BASF SE (BAS) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. It is a pleasure to host you here at BASF in Ludwigshafen and to again be having a physical meeting with investors and analysts. We are glad that you accepted our invitation. Let me remind you that today's keynote and Q&A session are being live streamed on the Internet. A replay will later be available. One further organizational remark you are already familiar with. Today's presentation contains forward-looking statements that may not prove to be accurate. We do not assume any obligation to update these forward-looking statements above and beyond the legal requirements. Now it is my pleasure to introduce our keynote speakers for today Dr. Martin Brudermuller, Chairman of the Board of Executive Directors; and Dr. Dirk Elvermann, Chief Financial Officer. Now without further ado, let's move straight to the keynote presentation, Martin, Dirk, over to you.

Thank you, Stefanie. Ladies and gentlemen, thank you very much for joining our investor update. I'm very pleased that so many of you have found the time to attend in person, but also a very warm welcome to the participants who have dialed in. The focus of today's event is to provide an update on the progress we have made in implementing our corporate strategy from 2018. We also have some news to share that will already be reflected in our reporting for 2023. In the recent years, the 3 tasks shown here have made up a large part of the work of the Board of Executive Directors. And this is why they provide the basis for the structure of our keynote presentation today. I will begin with a review chapter. Then Dirk will speak about our new approach to steering our businesses and BASF Group. And finally, I will conclude with an update on our path to net zero. Let's get started right away with a look at how BASF is delivering on its priorities for the use of cash. At our Investor's Day in November 2018, we gave clear guidance on our future capital allocation in the context of our new corporate strategy. Since then, we have used cash in line with the priorities we set. Between 2018 and 2022, we spent around EUR 50 billion. As our corporate strategy is based on organic growth, we allocated around 60% to capital expenditures and research and development. Shareholder returns and an attractive dividend are of high importance for BASF's Board. We have, therefore, increased the dividend in 3 of the past 5 years. In 2020 and 2022, we kept it stable at the respective prior year level due to the challenging framework conditions. The total dividend payout since 2018 amounts to EUR 15.8 billion, and the average dividend yield is 5.6% per year. Through our continuous portfolio management, we have focused our portfolio towards innovative growth businesses. In the past 5 years, we have divested businesses with sales of EUR 5 billion and acquired businesses with sales of EUR 4 billion. In total, net payments related to acquisitions and divestures amounted to EUR 1.4 billion. Share buybacks are also part of our capital allocation framework. Between January 2022 and February 2023, we purchased shares for around EUR 1.4 billion. This corresponds to 2.8% of the share capital when the program was announced. Currently, we are not buying back shares in view of the global economic and geopolitical environment. Let's take a closer look at our capital expenditures over the last 5 years and in the first 10 months of 2023. We actively reduced the share of investments in BASF's ongoing businesses while deliberately increasing the share of spending on our major growth projects over time. Major investments that we have completed include the acetylene plant and the vitamin A expansion in Ludwigshafen and the ethylene oxide expansion in Antwerp. Acetylene and ethylene oxide are versatile building blocks for products for a multitude of customer industries. Vitamin A is used by the human and animal nutrition sector as well as in personal care products. The construction of the HMD plant in Chalampe and the final phase of the MDI plant expansion in Geismar are still ongoing. HMD is a precursor to produce polyamide 6.6 plastics and coatings, for example, for use in the automotive industry. With the MDI plant, BASF will serve growing demand from North American customers in the construction and appliance, transportation, automotive, footwear and furniture sectors. Over the last years, we have begun to focus CapEx more and more on the construction of the Verbund site in Zhanjiang and in our battery materials business. These are 2 pillars of BASF's future organic growth. As announced on our Q3 2023 analyst conference call in October, we will reduce CapEx by EUR 4 billion from 2023 to 2027. Therefore, a reduction of EUR 1 billion will already be achieved in 2023. We are responding flexibly to the changes in the market environment. We are currently faced with a significant imbalance in supply and demand in several value chains: energy price increases, especially in Europe; and an overall subdued market demand. We will, therefore, maintain our focus on capital discipline across the entire portfolio of BASF Group. Which levers we are using to achieve the targeted CapEx reduction? In our ongoing businesses, we will postpone noncritical projects in line with market demand. Instead of investing in the construction of new plants and capacity expansions, we will focus on highly CapEx-efficient measures such as debottlenecking or increasing capacity -- increased capacities and to improve the overall utilization. We will also review planned replacement investments and, where appropriate, postpone them. We are also tightening our belt somewhat with regard to our growth projects. At our Verbund site project in China, we will further leverage the favorable procurement environment and will also tailor additional planned investments beyond the current scope in line with market development. In our battery materials, we will use flexibility in scheduling and in the sequence of the investments, and we'll also evaluate partnerships to bring down CapEx. In BASF net zero transformation, we will maintain the overall investment scope with a clear focus on CO2 reduction, renewables and recycling. We will, however, fund certain investments such as wind farms via project financing, which will require less CapEx. In addition, we will strike the right balance between power purchase agreement and on own investments in the production of green electricity. This slide demonstrates that BASF has been a strong cash generator over the last decade with average annual cash flows from operating activities of EUR 7.7 billion. In the same period, free cash flow amounted to EUR 3.4 billion on average and supported our attractive dividend policy. In the first 10 months of 2023, cash flows from operating activities amounted to EUR 5.1 billion and free cash flow reached EUR 1.3 billion. The strong sequential improvement since Q2 this year reflects our further increased discipline in inventory management. Our strong balance sheet, high equity ratio and good credit ratings give us the necessary financial strength to deliver on our practice of keeping the dividend at least at the previous year's level. At BASF, active portfolio management is an ongoing task. Since 2018, we acquired emerging and innovation-driven businesses with enhanced -- which enhanced our portfolio. This made us more resilient and enabled a fast entry into new markets like battery materials or seeds. The acquisition in polyamides improved our existing market position. Over the same period, we divested businesses such as the construction chemicals, pigments as well as the water and paper chemicals. These businesses offered only a limited differentiation potential at the time of divestment. We also divested a couple of smaller businesses and sites. In this way, we have reduced complexity and sharpened management focus. For the last slide in this chapter, I will hand over to Dirk, who will then also present the second quarter -- second chapter.

