BASF SE (BAS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the BASF Analyst Conference Call Full Year and Fourth Quarter 2019 Results. [Operator Instructions] 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 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 on Pages 139 to 147 on the BASF Report 2019. BASF does not assume obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. I would now like to turn the conference over to Stefanie Wettberg, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our analyst and investor conference call on the full year and fourth quarter 2019 results. On the call with me today: 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/fy2019. With this, I would like to hand things over to Martin.

Good afternoon, ladies and gentlemen, and thank you for joining us. One thing right at the beginning: The BASF team is doing a remarkable job in transforming into a new BASF for our customers. We are, however, not satisfied with the financial results of the BASF Group in 2019. The better performance in all our downstream segments was not able to compensate for a significant decline in Chemicals and Materials segments. 2019 was a challenging year for BASF. We had to manage significant macroeconomic headwinds and several one-off effects. The trade conflict between the U.S. and China had severe negative impact on our key markets. In addition, the continuing uncertainty associated with the Brexit reinforced the underlying trend towards an economic slowdown. In 2019, global economic growth amounted to 2.6% and was significantly below the prior year figure of 3.2%. While the service sector developed solidly, industrial and chemical production grew at a significantly lower level than expected. Demand from key customer industries declined considerably. This was most pronounced in the automotive industry, where global production declined by 5.4%. Beyond macroeconomic headwinds, BASF's upstream business was suffering from significantly lower cracker margins, driven by oversupplied markets. In addition, our planned turnarounds reduced earnings in our Chemicals segment. Earnings in our Monomers division were negatively impacted by below-long-term average isocyanate margins. In our Agricultural Solutions segment, the difficult market environment due to weather -- extreme weather conditions and distributors' destocking in North America as well as the trade conflict, negatively impacted sales volume. A good season in South America in the second half of 2019 partially offset this. Overall, Agricultural Solutions, Industrial Solutions and Surface Technologies, considerably increased EBIT before special items. Nutrition & Care slightly improved EBIT before special items compared to the prior year. During the year, we consistently implemented our corporate strategy to become a more responsive and customer-focused organization. We energetically drove our active portfolio management, signing and closing several transactions. We also accelerated the implementation of our Excellence Program. Before we have a closer look at our performance in 2019, let me remind you that we restated our figures following the agreement between BASF and Lone Star regarding the sales of BASF's Construction Chemicals business. This had an immediate effect on our reporting. Retroactively as of January 1, 2019, sales and earnings of the Construction Chemicals division are no longer included in sales, EBITDA, EBIT and EBIT before special items of BASF Group. The prior year figures were restated accordingly. Until closing, earnings of the businesses will be presented as a separate item: income after taxes from discontinued operations. Let's now look at our performance, starting with our sales development. In Industrial Solutions, EBIT before special items increased considerably in both divisions -- oh, sorry. Sorry, I skipped something. Sales in 2019 were slightly below the prior year level and amounted to EUR 59.3 billion. Overall, sales volumes decreased by 3%, mainly driven by the Chemicals and Materials segment. From a regional perspective, sales volume by location of customer increased in Asia Pacific and in the region South America, Africa and Middle East. Volumes declined in Europe and in North America. Prices declined -- decreased by 3%, especially on account of the Materials and Chemicals segment operating in oversupplied markets for upstream chemicals. Higher prices in Surface Technologies and in Agricultural Solutions could only partially compensate this decline. Portfolio effects amounted to plus 2% and were mainly related to the acquisition of Agricultural Solutions business in August 2018. Currency effects amounted to plus 2% and were mainly due to the appreciation of the U.S. dollar against the euro. All segments and divisions incurred positive currency effects. Let's move on to the earnings development. EBIT before special items came in at EUR 4.5 billion, 28% lower than in 2018. This was mainly driven by the considerably lower contribution of the Materials and the Chemicals segments. Compared to 2018, earnings of these 2 segments declined by EUR 2.2 billion to EUR 1.8 billion. The sharp decline of isocyanate margins, lower cracker margins and the cracker turnarounds considerably weighted on earnings in these segments. Despite the challenging market environment, we saw considerable improvement in our downstream businesses compared to 2018. In Industrial Solutions, EBIT before special items increased considerably in both divisions, primarily due to lower fixed costs, positive currency effects and higher margins. In Surface Technologies, EBIT before special items rose considerably, primarily driven by our Coatings division. Earnings in Coatings increased considerably due to lower fixed costs and higher margins. In Catalysts, earnings increased slightly mainly on account of higher volumes in mobile emissions catalysts. In Nutrition & Care, EBIT before special items increased slightly due to considerably higher earnings in Care Chemicals on account of higher margins. This was supported by a contractual onetime payment in the personal care solutions business. In Agricultural Solutions, EBIT before special items rose considerably, mainly as a result of higher sales. The acquired businesses from Bayer significantly contributed to the sales and earnings increase. In Other, EBIT before special items increased considerably largely due to the valuation effects for our long-term incentive program. Let's move on to BASF's strategic targets and the status at the end of 2019. As mentioned before, our sales volumes declined by 3%, mainly driven by the Chemicals and the Materials segment. Global chemical production increased by 1.8%. EBITDA before special items decreased by 11% to EUR 8.2 billion, again, mainly on the account of the upstream business. ROCE was 7.7%, down from 12% in 2018. This was due to the lower EBIT of the segments and the increased asset base following the acquisition of Agricultural Solutions assets as well as the implementation of IFRS 16. We stand by our dividend policy and propose to pay a dividend of EUR 3.30 per share, an increase of EUR 0.10. Moving on now to our nonfinancial targets. Compared to 2018, BASF's absolute greenhouse gas emissions decreased