ag, if sort of volumes stabilize at Q1 levels don’t drop further? And then lastly, thanks a lot for your help and wisdom, Hans, and definitely you will be missed.

Martin Brudermuller: Yes, Jaid, let me try to elaborate. I mean total, let me say that all the capacities we built in China are really for the Chinese market. So there’s nothing planned to be exported, and it will actually even stay within the province of Guangdong. You know that is the similar situation in Nanjing that basically 85% of the staff is consumed not far further away than 200 kilometers on the site. So we expect basically the similar thing in Guangdong. We have looked at the premarketing and for the plans and the business plans actually not only about volumes, but we have really volumes per customer. So the customer base is actually there, and we have also partially negotiated precontracts and whatever. So I’m not really worried on the product you have mentioned.

Agroli acid is maybe a prominent one, which is also a prominent one for our plant in Golden Island. I’m not really worried that we cannot sell this stuff over there because there’s actually very strong large consuming customers around. There’s also not so much flow the volume overall. I mean the major point, I think, for Europe is, on the one hand, energy prices. I mean it’s gas prices and raw material prices, which we have to consider. And then we just more or let’s say, concerning and where we have to look where the direction goes to is actually what our customers doing, how competitive our customers are with their business. And on the customer side, there is most probably more going into the global market. That is not all easy for us to see when we sell them to hear where they can sell their product.

So I’d say generally, I mean Europe has to work hard on its competitiveness. I mean, if energy price is not coming down anymore, which we know structurally will be higher. We have to look on other factor costs. We have to look at efficiency. We have to look on productivity to partially compensate this. So I will believe that we have these 2 logics, and I’m not too much worried that now our products are spreading. And we build actually China for China. So when it comes to this theoretical thing, which we always say textbook, so downstream, you have different pricing mechanisms, so you don’t have formula prices, but you have quarterly and half year prices, where actually used by value-added, then yes, this is normally that when the raw materials go down that you then have the margins increase.

That is also, I think, which we have proven many times than in the past. If you now are in a period where you have low demand and the customer gives you only the volume if you are also reduce your selling price, then this is a little bit more cumbersome and difficult environment. So the crucial part is really that we see in the second half, the pickup of the demand because then actually, the mechanism is really working that you have this long-term fixed prices for certain periods independent from the raw material development. So hard to predict, but I would say over I expect that from a margin side, there is not so much pressure on the downstream, as I said, is the mechanism we have. I hope that helps.

Jaideep Pandya: Can I just ask one short follow-up on the first question? With regards to your customers, especially on automotive, could you give us some color these days how strongly have you penetrated into the Chinese OEMs versus your traditional customers in Europe and the U.S.? Has that share increased significantly probably just to your point talking about?.

Martin Brudermuller: Yes. It’s not strong. I mean Jaideep, that was, I mean, when we went to China, actually, we went with the European OEMs and/or the international OEMs building up the facilities in China because we haven’t established suppliers. Over the reason decade, I would say, we have reached out very much to the local ones, and they have actually been very eager and interested in working with us because they also expected that from us, they get actually enrolled into innovation of the industry and what the other OEM is doing. So we have actually stepped up our share in the local ones very significantly. I think we are basically moving in this direction even stronger because I think what is also reasonable when it comes to electric cars at the traditional or the Europeans that are more challenged than actually the combustion engine.

So we see that in the numbers of BYD and BYD actually replacing Volkswagen as the strongest producer in China. So I’m not so much worried, but we have to push that most probably going forward even further. But we are having customer relationships and selling to basically to major Chinese OEMs already today in a quite significant part. And you know that even in China, our share in automotive, we still a little bit higher than on a global basis.

Stefanie Wettberg: Good. So now Peter Clark and again, one more participant, but then I would say I’ll close the analyst list. So now one Charlie Webb, but please now answer ideally one question only Peter Clark, Societe.

Peter Clark: Thank you all for all your help over the years, Hans. It’s a quick question on the outlook really. You’re very clear. You see a weaker first half, improvement in second half. But when I turn that around and look at auto OEM, obviously, you’ve had a very strong help in the first quarter in things like Surface Tech on the coating side. I think the build rate suggest obviously a good second quarter. But the second half, there might be more questions over that. So how you see the auto OEM demand driver in the context of your group outlook?

