BASF SE (BAS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our conference call on the first quarter 2024 results. [Operator Instructions] The presentation will be followed by a question-and-answer session. [Operator Instructions] This presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in Opportunities and Risks of the BASF report 2023. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. With me on this early morning call today are Martin Brudermuller, Chairman of the Board of Executive Directors; and Dirk Elvermann, Chief Financial Officer. Please be aware that we have already posted the speech on our website at basf.com/q12024. Now I would like to hand over to Martin Brudermuller.

Good morning, ladies and gentlemen. Dirk Elvermann and I welcome you to our Analyst Conference Call. Today, we will provide you with details regarding our business development in the first quarter of 2024. Let's start with the development of chemical production by region. Based on the currently available data, global chemical production grew by 5.4% in Q1 2024, compared with the prior year quarter, on account of a strong growth in China. As in previous quarters, the growth in China was driven by recovering domestic demand and exports. However, this volume growth in China was still associated with low sales prices and is influenced by positive base effects. In North America, chemical production was essentially flat, while in the European Union production increased slightly compared with the weak prior year quarter. And in Asia, excluding China, production decreased slightly. To sum up. The volume recovery continued, but slowly, this trend is also seen in a sequential comparison, as volumes increased slightly in Q1 2024 compared with Q4 2023. Still we cannot yet confirm a fundamental turnaround in industry dynamics. For this, we will need to see the current positive trend continuing in the coming quarters. We now move on to BASF's performance in the first quarter of 2024 compared with the previous -- the prior year quarter. Overall, BASF Group sales were 12% lower at EUR 17.6 billion. This was mainly due to lower sales prices, which declined across almost all segments. Prices predominantly decreased on account of lower raw material prices. In Agricultural Solutions, we were able to slightly increase prices. Currency headwinds dampened sales in all divisions. Volumes of BASF Group increased by 0.5%. Excluding precious and base metals, volume increased by 2.1% compared with the prior year quarter. In terms of earnings development, we had a solid start to the year. EBIT before -- EBITDA before special items amounted to EUR 2.7 billion. This is slightly below the figure of the prior year quarter and slightly ahead of analyst consensus. Higher earnings in the Nutrition & Care, Materials, Industrial Solutions and Chemicals segments more than compensated for the decline in Other, Agricultural Solutions and Surface Technologies. Let's take a closer look at the volume development by segment. Volumes in the Chemicals, Materials, Nutrition & Care and Industrial Solutions segments increased, while Agricultural Solutions and surface technology recorded a decline. Higher volumes in our upstream businesses led to improved utilization rates at our major plants and positively impacted profitability. Excluding precious and base metals, the Surface Technologies segment recorded a volume decline of only 0.9% on account of the Catalysts division. Volumes in the Coatings division increased. In Agricultural Solutions, volume declined, mainly to lower sales of herbicides and fungicides compared with the record prior year quarter. And with that, I hand over to Dirk for more financial information.

