BASF SE (PNK:BASFY) Q3 2024 Earnings Call Transcript

BASF SE (PNK:BASFY) Q3 2024 Earnings Call Transcript October 30, 2024

Stefanie Wettberg: Good morning everyone. Welcome to BASF’s Conference Call on the Third Quarter 2024 Results. Today’s presentation is being recorded. All participants will be in listen-only mode throughout/ The presentation will be followed by a question-and-answer session. [Operator Instructions]. Today’s 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 factors. 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 2023. BASF does not assume any obligation to update these forward-looking statements contained in this presentation above and beyond the legal requirements. With me on the call today are CEO, Markus Kamieth; and CFO, Dirk Elvermann. Please be aware that we have already posted the speech on our website at basf.com/q32024. Now I’d like to hand over to Markus.

Markus Kamieth: Good morning, everyone. Welcome to our Analyst Conference Call. Today, Dirk and I will provide you with details on our business development in the third quarter. It’s roughly one month since we presented BASF’s new strategy at our Capital Markets Day. Thanks again to those of you who were able to attend either in person or virtually. And overall, we all have the impression that our key messages were understood and also in general well received. Let’s now start with an overview of BASF’s performance in Q3. With €15.7 billion, sales matched the level of the prior-year quarter. Volumes of BASF Group excluding precious and base metals increased by 7%. All segments achieved volume growth, with the exception of Surface Technologies.

Here, volumes in the Catalysts division declined, while the Coatings division recorded higher volumes. Prices were slightly positive, excluding precious and base metals. The pressure on sales prices thus continued to ease. Currency headwinds dampened sales growth by 3%. Negative currency effects were mainly related to the Argentine Peso and the Brazilian Real. EBITDA before special items improved by 5% and came in at €1.6 billion. The positive earnings momentum in our core businesses, which was already visible in the first half of 2024, continued in the third quarter, driven by higher volumes and higher margins. Considerably higher earnings in BASF’s core businesses more than offset lower contributions from the standalone businesses in Q3 2024.

Here you can see a snapshot of how the markets and our segments’ volumes and specific margins developed in the third quarter. In a slightly improving market environment for base chemicals, we achieved strong volume growth in the Chemicals segment. The Petrochemicals division increased specific margins, while margins in the Intermediates division remained stable. EBITDA before special items in the Chemicals segment increased considerably compared with the prior-year quarter. In an overall stable market environment, the Materials segment benefited from slightly higher volumes, particularly in the MDI, propylene oxide and ammonia value chains. The considerable increase in specific margins was largely driven by a few product lines in the Monomers division and led to a significant increase in the segment’s EBITDA before special items.

Q&A Session

Industrial Solutions operated in an overall stable market environment. Both divisions achieved significant volume growth and improved specific margins slightly. In particular, this was driven by our businesses with the fuel and lubricants, coatings and semiconductor industries. EBITDA before special items rose considerably. The market environment for Nutrition & Care remained favorable. The segment increased volumes thanks to the Care Chemicals division, which recorded higher sales to both the home and personal care markets. Specific margins improved strongly in both divisions, and EBITDA before special items of the segment increased considerably compared with the prior-year quarter. Global automotive production declined by more than 5% in Q3 compared with the prior-year quarter.

In this environment, volumes in the Surface Technologies segment declined due to lower volumes in the Catalysts division, while Coatings still recorded volume growth. The overall lower volumes could not be offset by higher specific margins in both divisions. Therefore, EBITDA before special items declined in the Surface Technologies segment. The market for agricultural solutions showed a heterogeneous picture in Q3. On the one hand, low crop commodity prices and elevated financing costs impacted farmers’ income and also buying behavior. On the other hand, lower channel inventories in Europe and North America were supportive. In this environment, the Agricultural Solutions segment achieved strong volume growth, particularly in fungicides, seeds and traits as well as insecticides.

However, considerably lower specific margins, partially due to lower prices especially in South America, and a positive one-time effect in the prior-year quarter from an insurance payment led to a decline in EBITDA before special items. In view of the earnings decline in BASF’s Surface Technologies segment, let me provide some additional color on the current challenges that the automotive industry is facing. At the beginning of the year, we had assumed that global light vehicle production would be stable or slightly declining. After a weaker than expected third quarter for global light vehicle production, we have revised our assumptions for 2024 and now anticipate a global decline of up to 2.5% on account of lower production in Western Europe and in North America.