Yes. Thank you, Martin. Good afternoon, ladies and gentlemen. As you know, we continue to pursue our strategic goal of selling BASF's 70.2 -- 72.7% share in Wintershall Dea, and we are working on the monetization options. Legal separation of Wintershall Dea Russia-related business announced in January 2023 is planned to be completed by mid-2024. In this context, the international E&P business, the German production as well as the activities related to carbon management and hydrogen are to be legally separated from all joint ventures involving Russian interests. This includes stakes in joint ventures in Russia, the ownership interest in Wintershall AG in Libya, the Wintershall Noordzee B.V. in the Netherlands as well as the shares in Nord Stream AG. Significant federal investment guarantees are in place, as you know, for the Russian assets. Wintershall Dea has adjusted its corporate strategy to reflect the changes in the energy sector and particularly its exit from Russia. Company is reorganizing its company structure with the target of reducing administration costs by around EUR 200 million per year. In the future, the Management Board will comprise 3 instead of 5 members. And as part of the restructuring, the company plans to reduce around about 500 positions. And as soon as there is additional information to share on the progress of the monetization of our shared Wintershall Dea, we will certainly do so. And with that, ladies and gentlemen, I will now move on to the second chapter and speak about how we are developing the steering of our businesses to generate higher profitability. The transformation of BASF into an agile and customer-focused organization and the empowerment of our businesses to better serve the needs of their customers were a key part of the strategy presented in 2018. Following the principles of empowerment, differentiation and simplification, BASF has taken measures to increase the steering abilities of the individual businesses. To sharpen our focus on customers, we started by embedding all business-critical services in the operating divisions. This empowered the business units by allowing them to define their own requirements rather than having to follow a one-size-fits-all approach. In the next step, we brought customer-focused R&D into the operating divisions to increase the proximity between our businesses and their customers. This was then followed by the streamlining of business services, digital services and R&D at the company level. And now we will go one step further. We will increase BASF's competitiveness by adapting how we steer our individual businesses. We are doing this in a changing global chemical market environment. Our competitors and our customers are also continuing to change considerably, and these changes are structural rather than temporary. Now for battery materials, coatings and agricultural solutions, we see a clear trend towards pure-play competitors that cater to the specific needs to the respective industries and customers they serve. For the Verbund businesses, there is growing competition from China and the Middle East. Many of these competitors are growing fast and have an efficient and focused product offering. They're expanding their product portfolios along the value chain step by step and, in some cases, have started to export large volumes of chemicals to the European market. A third important aspect in our competitive environment is the shift in consumer demand. Our customers' markets are moving toward Asia and especially to China. By 2030, around 3/4 of the growth of the chemical market is expected to come from China alone. In implementing our corporate strategy, we have already taken many steps to adjust BASF's organization to reflect these changes in the market environment. And now we will introduce what we call differentiated steering to address the industry-specific needs of our customers. So how will we do this? Our Verbund businesses comprise the Chemicals, Materials, Industrial Solutions and Nutrition & Care segments. We will continue to manage these businesses along value chains and generate value through the efficient use of resources through bundling of demand and synchronized deeply integrated production. BASF's long value chains provide us with a cost and reliability advantage. In our Verbund sites worldwide, we produced the basic building blocks in world-scale upstream operations that feed into our downstream specialties. The better we steer these value chains, the better we can serve our customers and strengthen BASF's profitability. Having full transparency across the entire chain is a unique advantage of BASF. So looking forward, value chain management will become even more crucial because we will attach sustainability attributes such as the product carbon footprint or biomass or recycled content to our products. We want flexibility, and we want to have the best offerings of green attributes for those customers who are willing to pay for them. This will be a real differentiator for BASF and will capture value from the Verbund. Now in the Verbund businesses, we target an EBITDA before special items margin of 17% over the cycle. Although the Chemicals and Materials segments may contribute significant EBIT before -- EBITDA before special items, the respective margins can be highly volatile because sales fluctuate considerably due to market price developments. We will, therefore, also define absolute EBITDA before special item targets for these 2 segments each year. By setting an overall EBITDA before special items margin target for all Verbund businesses, we support maximum earnings generation along the value chains. With that, let's move on to the businesses that are less deeply integrated into the Verbund. We will give them more space to meet industry-specific needs while retaining the benefits of an integrated company. This will be supported by adapted process structures, IT systems and governance frameworks. This approach will apply to battery materials and coatings within the Surface Technologies segments as well as to the Agricultural Solutions. The battery materials business requires a high level of agility to respond to dynamic market developments and to form alliances and partnerships. By 2030, we continue to aim for an EBITDA before special items margin of at least 30%, excluding metals. Coatings requires a high level of flexibility as well as formulation and surface knowledge skills to serve customers from the automotive, aviation and further industries. Due to the high number of customers and articles, managing complexity is crucial in this business. It is our goal to reach an EBITDA before special items margin of 15% or higher in the mid-term. And Agricultural Solutions has moved from producing crop protection products to providing farmers with agricultural solutions that connect crop protection, seeds and digital solutions. Furthermore, it generates new business models by integrating data and mechanical hardware. The additional step now is required to underpin our ambition to return to an EBITDA before special items margin of 23% or higher in the mid-term. And as I will explain in a moment, we also place a strong focus on cash generation across all our businesses. So in a nutshell, we want to use differentiated steering to become even more focused and competitive. We are combining the benefits of a more differentiated approach to steering individual businesses with the advantages provided by the Verbund and our setup as an integrated company. Our Verbund is characterized by interconnected value chains. We optimize the use of byproducts from one production process as import for other production plants. The Verbund also offers major economies of scale, for example, in terms of our power supply where we can secure favorable cost positions by generating our own power and steam. And lastly, the Verbund is a game changer on our journey towards net zero. With our unique setup, we can manage this transition far more efficiently than other companies can do. Ladies and gentlemen, differentiated steering will provide more transparency for steering and decision-making and it will help us allocate inventories at the right points in our value chains. Overall, this will increase supply chain resilience and reduce inventories to free up cash. By better tailoring processes to the underlying business models, we will reduce complexity and increase our agility and speed. And as a result, all our businesses will benefit from more differentiation. In Battery Materials, Coatings and Agricultural Solutions, this will be due to their ability to further increase industry focus. The Verbund businesses, on the other hand, will benefit from being able to focus even more strongly on the advantages of the Verbund. BASF will remain an integrated company with a strong balance sheet an A credit rating and thus favorable financing conditions. Its broad portfolio and innovative strengths are appreciated by customers. They turn to BASF when chemistry is the key to finding solutions. In the following, I will show you the changes to our steering KPIs at BASF Group level that we will be implementing as of January 2024. Until now, we have provided forecasts for sales, EBIT before special items and ROCE. We have also given guidance on capital expenditures at the corporate level. In 2018, we defined financial targets for organic volume growth and EBITDA before special items and have reported on the respective target achievements every year since then. In the short term, we will now put an even stronger emphasis on managing EBITDA before special items and cash generation at the corporate level. For the mid-term steering of BASF Group, we will also use EBITDA before special items and, in addition, the cumulative free cash flow. With an absolute EBITDA before special items targets, we underline our commitment to profitable growth. And a cumulative free cash flow target focuses on strong cash generation over the cycle. Furthermore, we will continue to have ROCE as a mid-term steering KPI to emphasize the importance of steering toward asset profitability over time and taking appropriate decisions on capital allocation. The following slide shows that EBITDA before special items and free cash flow will become the most important financial KPIs for BASF Group instead of ROCE. We will maintain our focus on CapEx discipline and will steer it via the free cash flow. As part of differentiated steering, we will introduce new steering KPIs for our operating divisions and will report on segment level. Key criteria when selecting the KPIs were the strategic direction of the business, the role of the business in BASF portfolio and the contribution of the business towards our corporate targets. We will focus on industry-specific value drivers and have decided to set a maximum of 3 financial targets per business. A further aspect is that we will also benchmark our performance even more closely with that of our competitors. Going forward, the earnings KPI for the Chemicals and the Materials segments will be absolute EBITDA before special items. For the Industrial Solutions and the Nutrition & Care segments, sales growth and the EBITDA before special items margin are the new KPIs. For the Surface Technologies and the Agricultural Solutions segments, EBITDA before special items in absolute and relative terms will be the relevant KPI to measure earnings performance. As an additional KPI, all segments will have a cash flow target to measure their contribution to BASF's free cash flow. To foster stronger performance, we already introduced a new short-term incentive system for senior executives in Battery Materials, Coatings and Agricultural Solutions in 2023. For senior executives in the Verbund businesses and in support units, the new STI will be introduced in 2024. In this way, we want to better adjust targets and rewards to the specific nature and performance of the individual business. The STI for our operating divisions will comprise 3 additive elements: 25% will be related to BASF Group performance measured as ROCE; 50% will be linked to distinct business-related financial KPIs of the respective operating division, for example, EBITDA before special items in absence -- absolute or relative terms and the cash flow of the respective division; and 25% will depend on the achievement of nonfinancial targets. Such nonfinancial targets are, for example, related to the transformation, sustainability and safety and corresponding KPIs. Now this illustration shows what our forecast for 2024 will look like when we publish the BASF Report 2023 at the end of February next year. Instead of giving an outlook for sales, EBIT before special items and ROCE, we will forecast EBITDA before special items and free cash flow at group level. We will thus combine cash flows from operating activities and CapEx in the single forecast figure. Furthermore, we will provide a forecast for EBITDA before special items and cash flow for the segments. It should be noted that the segment cash flows will not completely add up to the group cash flow because P&L items below EBITDA as well as certain balance sheet items are not allocated to the segments, as you know. At the group level, we will further improve transparency on our cash drivers by providing more granularity in our cash flow statement in the BASF reporting. The forecast at BASF Group level will remain an interval forecast, while we will continue to use a qualified comparative forecast for the segment. That means that we will provide you with forecast ranges for EBITDA before special items and free cash flow for BASF Group. For the segments, we will continue to indicate whether a slight or considerable increase or decline is to be expected. With the new approach, our external reporting and forecasting will be aligned with the internal steering toward EBITDA before special items and cash performance. And with that, I would like to hand to you, Martin.