Thank you, Martin. Good morning, ladies and gentlemen. I will now provide you with further financial details for the first quarter of 2024 compared with the prior year quarter. As Martin already mentioned, EBITDA before special items decreased by 5% and amounted to EUR 2.7 billion. EBIT before special items declined by 9% and came in at EUR 1.8 billion. Net income declined by 12% to EUR 1.4 billion. In Q1 2024, the tax rate was 20% compared with 17% in the prior year quarter. BASF's cash flows from operating activities improved by 49% to minus EUR 513 million. And free cash flow was minus EUR 1.5 billion compared with minus EUR 1.9 billion in Q1 2023. I will comment on the cash flow development in more detail on one of the next slides. BASF's equity ratio remained very solid. It amounted to 47.2% at the end of March 2024. Now let's take a look at the development of EBITDA before special items by segment compared with the prior year quarter. BASF Group earnings performance was driven in particular by the significant decline in earnings in Other, which was primarily attributable to higher bonus provisions as well as higher expenses from the long-term incentive program and lower contribution from BASF's internal insurance companies. Agricultural Solutions and Surface Technologies also recorded a decline in EBITDA before special items. In Agricultural Solutions, this was mainly due to lower volumes. The decline in earnings in the Surface Technologies segment was due to lower precious metal prices in the Catalysts division. This was partially offset by the increase in earnings in the Coatings division. All other segments Nutrition & Care, Materials, Industrial Solutions and Chemicals increased EBITDA before special items, in some cases significantly, mainly due to fixed cost reductions and higher contribution margins predominantly driven by higher volumes. For detailed explanation of the earnings development by segment, please refer to BASF's quarterly statement Q1 2024 published this morning. I will now continue with more detail of our cash flow development. In the first quarter of 2024, cash flows from operating activities improved by EUR 502 million to minus EUR 513 million. Changes in net working capital led to a cash outflow of EUR 3.2 billion compared with a cash outflow of EUR 3.6 billion in the prior year quarter. This positive development was due to lower payments from declining accounts payable. Changes in inventories were almost stable. Overall, this once again demonstrates our strong focus on inventory management and cash generation. Compared with the prior year quarter, payments made for property, plant and equipment and intangible assets rose by 9% to EUR 943 million. This increase was mainly attributable to the construction of our new Verbund site in South China. In Q1 2024, the free cash flow improved by EUR 426 million to minus EUR 1.5 billion. Typically, BASF's free cash flow is negative in Q1 and recovers in the course of the year. This is mainly due to the seasonality of the cash flows from operating activities in our Agricultural Solutions business. Let's now turn to our balance sheet at the end of March 2024 compared with year-end 2023. Total assets amounted to EUR 81.7 billion. This is an increase of EUR 4.3 billion, mostly on account of higher current assets which increased by EUR 3.4 billion. This increase is mainly attributable to the previously mentioned seasonality of our businesses, particularly in the Agricultural Solutions segment, which resulted in higher trade accounts receivable compared with year-end 2023. Higher additions to property, plant and equipment were the main driver for the slight increase in noncurrent assets compared with year-end 2023. Net debt increased to EUR 18.2 billion at the end of March 2024 compared with EUR 16.6 billion at the end of December 2023. At 47.2%, our equity ratio at the end of March '24 was at the same level as our year-end 2023. And with that, back to you, Martin.

Thank you, Dirk. Now I will conclude with the outlook. BASF's outlook for 2024 and the underlying assumptions remain unchanged. As published in the BASF report 2023, we expect BASF Group's EBITDA before special items to rise to between EUR 8.0 billion and EUR 8.6 billion in 2024. Our forecast for BASF's group free cash flow is between EUR 0.1 billion and EUR 0.6 billion. This is based on expected cash flows from operating activities of between EUR 6.6 billion and EUR 7.1 billion minus expected payments made for tangible (sic) [ intangible ] assets and property, plant and equipment in the amount of EUR 6.5 billion. CO2 emissions are expected to be between 16.7 million -- billion -- 16.7 million tonnes and 17.7 million metric tons in 2024. We anticipate additional emissions, compared with the previous year, from higher production volumes based on rising demand. We will counteract this increase with targeted emission reduction measures. Thank you. And now Dirk and I am -- glad to take your questions.

Yes. Ladies and gentlemen, I would now like to open the call for your questions. [Operator Instructions] The first question will be from Sam Perry, UBS. We will then have Christian Faitz and then Matthew Yates.

Two, please. Firstly, on upstream volumes clearly recovering from low levels, where are utilization rates currently? And how far away from the point at which you think you might be able to drive some pricing? And then secondly, on ag, can you talk through the moving parts on the margin improvement year-over-year here? Just quite surprised to see stepping up year-over-year when volumes are down significantly and only low single-digit pricing. Is there any sort of cost phasing or something else in there? And if so, any implications for Q2?