Production figures for heavy duty vehicles in 2024 will likely recede by around 2%. Light vehicle production in Western Europe benefited from pent-up demand in 2023, which was supported by the backlog in orders and the replenishment of inventories. These one-off effects have now faded. In North America, the automotive industry is burdened by a lack of demand and rising inventories. The industry is postponing and canceling new models. Despite trade-in subsidies, domestic demand in China is weak, and the market for combustion engines is even declining. However, Chinese exports continue to increase, and China is therefore likely to see a slight growth in automotive production in 2024. Overall, the current momentum points towards a more challenging outlook for automotive production in Q4.

The factors I have described led to the following developments in EBITDA before special items compared with the prior-year quarter. Earnings in the core businesses, that means Chemicals, Materials, Industrial Solutions and Nutrition & Care increased strongly and more than offset considerably lower contributions from the standalone businesses in the Surface Technologies and Agricultural Solutions segments. Others also recorded lower earnings. Overall, EBITDA before special items increased by €77 million. I would now like to highlight the structural measures in Materials that contributed to the growth in EBITDA before special items in this segment. Already in February 2023, we announced several measures to adjust the production structures at the Ludwigshafen site to improve competitiveness and restore profitability.

These measures were primarily related to the Monomers division and contribute to our cost savings programs for our BASF Group. As shown on the slide, the structural adjustments are related to the polyamide and ammonia value chains as well as TDI. Thanks to the decisive measures, we are already at a run rate of around €150 million for fixed cost savings in the Monomers division. Related one-time costs since the start of implementation amount to around €160 million as of September 30th. We will continue to swiftly implement the outstanding measures, which include the full closure of the adipic acid plant and the shutdown of the production plant for cyclododecanone and cyclopentanone that we announced in August 2024. This latter plant is part of the Intermediates division.

In all of our divisions, reviewing the competitiveness of our production assets is a continuous process and not a one-time activity. This is the basis for implementing measures to improve competitiveness or, in certain cases, deciding to shut down plants. With that, I hand over to Dirk.

Dirk Elvermann: Thank you, Markus and good morning, everyone. Let’s now have a look at further financial details of the Group for the third quarter of 2024. EBITDA before special items increased by 5% thanks to the considerably improved earnings of our core businesses. Overall, the EBITDA margin before special items increased from 9.8% to 10.3%. The EBITDA margin before special items in our businesses improved by 3.6 percentage points compared with the prior-year-quarter. EBIT before special items amounted to €635 million, an increase of €59 million or 10% compared with the prior-year quarter. Special items amounted to minus €385 million, more than half of which was related to the Agricultural Solutions segment. This is primarily due to the planned closure of the glufosinate-ammonium production and formulation facilities in Knapsack and Frankfurt, which we announced in July 2024.

The remaining special charges were mainly related to Group-wide restructuring measures, particularly in connection with the ongoing cost savings programs. Net income came in at €287 million compared with minus €249 million in Q3 2023. In the prior-year quarter, a lower earnings contribution from non-integral companies accounted for using the equity method had negatively impacted net income. This contribution included special charges for impairments and restructuring measures at Wintershall Dea. In Q3 2024, earnings were supported by the disposal gain of €398 million resulting from the transfer of Wintershall Dea assets to Harbour Energy. In Q3 2024, cash flows from operating activities decreased by €633 million to €2.1 billion, mainly due to lower cash inflows from changes in net working capital.

During this quarter, changes in net working capital led to a cash inflow of €487 million, a decrease from the strong cash inflow of €1.4 billion in Q3 2023. Payments made for property, plant and equipment and intangible assets rose by €262 million to €1.5 billion, particularly on account of the construction of the Verbund site in South China, which is progressing on time and in budget. Free cash flow amounted to €569 million compared with €1.5 billion in Q3 2023. Let’s now turn to our balance sheet at the end of September 2024 compared with the end of September 2023. Total assets decreased by €3.2 billion and amounted to €79.4 billion. Noncurrent assets decreased slightly by €0.5 billion. There were additions to property, plant and equipment, due largely to our investments in the Verbund site in South China.

Furthermore, financial assets increased due to our investments in the wind park projects Nordlicht 1 and 2. These developments were more than offset, among other things, by lower intangible assets and lower non-integral investments accounted for using the equity method due to the transfer of Wintershall Dea assets to Harbour Energy at the beginning of September 2024. Current assets declined by €2.7 billion to €31.7 billion, mainly due to the strong reduction in working capital. Net debt increased slightly to €19.7 billion at the end of September 2024 compared with €18.9 billion at the end of September 2023. With 45.4%, our equity ratio at the end of September 2024 remained solid. BASF’s good credit ratings reflect our strong balance sheet and prudent financial policy.