Yes. Thank you, Dirk. Now I would like to finish the presentation by talking about topics that are particularly close to my heart, sustainability and the transformation of BS towards net zero. The enhanced TripleS methodology will be another valuable tool to help increase our customer focus. It makes stainability measurable and helps us steer our portfolio towards solutions that contribute to climate protection, resource efficiency and the circular economy. We took the opportunity to refine the TripleS method after achieving our 2025 target for increasing sales of accelerator products already ahead of schedule in 2021. Under the new approach, we analyzed the positive and negative impacts of our 45,000 products over the full life cycle and assign them to 1 of 5 categories: Pioneer Contributor, Standard, Monitored and Challenged. Pioneer products contribute significantly to sustainability and exceed the market standard. By introducing Contributor as a new category, we are able to better show the contribution of products that meet the market standard while still making a positive contribution to sustainability. The TripleS logic was adopted by the World Business Council for Sustainable Development, when developing its Portfolio Sustainability Assessment methodology. As a result, TripleS is aligned with the industry standard for product portfolio assessments. We are still finalizing the segmentation of the global product portfolio using TripleS. Following the validation by our auditor, the results will be shown in the BASF Report 2023. But today, I would like to give you a sneak preview. Based on forecasted figures for 2023, we expect that around EUR 57 billion in sales will be in scope for TripleS. Sales of platinum group metals within ECMS and sales from strategically nonrelevant businesses such as IT services or licenses are not included. Compared with the previous segmentation in 2021, the share of challenged solutions has increased. This is because we have included new hazard classes, even though REACH revision has not yet been adopted. In this regard, we are ahead of the curve and our industry peers. We stand by our commitment of phasing out such products within 5 years for classification in this category. In the top 2 categories, Pioneer and Contributor, we expect that sales of products will amount to around EUR 24 billion in 2023. This corresponds to 42% of sales that are in scope of TripleS. We have now defined a new KPI of Sustainable-Future Solutions as the sum of Pioneer and Contributor sales. We aim to increase SFS sales from 42% in 2023 to more than 50% by 2030. This target setting is driven not only by sustainability considerations, but also by the fact that the margin of products in these 2 categories is up to 10 percentage points higher than for the rest of the portfolio in scope. In the past, sales of these products also grew faster than the rest of the portfolio. Here is a practical example where a Pioneer product can provide a competitive advantage among environmentally conscious consumers. Infinergy is an expanded thermoplastic polyurethane from which we have developed a very successful midsole for running shoes together with Adidas. By switching to a feedstock based on recycled materials, we can almost half the PCF, and the new variant is classed as Pioneer in TripleS. If in future, we can succeed in closing the loop using suitable recycling methods, our customers will even be able to offer products with a net zero carbon footprint. The original goal in our 2018 strategy was to ensure climate-neutral growth. This was already ambitious in view of the emission reductions we have implemented until then and the expected emissions from growth, for example, from our new Verbund site in South China. The more we worked on this topic, the more possibilities we began to see. In March 2021, we therefore, increased our ambition and set reduction targets for Scope 1 and 2 emissions, a 25% reduction by 2030 compared with 2018 and a net zero by 2050. We also defined 5 levers for reducing Scope 1 and Scope 2 emissions as part of our carbon management. These can be summarized under the umbrella terms, renewable energies and carbon abatement. In addition, we are making ongoing improvements to our processes that can fall in either category. That is what we call operational excellence. Here, you can see the progress we have made in reducing Scope 1 and 2 emissions since 2021. The dotted line in orange at the top indicates the likely emission paths without mitigation methods based on the 2018 projections. The area within the 2 broken green line shows the expected corridor for our annual CO2 emissions, while the solid green line shows the trajectory of our actual emissions. Currently, the actual trajectory is below the forecast. This is mainly due to the weak demand environment followed the corona pandemic in 2022. Our CO2 emissions in 2023 will also be below forecast corridor. This is, among other things, due to ongoing weak demand and the fact that we have shut down some energy-intensive plants in Ludwigshafen, as announced earlier this year. A rise in Scope 1 and 2 emissions, the solid green line, is therefore likely when demand recovers and when we start up further plants as, for example, the Verbund site in Zhanjiang. Measures related to renewable energies will form the focus of the reduction efforts in the next few years. From 2025 onward, we should then see an increase in contribution from new technologies for carbon abatement. I will now give you an update on our progress in these 2 areas. BASF has a make-and-buy strategy to meet its significantly rising demand for renewable power. On the one hand, we are investing in our own renewable power assets. On the other hand, we are purchasing green power from third parties via long-term agreements with terms of up to 25 years. All our renewable power projects leading -- lead to a corresponding expansion and development of additional capacities in the energy market. In 2022, renewable electricity accounted for 16% of BASF's global power demand. The share of renewable electricity is likely to remain flat this year, but is set to increase considerably in the coming years. The slide shows projected figures for the share of renewable electricity by region for 2026. This projection is based on signed contracts and includes own production amounts. As you can see, we are well on track to reaching our share of at least 60% renewable electricity worldwide by 2030. Keep in mind that this figure is not only about substituting the gray power we currently use, it is also about meeting the rising demand from the electrification of our processes. Recent news show that executing competitive renewable power projects in the United States can be challenging. While the EU power market is deregulated and allows for investments by industrial players, the North American market is only partially deregulated and access to renewable power project is somewhat limited. We are nevertheless investigating various investment opportunities in renewable power assets in this region and exploring the incentives provided, for example, by the Inflation Reduction Act. On the buy side, we have concluded long-term power purchase agreements in all regions. The most recent example was the 25 years agreement with SPIC for the supply of renewable energy for the new Verbund site we are constructing in Zhanjiang in China. On the make side, we are constructing solar farms at some BASF sites, but our major focus will remain on wind power, reflecting the huge demand we have. In July '23, BASF and Mingyang announced the joint construction and operation of a 500-megawatt offshore wind farm in South China that is expected to be fully operational in 2025. The majority of the power generated will be used to supply renewable electricity to BASF's Zhanjiang Verbund site. In Europe, the Hollandse Kust Zuid offshore wind farm that we co-own with Vattenfall and Allianz was inaugurated in September 2023 and will be fully operational in 2024 with a capacity of 1.5 gigawatts. Just a few days ago, we announced the signing of a memorandum of understanding on a further major wind energy project with Vattenfall. We are in advanced and exclusive discussions to acquire 49% shares in 2 neighboring offshore wind farm projects, Nordlicht 1 and Nordlicht 2. The Nordlicht wind park zone is located 85 kilometers north of the island of Borkum in the German North Sea and has a planned capacity of 1.6 gigawatts. Pending a final investment decision, which is expected in 2025, construction should start in 2026 and full operation could be expected in 2028. With the similar contractual framework, as for HKZ, our minority shares in the Nordlicht wind farm would secure an additional supplier of around 3 terawatt hours per year of renewable electricity for BASF. This would be used to support chemical production sites in Europe, in particular Ludwigshafen. The second lever for reducing our Scope 1 and 2 emissions is through new technologies for carbon abatement. Here, too, we are making good progress. Our steam crackers are currently heated with gas and are responsible for a large chunk of our Scope 1 and 2 emissions. We, therefore, aim to electrify our crackers and heat them with renewable electricity. The demonstration plant in Ludwigshafen that we are building with SABIC and Linde is nearing completion. We will be able to start testing 2 different heating concepts for eFurnaces in the first quarter of 2024. By 2025, we will build a water electrolyzer for green hydrogen at our Ludwigshafen site with our partner, Siemens Energy. The Federal Ministry of Economic Affairs and Climate Action is supporting this project in cooperation with the state of Rhineland-Palatinate with up to EUR 124.3 billion (sic) [ EUR 124.3 million ]. We received the funding approval at the end of November 2023. With an output of 54 megawatts and an annual capacity of up to 8,000 tons of green hydrogen, this proton exchange membrane electrolyzer will be one of the largest of its kind in Germany when completed. Powered by renewable electricity, it will reduce greenhouse gas emissions at the Ludwigshafen site by up to 72,000 tons per year. Our aim is to gain insights into how and under what conditions we can use this technology within our Production Verbund. Carbon capture and storage is another carbon abatement method whose possibilities we are evaluating in various projects worldwide. On the one hand, we are investigating how CCS could be used in the process of producing low-emission chemicals. In this context, we are cooperating with Yara on a study -- joint study to develop and construct a worldscale low-carbon blue ammonia production facility with carbon capture in the U.S. Gulf Coast region. On the other hand, we are looking into how we can use CCS to reduce emissions at our Antwerp site as part of the Kairos@C initiative together with Air Liquide. Having spoken about the progress we are making on our Scope 1 and 2 emissions, I would now like to address the difficulties involved in setting a Scope 3 target. We focus on the emissions that are associated with the goods and services that we purchased from our suppliers as Scope 3.1 emissions in our corporate carbon footprint. In 2022, these emissions amounted to 51 million metric tons. The emissions associated with the purchased raw materials account on average for about 70% of the broader carbon footprint of our sales products, which are of great interest to an increasing number of customers. We currently use secondary data. In other words, industry averages to calculate the broader carbon footprint of our approximately 45,000 sales products. This is standard practice in the industry. The majority of our suppliers have neither data on their carbon footprint nor their own CO2 reduction plans. Even so, we expect transparency from them. And this is why BASF has put a lot of effort into its supplier CO2 management program since 2021. We want to obtain reliable primary data from our suppliers that we can use to generate more accurate PCF data to our customers. We are making very good progress, I have to say. We have approached more than 2,000 suppliers who account for around 70% of our relevance Scope 3.1 emissions. More importantly, we have validated the primary data for more than 25% of our relevant Scope 3.1 emissions, and we are working to increase this figure day by day. We are convinced that we have the most comprehensive and reliable data set in the chemical industry and believe that very, very few companies in this sector come close. In view of our progress, we are confident that we have sufficiently solid foundation and can now justify setting a credible target for reducing BASF Scope 3.1 emissions. By 2030, we aim to reduce BASF's specific Scope 3.1 emissions by 15% compared to 2022 across the portfolio from 1.57 kilograms to 1.34 kilograms of CO2 per kilogram of raw material bought. We are setting 2022 as the baseline for this new target because the measures we are planning will now start to come into play. And we have defined a specific target because our focus is on improving the product carbon footprint of our sales products, which we calculate in kilograms of CO2 per kilogram of BASF product sold. We are currently in negotiations with committed customers and are working on many individual projects. We decided against an absolute target for Scope 3.1 emissions because the varying capacity utilization rates of our production plans would lead to high volatility. This would make it hard to track our progress on an annual basis. BASF will nevertheless continue to report on its absolute Scope 3.1 emissions as part of its corporate carbon footprint. Our target applies to what we define as our relevant Scope 3.1 emissions. These amounted to 48 million metric tons in 2022. This figure includes emissions from technical goods and services since they are of minor relevance for our product carbon footprints. Furthermore, emissions related to battery materials in our Scope 3.1 are not included as it will not be possible to steer such emissions significantly until close loop business models for battery recycling become established. This is not expected before 2030. It should also be taken into account that the emissions from our battery materials will be outweighed by the reductions achieved due to the shift from combustion engines to electric vehicles. At this stage, BASF is not planning to submit its targets to the Science Based Target Initiative. SBTi does not yet offer a sector-specific methodology for the chemical industry, and we do not expect the guideline to be published until the first -- the third quarter of 2024. However, BASF wants to commit to a tangible, scientific and also pragmatic approach now. We follow our approach of doing what we say and delivering on those things we can influence. Due to the enormous complexity and lack of data, this currently does not apply to Scope 3.12 emissions, which occur at the end of life of our products. In working towards our Scope 3.1 target, we will focus on raw materials for those products for which our customers are prepared to pay for a lower product carbon footprint. We will increasingly source raw materials from suppliers who can provide CO2 emission data and offer raw materials with a lower CO2 footprint, for example, because they are already making progress in reaching their own reduction targets. We are also planning to cooperate with selected suppliers to reduce the carbon footprint of the raw materials that we buy from them. For example, we could consider providing suppliers with green or low-carbon electricity, the benefits of which would then be allocated to the products supplied to us. Our ambitions and efforts in the short and long term are clear. BASF will work with both customers and suppliers to find pragmatic solutions that are both cost efficient and good for the environment. Our long-term ambition is also clear. We are committed to achieving net zero Scope 3.1 emission by 2050. I know that many of you, especially on the ESG side would like to see a granular road map with project time lines and CapEx projections for our path to net zero. We have a detailed road map with well-defined projects to reach our 2030 targets. However, we have to continuously review the technical and the economic feasibility of these projects due to the large number of regulations being introduced and the constantly changing framework conditions. We will, therefore, adjust our project list and shift projects from one region with an unfavorable condition to regions where regulations are more realistic and pragmatic. Please also understand that we do not wish to give too many insights for competitive reasons. Despite all the question marks and challenges, I would like to make very clear that BASF is and will continue to be a reliable partner on the path to net zero for investors, focused customers and partners in the value chain and for society. With that, I would like to open the floor for your questions. Thank you.

[Operator Instructions] It's a bit difficult for me, but I would start now on the right-hand side with Christian Faitz, Kepler Cheuvreux. Well then, I note, so you will raise your hand, and I know who wants to speak.

Thank you, Stefanie. Two questions, if I may. First of all, can you elucidate current demand trends, particularly pertaining to China? Any improvement in China in your chemical activities? And the second question would be on -- you're mentioning the potential use of IRA. I mean, this is not new. But is there any danger that with the potential change in government in the U.S. for early 2025, the IRA program might not be fully used if and when you come to a decision to go into an IRA benefiting project with or without Yara.