Yes, Sam, I can take your questions. First, on the upstream, utilization rates are recovering for now. And we came from a low level in 2023. We are now again crossing the 70s. There is still obviously further room for improvement, but [ alone ] by the fact that we had our crackers in Europe all running, you can already infer that there is higher demand certainly than we had in 2023. On your next question, the volumes development certainly as expected, let's remind us we have the second best first quarter of ag. It is lower compared to the strongest first quarter that we had last year, but it is still the second best. So volumes down as predicted. And the better margins predominantly come from the mix, as we have less sales in the Chemicals part, so the herbicides and fungicides, but this is pricing-wise then compensated by higher sales in seeds, which in our case are predominantly canola, soy and also cotton. So product mix makes a difference.

So we move on to Christian Faitz, Kepler Cheuvreux.

First of all, Martin, all the best for your last day in an operating function at BASF. And obviously all the best for the future post BASF. Many thanks for all the good interactions we had throughout these years. And all of you, I wish a successful and, in particular, short AGM. My one question is you saw decline in emission catalyst volumes. How were volumes in automotive OEM paints? I assume they were likewise negative. Would you see volumes in your automotive OEM activities normalizing at some point this year? And also was there a particular reason why you saw considerable increase in automotive refinish?

So Christian, first of all, thank you very much for the nice words and particularly the vision of a short AGM. We are looking forward to that one. I think, when we look on the automotive business, we have also to take really into account the BEV and the ICE developments. So we have really seen, particularly in China where the BEV development is quite impressive, that our volumes for the catalysts have been significantly down. That was -- the major impact which we actually had was the Chinese market. Overall, we had a much better development in the Coatings division. It was only slightly down. The volume side was more or less a rollover from the business before, so it is basically the change between the BEV and the ICE, which, however, I have to say BEV is developing slowly -- slower all over the world than expected. But Coatings business is much more robust in this situation.

So the next one is Matthew Yates. We will then have Jaideep Pandya and then Chris Counihan.

Sorry to ask such a short-term question, but you note in the release that there was some benefit from the Red Sea disruption in Q1. Should we think of this as just a onetime benefit; and the environment, so far, in Q2 is not as good? Or are you seeing continued positive development of the order book in recent weeks? And if I can just squeeze in a second one, maybe for Dirk: On Wintershall, why is the disposal price of the WIGA infrastructure assets not been disclosed?

So Matthew, I'll take this opportunity maybe to give it a little bit a summary again. So let me really say we have been happy with the development in the first quarter, particularly also on the volume side, but you saw also that we are a little bit cautious yet to see whether this is a solid foundation that it's things really improved. Because I think there are some effects that actually helped in Q1. And that is, for sure, that the inventory level was extremely high on [ year's change ]. So I think people get a little bit more confident and, with that, also starting to order a little bit more. They want to be prepared that, let's say, their inventory situation is more normal. And there is indeed this effect which we see in some of the businesses that they reconsider their supply chain strategies because there have been interruptions from the long-sea journey of materials and they have to go around the longer journey. So they are worried about that. And I think they ordered higher volumes also of some of the suppliers from Europe, and we clearly benefited from that. So with that also, I will be cautious to take this in the baseline because I would expect that this is a problem that is not over tomorrow, but I would also not expect that this is a long-term problem because I think, somehow, the world is arranging with this. For that reason, we are also a little bit cautious. We are very positive, I have to say, but we are very cautious still to say whether this development with all these special effects will continue in Q2 and Q3. So with that, Wintershall, for Dirk...

Yes. Matthew, disposal price for WIGA is not disclosed, for the simple reason that confidentiality has been agreed, so -- but what I can say is we are very happy with this second year now after the Harbour deal now, the deal with SEFE, which is actually the German government. And as I cannot disclose the price, let me at least guide you a little bit by saying the book value of WIGA Transport is at 1.05 billion. And we would certainly rather sell higher than lower than the book value.

Okay. So now we have Jaideep Pandya, On Field Research.