by 8% to 20.1 million metric tons. This reduction was, to a large extent, due to the turnaround of our big petrochemical plant, but we also achieved improvements in production. Please be aware that emissions for 2020 are expected to increase to the 2018 level due to a lower number of planned turnarounds and the acquisition of Solvay's polyamide business. A significant lever for the steering of our product portfolio is the Sustainable Solution Steering method. We have set ourselves an ambitious target to considerably increase sales of Accelerator products to EUR 22 billion by 2025. In 2019, these products accounted for around EUR 15 billion in sales compared to EUR 14.3 billion in 2018. The Accelerator target reflects our strong commitment to further drive innovation and sustainability. To achieve our goal, we deeply integrate Sustainable Solutions Steering in the R&D pipeline, in business strategies and in M&A projects. Already today, the majority of BASF's R&D pipeline represents Accelerator products and solutions. They typically show stronger growth than comparable products in their markets, combined with higher margins. In 2019, we significantly improved the performance of our downstream businesses. For the sake of comparison, excluding precious metal trading, EBITDA before special items of our downstream segments increased by 25% to EUR 5.4 billion. This slide shows you the corresponding EBITDA margins before special items by segment compared to 2018. The weighted average margin of our downstream business improved from 15% to 17% in 2019. In Agricultural Solutions, the EBITDA margin before special items increased from 18% to 23% in 2019. In contrast, the lower upstream margins and volumes led to a decline in the weighted average EBITDA margin before special items in BASF Chemicals and Materials segments from 21% to 16%. Ladies and gentlemen, we are committed to increase the dividend per share every year. Returning value to our shareholder is a top priority for us. At this year's Annual Shareholder Meeting, we will therefore propose to pay a dividend of EUR 3.30 per share, an increase of EUR 0.10. In total, we would pay out EUR 3 billion to our shareholders, which is fully covered by our free cash flow in 2019. We are offering an attractive dividend yield of 4.9% based on the share price of EUR 67.35 at the end of 2019. Let me now give you a brief strategy update. It's all about our customers. We want our customers to experience the new BASF. Therefore, we are implementing dedicated strategic measures with full energy, passion and speed to deliver on that promise. We have reshaped our organization and reduced complexity. We streamlined our administration, sharpened the roles of service in the region and are simplifying procedures and processes. Already in 2019, we saw cost-reduction effects in the P&L, and we have received positive feedback from customers on the changes at BASF. On this slide, you will find details on what we accomplished in 2019. I will get directly to the last and very important point. In order to foster an entrepreneurial performance culture across the whole organization, we have adapted our remuneration system for all senior executives. Still based on ROCE, we implemented a long-term incentive plan which is tied to our strategic targets to grow faster than global chemical production, to increase profitability and to grow CO2 neutrally as well as to our total shareholder return. Thus, the incentive system of BASF -- of the BASF team will be even more closely aligned with the interests of our shareholders. We also updated our target to foster a diverse and inclusive culture. By 2030, women shall hold 30% of all leadership positions in the BASF Group worldwide. All these measures have one common goal: to put BASF, with increased customer focus, back on the profitable growth track. Let me also give you an update on our Excellence Program. We accelerated our Excellence Program and are on track to achieve the targeted EUR 2 billion annual EBITDA contribution by the end of 2021. We already realized positive EBITDA contributions of EUR 600 million in 2019. The associated costs amount to around EUR 500 million. By the end of 2019, 3,100 of the targeted 6,000 positions were already reduced globally. By the end of 2020, we expect an EBITDA contribution in the range of EUR 1.3 billion to EUR 1.5 billion. This is a run rate. The associated onetime costs in 2020 are estimated to be around EUR 300 million to EUR 400 million. Furthermore, cost inflation must be considered. Both the EBITDA contribution and the onetime costs increased compared to our initial guidance due to the accelerated implementation. We now target to achieve the reduction of 6,000 positions already by the end of this year. Initially, we targeted end of 2021. Before I touch on our Verbund project in Guangdong province, let me briefly reiterate the strategic relevance of Asia, and especially China, for BASF and the chemical industry overall. With a share of 45% of the global chemical production in 2019, China is clearly the largest chemical market worldwide. By 2030, this share will increase to around 50%. Over the last 5 years, the compounded annual growth rate of chemical production in Greater China significantly exceeds the average growth rate of global chemical production. Even more importantly, we increased our sales volumes in Greater China during this period significantly faster than the chemical production in this region. Most importantly, BASF's growth path in China is a highly profitable one. During the last 5 years, we have generated strong earnings and healthy margins. EBITDA before special items increased on average by 30% per year. The outbreak of the coronavirus will have a significant impact on the demand and production in China this year. Our thoughts are with all those who are affected within this difficult situation. The long-term trend, however, is intact, and we will implement our investment projects in China even if some years might be tougher. We are well placed to further expand our already strong position in this region and accelerate our organic growth. Ultimately, outpacing the global chemical market requires a strong participation in China's growth. In November 2019, BASF officially launched its Verbund project in Guangdong province. We expect the first plants to be operational in 2022. These first plants will produce engineering plastics and thermoplastic polyurethane. Implementation of the entire project will take place in phases until 2030. Peak investments will be between 2022 and 2024. In total, we estimate the investment to amount to USD 10 billion by 2030. When the project is completed in 2030, the site still will continue to be a preferred location for future investments in China. The Verbund site in Guangdong province will mainly supply customers based in South China and will enhance BASF's presence in this still undersupplied market. There is a fast-growing local demand for innovative chemical products and solutions, and BASF is and has been a successful company in China. That's compelling for a profitable growth. And now Hans will give you more details regarding our active portfolio management and the business development in Q4 and full year 2019.