Moving on to a short update on the implementation of BASF’s cost savings programs. We are on track to achieve the targeted €2.1 billion annual cost savings by the end of 2026. The implementation of the cost savings programs announced in February 2023 is in full swing. As of the end of September 2024, we already achieved a cost reduction run rate of around €800 million, which is associated with one-time costs of around €500 million. By the end of this year, we now expect a cost reduction run rate of more than €800 million. The associated one-time costs are expected to amount to around €550 million. We are also moving forward as planned with the additional cost savings program focused on improving our competitiveness in Ludwigshafen.

In October, the units at the site were informed about the contributions they are expected to deliver by the end of 2026. Before I hand back to Markus, I would like to briefly outline changes regarding the publication of BASF’s Annual Report. Due to the extended sustainability reporting requirements resulting from the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards, we will have two publication dates in the future. On February 28, 2025, BASF will publish its unaudited full-year results for the business year 2024 via an online report in combination with an investor and news release. These documents will contain all important financial and non-financial figures for 2024 as well as the outlook for 2025 and they will form the basis for our Analyst and Press Conferences on that day.

The audited BASF Report 2024 will be published on March 21, 2025. The integrated report will contain all legally required financial and ESG information. The report will be provided in the form of an online report and as a clickable PDF; a print version will no longer be produced. And with that back to you, Markus.

Markus Kamieth: Yeah, thanks Dirk. In addition to the changes in our reporting that Dirk has just outlined, I would like to provide you with some information on BASF’s Annual Shareholders’ Meeting. Next year’s Annual Shareholders’ Meeting is scheduled for May 2, 2025, and will be held as a virtual meeting. We held two in-person Annual Shareholders’ Meetings at the Congress Center in Mannheim since the end of the pandemic. And now, for the first time, we would like to hold an entirely virtual Annual Shareholders’ Meeting in accordance with the legal requirements that have been in force in Germany since July 2022. This has been decided by the Board of Executive Directors in alignment with the Supervisory Board. Other DAX companies have had good experiences with this format, and we would like to try out what works best for us.

Let’s now turn to the outlook. We are maintaining the outlook for 2024 as published in the BASF Report 2023 at the end of February. Based on current information, we expect to reach the low end of the EBITDA before special items forecast range for the full year 2024. Generally, the fourth quarter is more difficult to predict. However, due to the positive momentum in our core businesses in Q3, we remain confident despite the continued challenging economic environment and the more tactical buying behavior of customers towards year-end. Compared to our expectations at the beginning of the year, the business development in the automotive industry and the agricultural sector is weaker. This will continue to negatively impact our earnings development in the Surface Technologies and the Agricultural Solutions segments in the coming months.

In Ag, we have also been facing significant FX headwinds, which will impact Q4 as well, particularly burdening our margins in Brazil and Argentina. Furthermore, as mentioned during the Capital Markets Day, we expect the force majeure in our Nutrition & Health division to impact EBITDA before special items by a low triple-digit million-euro amount in the second half of 2024. This impact in Q3 has not yet been pronounced, so we expect a bigger impact in Q4 that will likely sum up to the indicated order of magnitude. And as always, we will provide our outlook for 2025 at the end of February. This will also for sure not be an easy year to predict, but by then, at least the U.S. elections will be behind us. What is certain is that we at BASF will execute our Winning Ways strategy with a clear focus on value creation and by taking a new direction on portfolio steering, capital allocation and performance culture.

And now Dirk and I are glad to take your questions.

A – Stefanie Wettberg: Yes. Hello. I would now like to open the call for your questions. [Operator Instructions]. For the best sound quality, we kindly ask you to be sure to unmute your phone and use your headset when asking you a question. We will now begin with a question from Tom Wrigglesworth, Morgan Stanley. After him, we will have Christian Faitz, and then Matthew Yates. But now Tom Wigglesworth. Please go ahead.

Tom Wrigglesworth: Thanks very much for the presentation, gentlemen. Two questions, if I may. The first one on the guidance, obviously normal seasonality is that the fourth quarter would be down somewhere by 20% to 25%. And if we add back the outage impact in nutrition and care, it looks like you are indicating that quarter-on-quarter things will be up more than 10%. So I’m keen, is that backed by your view on volumes or is that backed by are we seeing better fixed cost absorption, can you help us understand better the counter seasonal performance that you are indicating for the fourth quarter? The second question is, just on this automotive shift that you indicate from U.S., Europe, to Chinese exports, can you talk about how that impacts your coatings business and how that impacts in terms of the value split between the regions and also how it impacts your polyamide 6 and 66 [ph] businesses, and how you are thinking about adjusting those accordingly? Thank you.