The first question, really on Nutrition & Care. Could you just tell us like what are the main moving parts here in terms of sort of volume dynamic, pricing dynamic that you see in both the subsectors? And what is the BASF-driven cost realignments that you have done maybe on the capacity or on the product mix? And then the second question/comment is, first of all, thank you to Martin for all the good times and all the comments. And also, well done on being so bold as a CEO of the largest industrial/chemical company in Germany. And the question to you really is what is the one thing that you would tell Markus as he comes in to replace you?

Can you start...

So I'll start with the small question on Nutrition & Care. So the -- first of all, we are happy with the result in the first quarter for Nutrition & Care which turns very positive. It's the biggest EBITDA improvement contributor in Q1. This is carried, I have to say, by a volume increase in all sections. So it is aroma. It's pharma and it's also the nutrition part, the results very much carried by the highly improved aroma business. What we are still seeing in the nutrition part is low price levels, but as you know, we have addressed those [ recently ] in regard of vitamin A now with a new highly scaled plant that moves up quality-wise but also in terms of cost [ competition ] to the right point here. And so in a nutshell, aroma a high contributor, pharma very much okay, nutrition still suffering from prices, but we're getting [ our acts in the road ].

Jaideep, thanks for your words. I mean, first of all, let me really say that BASF is in the very best hands with Markus and the Board team. Markus, well, 25 years with the company, he exactly knows all the details of the company, so my one recommendation to him would be don't get distracted from the outside by politics and media, but go along with what needs to be done to develop the group and to stay firm. Because I think there is very clear path forward what needs to be done. And really do what needs to be done and not get distracted. That would be my advice.

Great. And good luck for everything in the future.

Thanks, Jaideep.

So now we have Chris Counihan, Jefferies. We will then have Chetan Udeshi and then Tony Jones.

Martin, I also pass on my thanks and best wishes for the future. I only have one question. Thanks for providing the segment cash flow now. I'm looking forward to this going forward. I just had a longer-term question on this one, Martin, given you spearheaded the ramp-up of the China Verbund project over the next 5 years. Obviously you have staged ramp-up of production. What year would you expect that project to become free cash flow positive for BASF?

Maybe I'll start on that. Normally cash flow is Dirk's thing, but this is a little bit expectation about China. I mean maybe, first of all, if you say -- if you start a project like that, you have to have the long-term development in the focus. That you really hit the right timing when you start up such a plant, that this is the best market moment, I think you cannot plan for this. We saw this also when we opened Nanjing. So I think the fundamentals are more important than really focusing on the [ team ], so I would say we expect that we load the plants very quickly. Nevertheless, there is, in one or the other area, overcapacities but not so much on our lines, so I will expect that in '26 we will be positive and have a good contribution from that already because the plants -- the products are really products broadly used in the industry. A lot of that stuff is imported today. And we substitute this with local production. That's why we are really positive. And I think we will have a good contribution already in 2026.

So now Chetan Udeshi, JPMorgan.

I just wanted to follow up on previous question on second quarter. I think, Dirk, last time, you were to some extent sort of happy to confirm Q1 consensus. Just looking at the consensus today for second quarter, would you say you're still happy with the consensus? Because to some extent, you need that level of earnings to come to the full year guidance, one would say. But just looking for that confirmation, if you can. And second, just a related topic, we've seen a lot of volatility in Chinese pricing: throughout Q1, slight increase; and then big collapse, if you will, in second half of Q1, especially in March and early April. Can you just confirm what you see in China? Is it still a recovery mode? Or are you starting to see the trends actually start to worsen? Because that will be the implications based on what we see from the pricing side.

I'll start with the quarter 2 question. And indeed I think the confirmation for Q1 that we had provided was quite accurate, so now obviously the question about Q2. So what do we see? We see that also Q2 follows the trend in Q1. Talking to all our business, there is not the feeling that there is anything now falling off the cliff, but it is rather a continuation. Is it a further recovery? That is, I would say, too early to say because, whenever we are talking about demand patterns, we still are in the phase of saying this is mainly restocking, still cautious buying behavior. Yes, there is some demand, but it is not really completely changing now to the positive, so I would rather say it's a continuation of what we see in Q1. So it's solid. And this is also the reason why, in terms of our guidance, we completely stick to it. We see for Q2 exactly this continuation. And this is fully in line with our guidance, so not worsening and not improving dramatically but holding the line.

