BASF SE (BAS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to BASF's conference call for analysts and investors on the fourth quarter and full year 2024 results. Today's presentation is being recorded. [Operator Instructions]. Today's presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. The audited BASF Report 2024 will be published on March 21. The key financial figures published today are, therefore, to be regarded as preliminary. From today's perspective, no adjustments are expected. With me on the call today are CEO, Markus Kamieth; and CFO, Dirk Elvermann. Please be aware that we have already posted the speech on our website at basf.com/FY2024. Now I would like to hand over to Markus.

Yes. Thank you, Stefanie. Good morning, everyone, and welcome to our first conference call in 2025. In a challenging market environment, BASF has performed well thanks to the strong performance of our core businesses, where we leveraged our strong market positions to grow EBITDA before special items by 18% compared with 2023. Overall, EBITDA before special items of BASF Group increased by 2%. Lower than projected capital expenditures and our continued strict focus on net working capital management led to a free cash flow of around EUR 750 million, exceeding our forecast range of EUR 100 million to EUR 600 million. We are also making good progress in terms of portfolio management. The signing of the agreement to sell BASF's decorative paints business to Sherwin-Williams marks an important step in unlocking the value of our standalone businesses. So let's begin with an overview of BASF's performance in the fourth quarter. With EUR 15.9 billion, sales matched the level of the prior-year quarter. Volumes of BASF Group excluding precious and base metals increased by 3% thanks to the Agricultural Solutions segment in particular. The Chemicals and Industrial Solutions segments also increased volumes in the last quarter of the year. Prices excluding precious and base metals were slightly positive. Overall, prices steadily recovered throughout 2024 compared with the respective quarter of the previous year. Currency headwinds slightly dampened sales growth and were mainly related to the Brazilian real. In the fourth quarter of 2024, EBITDA before special items improved by 19% and came in at EUR 1.6 billion. The considerable increase in earnings was supported by the strong finish in Agricultural Solutions, and the fourth quarter earnings were also higher in the Nutrition & Care and Chemicals segments as well as in Other. Here you can see a snapshot of how the markets and our segments' volumes and specific margins developed in the fourth quarter. In a slightly improved market environment for base chemicals, we achieved solid volume growth in the Chemicals segment, mainly on account of the Petrochemicals division. Overall, specific margins in the Chemicals segment declined slightly compared with the prior-year quarter despite higher margins in Intermediates. Both divisions contributed to the slight increase in EBITDA before special items in the segment. In an overall stable market environment, the Materials segment recorded slightly lower volumes in both divisions. In the Monomers division, volumes declined particularly in the PA6.6 and PA6, while in the Performance Materials division, volumes decreased mainly in engineering plastics. Specific margins improved in both divisions, with the highest contribution from the MDI value chain. Nonetheless, EBITDA before special items in the Materials segment declined slightly. Higher earnings in the Monomers division could not fully compensate for lower earnings in the Performance Materials division. The Industrial Solutions segment operated in an overall stable market environment and achieved slight volume growth in both divisions. Specific margins declined slightly, most markedly in Performance Chemicals, in particular in plastic additives. The segment's EBITDA before special items decreased considerably due to lower contributions from both divisions. The market environment for Nutrition & Care remained favorable. Nevertheless, higher volumes in Care Chemicals could not offset lower volumes in Nutrition & Health. Volumes in this division declined mainly due to the production outages in Ludwigshafen as a result of the fire at the iso-Phytol plant at the end of July 2024. Specific margins improved significantly in both divisions. EBITDA before special items of the segment rose considerably compared with the prior-year quarter thanks to higher