Dirk Elvermann: Yeah, good morning, Tom. This, Dick speaking. I may be take the first question on the guidance. As we said we expect to reach the low end of the range. What we have seen in this year is quite an extreme volatility. If you think about Q3 we started strongly in July had a weak, really weak August, and then came back strongly in September. And for the last quarter, which is anyway, quite a volatile quarter, there are quite a couple of effects that lead to some uncertainty here. Let me stress that on average for the last years we reached 1.7 billion of EBITDA before special items in that fourth quarter back to 2015. But what are the uncertainties that we have? First you said rightly we make progress with our cost improvement programs, that is clearly so.

Also volume wise, talking to all our business heads the volumes are not falling off the cliff clearly but maintaining and partly even maintaining strongly. With regard to the buyer behavior, there’s a couple of question marks. We see partly this typical inventory management behavior at customers, but also not consistently. There’s still the question how much of presales the Ag business will generate which also had quite some volume success at least also during the third quarter and is working on that. And then also the impact that we will see in nutrition from the Isotoic [ph] has been not so pronounced in the third quarter. We still have also here products to be sold in the fourth quarter at quite good prices, I’d say. So just to give you a couple of effects here, which make it hard to lend at a certain number, but all in all, I would say expecting low end of the guidance is a reasonable stance here.

Markus Kamieth: Hey Tom, just Markus here. There is a couple of comments on auto. I mean, it is certainly shaping up to become a more challenging year than what we have initially thought. If you look at overall year-to-date, as I said, minus 2% roughly production figures, light duty vehicles. In Q3 it was minus 5% particularly pronounced in Europe. And certainly the momentum in Europe is challenging. However, coming to your question also how this affects our business. As we have also said in the past, for us, regional shifts between automotive production are not such a big deal because we have assets for all our automotive related businesses in all major production areas. And we are also present with all significant OEMs also in China.

So, market share shifts between regions and also between OEMs in general, I would say are not such a big influencing factor for BASF. So it’s more the overall production volume trajectory that is worrying us right now because Q3 momentum has not been good. And with what’s to be expected in Q4, that’s certainly a headwind that we have to face.

Tom Wrigglesworth: Thank you very much. Very clear.

Stefanie Wettberg: Okay, we now have Christian Faitz, Keppler Cheuvreux. Your turn, Christian.

Christian Faitz: Yes. Thanks and good morning, Markus, Dirk, Stephanie and team. Markus, I hope your trip to Berlin yesterday wasn’t too boring. Some of your peers are talking about a continued track in automotive demand into 2025, would you subscribe to this view? And then the second question is, what is your best guess of FX and trading conditions for your agricultural solutions in Q4? Thanks very much.

Markus Kamieth: Yeah, I’ll take the first question. Christian trip was not boring. It’s always a pleasure to go to Berlin. Second question on spillover automotive into 2025, I would say hard to say right now. If you would ask anybody what is the outlook for 2025 automotive, everybody would be fishing a bit in the dark, as usual. I would say all the industry, let’s say experts and consultants are projecting slight growth next year. But I have to say, as always, we have to see how the year really starts. And for me, what always is a big indicator is how China will behave before Chinese New Year, and then also what will happen after this. And, and once that is clear, we have a clearer outlook on overall production figures and sales figures in particular for the automotive industry.

China is so big that this really matters. And that’s why I would say right now I would not put a lot of money on speculations on 2025, but for sure we’re not going to see a big rebound or big growth year. But I expect, again, some positive trends also again to emerge in automotive next year as well.

Dirk Elvermann: Yeah, Christian on the FX effect for agricultural solution, this was burdening the business already throughout the year. And as we are now in the midst of the South American season and with the pre-sales also for the Northern Hemisphere, this is going to continue. So we are not expecting any tailwind from FX for the rest of the year. Gives also a bit of a positive view on the agricultural business. I think altogether, with strong volumes still relatively weak prices as we said. But the FX effect certainly has to be taken into consideration and one point will change but not in 2024.

Christian Faitz: Okay, thanks very much.

Stefanie Wettberg: So we move on to Matthew Yates, Bank of America and the following we will have Chetan Udeshi, then Jaideep Pandya, and then Alex Stewart. But now Matthew Yates, Bank of America. Please go ahead.

Matthew Yates: Hey, good morning everyone. Thanks, Steffi. Just one question and maybe it is for Dirk. It looks like the chemicals division got weighed down a little bit with an increase in fixed costs related to the new site in China. Is it possible to quantify the impact of that additional fixed cost and perhaps more importantly talk a little bit more about the magnitude of those cost increases as you go into 2025 with the site starting to come online and more people, etcetera, that we should start thinking about in terms of the impact on chemical profitability next year? Thank you.