Chetan, about China. I mean I think, if you look at Q1, basically the worldwide growth or the global growth of chemicals has been carried by China again because of about 10% growth over there, world with 5.4%. So it's basically pulled along from there, but we also said there is still relatively low pricing level. I mean the plants are quite filled, I have to say, but there is not the pricing power, which also shows you it's getting more dynamic but it's also not booming. And I think, if you look at the confidence level of people, they still are cautious in terms of the buying behavior. I wanted to say it's not super happiness with the Chinese government overall, so people, like every human being, holds back a little bit money. That, you can see also in the retail area. You see that on the car production which is not really growing dramatically over there. So it's coming back, but it's also there not in the way, let me say now, in the next quarters, that this booming in China is pulling the world again. And I think this is one of the reasons, adding to what Dirk just said, that we are a little bit cautious, but we are definitely out of the hole in China. That is very clear. And the load of our plants is on a relatively high level.

Okay, now we have Tony Jones. We will then have Laurent Favre and then Sebastian Bray but now Tony Jones, Redburn Atlantic.

All the best, Martin. Only a few months ago, Martin, you talked about the need to review your production network, particularly in Germany, given high costs and low growth. How are you thinking about this now with the stronger start to the year? And a quick one for Q2: Maybe you could give a little bit of color about how you see the divisional outlook as we go into the second quarter.

I'll take the first one. Dirk, you're doing the second one. I mean overall let me say I think our decisions that we have taken already to shut down plants and to trim the Verbund to basically competitiveness framework and also to the demand in Europe, I think, was all right decisions, but there will be more to come. Because I think we will have a fundamental topic in Europe because base chemicals will be for good because of structurally higher energy costs less competitive. So we have to trim it more to the European demand. In our case in BASF, we will trim it more to our own internal consumption and sell less to the market because you have also to take into account that the base chemicals are the CO2-intensive products. That means we produce them. We sell them to the people. And then we have to reduce, with high cost, the CO2. That doesn't make sense anymore. That's why we will really use that to fuel basically our change with the raw materials. And there's a little bit more to come. And this is what the new Board will do when they talk about the target [ picture ] for Ludwigshafen, which is basically revised and renewed, I have to say, with the current framework. So I would expect that, particularly in the upstream area, the European chemical industry will be weaker and softer and with lower participation in global share than it has been in the past. So that will be our work. And there is still a little bit to done -- to be done, but I think we are very happy with the first step we took.

Yes, Tony. And just speaking, talking a little bit about the divisional outlook going forward. So starting with Chemicals and Materials, we've said already that the first quarter was okay, was good. We also benefited here from the one or the other special effect. [ Western ] was already mentioned, the one or the other turnaround for outage of a competitor, which we benefited from. Now second quarter fundamentals, I would say, more or less unchanged, but now also we will have some turnaround, so I'd rather see that flat. Then for Industrial Solutions, I think, full year, we are forecasting here considerable increase, have nice trends in both businesses. It's a volume play, to a large extent, right now, like dispersions and -- for instance, benefiting from that. So positive trend going forward. Surface Technologies, comprising of Catalysts, the batteries but also then Coatings business. Here for the entire segment we see as well [ the price wars ] on prior year level. It depends also a little bit on development of the precious metals prices, which are, again, at a very low level, as you appreciate. Nutrition & Care, we see a positive trend also going forward, with the measures that we have taken now gaining traction. And Agricultural Solutions, we said early, after a record year last year, this will be lower volumes while certainly prices also getting more under pressure, but as I said, we have a more favorable mix now with higher portion of seeds in our sales. So I'd rather say slight decrease and nothing dramatic happening there. So that will be my short summary of the outlook.

So now we have Laurent Favre, Exane BNP.