earnings in the Care Chemicals division. According to current data, global light vehicle production was stagnant in Q4 2024 compared with the prior-year quarter, and the proportion of ICE vehicles continued to decline. In this environment, the Surface Technologies segment recorded lower volumes, particularly in mobile emission catalysts as well as precious metals services. The overall lower volumes in Q4 could not be offset by higher specific margins in both divisions. Therefore, EBITDA before special items declined slightly in the Surface Technologies segment. Crop commodity prices remained below historical averages, and financing costs were still elevated, resulting in unchanged and challenging farmer economics. Even so, in the final quarter of the year, the market for agricultural solutions showed positive volume momentum in all regions. Margin development differed by region, whereby South America continued to be impacted by competitive pressure paired with negative currency effects. In this environment, the Agricultural Solutions segment achieved strong volume growth in all crop protection indications as well as in seeds and traits. The segment was also able to keep specific margins at the level of the prior-year quarter. Overall, EBITDA before special items in the Agricultural Solutions segment increased considerably in Q4. Now let's move on to the development of EBITDA before special items in the full year 2024. As already mentioned, earnings in the core businesses increased by 18%. In the Nutrition & Care, Industrial Solutions, Chemicals and Materials segments, EBITDA before special items grew mainly due to higher volumes. Overall, volume growth in the core businesses was 5% in 2024 and a remarkable 6% in Europe. This is a testament to the strong competitive position of our core businesses in their respective markets. The strong performance of the core businesses more than offset lower contributions from the standalone businesses in the Agricultural Solutions and Surface Technologies segments. Other also recorded lower earnings. Overall, EBITDA before special items of the BASF Group rose slightly. Now let me provide some additional color on the challenges of our Surface Technologies and Agricultural Solutions segments. According to current data, global light vehicle production reached 89.5 million units in 2024, and thereby decreased by around 1% compared with a strong prior year. In this environment, full-year earnings in the Surface Technologies segment declined on account of the Catalysts division and particularly due to lower contributions from precious metals trading activities. In contrast, the Coatings division was able to improve earnings slightly. In 2024, the market for crop protection and seed products was characterized by high channel inventories at the distributors, low customer demand and continued destocking in an overall environment of falling prices. Compared with a record prior year, earnings in BASF's Agricultural Solutions segment declined, mainly on account of the difficult market conditions in the glufosinate-ammonium business. Overall, our Agricultural Solutions segment performed well in a challenging market and competitive environment, finishing the year with a strong fourth quarter and a full-year EBITDA margin before special items of 20%. As announced at our Capital Markets Day in September, we are becoming more active in portfolio management. With a focus on our standalone businesses, our goal is to unlock value. The signing of the agreement to sell our decorative paints business to Sherwin-Williams marks a first step in line with our Winning Ways strategy. The transaction multiple is at the higher end of previous multiples in the paints and coatings industry and significantly above the trading multiple of BASF. And we are glad to have made such rapid progress in finding a new home for Suvinil. In the second quarter of 2025, we will approach the market to explore strategic options for our remaining Coatings activities, which include automotive OEM coatings, refinish coatings and surface treatment. In Agricultural Solutions, we are advancing as announced in September and we are currently focusing on executing the legal separation and the implementation of a dedicated ERP system by 2027. In parallel, with the support of financial advisers, our team is beginning to prepare for the IPO readiness, which is also targeted for 2027. In summary, we are delivering what we outlined with regard to portfolio management. With that, I hand over to Dirk.