Yes. Thank you, Martin. Good afternoon, ladies and gentlemen. With our active portfolio management, we are moving towards higher value and more focus. Let me mention the major recently closed and agreed upon portfolio measures. On January 31, BASF closed the acquisition of Solvay's polyamide business. The purchase price on a cash and debt-free basis amounts to EUR 1.3 billion. The business will be integrated into BASF's Performance Materials and Monomers divisions. With a complementary portfolio, a stronger regional presence and improved supply reliability, we will deliver significant benefits to our customers in the polyamide value chain. In December, BASF and Lone Star signed an agreement regarding the divestiture of BASF's Construction Chemicals business. The purchase price on a cash and debt-free basis is EUR 3.17 billion. The transaction is expected to close in Q3 2020 subject to the approval by the relevant competition authorities. In August, BASF and DIC reached an agreement on the divestiture of BASF's global pigment business. The purchase price on a cash and debt-free basis is EUR 1.15 billion. The transaction is expected to close in Q4 2020, subject again to the approval by the relevant competition authorities. On April 30, 2019, BASF and LetterOne completed the merger of Wintershall and DEA. With Wintershall Dea, we have created the leading independent European exploration and production company with international operations in core regions. BASF holds 72.7% and LetterOne 27.3% of the company. The integration is well on track and expected to be completed in December 2020. We expect synergies of at least EUR 200 million per year by 2022. The IPO is planned for the second half of 2020, subject to market conditions. The acquisition of assets and businesses from Bayer was a successful move. It enabled us to evolve from a producer of crop protection products to a supplier of agricultural solutions. BASF now supports farmers to optimize their yields and profitability by connecting crop protection, seeds and digital solutions. The acquired assets complemented BASF's already strong crop protection portfolio, added an attractive seed and traits business and strengthened our innovation pipeline. We now also have the foundation to digitally enable our crop protection and seed portfolio to create opportunities for new digital income streams. This fundamentally changes the way we approach the market. The integration was completed within 1 year with business continuity from day 1. In 2019, the acquired assets and businesses generated sales of EUR 2.2 billion and contributed more than EUR 500 million to the EBITDA before special items. Following the integration, we are now focusing on realizing top line synergies. By 2025, we target a mid-triple-digit million-euro amount in additional sales from the acquisition, and we are well on track to achieve this goal. Let me turn to the financial figures of BASF Group for Q4 2019 compared to the prior year quarter in more detail. Sales in the fourth quarter of 2019 decreased by 2% to EUR 14.7 billion. Volumes and prices were both down by 1%, mainly driven by the Chemicals, Materials and Industrial Solutions segments as well as Other. Portfolio effects also amounted to minus 1% and were related to the transfer of BASF's paper and water chemicals business to Solenis. With plus 1%, currency effects had a slightly positive impact on sales overall. EBITDA before special items increased by 20% to EUR 1.7 billion. EBITDA amounted to EUR 1.5 billion compared to EUR 1.3 billion in Q4 2018. EBIT before special items came in at EUR 765 million, 23% higher than in Q4 2018. Considerably higher earnings in Agricultural Solutions, Nutrition & Care, Industrial Solutions and Surface Technologies drove this increase. Overall, these segments were able to more than compensate for the considerable earnings decline in Chemicals and Materials. In addition, a better result in Other contributed to the earnings increase. Special items in EBIT amounted to minus EUR 305 million compared to minus EUR 151 million in Q4 2018. Special charges were mainly related to Other and Industrial Solutions. In Other, special charges resulted from the implementation of our Excellence Program. The divestment of BASF's pigments business led to one-offs in the Industrial Solutions segment. EBIT decreased by 2% to EUR 460 million in Q4 2019. The tax rate was 19.2% compared to 21.8% in Q4 2018. Net income amounted to EUR 150 million compared to EUR 348 million in Q4 2018. Reported earnings per share decreased from EUR 0.37 to EUR 0.16 in Q4 2019. Adjusted EPS amounted to EUR 0.63. This compares to -- with EUR 0.72 in the prior year quarter. Cash flows from operating activities increased by EUR 1.6 billion to EUR 3.2 billion in Q4 2019. This increase was mainly driven by a cash inflow from changes in net working capital of EUR 1.6 billion compared to a cash inflow of EUR 123 million in Q4 2018. Payments made for intangible assets and property, plant and equipment decreased by EUR 290 million and amounted to EUR 1.2 billion. Free cash flow came in at EUR 2 billion, compared to EUR 88 million in Q4 2018. I will now quickly comment on the earnings development in the full year 2019. At EUR 8.2 billion, EBITDA before special items was 11% lower than in the prior year. EBITDA amounted to EUR 8.0 billion compared to EUR 9 billion in 2018. EBIT before special items decreased by EUR 1.7 billion to EUR 4.5 billion. EBIT decreased from EUR 6 billion to EUR 4.1 billion. In total, special items amounted to minus EUR 484 million compared with minus EUR 307 million a year ago. This mainly resulted from the implementation of our Excellence Program and the integration of acquired businesses. The tax rate increased from 21.3% to 22.9%. Income after taxes from continuing operations declined from EUR 4.1 billion to EUR 2.5 billion. Income after taxes from discontinued operations increased from EUR 863 million to EUR 5.9 billion. In this line item, we report our Construction Chemicals business and, until end of April 2019, reported BASF's Oil & Gas business. The deconsolidation of Wintershall following the merger with DEA led to a book gain of around EUR 5.7 billion. Net income amounted to EUR 8.4 billion. This compares to EUR 4.7 billion in 2018. Let's now turn to our full year cash flow. Cash flows from operating activities decreased from EUR 7.9 billion to EUR 7.5 billion. This was mainly due to lower net income after the reclassification of disposal gains to cash flows from investing activities. In 2019, changes in net working capital resulted in a cash inflow of EUR 1.4 billion compared to a cash outflow of EUR 500 million in 2018. Cash flows from investing activities amounted to EUR 1.2 billion compared to EUR 11.8 billion in 2018. Payments made for intangible assets and property, plant and equipment decreased by EUR 70 million to EUR 3.8 billion. In 2019, net cash inflows from acquisitions and divestitures amounted to EUR 2.4 billion and were related to the repayment of shareholder loans and capital measures in the context of the merger of Wintershall and DEA. In 2018, net cash outflows of minus EUR 7.3 billion were mainly related to the acquisition of assets and businesses from Bayer. Free cash flow came in at EUR 3.7 billion compared to EUR 4 billion in 2018. Our disciplined working capital management and even stricter prioritization of investments contributed to this. Cash flows from financing activities amounted to minus EUR 6.4 billion compared to minus EUR 52 million in 2018. Changes in financial liabilities led to a net cash outflow of EUR 3.3 billion due to the repayment of financial debt. In 2019, we paid EUR 2.9 billion in dividends to the shareholders of BASF SE and EUR 125 million to minority shareholders. Turning to our balance sheet at the end of 2019 compared to year-end 2018. Following the considerably higher net income and lower net debt, our balance sheet is even stronger than before. Net debt decreased by EUR 2.7 billion to EUR 15.5 billion. Our equity ratio increased from 41.7% to 48.7% at the end of 2019, mainly due to the book gain on the deconsolidation of Wintershall. Noncurrent assets increased by EUR 12.6 billion. The main driver for this increase was the recognition of our participation -- participating interest in Wintershall Dea and Solenis at fair value. The introduction of IFRS 16 led to an increase of property, plant and equipment by EUR 1.3 billion. Current assets declined, largely due to the derecognition of the disposal groups for the Oil & Gas business and the paper and water chemicals business. At the end of 2019, we have disposal groups for our Construction Chemicals and pigment businesses. And with that, back to you, Martin, for the outlook.