Yes. And then, I guess, [ such the comments ] of Christian and the others for Martin, it's certainly been a fun ride. My first question to you, Martin, is regarding what you -- I guess, what you told Jaideep. You said that there's a clear path forward for BASF. And I guess, for years, the path has been to go more downstream; and there was a lot of M&A. And I guess that was before 2018. And when we look back to 2018 and we think about your time as CEO, obviously there's been a lot of mess to deal with, decarbonization, COVID, et cetera and the investments in China. My question to you is, what is that clear path going forward in terms of upstream versus downstream? Because it's certainly not clear to me. And the second question, for Dirk, as you've gone through all the business lines. On the Other line itself, I understand there was a higher provision for the LTIP mark-to-market in Q1. Is there also a provision for higher bonuses that we should assume will be sent back to the divisions later this year?

Well, Laurent, first of all, let me say I will not communicate the strategy of the new Board team. That will be happening in a couple of months when Markus and his team will tell you how they basically -- what they have on their minds for the next years. I mean it will be a kind of an evolutionary thing. This is very clear. That is, I think, what's always with BASF, but there's also some considerations they have which differ from what I had. I mean I can only say, when I started in 2018, I had hoped for different 6 years than we actually had. That we handle from one crisis to the other was really not what I had in mind, [ also ] not presenting the numbers of 2023 as they are. I had hoped we have a better result here, but life is as it is. I think what is important, that my team, which is very much also to a large extent Markus's team, we have been working on trimming the structures of BASF. And I think this is the basis also for going forward, that we really have been looking how we get closer to the customers, how we get more efficient. How do we get cost out? How we differentiate between the businesses. And I think this is my pride, I have to say, that we got along with all these targets despite of the crises, so we have not made compromises on that. And that includes also the decisions to close down plants. So I think that's a great basis, but have a little bit more excitement for what is coming then as the new strategy update from Markus and the team.

Laurent, your question to others. You surmised right. So provisions in -- due to bonus accruals, due to the efforts to take them result proportional, but there's also the longer-term element in it, the LTI parts. And then there are some things like the captive insurance payments. There was one that is booked here in others. And then it's typically also, to a minor extent, some [ consolidation ] effects. So that will be the 4 buckets that you'll find in Other.

But that -- is this bonus provision just in line with, I guess, the guidance that you provided externally? Or have you added to the bonus provision based on the better start to the year in Q1?

In line with guidance, Laurent.

Okay. Now Sebastian Bray. And we will then have 2 more analysts. That's Peter Clark and Andreas Heine, to conclude, but now Sebastian Bray, Berenberg.

I have one on the equity shareholdings income in the Chemicals segment. This seems to have fared less well than the segment as a whole. What happened to the contribution from shareholdings accounted using the equity method in Chemicals? And just as a follow-up to questions that have been made on April trading: I can see the composite freight rates have dropped substantially since the peak of the Red Sea crisis in early Q1. Are there any observable trends toward customer propensity to start resourcing material from China yet? Or that hasn't been observed as we move into April and into Q2.

Starting with the equity result. This is our joint venture in Nanjing, this -- we talk of BYC. And this is bringing in lower results this year; a little bit also in line with the overall performance of the Chinese chemicals -- chemical markets, so nothing outrageous but in-line a little bit with the development. Will the results get better? Again definitely it is the case. On the Red Sea, I am not sure whether I fully got your question. I understand incoming materials from China still to be expected...

My -- sorry. Just to clarify. My question was the freight rate, the cost of shipping from China has declined substantially since the height of the Red Sea crisis. Are there any changes in the buying behavior of European customers observed yet on this basis?

So there is an element of cost decrease in it. Is that also a matter of negotiations in procurement? Yes. Yes, that's the case. And sometimes, costs to be passed on [ come to those ]. This is really -- I would not say -- there's no clear pattern. This is a mixed picture, I have to say.

Helpful. And all the best, Martin.

Thank you.

So now Peter Clark, Bernstein.

Congratulations, Martin...

[indiscernible].

[indiscernible].