Dirk Elvermann: Yeah, Matthew well spotted. Already 2024 we are now faced with the first cash deposit caused a burden for Zhanjiang [ph]. Think about it for the entire year, 2024 as a low triple digit number. And then also for going forward for 2025 it will be I think roundabout a 100 million per quarter that we have to bear next year before then as of the end of the year beginning of 2026 we can start operations.

Matthew Yates: And, maybe just as a follow-up, I know it’s non-cash, but what does the depreciation phasing look like in terms of above or below that, sorry, the depreciation incrementally next year?

Dirk Elvermann: Yup. So depreciation is obviously going to start. I don’t have the number handy for you Matthew now but, think about the Zhanjiang [ph] site as a normal two extended depreciation period.

Matthew Yates: Okay. Alright. Thanks, Dirk.

Stefanie Wettberg: Okay. Now Chetan Udeshi, J.P. Morgan. Your turn Chetan.

Chetan Udeshi: Yeah. Thank you. Morning all. I just wanted to follow up on the question on Q4 guidance because I’m sorry, but I really don’t understand why you expect Q4 to be better than Q3. So let’s try other way around. Can you maybe give us a bit more color by segments where you actually think Q3 will be better than — Q4 will be better than Q3 in terms of EBITDA, as you seem to suggest in your group guidance? And the second question I had was on Activision [ph]. Clearly the volumes are coming back very, very strongly, but I go back to the question I had asked on CMD as well. I’m just surprised that there is typically what we see with companies or specialty chemical companies where R&D spending is high. You usually have Euro based pricing.

So when FX moves a lot against you sort of try to pass it on to your customers because you’ve got that differentiated products. But here in Ag chemicals business, what we see is the FX impact is very, very big and on top the price is also down. I mean, that just seems very unlike a specialty business. So, just any thoughts around that?

Markus Kamieth: Yeah, Chetan your question, I mean, I would not go now into individual segment guidances on Q4. In general, let me give you maybe some thoughts on this. I mean, what we see and you have seen this now throughout Q2-Q3, the overall earnings momentum in our chemicals businesses, so what we now call core businesses is actually quite favorable compared to last year. And we are seeing both volume growth in almost all divisions and margin expansion. The trend that certainly in Q4 will be more challenging is the volume picture in this area, but the margin is actually holding up quite well because when you look at raw material markets, most of them are actually walking sideways or actually receding. So the margin picture is actually quite positive and we are expecting also this momentum in most divisions to carry forward.

So we are quite optimistic that despite, of course, always yearend challenges in buying behavior of customers, we can see a continued good momentum, especially margin wise in the chemicals businesses. And then Dirk has already alluded to some of the effects that we will also see in our P&L coming in the fourth quarter. And so, in our books, the 8 billion lower end of the guidance is achievable. We’re confident that we will be there at the end of the year.

Dirk Elvermann: Yeah, Chetan I think on the Ag business I already commented on the FX, you saw strong volume in Q3, but very weak prices. And the division is working on a certainly stronger Q4 than Q3. And this is opening also then the new season. So we are very confident that the fourth quarter for Ag will be stronger than compared to Q3. I think this is what we can say at this point in time.

Chetan Udeshi: Thank you.

Stefanie Wettberg: Now we have Jaideep Pandya On Field Research. Please go ahead.

Jaideep Pandya: Oh, thanks. First question I want to ask is really around the Citral complex that you have. I think you’ve increased capacity in Malaysia and also in the plan for China there’s supposed to be Citral coming, I think in, in due course. Now, one of your big Chinese competitors, one who is going to enter the market, I think pretty soon in Citral and looks like Citral will go long. So, can we go away from the fire a little bit and understand what is your Citral strategy and will you reduce utilization or capacity in Germany to balance this market? And the second question, I apologize for asking this, but when we look at the moving parts for Ag next year, especially in Q1, which is your big quarter, I mean, what other risks do you have, is it very heavily focused on seeds and canola or you have enough arrows in your kitty to sort of offset some of the weaknesses because I guess a lot of the 2025 outlook hinges on how good Ag is in Q1 next year? Thanks a lot.

Markus Kamieth: Yeah. Jaideep, I’ll take the — Markus here. I’ll take the first question on Citral, and then maybe Dirk can comment on Ag. You’re right, I mean, we have quite a while back actually invested into a new Citral plant in Malaysia, also making menthol there out of Citral and we will start up a new Citral plant in Zhanjiang next year and then use the Citral also largely internally to make various different derivatives from it. So most of the Citral will be used externally to use to make higher value aroma ingredients. Overall, our strategy is to build this capacities based on a very strong cost position and a good technology in line with the market expectations, and in particular with close alignment with our large global key accounts.