Yes. Ladies and gentlemen, in the first 2 months of this year, we're already experiencing a high level of uncertainty in the global economy. The coronavirus has added a new factor that is considerably hampering growth at the beginning of the year, especially in China. Lower demand and production outages in many industries are already visible consequences of the measures taken to prevent the further spread of the virus. We anticipate that the negative effects of the coronavirus will have a significant impact worldwide, particularly in the first and second quarters of 2020. Our assumptions currently do not consider a worldwide spread of the virus that would lead to significant adverse effects of the global economy beyond the first half of this year. However, we do not expect the coronavirus to be fully offset during the course of the year. The global economy is therefore expected to grow by 2%, considerably lower than in 2019. For the global chemical production, we forecast a growth of 1.2%, which is significantly below the level of 2019. This would be by far the lowest growth rate since the financial crisis 2008/2009. We assume an average exchange rate of USD 1.15 per euro and an average oil price of USD 60 per barrel, Brent. We expect slight growth in most of our customer industries. For the automotive industry, one of our most important customer industries, however, we anticipate a production decline compared to the already low level of 2019. The main reason for this lower demand, extended production downtimes in China and possible interruptions in highly interconnected global supply chains. Based on these assumptions and due to the high level of global economic uncertainty, we have decided to provide ranges for our forecast in 2020. We strive to increase BASF Group sales to between EUR 60 billion and EUR 63 billion. EBIT before special items is expected to reach between EUR 4.2 billion and EUR 4.8 billion. Compared to the situation before the outbreak of the coronavirus, it will be much more difficult to achieve significant volume growth. The risk that the average upstream margins for 2020 will be below the 2019 averages has increased considerably. We expect the BASF Group's ROCE to reach between 6.7% and 7.7% and thus be below the cost of capital percentage of 9%. The average cost of capital basis will increase in 2020 due to the inclusion of the assets acquired from Solvay. Additional information on the forecast for the segments is available in the BASF Report 2019 on Page 137. For the next 5 years, we are planning capital expenditures of about EUR 23.6 billion. We will allocate 41% of our investments to Asia Pacific and 34% to Europe. In the last year's CapEx planning for the coming 5 years, Asia Pacific accounted for only 27% and Europe for 43% of the rolling investment guidance. Thus, you can clearly see the shift of our investments towards our growth region Asia. We focus our investments on growth opportunities. The expansion of our Asian business with our large investment projects in Guangdong and Mundra and battery materials. Of the overall EUR 23.6 billion, EUR 8.2 billion are budgeted for this. For 2020, we are planning capital expenditures of EUR 3.4 billion. For 2019, our initially planned capital expenditures of EUR 3.8 billion have been reduced to finally only EUR 3.3 billion in addition to property, plant and equipment. The reclassification of assets to the disposal groups supported this reduction. Ladies and gentlemen, let me conclude with our priorities for 2020. Despite the increased challenges in the macroeconomic environment, we will persistently implement our corporate strategy and transform BASF into a more agile, customer-focused company. We will actively drive sustainability and solution (sic) [ innovation ]. We moved R&D closer to the businesses to better align customer needs and R&D projects. We will push our positioning in growth markets in Asia and battery materials to outgrow global chemical production. The recent investment decision to build plants for cathode-active material in Harjavalta, Finland and Schwarzheide, Germany, is an important milestone and reinforces our commitment to support electromobility. We are executing the announced portfolio measures. We are integrating the polyamide business from Solvay. The major upcoming portfolio changes in 2020 will be the closing of the divestitures of BASF's Construction Chemicals and pigments business and the preparation of the IPO of Wintershall Dea. We will continue to implement our Excellence Program at full speed. Our corporate strategy is, first and foremost, a growth story and strategy. We are committed to implementing the defined strategic measures to achieve profitable and sustainable growth even in a challenging market environment. And now we are glad to take your questions.