Yes, yes. And well done on a very tough job. But 2 follow-ups really and the restocking question. Obviously you've seen some restocking, now chemical production growth and what you've said in Europe. Just wondering how you feel about any risk of destocking going forward. I've heard all your comments about no real change in trends, but clearly inventory levels are still much lower than they would have been, I guess, a year ago or in '23, where we have that phase of aggressive destocking. And then looking at the cost-cutting side, encouraging to see most segments going to the lower fixed costs, obviously a lot of work being done there. And that momentum is continuing and it should build from here. So just your confidence that we're going to keep reading about the lower fixed costs on the segment line as we go through '24 and into '25 as this momentum built on the cost cutting.

So Peter, I'll take maybe the first one. I mean, if you look on the volume growth in Europe which was in the first quarter quite solid, that does not fit to the overall industrial, let's say, strength over there. We have said since about half a year that we see a kind of a flattening out and building a foundation in the bottom. We reached the bottom. I think this is very clear. If you look at the PMI in Europe, which increased a little bit from 46 -- or to 46.5, it's still below 50. So that means the shrinking really comes to a halt, but we are not yet, in the European territory, into a positive mode. That's why we are cautious. That looks a little bit different in some of the other regions, I have to say. For example, particularly in -- also in South America, you are positive. You are also positive in China. It's on 50 -- 51.1 in March now, so it increases above the 50. So you see the dynamics coming back, but it's also not really fully dynamic and vital as it was before. And with that also goes the inventory policies. It has been extremely low over the recent months. And as I said, also with the supply chain constraints, people look that they are a little bit more in a healthy territory, but it's not that they fill their stocks. Because they need raw materials for ramping up their production [indiscernible]. So I -- that's why we are still cautious. We are cautiously optimistic, I have to say, but we are cautious.

Yes. And on your question on the cost savings, I mean, the estimate is completely right. Now we see the cost savings kicking in and this will now accelerate. Because at the beginning, you always have the onetime costs offsetting the savings, and now going forward, we will enjoy the run rate of the already achieved savings. And as you have heard, we are adding more cost-saving measures to it. To frame the numbers one more time, and you know that from our Q3 call already, we expect annual cost savings in nonproduction areas of EUR 700 million by the end of '26. And then we have a further EUR 200 million coming extra from our global services and digital and business services and another EUR 200 million from the adaptation of the Verbund structures in Ludwigshafen. This is what we already have talked about, and then comes the extra effort on the Verbund side. As we mentioned and key takeaway, we are fully on track with the cost-saving measures. The onetime costs are to a larger extent realized already, so going forward, you will see that cost savings in our P&L.

Okay, encouraging.

Okay. So now we have Andreas Heine, Stifel. That's the last participant asking questions...

Yes, being the last then, I obviously also would like to thank you, Martin, for these, [ I mark as ], decade-long discussions I had; and your very straightforward comments which are always very helpful. 2 questions: The first is on agro on the second quarter. So you were talking about the positive mix in the first quarter via the seed business growing. The seed business is most seasonal. And actually most of the business is done in the first quarter, so I would assume that the picture looks, in the second quarter, much different before than the year-on-year comparison levels [ of in ] the second half. So is it right that this crop protection in the second half will come through and volume decline to a much more extent than what we have seen in [ H1 ]? The first question. The second is actually on the oil price which is now in the 90s. That will obviously impact the upstream, first, by getting through the value chain. Do you see, with the utilization rates you have right now, already enough pricing power to push the higher raw material costs from the higher oil price in the upstream business on a short notice?