Christian, maybe I'll start with both. I mean, first on the China numbers, I mean I would say we can confirm what we said in the Q3 call that actually the volume development is a positive one in China. So I think we mentioned that already. If it continues like this to year-end, I would say we are roughly finished with the same volumes we had last year, which is, I think, good because given the first half, that was really quite lousy on volumes. That is really clearly an improvement. So that is a positive sign, and it looks like also there are certain restocking going on in China. If you go to retail in the numbers, it is still far away from being normal. So I would not say that the consumers have really kick-started their behavior. So let's see whether this is now only restocking and then collapses or weakness again or whether this is really the preparation that may be also with new start. And I would say, usually, it is after Chinese New Year when you have actually a more sustainable pattern then from retail and from consumer behavior. So it is still soft, but it is definitely a big step forward, which we benefited from. And as I said earlier, some of our plants are really quite highly utilized. But I have to say, this is reflecting that it's not yet sustainable. We don't have pricing power yet. So there is a huge supply over there that squeezes the prices and we set the margins. But let's say the first step is to get the [indiscernible]. The second part on the IRA, I mean, highly speculative to say really if the Republicans would win the election, whether they really go backwards. I think this depends also how the economy is over there. And I think now, we all read this, the U.S. is going really into a recession or not. I would doubt whether a new government, if the U.S. would be in a recession environment really to cancel this, because I think that would have also a quite destructive force for investing in the U.S. But let me also say one thing very clear, and this is maybe a bit to the benefit and the positive to Europe because we discuss now currently that everything that was once planned for Europe goes to the U.S. Two remarks to that. In the chemical industry, they build now capacities the U.S. market doesn't need. You know that the market is about -- in 2030, only 30% of the -- 13% of the global market. So they build the capacities over there because it's competitive, but they have to export to China. Given the trade frictions and the geopolitical conflict between the White House and Beijing, it's also quite risky to build capacities in the U.S., and you don't know whether they find their door into China. If not, the U.S. is oversupplied. That's the one remark I want to make. And the second remark I want to make is, you hear now from this long list of projects that have been announced that the investment costs go through the roof because we have also to say that, let's say, the capacity of construction companies, engineering capabilities is also limited. It's not an industry that can now suddenly digest 3 or 4x as many investments. So with that, actually, the price for investments go up. And I would say those who are early might have a good business case. But I would say also those who are late, they might see that investment costs are ruined in the business case. Nevertheless, you have tax incentives. So that remotivates certain things. And I think not everything that was announced to go to the U.S. with the IRA will really be built.

I suggest we go from the right to the left. So Sebastian Bray, Berenberg, please.

I have two, please. The first is just on a technical point. The other segments, from what I can see, BASF will not provide guidance on it on a going-forward basis. It hasn't done to date anyway. Given that EBITDA is going to become a new base of reporting for the company at the segment level, what is a normal EBITDA negative result for the other segment to assume on a going-forward basis? That's my first question. And the second one is related to politics, but this side on the European side of the equation. Would BASF expect any substantial new government support at the German or European level to materialize over the next 6 to 8 months? What's the base case assumption for European politics as it relates to both German budgetary discussions and the potential passage of a Net Zero Industry Act in Europe?

I'll start with the other. So indeed, we did not provide guidance on other in the past. We are not going to provide guidance on -- in the future. So you asked about, so what's the normal level of other in the future? I'd say this will be seen in the course of the first year. We will provide the guidance on the basis of the new metrics for all the segments then in February as normal. And I think then in summer, autumn, you will see then also the residual, which is then equivalent to the other. So no guidance going forward and no guesstimate right now, but I think it will not be a big surprise.

So the second question is certainly a little bit more difficult to answer, but let me start with the one that I think as a citizen, I think we should be happy about the decision in [indiscernible]. Nevertheless, that is certainly clear that this will have an impact on how Germany can position and what will be invested in, I think, deficiently developed infrastructure over the recent decades, I would say. I think to make any prediction where they save and what is the final budget, I think it's much too early because when I'm in Berlin, the lowest number here is EUR 18 billion, the highest I heard is EUR 82 billion gap. So at the very end, and I think this is a positive thing, we had a government which did not prioritize anything. So all the project ideas from everyone got through, I think, because every party has its own agenda. So always followed and we poured money on oil, and I think somehow we knew this is far beyond what is coming in as money. So I think now they are forced in a reprioritization, which I think is primarily good. How they decide, I don't really know. And let me also generally say we benefit from some funding when we go for innovation. So we got some money for the electrolyzer, we get also some money for the eFurnace. And I think this is also justified because if we go for an order for [indiscernible] risk and we check and try out a technology that has no business case, but we still do it because we want to prepare ourselves for the future. There is a certain funding, I think, is okay. But at the very end, we have also to see whether really subsidies in each and everything we do in this country is the right policy. I would much more prefer to have a regulatory framework that allows us to be entrepreneurial. That was actually how our company got big by taking risk, by developing technology, by doing the right investments and earning money with it. And that is a little bit lost in Europe because we are too overregulated. And we said basically for this whole transformation, we lack a business case. So if that all settles a little bit -- and that's also the signals I hear from Brussels because Berlin at the very end can only decide in a limited way, everything is connected as Brussels, that there is a little bit more a view again about European competitiveness and that the regulation has maybe to review -- to be reviewed how actually the industry can pragmatically do what we want to achieve as targets for the green deal. It's not a bad thing. But I think now after just a couple of weeks from this decision, it's very early to decide on that. But I would estimate that one of the other things is really going on will be off the table, but I truly hope that they focus on the stuff that is really important to develop our country because doing nothing is the other extreme, and I think not possible. So we are somewhere in between. We have a lot of dialogues. They also come to us not to ask BASF only to the industry in Europe, to have dialogue how priorities should be set and what is really crucial and whatnot. So I think it's a good development at that time.

So now it's [indiscernible], please.

I have two portfolio questions. First on your Wintershall business, you said the carve-out is going on until 2024 -- mid of 2024. So can there be an agreement reached before mid of 2024? Is there -- can it be sold before? And the second question is on your agri business. Could you think of strategic options for the agri business as well, like, I mean, float participation or so in the near future? Or is it an integral part of your business?

Two for you.

Two for me. Okay. So then I'll start with the oil and gas question. So as you rightfully said, we are continuing with the separation of the Russian and the non-Russian related. That is truly important because we want to come back to a point where the non-Russian related part is fully fungible and transactional. So that is going on. And the time line that we have given to that until mid of 2024 turns out to be pretty accurate. So why does it take it so long you might ask? It's simply because you cannot take off the Russian part from the non-Russian part, but you have to do it the other way around in order to get the approvals that you need to get because you would not get approval from the Russian government to do any transactional split here, so you have to do it the other way around. So it's quite a lengthy process. It's at the same time, a straightforward process. So there's no doubt that it will be reached at the end, but it certainly takes its time. And we do that as -- first of all, as a separated thing. So we want, by all means, to have these 2 business strings separated because we clearly said and the Wintershall Dea management announced strategic exit from Russia. So this restructuring project stands for its own. Then for the portfolio options, we have never stopped to look into that and to prepare that also going forward. So we are doing this in parallel. And you are right, in order to sell finally the non-Russian part, you need to have that separation being done, but this does not mean that you have to stop thinking about the transaction all the time. And we said very clearly, when we merged Wintershall Dea, that the prime goal was an IPO. That was obviously not possible in 2021. It was almost possible at the end of 2020 -- of 2020. It was almost possible at the end of 2021, then war in the Ukraine broke out, and we were then having the setback. But monetization intention remains. What it will be then? Will it be an IPO? These days, more unlikely than likely or will it be a straight transaction remains to be seen. But a very short answer, we work on both things in parallel. On the ag business, here, what we want to do with this differentiated steering report is we want to profile the business. We are not doing that as a preparatory step to monetize the business to lose change of -- to lose control here or to generate sales proceeds, but we are doing that in order to have a really clearly defined business that can -- more than it can today. Compare itself against the competition, that has its own steering KPIs and that is really doing hard benchmarking also. With that comes changes in the legal entity setup, comes changes in the IT and reporting systems. But all this we are doing in order to profile the business not in order to get rid of it.

So we move on to Martin Evans now, HSBC.

Just following up on this differentiated steering sort of theme. I don't really fully understand what it means such that if I was a BASF employee, for example, on January 1 next year with the same colleagues, say, business groupings, what would it in a meeting physically or, yes, in real terms involved in terms of achieving ultimately the better margins? Because when Martin took over, I remember 5 years ago at an Investor Day, you had a lot of enthusiasm for making the group more flexible and responsive to customers and getting closer to the end markets, which I'm assuming is a similar thing to steering of the businesses as well. So what's the difference? What has been achieved? Why will it be different this time?

Martin, I think the one slide was showing this. It's actually a longer journey, and that's why we said it's the last conclusive step. I mean the first thing we did is that we had a relatively slim operating divisions who basically had sales and marketing and production, and R&D was in the central platform and all the services was in the platform. First step we did is embedding the business critical services. It was the 16,000 people, I think, if I remember the number right, that we actually integrated into the division. That was the first thing to digest. They started to organize the things then totally different in the group and in the management meetings like, for example, supply chain and everything. It went from a one size fits all out of the company do it already to something more specific. Next step then we did is that we took more than 6,000 people from the research into the division, which can be then also integrated in terms of how they work with the customer and the marketing and the action. And they are really then on the payroll basically of this division. What's next? I think a very important step. Let me also say, we have not talked much about that, but we have introduced since '18 Salesforce as a tool where all our people use to much better interact with their customers. And we have also introduced the NPS, the Net Promoter Score. And that was something which I think was very valuable for BASF to see also how the numbers went up from the very beginning when we started with the feedback of the customers who actually say it's a different BASF. Also the primary loops, how fast to respond, you can measure that. And we have the numbers that we really made an improvement over there. But what is still limited, I mean, I'll give you just one example. If you look on an average normal master data set, that is a huge master data set in BASF because it is to cope for everything for the plant protection business, for the coatings business, for petrochemicals. Everything is reflected in this whole thing. But you can imagine a lot of divisions actually move data they don't need for their business. And now as we also have any way to move from R/3 to S/4HANA, because SAP calls off the R/3 at the end of the decade, this is a good opportunity now with the S/4HANA that you give actually the businesses now an opportunity to shrink their data, master data set to what they really need. And then also to hardwire the processes, which are then individual for this business and not reflecting somehow the needs from everyone in BASF. And there's no surprise that we had one of the largest SAP systems in the world because it was reflecting the compromise for each and everything. They were good times in the R/3 logic. This was also the right thing to do. But S/4HANA has now the opportunity to give them the freedom on the process side while still integrating them with the letter for the financing and the reporting and the risk management and everything like this. So that is why, Martin, this is the next step. It's not something in contrast, but it's just the next step. And I think looking at the environment, which Dirk described, it's getting fierce in our industry. So we have to do more. And I think the fact that we have any way to do something on the SAP that somehow time-wise coincidence to do this now, it's not that SAP is the justification for that. It's just all the one tool that helps you in doing this. So when I think with giving the signal to the teams, they actually have now not to always compromise what they do in BASF, but it's really that you say, build your processes, your response, your agility exactly like your pure play peers do. And I think with this, we make another big step forward because they will shed off what they don't need, which is a compromise and really focus themselves on the business. But, and this is important, they stay still a part of integrated and integrated BASF part because they will be connected with the service bench and also with the corporate center and all these issues. So that's maximum freedom, but also giving them the advantage to be part of an integrated company. So I think I could frame it a little bit that this is just now the last logic step in this strategy we have posted in 2018.