[Operator Instructions] The first question is from Andrew Stott. He will be followed by Thomas Wrigglesworth and then Tony Jones. Now Andy Stott, UBS.

Martin, maybe first question for you. So the guidance, obviously not an easy year to offer guidance given the current situation. But I suppose what I'm interested in most is the conviction you have on downstream because you're obviously guiding for good growth overall downstream, including double-digit in Industrial Solutions. Would it be right to think that the first half is going to be well below in aggregate, and that as the cost savings come in and maybe there's an assumption embedded that, as you said, the coronavirus effects tail away, you should see a much stronger second half? So I guess what I could have said more simply is, from what you've seen in January and February, is it right to think you can still grow downstream in the first part of the year? That's the first question. Sorry. Can I steal a second? Hans, as a Board member for Wintershall Dea, I was intrigued by the comment that the integration is not complete until the end of 2020 an yet, the plan is still to IPO in the second half. So how do you marry those 2 statements? So how can you IPO before you've actually integrated the assets?

So Andrew, thank you very much. I mean first of all, when we talk about Excellence Program, we talked about run rates. That means more and more, we go forward, more and more, we will see also the cost savings kicking in and then also we'll see them actually in the P&L. I mean overall, let me say that downstream, I think we have done really a good job in 2019. It was already a very difficult environment, and we have actually showed that we can grow the business and grow them profitably. So that is also what, even in a more difficult environment, and an additional blur element of the coronavirus now in the first half year, we still think and are ambitious to continue that way forward. And with this, certainly, in the area of the first -- or in the time of the first 2 quarters, where there will be the, one or the other, surprising element from -- hampering global supply chains, there will be also the one or the other effects in the downstream. So as this might clear up, then there will be also a better, more positive business environment, which I would then also see a more acceleration and the easier performance downstream than in the second half. So I think your assumption in that respect are right. I think it was important that we really -- I think we are the first one having a clear view on corona because it is now really visible. We are at the end of February. And I mean nevertheless, we see also the infection rate maybe going down -- or peaking in China. There are still hundreds of infected every day newly, and we see it now in other countries. So we will also see the surprise, how -- in discussing globalization, how much China is actually part of the value chain. And I think, actually, by talking to the customers, I am not sure whether everyone on the customer side is really aware how it will impact. There will be surprises in the supply chain. So far, I think they work from the stock. Now you will see when stuff has to be transported, first produced and then transported from China to Europe, that takes 6, 8 weeks or even more. So there will be effects. And we still -- I think this will also be visible in the downstream area. However, I think -- one word also in upstream, where I think this whole effect generates an even more depressed environment because demand is certainly low in an oversupplied market. And this is why I think we all expected that we get at least a little bit relief also on the upstream side. But now I think we have to really assume that the low margin level of Q4 is basically going into 2020 and giving us not much leeway. Last word. We certainly push as much as we can now on the volumes also. That will be then a balance between volume and pricing, but all we do in BASF to rebuild the company is to participate in growth, and that has now to kick in, even if the market is only with 1.2%, that means that BASF has to grow above that. So that's a little bit the environment we're in, but a long answer to your question, but I think this is maybe also of interest for all the others. And I think your basic assumptions are right. And with this, Hans?