And you can be assured that also the investment in China is largely I’d say contracted also with the strongly growing demand of our large customers in this segment. And so overall, yes, there are new competitors entering the field, but with our three manufacturing sites in Malaysia, China, and in Germany along with the good integration with downstream aroma derivatives we are — we feel very good about our setup. We feel good about our customer relationships, and we believe that the growth that we have seen in aroma over the last years, which is one of our strongest growing businesses, will be strongly supported also by our strong position in Citral. We’re not blind towards competitors that are entering the market, but in that particular technology we feel good with our cost position and our setup.

The other stick on Ag, we likewise feel good about the starting of the new season for Ag. We have now observed this less inventories in the channels both in North America and Europe. So we are waiting and expecting normal buying behavior throughout our portfolio of Ag products. On top of that we have good news also for our glufosinate ammonium, as you know. We have applied here for the approval for the LGA which is then to substitute the U.S. part of our glufosinate ammonium that was now restructured. And here we have in the last couple of days, obtained the Federal approval from EPA in North America. So I think staying in your picture, we have all the arrows for 2025 to shoot and to match and surpass the strong results still in the first half of the year.

So I expect first half 2025 for Ag stronger than the first half of 2024.

Jaideep Pandya: Thanks a lot and well done on volume growth.

Stefanie Wettberg: We will move on now to Alex Stewart, Barclays and we will then have Peter Clark and then Andreas Heine, but now Alex Stewart, Barclays, please.

Alex Stewart: Hello, good morning. Very simple question, I hope. You’ve called out strong unit margins in the monomer segment within materials. Could you perhaps tell us which products are responsible for that and whether that is a sustainable or temporary benefit? And then just a point of clarification on the Verbund fixed costs. Was I right in hearing that this year was about a 100 million headwind and then next year will be about a €400 million headwind, in other words, 300 million year-on-year and would you mind just confirming whether that’s across chemicals and materials? Thank you so much.

Markus Kamieth: Markus here, margins on materials in particular you asked and interesting — you have an interesting take on are these margins sustainable or not. It’s always difficult to say in a cyclical rather commoditized business. But I will refrain from this. But, in general where we have seen margin — good margin expansion also in the third quarters in particular, the ammonia value chain in our monomers division also had good margin recovery in our PA 66 and PA 6 value chains. So these are the areas where margin expansion in Q3 has been seen versus prior year. Overall in the performance materials unit, I would say the margin picture was more stable. We had some margin expansions in individual product lines, but nothing so pronounced. So I would say overall, if I look at the numbers, the predominant margin expansion comes from these three areas that I just mentioned. So ammonia and PA 66 and PA 6 precursors.

Dirk Elvermann: To the clarification question on the Verbund project in China. Low triple digit, extra cost in 2024 full year and roughly a 100 million of extra cost per quarter next year mainly attributable to the chemicals division.

Markus Kamieth: And I just wanted to make this very clear, Alex in the Verbund startup costs that we are talking about here, materials is not affected. So the material segment, neither the monomers nor the performance materials division is affected by this. So this is attributable to a large, to the by far largest extent to the chemical segment, and to also to a minor extent to the nutrition and care segment, because we have both nonionic surfactant complex as well as the Citral plant in Zhanjiang as well.

Alex Stewart: Got it. Thank you.

Stefanie Wettberg: Now, Peter Clark at Bernstein, please.

Peter Clark: Yes, good morning, everyone. Yeah, I’ve got two questions related to the restructuring. It’s good to see you getting ahead on that. And I see you got the 800 million by the third quarter. It was I think the year-end target. I’m just wondering why you didn’t actually increase the 800, you stay around over 800 now for the full year, but why you didn’t just add a 100 million or something to it, presumably, you want to keep beating these numbers? And then I know you don’t like talking about the profitability by country, but I’m going to keep batting on about Germany, because obviously that was a big standout comment in 2023 with the EBIT losses there. Just wondering if you were to try and pull back, if Germany is approaching the breakeven on EBIT now with the performance upswing we’ve seen? Thank you very much.

Dirk Elvermann: Peter, on your question for the cost savings I’d say we rather like to over deliver, it’s great that we brought in the 800 already by the end of the third quarter. Are we stopping now? Are we pressing forward? Of course, the latter Q4 is a quarter with a lot of things going on as you appreciate so doesn’t make sense probably at the end of October to come with a new number. But I’m confident that in our next call we will report then the savings runway achievement for 2024 that will for sure be higher than 800 million.