And Martin, if I may add one thing. What changes immediately the KPIs for the business -- change immediately? The incentives for the people running the business are changing. And then next step is putting the colleagues in several legal entities in order to facilitate what Martin described. The own ERP system, the agility that you need to run such an industry, customer-specific business. But first step is KPIs incentives.

Now Charlie Webb, Morgan Stanley, please.

Yes. So just two questions from me. So just one on the competitive landscape in Europe. I mean we touched on it already. But in terms of what you've already taken steps at the start of the year to take out capacity and people obviously here in the [indiscernible] primarily though across Europe and globally. But do you feel there's more to be done? Where is the European chemical industry kind of competitiveness today? Do you see others addressing this more seriously than perhaps they have so far? And do you think you need to do more there to kind of get the industry more competitive here in Europe for Europe. And I guess that's kind of the first part of the question as it relates to the chemical industry. But how do you see your customer industries in Europe? Are they also addressing some of these similar challenges when you're speaking to them? I suspect it's probably sector by sector of areas, but interested to hear your thoughts on the competitive of the customer base. And then maybe short-term -- or more short term, more kind of looking in crystal ball into next year. But autos, we're hearing kind of some deterioration in some of the headlines around autos in terms of some more cracks kind of appearing on pricing and a potential slowdown, EV. Europe, we're hearing, again, possibly too much supply around, not enough demand. So just how do you see your autos into next year? Because it's been good with the backlog. You work through supply chain being solved -- issues being solved. But into next year, do you see any risks there building that we might get a slightly more challenging year, whether that's mix volume-wise?

So Charlie, I'll try the first 1, and you take the other 2. So let me start with that way. If you look since the breakout of the Ukraine war, European chemical industry lost about 25% of its volume as industry in Europe. That's heavy. So that means the capacity utilization is not very high, and that is certainly also mounting on the cost and is bothering on the competitiveness. If you try to analyze it with the data, and we have also done this in [ Cefic ]. And I think a good rule of thumb is maybe half of that is a lost position that the European chemical industry was exporting and cannot export anymore because others offer it cheaper. That has very much to do with the energy costs. And the other half is that actually, our customers order less and have a problem with their competitiveness. Now to predict how, what, when this is all coming back is very difficult. I would assume not everything is coming back because some of the export positions will not be possible to gain back because, first of all, there's a lot of capacity in other places and regions that have better cost positions. We all know that the energy never comes back to what it was prior the Ukraine war because pipeline gas is simply [ simpler ] than LNG. And I think a 3x to 5x higher gas costs compared to the Henry Hub is most probably also a good rule of thumb. So some stuff will be lost over there. And the hardest part is to predict are the competitiveness of the thousands of customers you have. That's hard to predict, how do they prepare and what is important for them. So that is why I know from talks in the industry, and if you look then via [ Cefic ] little bit into the sector, I would say a lot of companies are hesitating still to take a measure because the last thing you do is shutting down the capacity because when you do that, it's no way of return. So that is why people wait until the pain point and the evidence is so clear, it will not come back, then you will close it. So what I want to say is I would expect that capacities are lost for good in European chemical industry. So we lose world market position. I think there's no question on that. On the other hand, it will also be partly streamlined. It will be most probably also some consolidation. So the sector is in movement, I would say. The key question is what is the volume growth in the future, and that is hard to predict because that has a lot to do with again, this Berlin and Brussels industry policy. Do they deregulate [indiscernible], Madam President said 25% of the regulation will be called off. If you talk to them, they say, I have no clue how to do that. So it's very hard to predict this environment. But if we look to us, we very clearly knew from day 1, and that's why we have been earlier and we started this exercise much earlier, we clearly saw there are some products with no chance that this really comes back. And I think we explained this. This was not 1 dimensional analysis. We were looking on the age of the assets, how high is in the maintenance cost because you know if you are higher, the percentage point is higher. We looked in the cost for decarbonization. We look when is the replacement value, what we have to put in as CapEx, what is the cost position with higher energy end to end. And then in this multidimensional conclusion room, we have then drawn decisions. You say, might there something more coming up? I think so, that can happen. And that's why this is a continuous job to look into. I think we have good databases on doing this. And I think we have also shown that even for [indiscernible] people always say it's totally flexible, cannot change anything. We have shut down plants in the [ Verbund ] and still run it. So -- but I think the industry is still a bit lagging behind the reality. I would expect that in the next year, 2024, we see in the industry quite some movement. And without giving a guidance now, I think the closer we get to 2024, and we have said that the start will not be easy. I think a likelihood at least that 2024 will be another difficult year is going up, without saying that this will be really the case, but there is a likelihood for that. So now I pass on to Hans to Automotive.

With that, turning Charlie to automotive. Automotive and Agricultural Solutions. These were the 2 strong businesses in BASF 2023, and this is going to be sustained. So auto is sustained for 2023. So the Coatings business has one-off, if not the strongest years in this history, also for the carved-out ECMS business. So for the automotive catalyst, we can confirm very strong results. And now looking a little bit into the Q4 current trading, I also don't see that falling off the cliff at all. So I think for 2023, very strong auto. Then I think the pent-up demand from the bottlenecks that we had beforehand, they are more or less made up now. So 2024, I would call losing a little bit of steam for 2024, but again, not falling off the cliff. So again, we will rely on a strong auto business, and that goes again for Coatings that goes for the Catalysts, but also for the lightweight plastics and the others. So auto is certainly one of the industries that we see, okay-ish. Also, let's remind us that in the meantime in China, which is the growth region, there is significant auto also coming. And luckily, we are also very much in these customers from China in the OEM, so that also from a regional footprint perspective, I'm quite confident for auto. But it will not be, of course, a year increasing significantly again as it was the case in '23.

Okay. So now Oliver Schwarz, Warburg, please. And then we have Andreas Heine.

Thank you very much for taking my 2 questions. First 1 is in relation to the steering of the [ Verbund ] businesses, the 17% over-the-cycle target, what would you define as a cycle? And if you say it's probably 5 to 7 years or something, would we then have to measure the performance versus the target by mostly using historic data? So let's say, if we look at 2023, we would look 6 months -- 6 years into the past and 1 year 2023 into the present. To [indiscernible], whether you or did not achieve that target? And probably interwoven into that. I saw that the Verbund business is without the Catalysts business basically with the parts that is Coatings having moved to the non-Verbund business, and there's no mentioning of the remaining Catalysts business in that Verbund business anymore. So if you take the historic data, where would you be at the moment in relation to your 17% target as we have to exclude, obviously, the performance of the Catalysts business, which is always held down by the metal trading part of the business?

I'll give it a start. And so first of all, how do we measure the mid-cycle. So what we typically do is we are compounding the CM1 margins of the big upstream products that help us to define where we are in the chemical cycle, first information. Second, if we talk about cycle, midterm, we would typically regard is 3 to 4 years, not 6 to 7 years. And then, of course, you are right. It is difficult, if you just stay on the margin level to steer that because the volatility obviously is quite a significant one. And this is why, of course, for the Chemicals businesses and the business pertaining to the Verbund, we will not only steer by the margins over the cycle. We will also -- particularly for the short term, we will have absolute EBITDA targets to steer this business. And this will also be part of the guidance because the guidance will be different. It will not be only one figure anymore, but it will be short term, that is more the absolute and it will be midterm and that is then also pertaining to the margins. So no worries. We will not confuse you there. And last information piece here, currently, we are obviously at the bottom of the cycle.

Yes, I expect that. But if I'm taking the results of the last 3 to 4 years, without the impact of the earnings of the Catalysts business, where would you be, below or above or at the 17% at the moment?

Here, I have to back a little bit of your patience because what we did not do is to disclose the margins on the divisional level. So when we are coming out next year then with the guidance, it's obviously not the guidance, it's the concept that we are presenting today. When we are coming out with the with guidance, then you will also get then the transparency on this one. But the guidance -- it's not guidance day today, it's the concept day today.

But isn't that the data of the 4 segments, which was disclosed quarterly in the past on EBITDA before exceptionals level that has to be compounded to come to an idea whether the EBITDA margin is 17% or more or less? So that's basically all.

And we also showed the -- excluding metals margin, this was also showed on the EBITDA level, but we did not disclose the EBITDA margins then for the specific businesses.

But definitely you just excluded one segment as such. That's not a divisional thing, that's a segmental thing, isn't it?

Yes.

And you disclosed the data on the segments, right?

We disclosed the data on the segments. Exactly. Yes.

So why are you not able to provide a margin for that compounded 4 segments? I'm a bit confused...

For the -- we will be doing that.

Yes. But you could do it already using the historic data.

I'm a bit confused now.

I would say -- I mean you asked basically is the guidance going forward for the, let's say, next 4 to 5 years containing something backwards? Or do you see the average cycle going forward?

No, it's even more simpler than that. I just wanted to know, if you say, okay, we are now in 2023, and we take the, let's say, past 3 years for that, in addition to get a full cycle to come to 4 years. We know the data of the Chemicals, for Materials, Industrial Solutions and Nutrition & Care. Where would we be basically by the end of 2023 in regard to the 17%, give or take? So no exact number...

So you basically -- with the projection of the 4 years backwards to get an idea, is this on the lower or the higher...

I think we can say it's an ambitious margin target.

Yes, we are currently below. I mean that's clear, but...