Andrew, your question on the Wintershall Dea IPO, how does -- what we said all the time go to -- which is an IPO in the second half of 2020, depending on market conditions, goes hand-in-hand with concluding the integration work by the end of 2020. Now first of all, just to repeat this, we want to be IPO-ready in the second half of 2020. That's first point. Second point is decision of the shareholders will then depend on the market conditions. I think that's an obvious one. What we'll be able to demonstrate in the second half of 2020? We will be able to demonstrate to potential investors that Wintershall Dea is delivering on the promises it has made, and these are prominently: one, the production growth; and two, also bringing in the synergies. With respect to the synergies, we said that we're striving for a minimum EUR 200 million in synergies. Out of that, on a run rate basis, there is EUR 100 million already in the back. So that can be shown, that can be proven. And I think with that, we are on a good path overall. Preparation for the IPO is ongoing, and I don't think that there is an issue with the fact that we say that the integration will conclude by the end of 2020.

Since we have quite some analysts in the line, and we will extend this call by probably 15 minutes, so don't go away, you will also get the chance to ask your question. We now come to Thomas Wrigglesworth, Citi.

First question on the battery materials plant and system that you have. You've said start-up in 2022. Could you just share with us how you see this evolving in your plans? Is start-up the same as commercialization? I assume that you're not going to produce at a 400,000 tonne -- car run rate to start off with. When would you expect to achieve breakeven on that facility under your assumptions? And then a second question -- sorry to come back on the guidance but you have given a range. I'd kind of be really interested to know what's defining the high end and the low end of that range. That would be very helpful.

Thomas, you broke off in the second part of your question. Could you please repeat this?

Sorry. I just -- you've given a range. I'd be very interested to learn what defines the high end and the low end of your range. Any color around that would be -- I know it's difficult to forecast, but any color would help -- be helpful.

Okay. So with respect to the range, we're obviously in a relatively difficult position at this point in time. As you know, that has led to our decision to go with a range at this time. The range is, on EBIT before special items, as you've seen, from EUR 4.2 billion to EUR 4.8 billion. What this reflects in the end is the kind of uncertainty as we have it now at the end of February. There are various factors. And if I walk you through how we, in the end, came up with this, I can tell you that only in the beginning of this week, we were at a point where we had looked at all the scenarios, we had put together all the different data points that we could put together. And that then led to this decision and this kind of a range. Frankly, we came to the conclusion we cannot be any more specific, and we cannot give you any better guidance than what we are seeing, considering various scenarios. The plan would be to shrink this range during the course of the year 2020. The more visibility we gain, the smaller the range that we will guide in.

So Thomas, one word on the battery materials. I mean we are in the qualification of the materials, we talked to quite a few people. We have also some MOUs signed on that, but we have also not finally decided about all the volumes to whom they go. I think there is a lot of demand in the market because, actually, if you take only half of the [ dreams ] of the OEMs in Europe, there will be a shortage of at least material in the region. So we don't expect that we finally also allocate this material. But with this not having full commercial contracts on all the volumes, it means also I cannot exactly tell you when there will be the breakeven. But you can assume, and I assume, that the plan will be loaded rather quickly. And if that is the case already, almost from the beginning, then also we should have very early breakeven point. This is a rather complicated process because there's a lot of technical assessment in qualifying the material. You certainly come also from material or you start this material from pilot plants, but you have also later on, to verify that this material coming from production has the same quality. That this is a rather quick thing is clear, cannot take a long time in quarters but there will be also a qualification from the materials from the plants finally. But given the fact that there is a lot of growth in electromobility and not so much material, we don't see that this is a major material part. And maybe let me also add, we are part of the IPCEI, which is this important project of common European interest, which gives us also some support in terms of economics later in this plant.

The next question is from Tony Jones, Redburn. He will then be followed by Christian Faitz and then Matthew Yates. So now, Tony Jones, Redburn.

I've got 2. I've got one for Hans and one for Martin. Firstly, would you be able to go through and walk through the operating cash flow factors, how you best see them developing over the year? So we can bridge free cash flow and get a bit more comfort on the midterm outlook for the dividend? And I'm particularly interested in how you think working capital might unfold with demand maybe down and lower raw material costs. And then for Martin, a bit more strategic, really, we've got multiple value chains with margins at trough and too much capacity, maybe even more to come. As a global leader, are you thinking or prepared to act and permanently close some of your own capacities to bring things back into balance?