Thank you, Markus, and good morning, everybody. Let's now have a look at the financial details of the Group for the full year 2024. EBITDA before special items rose by around EUR 200 million, thanks to the considerably increased earnings of our core businesses. The adjusted EBITDA margin before special items increased from 12.6% to 13.1%. In our core businesses, the margin improved by 2% points compared with 2023 and amounted to 13.0% in 2024. EBIT before special items reached EUR 3.9 billion, an increase of 3% compared with the prior year. Special items in EBIT amounted to minus EUR 1.9 billion. I will provide further details in a moment. Net income came in at EUR 1.3 billion compared with EUR 225 million in 2023. Net income from shareholdings increased by EUR 798 million to EUR 598 million, mainly on account of higher earnings contributions from non-integral companies accounted for using the equity method. This was particularly due to a disposal gain of EUR 390 million related to the sale of Wintershall Dea assets to Harbour Energy. Cash flows from operating activities decreased by EUR 1.2 billion to EUR 6.9 billion in 2024 and were in the forecasted range. We again managed to achieve cash inflows from changes in net working capital in 2024. With a cash inflow of EUR 360 million, changes in net working capital were, however, considerably lower than the strong cash inflow of EUR 1.8 billion in 2023. Payments made for property, plant and equipment and intangible assets rose by EUR 803 million to EUR 6.2 billion, particularly on account of the construction of the Verbund site in South China, which is progressing on time and in budget. Overall, we remained EUR 300 million below our original forecast of EUR 6.5 billion. Free cash flow amounted to EUR 748 million, exceeding the forecast range of EUR 100 million to EUR 600 million. As I just mentioned, special items in EBIT amounted to minus EUR 1.9 billion and were mainly caused by restructuring costs and impairments. Restructuring costs were incurred in all segments. They included restructuring in glufosinate-ammonium in the Agricultural Solutions segment and one-time costs for our ongoing efficiency programs. Impairments were focused on battery materials in the Surface Technologies segment. Other charges were mainly related to the class settlement of the multidistrict litigation proceedings related to aqueous film forming foam products in the United States. This settlement was reached in May 2024, and we agreed to it without the acknowledgment of a legal obligation. Now let's turn to BASF Group's CO2 emissions. Despite BASF's volume growth, Scope 1 and Scope 2 emissions remained almost stable in 2024 compared with 2023 and amounted to 17 million metric tons. This figure is within the forecast range that we published in February 2024. Our progress toward our 2030 target is being driven by our strong focus on operational excellence measures to increase energy and process efficiency as well as our efforts to increase the share of electricity from renewable sources. In 2024, the proportion of electricity from renewable sources rose to around 26% from around 20% in 2023. Specific Scope 3.1 emissions amounted to 1.58 kilograms of CO2 per kilogram of raw materials purchased compared with 1.67 in 2023. The reduction was mainly achieved by a change in the raw materials portfolio. Furthermore, we sourced first raw materials with lower PCFs from selected suppliers. In Q4 2024, cash flows from operating activities decreased by EUR 806 million to EUR 3.5 billion, mainly due to lower cash inflows from changes in net working capital. In Q4 2024, changes in net working capital led to a cash inflow of EUR 2.4 billion compared with a strong cash inflow of EUR 3.2 billion in the prior-year quarter. Given that net working capital cannot be reduced indefinitely, the Q4 2024 figure highlights our strong commitment to growth with high capital efficiency. Payments made for property, plant and equipment and intangible assets rose by EUR 257 million to EUR 2.3 billion, particularly on account of the construction of the Verbund site in South China. Free cash flow amounted to EUR 1.2 billion compared with EUR 2.2 billion in Q4 2023. Let's now turn to our balance sheet at the end of December 2024 compared with year-end 2023. Total assets rose by EUR 3 billion and amounted to EUR 80.4 billion. The increase in noncurrent assets was mainly driven by additions to property plant and equipment due to our investments in the Verbund site in South China. Current assets declined slightly compared with the end of 2023. At the end of 2024, equity stood at around EUR 37 billion. With 45.9%, BASF's equity ratio remained very healthy. Net debt increased by EUR 2.2 billion to EUR 18.8 billion at the end of 2024, mainly on account of higher long-term debt. BASF's single A credit ratings reflect our strong balance sheet and prudent financial policy. Let's shift our focus to capital expenditures between 2025 and 2028. As announced at our Capital Markets Day, we aim to grow with high capital efficiency by reducing capital expenditures, increasing the utilization of existing assets and optimizing our net working capital. After the startup of the Zhanjiang Verbund site, which will begin in the second half of 2025, we will bring down CapEx below the level of depreciation, despite significant cost inflation. For the BASF Group, we plan capital expenditures of EUR 16.2 billion between 2025 and 2028. During this four-year period, around EUR 3 billion relate to the new Verbund site in China, of which EUR 2 billion will be spent in 2025. Overall, we plan total capital expenditures in 2025 of EUR 5 billion compared with EUR 6 billion in 2024. This reduction by EUR 1 billion is primarily associated with lower CapEx for the Zhanjiang site following the peak in 2024. And let me add that we have sufficient own capacities in our key markets to support volume growth without major new investments going forward. Now let's turn to a short update on the implementation of BASF's cost savings programs. We are well on track to achieve the targeted EUR 2.1 billion annual cost savings by the end of 2026. By the end of 2024, we already achieved a total annual cost reduction run rate of around EUR 1 billion, of which around EUR 100 million is related to the Ludwigshafen Cost Improvement Program announced in February 2024. We incurred cumulative one-time costs of approximately EUR 0.9 billion related to the implementation of the cost savings programs by year-end 2024. This amount is about half of the total onetime costs we anticipate by the end of 2026. By then, we aim to have concluded all programs and will benefit from the full amount of savings on an annual basis. By the end of 2025, we expect to have achieved a total cost reduction run rate of around EUR 1.5 billion and cumulative one-time costs of around EUR 1.3 billion. With that back to you, Markus.