But the question was whether they get the numbers. And I think we have to discuss about that what is really needed. I think the very clear message we want to send here, first of all, over the cycle, the upstream part is a damn good business. But what we also cannot deny that it has a certain cyclicality and that is exactly what we also see now. And I think that is also what we want to reflect over the cycle. I mean, we have years, and you remember them, not many years ago where we had, for example, the isocyanates, the best years ever of that history and was really printing money and then they have also periods where this is exactly the opposite. So you somehow have to deal with this. And that is why we want to give this. Give us a little bit more time. I know now what you want, and we can see when we give the guidance in February how we actually do this because you can also make it overcomplicated. Two years back, 3 ahead, 4 back and today. So we have to see what is also makes sense because it is at the very end, we will give you a midterm guidance over there also, and then let's see how we do that. I understand what you want. That's very clear.

So we move on to Andreas Heine, Stifel, please.

I'd like also to discuss the targets, but for the other part, not Verbund part. Coatings, you said, had one of a very good year and you were describing the automotive industry is very healthy. And at the same time, raw material costs were declining. So that's quite a good environment for Coatings. If I look now on that margin, is that already above the 15%, so that you're trying to defend the 15% margin in a more difficult environment? That's the first question. Agro is actually a little bit the other way around. It's only 100 basis points below your target for this year, if my forecast is reasonable. And in [ formulate ], you had a target of 25%, and now it's 23%, despite the fact that you have strengthened your business with the buyer acquisition and with the integration and synergies of that. So why is there the margin less? I'm not talking about each and every division to get to the 17%. But as long as I followed in Care Chemicals, Nutrition, it was never really good. And this year, it was really pretty bad. How is your strategy to change this because this nutrition part especially was a tough one? And it looks like if I look on the prices of these products and the Chinese competition that won't get easier.

You start.

I'll start maybe with the present and then hand over for the future. So for Coatings, yes, I think you are right. This year was extraordinarily benefited from different sites from the automotive industry. So the 15% margin is something which is not a high ambition on top of, but is rather a vision that we have to sustain. For Ag, it's different. We are below. We had, I think, a very strong first half of the year with a very strong EBITDA margin. But second half of the year, as we all know, is softening and also the margins going down a little bit. Also again, not falling off the cliff, but going down. On years average, we expect below 23%. So this is an ambition that has to be reached again. So this is what we have today.

Let me add on this margin for the Ag business. I mean, first of all, I think it is -- you have to look in detail how much seed and how much chemical crop protection you have. And then I think also varies the threshold, actually, the competitors get. The more seed you have, usually, the higher is also the EBITDA margin here. And so I think we have bought a seed business, we're happy about this. But our seed business is still comparably smaller than those of the peers. That's I think the first thing you have to take in mind. And then I think it is a good example. I would say all the peers have reduced their margin they have achieved over the recent years, which only shows that this is one good example for a more fierce competition. And this is also why we do all these measures actually to keep them at the very top. We have not done great in this business over the last 2, 3 years, I have to say. That's why we have kicked them that they have to improve the performance. And I can only say I'm very proud of the Ag team. They have done a super job this year. And they have also helped, and that's what we talked about having a broad portfolio and being resilient. They have definitely contributed to stabilize BASF in this very difficult period, where the biggest pain is upstream. So in that respect, I think you have to see it also in that context. We give them, I think, a very good challenge that is the orientation that's the bar where they have to be in the long term. They will be better and worse year, which is always the case, but that's where they have orient -- to orient there. And I think you mentioned that also within this new differentiated steering, we will dramatically step up also the benchmark exercise. So we do that certainly regularly. You can imagine, I mean we are running blind through the world, but that will be also much more part of their incentives that you really measure them, what is the peers. And then you will see the industry sometimes flowing up and down as industry as well, and then seeing good companies going up and down against the trend, but that's how we want to get the maximum out. And in that respect, I think, yes, Coatings might have a super good year, but we're all clear that it's not a normal year for all the time. And that's why I think you have to give them also a threshold and inhibition that is a stretch, but also do it. And I think in that respect, it's a good target.

The word about Nutrition & Care, is that a...

Yes. I mean if it's Nutrition & Care. I mean, I think there are 2 components in this. You know that we had some problems with some of our facilities in the past that kicked out BASF in terms of market share. We are crawling back on that because we have now these new facilities. We have the new dryer for the powders, and we have also the additional capacity on the vitamin A. And I was in earlier times in that business, we do regular benchmark. We have really a super cost position here, particularly on the vitamin A. But you also saw that additional capacity came up. It is a very low growing industry. It's not one with high growth rates. And also in the COVID piece, meat consumption and everything. I mean for animal nutrition, significantly, the demand went down. And I think these 2 effects basically brought the problems to everyone, and I don't want to quote any of our competitors, but there are some good names in this field who have their big problems as well. So there is a big share, I would say, in the supply demand of this industry. And the more that is the case, the one with the strongest cost position will have the best perspective going forward. And I think this is at least for a significant part of the business, vitamin A and also the aroma chemicals, we have an excellent cost position. So that is why I think this is well positioned now, but it has also to do some work to get back to where we want to have it.

And Martin, I think for vitamin -- for the vitamin, vitamin A, this is on historic low price levels right now. So I mean, you can be sad about this, but you can also say there's a lot of upside because we have now plant in place. And when prices go up, we will definitively be benefiting from that.

Okay. So we move on to Peter Clark now, Societe Generale, and then we'll have Michael Schaefer.

Yes. Thank you. It feels very much like 2018 in terms of evolutionary strategy, not a revolutionary strategy. And there are clearly some positive things in here. But if I take restructuring first, I was surprised we didn't get a slide on why you think the current restructuring plan makes the business better, particularly the Verbund restructuring, the EUR 200 million. Now did I pick up earlier, you said that, that, of course, can change because on the face of it, it doesn't seem enough to make these assets competitive in Europe. And then on the reshaping, obviously, you've spent a lot of time looking at the pure plays in the businesses that compete against them. But again, coming on Coatings, your target for the midterm of 15% EBITDA margin, whatever, 12% EBIT margin, doesn't look demanding compared to them in terms of where they are. So how does the best owner test work for a business like Coatings? I hear it's integrated in BASF today, you're determined to keep it, but how does the best owner test work in a business like that?

Let me start with the first one, you take the second one. I mean the first one, we did not take much time because we had so many other topics there. And I think there's not so much new. We have reported you at the beginning of the year very much on the assets we take and have you give insights how much we actually shut down and which areas it is and what it says in CO2. So I can only say, given the situation where we are in with an extremely unfavorable supply-demand, that's why the volumes are not there and the pricing is not there, I'm actually happy that we did this already. So -- and that's why I said also, you have to continuously look into this and going forward and looking at the projections also for our customers, you cannot exclude that you need even to look another time and more. And I mean, certainly, we know the areas, which would be the next critical ones, but that's, I think, the job we have to do. It just did not give additional pieces now because I think there is nothing additional, which I can say. I can only say that the majority of the plants are standing. They are off operation already. So -- and I'm happy that we have this and the people we have there. We all need -- basically, in operations, we are anyway short, you don't get people anymore from the market. So yes, the positions are lost, and we said we have savings, but we still need the people who have an a vast experience base, and we are happy that we have such. So for that reason, I think that makes all sense. And I think with all what I said to the restructuring, I think the chemical industry in Europe is hampered. But on the other hand, I'm also happy, not only with the restructuring part, we have also talked one time about our vulnerability about natural gas, which we have dramatically reduced. I think more than a year ago, when we talked, there was in the room that we might have to shut down Ludwigshafen if there is no gas, is basically off the table. We can manage that very well. And I would not exclude if the winter is getting cold, that in a couple of weeks, we talk about shortage of gas in Germany. I mean that is not off the table. I mean, very clearly, some of the politicians run around and say they have saved as a nation so much gas and it's great. The majority is coming because the production is down, not only in our industry, glass, everything, alumina, take what you want. It's all basically at a reduced level because of the lowering demand. So celebrating this as a great restructuring success is maybe a little bit too much. So I think we will report continuously on that topic. But I have to say I'm super happy that we did take these measures and really prove that we are proactive here with the industry because competitiveness in Europe is an issue, and it will not go away over the next years.

And thank you for the challenge on [ EC ]. First of all, thanks for the appreciation for the approach that we are taking to profile that business and crystallize the value more. I would say, for the margin, give us a little bit of time. So we looked into that. We find that this is a midterm reachable. The Coatings division has lots of work on their table now to develop on the tail end and on the front end, the even more distinct business model, and we find this is demanding for the time being. Can we, in the future, also change again this guidance. It's a midterm, and I said midterm is 3 to 4 years. So there will be a new midterm target then after this midterm target. So this is dynamic. And I think for the time being, it is ambitious from our point of view and give us a little bit of time.

I think it's fair to say, Doug, I mean they have a stellar performance this year. If we take the comparison to last year, I mean they have done really everything right, I would say. I mean they have the right products, they have taken market share from customers, they have put the prices up, they reduced their raw material costs. They have been restructuring. They have really pulled on all the levers, and I think it came together extremely well, and it's a record earnings, which they provide.

The target is 15% or more. So leave some room upside as well. Okay. So now we move on to Michael Schaefer, ODDO BHF. We will then have Sam Perry and then [indiscernible].

First one, coming back to Ag Solutions and elaborating on what Andreas asked before. So previously, you had also something like a 50% sales growth target back at the CMD for Ag and a 5% annual EBITDA growth target. So it's nothing found now in the, let's say, key KPI for the segment. So has this changed? Have you lift them off the hook basically in terms of growth potential? Or how should we read this? And maybe related to sneaking into next year. So you had a very strong H1 '23, as you elaborated on. So how would you describe the challenges heading into '24 in X? So this would be the first question. The second is coming back to your steering model and the [indiscernible] battery materials. So what's the starting point in terms of EBITDA margin. So '22-'23 indication would be a good one? And the third one is also to the steering model. On the segment level, you are also guiding for cash flow going forward. How you're dealing with net working capital volatility then because obviously, in the past, it has been rather volatile at group level? So obviously, it's also very volatile on segment level. So how should we deal with that one?

You start.