Maybe -- Andreas, thanks also for your words. I'll maybe start with the oil price. I think what the major worry is -- for us is that these very cautious dynamics that -- coming back in worldwide economy is actually hampered by high oil prices because that takes cost off -- on and makes everything a little bit more tight. I said earlier we have not yet really fully pricing power back, so it is still a play on raw material prices, also the raw material prices going down. And they have also been tracking down, the prices. We could relatively well secure margins but with the raw materials [ with this impact back ]. So we don't see that yet, but the logic consequence would be that raw material is going up, and with that, we have [ also ] to pull the prices up. I -- whether this is overproportionately the case that we can expand the margins, I don't know. It's not very probable, but let's see how sustainable that is. I think there is a component in that which is definitely from the Middle East crisis. Whether this is -- normalizes, when the overall assumption that this is not ending in a war, I think it will also help to keep the oil price at least at a level which is not going further up and then giving more confidence. So a little bit early to say what this is, but there is the normal mechanisms, which you know very well. And how that goes into margins we will see has to do with the demand.

Yes. Andreas, on your ag question, it's been -- first of all, I'll say you know the typical pattern of our Ag Business. It is front loaded. Q1 is typically the strongest. And indeed, for Q2, due to the seasonality, I would not expect now a big contribution from the ag business, in Q2. And we certainly see some buying behavior also from the distributors a little bit closer to their actual demand, so in this regard, there is certainly still something also to come in the second quarter, but this is not -- if you compared to last year, this is not compensating, by far, not -- what we have not achieved in ag in the first quarter compared to the second -- to the first quarter 2023. And what we believe, though, is that there is business to come also in the second half of the year, so the southern hemisphere, for which the team is already preparing. So all in all, business development in the second quarter should not surprise us also for the ag business, [ yes ].

Yes, Andreas, fine? Okay...

Yes.

Ladies and -- before we close, I would briefly like to hand back to Dirk.

Yes. And finally, I would like to take on what many of you have already said and expressed. And I express my warmest thank you to you, Martin, as our Chairman of the Executive Board of BASF. After 36 years of BASF, Martin, you will retire from the Board of Directors at the end of today's Annual Shareholder Meeting. You joined the Board in 2006 and became our CEO in 2018. Since becoming CEO, you have presented BASF's results over 24 quarters. I think it is fair to say that you have enjoyed the open and sometimes tough exchange with analysts and investors. And vice versa, they valued, I think we can say that, your insights into the chemical industry and the macroeconomic picture. Martin, I know you personally for 15 years. And I would like to thank you wholeheartedly for your support, in particular, since I took over as CFO last year. It has been both an honor and a pleasure to work with you and to serve with you on the Board.

Yes, thanks, Dirk.

And maybe one more. You will continue to remain active in the business world following today, for example, as designated Chair of the Supervisory Board of Mercedes, but I hope, however, that you'll find also a little bit more time, extra time, for yourself, for your private life, for your family. And with that, all the very best, Martin.

Yes, thank you very much, Dirk, really rewarding words, always difficult to keep emotions under control at the very end. I would like to take that opportunity, first of all, to thank you all. I have always found that these exchanges have been very, very interesting. They have been effective. They have been also fair. And I have to say also, to a certain extent amicably, you have to do your job and we have to do our jobs, but I enjoyed very much the physical meetings we had where we've [ got all the close ] into a dialogue and we have some wine tasting next to it. So I really like that. I have to say I have to live and -- to learn to live without BASF. It will take me a little bit of time, but it's definitely also life outside of chemical markets and I'm looking forward to this. I would like to also take this opportunity to thank my team, particularly Stefanie Wettberg and all the guys which you cannot see sitting here also in the room, who have actually always helped to prepare and to give you the best possible information where you can do your jobs. So a great and big thank you to all of you; and certainly also with you, Dirk. It was fun to do the last meetings over the last year together with you. So all the very best. Thank you very much. All the very best to you personally and certainly also to your careers. And with that, stay healthy. And maybe we meet somewhere else again. Thank you very much.

We are now at the end of today's conference call. Should you have any further questions, please do not hesitate to contact a member of the BASF IR team. Today, I clearly [indiscernible] because others will work on now also the Annual Shareholders' Meeting that will be held, starting at 10:00 today. We are again hosting the meeting in person at the Congress Center Rosengarten in Mannheim. We will present our second quarter results on July 26. Thank you for joining us this morning, and goodbye for now.