Markus Kamieth: So Peter, nice try on your attempt to get the profitability by country out. I’m still not biting. But let me give you some comfort that we are actually moving in the right direction. If I look at the Germany results which I have to say also for us, we always have to take these numbers with a grain of salt because of also intragroup bookings of cost and so on between different countries. But generally, if I look at this, the majority of our segments actually have a significant improvement in the profitability also in Germany, in our local companies here. Not all of the segments have improved, but most of the segments have actually improved. So it looks to me like we are on the track and we’re both seeing this operationally as well as the effects already of our restructuring coming in. And this is just the beginning.

Peter Clark: Thank you very much.

Stefanie Wettberg: Okay. We now have Andreas Heine and later on Geoff Haire and Sebastian by to conclude, but now Andreas Heine, Stifel. Please go ahead.

Andreas Heine: Yes, good morning. Actually, I’d like to expand on Peter’s question on the regional earnings trend. So if I look on the JV income in the P&L, and it looks like that China has not really improved. Maybe you can qualitatively expand a little bit how the three regions North America, Asia, and Europe have contributed to the earnings increase exclusively on the core business, which was a strong part? And can you please expand a little bit more on care chemicals, you have quite a strong volume here, peers have seen a slowing in volume trend, maybe you can elucidate a little bit on why care chemicals have been showing this strong trend also in the second half of this year? Yeah, thanks.

Markus Kamieth: Yeah, I’ll start with the easier question Andreas. The care chemicals business. I don’t want to comment now on why my competitors are not seeing what I see, but I can tell you that if I look at the various pieces of the business for care chemicals we actually see positive contribution from volume across all business lines. So personal care, home care, industrial formulators, and all your surfactants are all up in volume in the third quarter compared to prior year. So based on this I see also an overall market environment that is, let’s say, still compared to some of the more industrial markets that we serve, like automotive, construction and others are in quite good shape. So I’m not surprised by this. And on top of that comes a margin expansion also in, in all of these sub businesses.

So our care chemicals business really doing quite well, and positions itself in the market also favorably. But I don’t want to comment now why my competitors are not seeing the same performance that I see. With regards to regions, since I’m not looking at the regional results so much, I have to actually look this up while we talk a little bit. So if I look at the regional results, you are right in assuming that the business — that the results in China have been weaker, but only slightly weaker, I have to say. So not as dramatic as you might think. So they’ve slightly gone backwards in Q3 versus prior year. And in all other regions we have actually also increased EBIT before special items. So most pronounced in North America, but I cannot give you more details on this because I’m not looking at the individual let’s say business units by regions on a quarterly basis.

So overall, we’re seeing positive earnings trends in all regions in the core businesses with the exception of China, where it has slightly receded.

Andreas Heine: Very happy. Thank you very much.

Stefanie Wettberg: Now we have Geoff Haire, UBS. Please go ahead.

Geoff Haire: Yeah, good morning. And thank you very much for the presentation. I just want to ask one question. We’ve seen a number of companies reviewing strategic, reviewing their upstream assets in Europe, particularly U.S. companies last week. Would you have any interest in being a consolidator in Europe or is that something that you would rather focus CAPEX or cash elsewhere in the world?

Dirk Elvermann: The answer is very simple. I think also maybe not super outspoken, but a bit outspoken on this, on the Capital Markets Day. I mean, based on the analysis that we have also done now during our strategy work, again confirming the largely competitive nature of our key assets here in Europe, and of course anticipating a wave of also consolidations in the chemical industry in Europe in particular, but also globally, I consider the consolidation, the necessary consolidation in Europe, in the chemical industry as an opportunity for BSF and I will leave it there. I don’t want to be any more specific, but that’s certainly something where I think based on our strength, our technology position, it is plausible that BSF is rather going to emerge as a consolidator than the opposite.

Geoff Haire: Okay. Thank you.

Stefanie Wettberg: Now, the final question or questions from Sebastian, it’s the wrong name here stated, Citi. Please go ahead.

Unidentified Analyst : Hello everybody and thank you for taking my questions. I have two please. The first is on the extended deadline for recommencing vitamin production at [indiscernible]. I imagine that the total lost business and costs of repair are probably in excess of €300 million. I appreciate it was said at the CMD that this was not easily insurable, but is there any chance of getting any of this money back at some stage next year? And my second question is just on the, in principle, impact of tariff policy depending on the outcome of the U.S. election, there might be substantial increases, at least between U.S. and China. Are there any direct impacts on the BASF business structure in terms of importing or exporting within the company from one region to another or is this broadly neutral for the firm? Thank you.

Markus Kamieth: Sebastian I will start with your question on nutrition. Your estimate of 300 million I think we can say in all fairness is too high. You are right that there will also be impact on the business for the first half of the year. You may in the meantime have seen also the announced ramp up plans for the aroma business, but also for the vitamins. So first part already ramping up this year, then vitamins, and next year you’ve seen that probably on the webpage. So it is from all we can safely say today below 300 but next year we will still have a low triple digit million impact for sure. Is there insurance in place and will that be also covered by insurance? Certainly partly as you know with insurance policies where it will never be covering the full damage but partly there’s also insurance claims to be discussed.