I'll start with Ag. So first of all, nobody left off the hook and also not the Ag business. We are proud of the Ag business this year. Ag business is supposed to be strong next year in a more difficult environment. So it's more demanding. We have the soft commodities coming a little bit softer. So -- and the competition is also going, I would say, quite aggressive on prices and customers. So it will not become easier for them. Nevertheless, we will not let anybody off the hook. Growth will be -- will stay important. But what we are even stronger focusing on is the profitability of the growth. So it's not about growth per se, and it has to be accompanied also by good cash performance. And so this is the tweak that we are seeing here. It's great to have sales and top line growth. It's great to have EBITDA, but we also want to see the cash. We cannot afford any business just to deliver on the P&L, but not on the cash. On the steering. I go -- honestly missed the first, but I can comment on the second part on the net working capital. That is the assumption that net working capital will be very volatile so that we can't properly steer. But I think this is not the right assumptions. First of all, the cash flow midterm, we will guide in a cumulative way, so there is still room for a little bit lower cash performance in 1 year and a higher cash performance in a different -- in another year. For working capital altogether, we are targeting a lower level anyway. And we have put even a -- across the company, a senior project to trim that down again because we have the feeling that the levels of working capital with which we are running the businesses are too high. And you will see that also in our cash flow statement this year, what the result of this project is because I think relative to the earnings, the cash flow performance this year, year-to-date and also what I see going forward is exceptional. So we don't want to accompany increasing sales with ever increasing working capital. And the first part I missed, honestly.

There was one on battery materials and...

30% margins versus starting point wise...

Maybe one argument and point also through to the supply chain inventories. I mean that is a continuous topic in a company like ours and most probably in all the competitors as leadership is there as these pieces that you always discuss. I think what is fair to say that now with AI also, you have an opportunity to bring all the different data you have on supply chain and consumption and raw material through the whole chain in a totally different way together if you really use that also on an [ AI base ] and this is why we think you can sell that even better and release money out of that. And I think this is also why we want to bring this into the focus of the divisions that they don't look only on the result where we push certainly very much because we have to deliver this prime KPI to you, but now we really make it that you have to look on both to make this even more, let's say, focused and then also incentivize this. I think your point was on the 30% margin on the battery materials. I mean let me clearly say this is, on one hand, the largest chemical market that is evolving, this is still true, but it is also an incredible dynamic one. I mean you read also the news, basically, there's almost no day where some news in that supply -- in this chain moving on, including shuffling around, let's say, rational and realities in a way that and I give you one example because we were mentioning the IRA, it looked for a long time that the least attractive region to build a [ CAM ] plant is the U.S. But now with the IRA, it's actually one of the most attractive places to do. So we have a long list of projects over there, which is our road map, which was the basis for that. What we do now is look -- very much look into what is the right order of the project, what is the prioritizing where which we go first, which we go later. And that, I think, is then also where we update you when the time is mature for that. But we have looked into this and is independent from how the priorities are. We think still this 30% EBITDA margin is a reasonable target if you exclude the margins, and that will also guide how much we actually will put into this business overall. But that is a very, very dynamic field, I have to say.

Okay. Then we have Samuel Perry, UBS.

So first question regarding the EUR 3 billion CapEx cut that you recently announced for '24 to '27. What proportion of this is a slowing of CapEx into China and batteries projects versus the underlying business? And how much scope for there -- is there for further reduction over this period if demand doesn't pick up? And then secondly, given you're moving towards more granular free cash flow guidance and the volatility in Chemicals and Materials, can you give any indication of what peak and trough cycle free cash flow is for these businesses?

You start with the last one?

Yes. With the last one, again, I have to beg your pardon and ask for your patience because guiding time is really then in February. As I said, what we will try to do and what we will do is to clearly differentiate between a 1-year guidance and then a cumulative guidance that will then absorb also the volatility through the cycle. You will see that in order to make it very tangible for the short term. We will show the operating cash flow and the CapEx so that you can retrace exactly so what are we doing to see what is the capital allocation discipline that the management is applying, and the specific numbers are coming in February.

So on the EUR 3 billion, just because I think you mentioned China and battery materials, first of all, we don't have big projects for battery materials in China. So it's different project lines we actually have. And if we look on the big project in [ Zhanjiang ], I think we mentioned that also, we have actually been a little bit surprised how positive the environment is for investments over there. I mean, that has to do with some pieces. I mean, first of all, while we were talking about 6%, 7% inflation, there was 0.9% inflation in China. So things did not get as expensive as outside of China. And we said we also -- steel and materials did not increase in price, and that surprised us rather on the low side with the contracts we did. And the second thing was the armies of workers from these construction companies, and you know there's huge companies, they have a lot of labor force. They were actually because of the low economics activity in China, they were actually very eager to get contracts to employ their people. So we also get with these 15,000 workers, very good conditions to build their plant. And so I would say, normally, for such a project, you always beg pardon that this is getting a little bit more expensive than foreseen. I would dare to say that we most probably even a little bit lower than we expected because of that environment. So that helps us a bit on that. We can certainly not sacrifice you, optimize a little bit here and right and left between these 2 years of heavy investment coming in '24 and '25. But it will not change anything that we have to finish the whole project as such because we cannot build 80% of Verbund and leave the rest of the 20%. So what I would say is, we are very good on this big chunk of investment. And as I mentioned a little bit in the list, we are really now super critical, and we have always competition for money in BASF. We have thankfully enough, we have more projects than money. So that gives certain competition, but that's now certainly stepping up when we reduced the available money. So there is more projects, and we go very clearly through that. Where are the profitables? Where are some must [indiscernible] because you have also those when it comes to safety. And then we're also looking and challenge them whether they are cheaper solutions than they come up. And I think all these elements, we are very confident that we actually can do that. And I think I mentioned the capacity side. If you have in Europe, 25% of capacity not left, please fill first before you build the next plant. So -- and I think this will all contribute to this. But there's no special chunk from China.

So now we take -- we have from Bank of America before we go to Baader-Helvea and then there and then [indiscernible].

I've got 2 questions, please. My first 1 is on the EBITDA margin in battery materials being the same as the 2021 target. Yet over the past 2 years, we've seen a lot of industry supply coming in from China and Korea players as well as price pressure from cheaper LFP. So what makes you confident that you can still achieve this margin despite the changes that you track as well? Other European cathode competitors target 25% EBITDA margins. And so what are the reasons that BASF might have a superior margin in the same products? And then my second question is, what is the status on the Canada battery materials plant? The progress seems a little bit slower than other players who announced plants at the same time. So when do you plan to commission it? And any updates on the contracting or orders?

Yes, on the margin, indeed, we are -- we stay here confident because we are positive on the supply/demand side. We see that demand curve going up. I think the challenge for battery materials with the very high investment hurdles is really how much money you will have to deploy and whether you can do that alone or whether you need partners. But the business model and the margin assumptions, we feel still they are intact. And probably we are on the optimistic side there, but we also see really that not only the supply going up, but also the demand. On the plant side, you're talking specifically about Europe. We have the [ CAM ] production in Schwarzheide, where we have commissioned the 2 production lines, and that was according to plan. We still have the challenge of the precursor plant in Finland. This is in Harjavalta, where we obtained the permission to produce after court ruling and authority ruling at the beginning of September. Unfortunately, there was again an appeal by 2 NGOs in Finland, which is currently under debate and discussion. And as soon as this is done, then we would also have the precursor plant in Finland readily available. But with the European production of [ CAM ] in Schwarzheide, Germany, we are according to plan.

And I think there was one with the Canada thing. I mean this is a bit what I said before, where I have been not precise enough because I talked about the U.S., I should talk about North America because, in fact, there is also quite some attractive investment conditions in Canada. This is, I think, why this also attracted some investment decisions already, and this is definitely a location that is also we look into. It's no secret. You could read something about this. But it is very clearly that we have not yet finally decided what the right order is because there is quite some demand on our side, both in Asia, but also in Europe and the U.S. for [ CAM ], and we have to see we cannot do everything at the same time. It's CapEx intensive, and we cut the CapEx. So we have to look into what it is, but that is definitely one of the options we have.

Okay. So now we move to the last row, Konstantin Wiechert, Baader-Helvea.

Yes. I would like to go back to the political questions, if I may. Maybe starting with the carbon border adjustment mechanism here, how successful and how important is the successful and comprehensive implementation of the carbon border adjustment mechanism for your European carbon reduction investments, such as the electrolyzer or also potential e-furnace in the future? And as far as I'm aware, this has now currently started with very commodity products. So regarding this, what is your view on the potential risk that this will only accelerate the deindustrialization of Europe as the manufacturing outside Europe becomes even more attractive with that? And then maybe another one on the progress the EU lately made on the prohibition of products made with forced labor. Maybe how would that impact your business, especially assets discussed that this will again significantly increase the administrative expenses to ensure that your supply chain is forced labor free? And given that you have already invested into your supplier data set over the last years, should we assume that you already also collected this data and therefore, are pretty much prepared for this already?

So I think this is in the heart of my [ Cefic ] work. So let me start on the [ sebum ]. I mean first of all, I think it is a bureaucratic monster. You can also quote me by saying it's a nightmare. It is an instrument, which I think will not do the job. Why? Because it basically has the idea that those who import have to pay for the CO2 footprint they have. But it starts already what is the CO2 footprint? I think I said this when I talked about Scope 3.1. They most probably start with an average footprint. So the company is lower, they will [indiscernible] to court and say my footprint is in reality, much lower. What you do actually if a Chinese competitor comes in and they use mass balance, and they allocate their wind energy on export products. And they say, "I don't have a CO2 footprint. I produce everything with wind energy. So how do you deal with that? You take an industry average or you really want to go for the real footprint? So you see already from that example, actually, if you start that with fertilizers and ammonia, this is the 2 projects where it started. I predict they will make so much experience that they see that this is very, very difficult to handle. I'm actually very happy that we could avoid that all the chemicals go in because that was one pledge that came out of the parliament. I think we could convince them and say, "Go, please, step by step. If you want that, too, try to collect some experience and then think about what you do." And I think in the ammonia case, this will be very evident. If you look at then blue ammonia from other regions, they have a lower footprint in CO2. And then the EU plans to take the certificates away from the producers in Europe. And that means the European producers pay for a higher CO2 footprint and increase their costs where they're already the natural gas is more expensive. And those who come in from regions with low cost from natural gas and the lower footprint because the IRA paid them the decarbonization, then I'll leave it to you whether this is a useful instrument to protect the European industry. And the third element is that actually, there is no ruling for exporting. Do you get a credit for your CO2? You pay it basically in Europe when you export to somewhere else. So there's a lot of often question. And I think it's a good step. It starts now, let them collect data, and I'm quite sure they will realize that is close to a nightmare, particularly if you then have thousands of chemicals into this scheme. But let me also say there are some companies promoting it and supporting it other industries, for example, the cement industry very much advocates for that. In the chemical industry, you have some companies against and some for. If you look at the -- from a Cefic point of view, the vast majority is actually against this instrument because it will not do the job for the chemical industry at least. So the other one was about forced labor. I mean, I guess you refer about these 2 smaller activities we have in China, I guess this is what you refer to, where we have these 2 joint ventures, a very limited number of people, 120 people. We have code of conduct -- our code of conduct over there. We have actually installed all the mechanisms we have everywhere in the world. We have actually ordered that. We have asked all the supplier and all to document and to subscribe and sign all these important -- let's say, that they basically comply. Sorry, that was the word. I would comply with our things. So I think we do the utmost that this is okay, as we do everywhere in the world, I mean, human rights and this is very high on our agenda. This is also part of the audits everywhere. I'm not so sure whether the new supply chain laws on the European and German level really add on that. I think the good companies have installed a lot of measures and processes to ensure that you are operating in the right corridor and window. And I think if you would clearly see that there is something which is not okay, and this is heavy, then we would also draw the consequences out of this. So that's what I can say to this. And yes, I think it's very high on the agenda for BASF.