Martin Brudermuller: Maybe answer that. I mean, overall, we have a moderate close of light vehicles. I think we mentioned the numbers between 3.7 was the number roughly. From a global perspective, that’s why we gave you also in Q1, actually the regional numbers. I mean this part was actually China because some of the technicals went out. So I would expect that the China will have a bigger share actually than in the second half. But I think we made this very clear, we are not so much worried about automotive customer base this year. It is more the other customer industries, which I have pointed out. Also in the consumer area, I mean also construction is not very strong as far the high interest rates all over. So I think the is not with the automotive. It will change a little bit from the regional perspective. Q1 was very strong in Europe and in North America. That will balance out a little bit going forward.

Stefanie Wettberg: So now question from Charlie Webb, Morgan Stanley.

Charles Webb: So just the one question. Just following up on your point, Martin, mentioning Europe needs to work on its competitiveness. We’ve obviously been hearing lots about industrial power pricing and not a commentary in the German media, I guess, around supporting industry more. Just wondering what your kind of thinking on that is in terms of the conversations you’re having. Do you expect some action to come there? It would be really insightful. And likewise, Hans, all the best as everyone else has said. Keep up for all the help you’ve given us over the last few years.

Martin Brudermuller: I mean not so easy to give a quick answer on that. I mean let me say it started with the IRA getting out that I saw as a separate when people being more moves because I think the IRA was very clear that is an attack from the U.S. on competitiveness. I was maybe you have seen that on the North Sea conference where actually 7 state labels and 120 business people have been meaning when it comes to us the North Sea as the largest wind energy producing region in the world. Actually stepping up to 130 gigawatts by 2030, more than 300 gigawatt by 2050. So, they’re the companies getting out together, they see that they have a more European policy, how actually the countries can facilitate to strengthen themselves.

So I would say there is a high awareness what the energy part and the renewables actually have to step up. So I’m a little bit more positive on the European politics side that they and engage also and finding the right answers for Europe and also probably for the largest country, industrial country here in Germany to step something up. So we need some more time, but I would say I’m not pessimistic about Europe, and usually I have to say, don’t mess in Europe. Don’t give up Europe. In the last , they usually also come in different themselves. That’s also what I expect this time.

Stefanie Wettberg: Thanks, gentlemen. Yes, before we close today, I would briefly like to hand back to Martin.

Martin Brudermuller: Yes. So several of you have mentioned, but I also would like to take a minute to farewell our Vice Chairman and Chief Financial Officer because after 35 years now at BASF, Hans will retire from the Board of Executive Directors today. I think very fair to say since joining the board in 2008, Hans has become instrumental for BASF in engaging with the capital markets, and we all know that he’s highly regarded and respected for his knowledge. I would like to thanks Hans sincerely for the close and trusting cooperation during all these years and the personal friendship. And I can only tell you all the best CFO and Vice Chairman you can imagine. And it was a pleasure and an honor to have him on my side for so many years.

So I would like to thank you, Hans, for all that time together. You might know from the one of the private talk that Hans is an avid soccer fan, and he’s also a superb excellent tennis players and still. So Hans, I really hope that you don’t have to look every day in the morning on the share price of BASF but had now more time to do these hobbies and enjoy them. So all the best for you and your family, and thanks for a great time together.

Hans Engel: Thank you very much, Martin, and also, thanks to everyone in the audience for your kind words. Always appreciated it. Good discussions over the years, and Martin working with you was obviously also a big pleasure. Thanks to everyone, and thanks to you, in particular.

Stefanie Wettberg: So with that, we are now at the end of today’s conference call. Should you have any further questions, please do not hesitate to contact a member of the BASF IR team. BASF Annual Shareholders Meeting will be starting at 10:00 a.m. standard European summertime. This year, BASF is hosting the meeting in person at the Congress Center of Rosengarten in Mannheim, after 3 years in a purely beta format. Many shareholders have already arrived at the venue. We will present our second quarter results on July 28. Thank you for joining us this morning and goodbye for now.