Okay. Tony, I will start with one of your questions, and I will not disappoint you. I'll take the first one on the cash flow. Operating cash flow during the course of the year with the -- already with the divestiture of our gas and gas trading, gas storage business and then even more so with the acquisition of the Bayer assets, our cash flow profile has changed quite a bit. It has changed in a way that the second half of the year is -- should be significantly stronger than the first half of the year because in the first half of the year, this is when seeds and crop protection products in the Northern hemisphere are sold and payments are to be expected for that, then in Q3 and in Q4 after the harvest is sold. And you see this already in a pronounced way in -- you saw it already after, as I said, the divestiture of gas trading and gas storage, but in a more pronounced way now, in particular, in the year 2019, where we now have a full cycle of the sales of the Bayer assets, where in '18, we missed them, the northern hemisphere season, with these assets. How working capital will play into this remains to be seen. You saw what we generated out of working capital, in particular, in the fourth quarter 2019, frankly spoken, we set there with inventories, which, let's say, at the end of Q2, were not 100% in line with the market developments that we saw, and we've used all efforts to bring inventories into line with an overall slower environment. And we succeeded with that, as you can see in the fourth quarter. So what's going to happen there in 2020 with respect to working capital impacts on cash flow? Here is what I think we are going to see, the environment, at least in Q1, is slow. We will adjust our production to it. We will see to it that we do not produce too much into inventory, at the same point in time, we will need cash and have cash use for, in particular, again, the ag business, which has its strong part of the season in Q1 and Q2. So we expect to see a pattern, overall weaker cash flow generation Q1, Q2, stronger than in Q3 and Q4.

Tony, on your question about our positions in the chains and base chemicals upstream, we have not really on the list now that we have to shut down assets because if you look on our benchmark curves and the industry cost curves, I would say, most of the plants we operate, we are very well positioned, on one hand, from a cost side, has been integrated on the Verbund. But on the other hand, also from a technology part, so I think that would not make sense. We have done in the past this and the last one we did is actually capacity we have took out from caprolactam and [ Ludwigshafen to adjust ], but I think this is not us who should go out. And you should also consider that a lot of the material we produce upstream is actually internally processed for our downstream plants. And what we do, however, going forward, having this situation, we certainly absolutely minimized our CapEx in these areas. So we have now finished the acetylene plant, which was an important building block here and Ludwigshafen to improve cost position, expand and replacing an old plant. And we have not many projects now on our plan. There is one actually in -- which we have seen as an upside and derivatives in Antwerp, but that is an example that is clearly driven by the need of Care Chemicals, to develop actually their portfolio further, which is in the downstream position and you only place the remaining volumes on the market. So I think what we should do is we should really operate the plants nicely, try to fill them, even in a difficult environment, but reduce CapEx to the minimum. So that would be rather how we react.

The next question is from Christian Faitz, Kepler Cheuvreux.

Two questions, please. First of all, with COVID-19, I appreciate that the demand situation is changing on a daily basis as we speak. Yet, outside of China, can you please comment on demand in your relevant geographies, specifically for your product chemical activities in Western Europe and in North America? And then second question, I'm just trying to get a better understanding of your seeds setup. Would it be possible to give us an idea of the split between and field seeds and veggie seeds?

Christian, let me start a little bit with the corona side. I mean we don't have a clear picture, let's say, North America and EU. I was also in [ a circle ] last week with -- maybe meeting with about 100 CEOs from different industries, also partially our customers. And you see that in many of them, and they have all individual problems, whether they can start their plants, and they have now concerns about raw material supply, about the missing key part coming from China, not having packaging materials. So it's really individual problems. . What we have to do now is to really be in an intensive dialogue with our customers to understand it and also see how we can actually support them. And I would expect, as you said, there is a daily learning on the virus and its impact. So this is the same also from our customer side. But what we can see overall is a very, very cautious ordering behavior. So they rather prolong and drive their inventories down or that's what they have done also over the -- at the end of the year and have not refilled them. So it is a little bit more living from hand to mouth. So I think we will now see, over the next weeks, what is happening. But I think what is also clear by seeing how it develops and how you see Germany coming up, France has some cases, Italy, has some cases, will not be the end of the development. Iran, now not so important for the chemical market, but you see there, there is a huge explosion almost of infection. So I think we will learn from all of that and so will our customers. And this is also why we have said we are prudent. We are now at the end of February and we are far away from normalization. This is why this whole thing will go into the second quarter and then have, even the next 1 or 2 months after that, some impact. So we really have to learn that. But what we can see by talking to the customers that basically this is spreading out to be a global topic.

Sure. Okay. So far, January, February, also in terms of demand, Western Europe, North America, not much going on, right? That's what I read from your comments?

Yes, slower, at least than we have anticipated.

Yes, Christian, your question on the seeds business, what's the split there between field crops and veggies. It's about EUR 1.4 billion in sales that we have in seeds in total, and the rough split there is 70% field crop seeds and 30% veggies.

The next question is from Matthew Yates, Bank of America.

A couple of questions. The first one, your Slide 20 where it talks about the priorities. I'm not sure if these are deliberately ranked. But number one, the implementation and transformation into a more agile, customer-focused company. So last year, you said you had EUR 600 million of EBITDA contribution from the measures, and 2020 you're guiding for an extra EUR 800 million as a run rate. Can you just help me understand where exactly we see that come through into the P&L? You said it would take time. But obviously, given the context of the group guidance, where should we be looking to kind of audit the delivery of this restructuring? The second question maybe is for Hans. It's a follow-up to the Q3 call when you were asked about Wintershall budgeting for 2020, are you able to be a bit more explicit in the other line, how much would be central overheads and how much you're budgeting for Wintershall contribution?