Okay. So now we go again to Kepler Cheuvreux, this time, Martin Roediger.

Yes. Thanks. It's a bit related to your statements about the competitiveness in Europe. And this is not a question, it is a request. When the cameras are off later on and you do your dinner speech tonight, could you talk about the energy policy by the German government and its impact on the future of BASF's production facilities in Germany? And now coming to my 2 questions. Because we see several [ chemical ] companies talking about digitalization, artificial intelligence, and I have not heard much about that today. To which extent can the usage of artificial intelligence improve the efficiency of BASF? And as a follow-up question, to which extent is your supercomputer, Quriosity, which you have implemented 6 years ago, up to date still and delivers on your expectations?

Maybe I'll start with the last one, yes, because I was the one who pushed for that when I was CTO, that was a 1.7 petaflop. We have, in the meantime, a new one, you might have not seen this. We have replaced that by a better one. It's now 3.0 petaflop. And I think that only shows you that actually it totally lived up to the experience and the expectations we had. I think we have great results that basically was totally used the capacity, and this is why we decided once these facilities get a little bit old because the processes they suffer from several years of running continuously at a high level. And that's why we said, we even go for a bigger one, which can even take more complex tasks. And if you think about material questions and also understanding properties, mechanisms, you need ever more, let's say, capacity. So I would say we are in a very good way, and I would say we are leading in that the in silico experiment in the computer goes together with the real experiments in the lab. And in the meantime, a lot of the projects, research project, they actually start in the computer and the computer allows you to narrow down the space of where you find the solution, which makes it more easier and shortens the research project actually for the researchers. So I would say we're very happy on that, and the fact that we have built a bigger one is actually proving that this is really working. On the energy policy, Martin, that is a long topic, which I cannot -- really not take all the aspects over there. I mean the one thing is, the fact is the energy-intensive industry suffer from currently, the prices. I mean, I don't talk about the spikes we had. Now a lot of people say, "Well, this is back to normal." But if you look into the comparison with Henry Hub, it's 3x to 4x more expensive natural gas. I leave it also to you how you judge on the energy policy of the German government about electrical power. I mean shutting down the nuclear power plants and now the new headlines that the gas-fired power plants we need actually as a backup for the renewable energy because we run more and more with a higher share in this extreme availability and demand and supply topics that they are delayed again. I mean, all that, including a huge, super huge investment into the infrastructure because if you take to the grid companies, what they have to do to cope with all that, also, they're all the solar roofs to actually manage that in the national grid, that's a huge amount of money. So that all drives up the electricity price in Germany. And that is definitely something which also the VCI and with what the chemical industry has voiced out very strongly that actually the companies need some support now. Can this be a subsidy forever? I think this would not be the right thing. But coming from COVID, coming from the energy crisis, a lot of industries, a lot of companies, also the small and medium sized are actually in critical waters. And this is why they asked for the industry power price that the government helps over there. How much will really come out of that? I think we will see then with the new budget discussions. I mean, let's see whether this is then still all on the list. So far, I think it was confirmed, but whether this stays, I don't know. But it's definitely clear that something has to happen over there. If we really go into higher power prices, industrial base in Germany and in Europe will be endangered. The only thing I can tell you is the wind park projects we have, I think from a competitiveness point of view, HKZ was a fantastic investment, that has actually very, very good power prices. I will not tell you how much that is, but it's a good one. And also the new one is still an attractive one, but you can see clearly the trend is going up. If you take the auction, the German dynamic auction about 3 wind parks in the North Sea and 1 in the Baltic, where they ended, they ended with the oil companies who paid really a lot, which is nothing else than making the kilowatt or more expensive. So we need a political discussion about that. By the way, not only in the German level, but also in the European level, because actually, we do not have any European energy policy or strategy. And this is, I think, desperately needed. Connect the infrastructure, make connectors between the countries, make this truly European and then somehow start to -- stop the fight between the French who want nuclear and the German who want wind power, we most probably need both. So I think there's a whole lot of work to do, and that will be a critical point for the level of industry we will keep in the long run.

Looking at the time, do you agree to extend this by 10 minutes, but I think then -- because there's another call...

I think there was one left on the digital...

Yes, we missed the digital AI...

Heartbreak from energy and jumping on this one. First one, yes, we embrace it. So digital AI is something that we do. I think as the biggest chemical company, you want to be also on the top of things here. We have our own [ shared ] spot, but it's not open AI, but it's in a contained system, and we are experimenting on top line and on bottom line projects with that. Having said that, we have the most digital IP of a chemical company in the world. We have lots of people deployed there. And we are continuing the final judgment call, whether this all works out and whether you, as a chemical company, really can make that profit jump. This is still to be tested. So we look at that confident, but at the same time, we are also looking very critical, and we are not deploying tons of money into that, but we are looking carefully in terms of capital allocation, how much should go to digital and artificial intelligence because at the end, it has to hit also the P&L., and there are some work to be done. But definitively, we are there on top of things.

Given the time, I would really appreciate if you could have one question, but [indiscernible] investment is now, then I have Rikin Patel on my list -- for a second question, it's a bit hard and late at the moment. So now [indiscernible].

You just highlighted the dynamic nature of the battery materials industry. And my question would be, how technology agnostic are you from a product offering side when it comes to solid state, semisolid state or some other technology, how technology agnostic are you from a competitiveness side? And also how technology agnostic is your 30% EBIT margin ambition when it comes to new technologies? So if there will be a breakthrough in solid state, is it all -- are you completely agnostic? Is it the same target? Or would you need some changes to your plans?

[indiscernible], maybe only 2, 3 remarks to that. I mean the first one, I think, is the new reality, which is totally new for the sector, [ LFP ] came back. That was actually something where people thought this is dead, but that made it's roads back because I think they made a lot of improvement with energy density and the new battery stacks based on LFP. And for the lower, let's say, level cars, that is clearly the right answer because it's much cheaper, but it's difficult to get the reach on the high-performance side. So that is why this sneaked in, and I think it's an important part. I clearly say we don't step into LFP. So we stay with what we have planned, and this is really focusing on the NCMs. The market is still very big for NCM. Even if you take the LFP out, it's still huge growth numbers and absolute growth. And then if you come to these different technologies on the sell side, it usually does not impact, that the material for the cathodes is still the NCM. There is different types of products where we also talk certainly, and we are in discussion for all kind of battery types. And that is where also the innovative piece kick in. So we are open to that, and we work on projects like that. But on the other hand, I have to say the business is done also with some grades, where you just have to deliver grades where the mass market is. So you have to do both. You have to deliver competitively on a few major grades. And then you have to be, let's say, on the forefront with the special projects because if you talk about the very expensive cars where it's about high energy density, where customers pay EUR 10,000 more for a 100-kilometer reach because the battery is stronger. That is then maybe not the mainstream part, but it's an important one because usually margin is higher. So we look into both, but I think you have to be competitive in the mass, let's say, product grades. So I would leave it with that, and we are not tempted now to step into each and every other thing with the battery. We really stay with the cathode materials.

So now we have Rikin Patel, BNP Paribas.

Just 1 question left. I guess with the greater autonomy, you're now giving batteries again coatings. Are there any upfront costs or exceptionals you may have to book next year? And could you maybe quantify those?

You take?

Special items, I think...

So nothing that is planned there, no.

Okay. So now I've -- really excuse us that we couldn't take in a lot or none so far from the chat. I would like to summarize, too, that are a bit connected 1 from Chetan Udeshi, JPMorgan, one from James Hooper, Bernstein. And it is about the less integrated Verbund business as Chetan is asking, are you ruling out a separation of any of the 3 businesses, not integrated so deeply into the Verbund? And James Hooper, Bernstein asked, what about the plans for the carved-out ECMS Catalyst business? Are they subject to targets? We haven't talked about them yet. So perhaps you could give some insights here. And for the others, we will do our best on IR level to give you a follow-up.

Yes. Chetan, thanks very much for your questions. On the 3 business that you mentioned. It is not part of our portfolio planning to separate them further. So as we said, we profile them now in a new way. They stay within the BASF Group under supervision of the Board with the governance from our units with these services also provided from within. So what we explained on the differentiated steering is just about that, and this is not about a portfolio planning. For ECMS, this is a different thing. Here, we performed really a carve out. They are also running their own balance sheet and with an own governance framework now. And for ECMS, we said very clearly, this is the business that we truly like because it's highly invested. It's very cash generative. And we'd also say the sunset of that business, which is truly there, is a very long sunset. So we can enjoy that business still for a very long time, can still be that there's somebody coming attributing more value to the cash flows than we do. But I think for the time being, it sits well in our portfolio. And we are happy actually with the team that the carve-out was performed so well, and we could show that we can also really single out one business out of the group so well.

So with that, I would like to close the Q&A. We have come to the end of the live stream program today. Thank you very much for joining us online, and goodbye.