Yes. Thanks, Dirk. The Board of BASF is fully committed to attractive shareholder distributions via dividends and share buybacks. As announced in September, we aim to distribute at least EUR 12 billion to shareholders from 2025 to 2028. The aggregate dividend payment of at least EUR 8 billion in the four-year period will be complemented by share buybacks, which we target from 2027 onward at the latest and which are expected to amount to at least EUR 4 billion. BASF's strong balance sheet and cash flows will support the payment of dividends and the execution of share buybacks. In line with our previous announcement, we will propose a dividend of EUR 2.25 cents per share for the business year 2024 to the Annual Shareholders' Meeting. Based on the year-end share price, this offers an attractive dividend yield of more than 5%. In total, we will pay out around EUR 2 billion to our shareholders. Now let me move to the outlook of BASF Group. Our 2025 forecast assumes that a moderate rise in goods demand will support the expected GDP and industrial production growth. Challenges such as high geopolitical and trade policy uncertainty will weigh on the confidence of companies and consumers. For the global chemical industry, we anticipate slightly higher growth compared to the expectations for GDP and industrial production. Based on these assumptions, the BASF Group's EBITDA before special items is expected to rise to between EUR 8.0 billion and EUR 8.4 billion in 2025. All segments are forecast to contribute to the increase in earnings with the exception of Chemicals. Here, EBITDA before special items is expected to decline slightly compared with the prior-year figure, mainly as a result of higher fixed costs associated with the commissioning of the new Verbund site in China and scheduled maintenance shutdowns. We forecast the BASF Group's free cash flow to be between EUR 0.4 billion and EUR 0.8 billion in 2025. This is based on expected cash flows from operating activities of between EUR 5.6 billion and EUR 6.0 billion, minus expected payments made for property, plant and equipment and intangible assets in the amount of EUR 5.2 billion. The continued high investment-related cash outflow is mainly due to investments in the new Verbund site in China. Compared with 2024, the outflow is expected to be around EUR 1 billion lower. You will have noted that we have added two columns on our outlook slide to give you more transparency on our earnings power and on the impact of the Zhanjiang startup. As previously indicated, the burden on EBITDA before special items in 2025 is expected to be around EUR 0.4 billion. On free cash flow, we expect the burden to be around EUR 0.8 billion. This includes the earnings impact as well as the impact on net working capital. In other words, our outlook ranges would be higher by exactly these amounts if you disregard the effect of the Zhanjiang startup. CO2 emissions are expected to range between 16.7 and 17.7 million metric tons in 2025. This anticipated increase compared with the previous year is likely to result from higher production volumes based on rising demand. We will continue to implement targeted emission reduction measures and further transition to electricity from renewable sources. Overall, we are approaching 2025 with both humbleness and confidence. As I just outlined, we anticipate limited tailwinds. Most improvements we aim to achieve will need to be driven by our own efforts. Let me highlight three topics that we will prioritize in 2025. First, we will advance our portfolio management for the standalone businesses to create value for BASF and our shareholders. We also want to further strengthen our core businesses. To this end, we will address our lower-performing businesses by implementing necessary measures to improve them. Second, we will continue to advance the construction of our new Verbund site in China and will begin with the startup in the second half of the year. The goal remains to start up most of the plants by the end of the year. We have every confidence that our teams in Zhanjiang will successfully master this task, which is unique in terms of size and complexity. And third, we will drive forward our restructuring measures to bring down costs in line with current market conditions. The Ludwigshafen site remains a clear focus of these measures. Our aim is that our efficiency measures at least compensate for inflation. In implementing our Winning Ways strategy, our ambition is to combine active portfolio steering, operational discipline on capital and costs with a winning culture to create value for our shareholders. And now Dirk and I are happy to take your questions.