Yes, happy to take your questions. Actually, I'll take both of them. Your first question was on where do we see the Excellence Program reflected in your P&L. And the honest answer is all over the place. I mean there's everything in there from top line measures to cost measures. These are hundreds of measures that we are implementing, and we're actually making good progress with that 2019 -- end of 2019. We are where we wanted to be, i.e., at a level of an EBITDA contribution of -- I think we said originally EUR 500 million. We're a bit above that with EUR 600 million. And with the measures in place to continue with the program and achieve also in 2020 what we are looking for. And I'm not trying to tease you here, it is really measures that are affecting P&L in various places, starting with top line and then obviously, also what you would expect from an Excellence Program, i.e., cost-reduction measures in there, also affecting each and every cost item that you can think of, from variable costs, i.e., raw material costs, by way of improving processes, using less raw material, to cost reductions in fixed costs across the board. Hope that helps to put things a little bit into perspective. Your second question was then on the -- if I got that correctly, on the guidance for other and what's happening there. What are the contributing factors to an overall better performance in others, is that correct understanding, Matthew?

Yes, exactly.

Yes. Okay. So what do we expect to see in 2020 that drives this improvement? There is, in particular, as you can see in our notes, the fact that both equity and equity-shown participations, i.e., Wintershall Dea and Solenis, are negative in the year 2019. That is not a surprise. If you think about the fact that these businesses go through a significant amount of restructuring and the related effects then come through in the net profits and our respective share in these net profits. There's another element that is important to understand, which is -- and I'll give you this, in the case of Wintershall Dea, we went basically through an entire purchase price allocation for Wintershall Dea. So we looked at each and every asset, and we reflected market value of these assets then in our balance sheet and in the equity participation. This is not by choice. This is simply following IFRS rules. What this leads to is then the significant deconsolidation gain that you have seen, but also a stepup of the respective assets. That then needs to be written off over time. And the effect of that, in the case of Wintershall Dea in the year 2019, is EUR 200 million. The other thing that you need to keep in mind is we are showing Wintershall Dea results for the time period of May until December. And we'll obviously have full year impact then in 2020. I hope that helps to put things in perspective there. Other cost positions, to the extent we can forecast them, such as, for example, the corporate costs that we have in Other -- or the corporate research costs in Other, our expectation that this will be also lower than what we had in 2019. Look at the level we've reached in Q4 of 2019, that should give a relatively good guidance for what to expect there in 2020.

The next question is from Laurence Alexander, Jefferies. We then have [ Jaideep Pandya ] and then Chetan Udeshi. Now, Laurence Alexander, Jefferies.

Just a quick question again on the outlook comments. The [ tornado ] charge of sensitivities that you present in the annual report is heavily skewed to the downside. I think there's like 5 factors that are more skewed on the downside rather than the upside in terms of risk weightings. How do you think about sort of the range? I mean were you trying to give a little bit of a more optimistic range? Or did you see it as a -- or do you see that as sort of a countervailing factor that isn't included in that framework?

Laurence Alexander, I'll try to take that one. It's obviously not an easy one because there's not an academic and precise answer to it. What you have in the opportunities and risk report is -- and when you compare that to prior years, it is not so different from what you've seen there in prior years. What gives you really the key impacts on market growth, on margins, so that picture hasn't changed that much. And it is less, these -- the usual, I would call them, risk factors that we are reflecting in giving you a guidance, it is more the elevated or heightened uncertainty that we have at this point in time where news keep developing on a daily basis, where, frankly, just to give you an idea, we started looking at our supply chains, getting a clear understanding on raw materials, on technical goods, on inventories that we have, on the reach of inventories about a month ago. End of last week of January, we started to assess the potential impacts. We gained more and more insight. And with that insight, to a certain extent, also the uncertainty increased. And this is what you see reflected now in the type of guidance that we are giving. It's less reflecting what you have in the chances and risk report, it is more reflecting the uncertainty that results from the very, very recent events, which, by the way -- and I'm not sure that I should say this at this point in time. When I glanced over the comments that our results caused, I was a bit surprised by the fact that the big miss with respect to consensus was highlighted. If you think about consensus and the consensus that goes back to February 5 and where we are today, I think we all should agree that we learned a whole lot more than what we knew on February 5.

Now [ Jaideep Pandya ], Millennium.

First question is just on oil and gas. So I appreciate that it's difficult to answer this, but considering where the gas markets are and where the oil investors' psyche is today with ESG and all, what is the plan B, if I may ask? If you -- if market conditions are not good in H2 for the IPO, I mean if you can just give us some kind of thinking in terms of how do you think about this asset and if there is any possibility that oil and gas actually might come back to BASF or you can actually sell it to a private equity or other strategic parties. So some thoughts there around that would be really helpful. Second question is for you, Martin, around CO2 targets. So it's a really challenging and interesting target that you want to be neutral by 2030. I just want to understand how will you achieve that considering you're putting so much CapEx, especially in upstream around -- on the ground and Asia, as you say, in the next decade. So I just want to understand where are you actually going to see net CO2 reduction in the portfolio? And then sorry for this question. Finally, I appreciate it. It's very, very early in the year, but the setting of this year is very similar to last year. And you said last year that you don't mind borrowing a bit to pay or maintain the dividend. So should we think that the fundamental philosophy of BASF is exactly the same? And then finally, I would really like to thank Martin Liedemit, I know it's his last day today. And so I really appreciated his help and support and good luck.