Dirk Elvermann: Yeah, and I’ll take your question on tariff policy. That’s of course that’s a big one. We can spend an hour on this going back and forth, I mean. And we have in general and I really have to be broad here now, in general, not a big exposure to this in our business because we don’t have value chains that really extend beyond the major regions. So China, U.S. to a large extent so our strategy to have our assets in the markets under a, let’s say more tightening trade regime in the world, will actually prove to be even more valuable than it was in the past. However, this of course affect our customer industries. And now we are also, let’s say, typically in our large customer industries, exposed in all regions. So we are nicely present in all regions, but this of course could lead to regional shifts.

My biggest concern in general is that this will lead to a slower growth overall of the global economy. I’m a big proponent of that. At the end of the day, economies especially in our current day and age grow fastest when there is free trade. If there is hindrances of free trade, of let’s say economically optimized trade flows, then at the end of the day it might actually lead to lower growth in general and that will certainly be a challenging at least couple of years until things have realigned. But this is nothing specific to BASF. I think BASF, if I look across my setup that I have both market wise as well as supply chain wise, I feel much better than most companies should feel in this environment where quite drastic tariff regimes might be established in a very quick period of time.

So I think we’re very robust with regards to this, but it’ll not be good for the economy.

Unidentified Analyst : Thank you.

Stefanie Wettberg: Okay. And sorry, Sebastian of course, for Sebastian [indiscernible] was correct. We have now one more question, if that’s okay, because we are still within the time limit, Georgina Fraser, Goldman Sachs. So now you have the final question, please.

Georgina Fraser: Thank you so much, Steffi, and good morning Markus and Dirk. This time last year you included in your third quarter presentation a chart looking at one of your, I think, key internal indicators of demand. It was called indicators for stock levels in manufacturing our stock purchases per region. And at the time, it showed Western Europe and North America with stock purchases at very low levels and in a zone which was highlighted as a kind of inflection point, which we obviously didn’t see yet. I was just wondering how do those look today, you also showed Asia Pacific which was above kind of long-term trends but if you could just elucidate what those indicators are telling you at the moment, that would be great?

Markus Kamieth: I mean, I can start Dirk. I was just looking at Dirk whether he has the charts in front of him because we occasionally look at these slides or at these charts and this data again. And I have to tell you, my takeaway is that right now, especially in 2024, if you look at this data that you almost get more question marks than you have answers. Because if you look for example at the inventory levels that are reported to this data for Europe, we would see a continued destocking now for a huge period of time, which is just physically, I think for me, unimaginable. So I lack a little bit the translation of such data now to the real world. So that’s why we are no longer including them here also in our statements because it doesn’t make necessarily too much sense.

What I can say is overall I think we have to acknowledge that destocking in our supply chains and also downstream in our customers, has largely come into an end. However, we are still facing in many industries, of course, an overall weak demand picture. And so we are not seeing any turnaround of this, that people are actually preparing for growth also for going into 2025. That’s why I said earlier, I still expect that 2024 Q4, there’s room for tactical buying behavior so we have to be on the watch out here. But I would say no more destocking across the Board that we see. And eventually, if demand comes back, there is still quite some refilling of value chains that we can expect. So that’s certainly an upside for 2025, but first the confidence has to come back that actual growth, actual demand growth is actually materializing in most of the regions.

So I would say there’s a pent up upside if you want on the supply chain side, but not more at this point in time.

Dirk Elvermann: And Georgina, if I may just support what Markus said, I mean, we used at that time this graph also to corroborate our statement on volume development and price development. Remember, that was a time of high uncertainty and we started to predict by the middle of the year that quarter-over-quarter now the volumes will catch up which happened, and that then the prices will be dragged along which also happened. And I think so at that time it was helpful, but in the current situation it is probably not so helpful, as Markus said to include it anymore. These days we are looking rather into the purchase manager indices, etcetera, and follow the stocking and destocking behaviors. But at that time, I think it was helpful to somewhat forecast what now really happened in terms of volume and price development.

Georgina Fraser: Thank you both very much.

Stefanie Wettberg: We are now at the end of today’s conference call. Let me take this opportunity to draw your attention to a dinner with BASF Board Members that we will host in London on Thursday, November 21. We will send out invitations to investors and analysts by the end of this week. Should you have any further questions regarding our Q3 reporting, please do not hesitate to contact a member of the BASF IR team. Thank you for joining us today, and goodbye for now.