[Operator Instructions] We already have several analysts in the queue. We will begin with Thomas Wrigglesworth from Morgan Stanley, we'll then have Christian Faitz and then Chetan Udeshi. But now it's Tom Wrigglesworth.

Two questions, if I may. Firstly, can you talk a little bit about the kind of China recovery story that you've been talking to in 2024? Clearly, the latest data point in Chemicals at a headline level looks a bit weaker in the fourth quarter. And then on the other side, we've also had some of your peers talk more positively about MDI in China as well. So keen to get your thoughts on how China is progressing? Second question is, any comments on kind of near-term trading and how you're thinking about 1Q, noting that obviously the Ag Solutions business is very important to that first quarter performance?

Yes. Thanks, Tom. Markus here. I will take the first question, and I'll hand over for current trading to Dirk. On China, your observation is correct. We were also, after a rather solid and good development in the third quarter, a little bit disappointed on the business dynamics overall in China in the fourth quarter. Towards November-December, we saw some cooling off also on the volume side, and in particular, the upstream markets have cooled off in the last weeks of the year. So that dynamic was clearly there. Overall, I have to say the year 2024 for us in China was a good one. We had volume growth overall, if you discount the precious metal related businesses, if you look at the Chemicals businesses, so to say, roughly 5% in 2024, which is roughly in line with market also in China. So volumes overall in China were not the biggest challenge. The biggest challenge remain low margins because everything is long, and in the fourth quarter, it was a bit compounded overall because the year-end finished rather weak on the volume side. You asked about MDI. I don't want to now specifically get into individual products and pricing dynamics. But overall, I would say our feeling is that across the board, I don't want to call it a good pricing environment in China because, as I said, everything stays long, but the first attempts to raise prices now in certain commodity areas are successful. And I think overall, the start of the year is giving us some indications that also the volume growth holds up. So overall dynamics towards the end of the year were not favorable, but overall, China stays on track. Dirk?

Yes. So Tom, I take your question on current trading. I would summarize the start of the year as, let's say, unexciting. So nothing really very significant happening. Let me maybe start with core businesses upstream. Here, the markets, as you know, remain structurally long. In this environment, we are holding up. We also see some effects now on competitors affecting, to our favor, the ethylene and propylene prices, which helps our cracker business. So there are some positives. As you know, there is also still headwind for value chains like BDO. This continues. But overall, I would say, in the structurally long market, we are upholding okay. Core businesses more downstream, so the Performance Products, Dispersions, Care Chemicals, there we see a decent start into the year. We see ongoing good business for the Care Chemicals business, particularly on the back of the Home Care business, which is running nicely, but also in the Dispersions business, for instance, electronics is continuing in a good and strong manner. So here, I would say, both on volumes, but also on prices, we are okay. On the stand-alone businesses, Surface Tech, here we are seeing internally a little bit better results than what you hear from the markets when it comes to automotive. We see that the businesses are confronted with automotive challenges, but also here, the businesses are upholding. And for the Agricultural Solutions business, the business you specifically asked for, here, we had, as you saw, a strong fourth quarter. There was a bit of a preponement effect also, but we see fundamentally agricultural conditions also okay. Inventory levels, depending on in which region you are looking, a little bit more challenged. In North America and Europe, quite okay. So here, we might see some shifting from Q1 to Q2. But I would say also here, basically on track with what we are now guiding for the full year. So Q1 will be okay, I would say.

Okay. So now we move on to Christian Faitz, Kepler Cheuvreux; and the next one will then be Chetan followed by Laurent Favre, but now Christian Faitz.

Yes. Just coming back to Agricultural Solutions on pricing in Q4. Would it be fair to assume that the positive pricing was mostly seen in seeds rather than in Ag Chems. And then a second question would be on all this tariff rumor coming out of Washington. I would believe BASF itself directly is not impacted because you're naturally hedged. You have big production hubs also in the U.S. and everywhere else. But have you actually played through a scenario of your customers being affected, i.e., the automotive manufacturer in Europe trying to sell into the U.S., et cetera?

Maybe I'll take the second question, Christian, if I may, and then Dirk can go into the details of the Ag dynamics. As you rightfully said, I mean, it's very difficult right now, first of all, to comment on the whole tariff situation because, I mean, you know this even better than I do, it's very fluent right now, it's almost every day, new scenarios coming out, new numbers being calculated, customers also, of course, now heavily analyzing what can be done short term. So I would say everything has a big disclaimer on because we have to see first what is really going to happen and what's really going to drive any changes in trade flows and in manufacturing footprint. So having said this, you're right in saying that BASF directly is not so much affected. We have high own manufactured product shares in all regions. The BASF strategy comes right now -- I mean, has proven more right than ever to put our assets in our respective markets. And also in the U.S., we have an O&P share, as we call it, of roughly 80%, depending on how you count it, 80%, maybe a little bit higher. So mostly what we sell in the U.S., we make in the U.S. Customers, you're right, are now looking at their respective production footprints. We've heard some customers thinking about production relocations, tactical, I would say, short-term production relocations. But these still, I would say, in general, for us is still anecdotal. It's nothing major that we see. And many of our customer industries are in a similar situation like us with long investment cycles. So it's not so easy to just move a production asset now from one region to the other just because trade tariffs are being implemented. So I would say, in large, also, we have not seen anything major in terms of production shifts yet. Where there's, of course, this tactical flexibility of customers moving -- shifting production within their network towards the U.S., for example, from Europe, that we are already seeing here and there. And here, as I said in earlier calls, we are also well equipped because typically, in most of our industries, we have an as good footprint in the U.S. as we have in Europe. So whether an automotive OEM paints a car in Germany or in the U.S. doesn't really matter to us. We can paint them in both areas. So for us, also not such a big impact. But an area of high alertness and we have to be agile, it could change every week. And with this, Dirk on Ag?

To the Ag question, yes, your assumption is right. The positive price effect was predominantly on the seed side, so predominantly field crop seeds, but also veggie seeds. But I'd say also in the herbicides, we had a positive price effect. So on the crop protection side, a mixed picture, some price losses, but also some price gains.

Okay. We move on to Chetan Udeshi, JPMorgan.

The first question was just following up on your comments on Q1. I mean you are guiding at the midpoint of full year EBITDA up about 4% I mean, are you able to say whether you think Q1 will be in line with that? Are you going to be up, down, same level of last year? Any sort of more indication just to assess how should we think about the phasing of the guidance through the year? The second question was just -- thank you very much for the helpful slide on the contribution from the new Verbund in China. I'm just curious, next year, can you remind us how should we think about the EBITDA contribution from the site in '25 -- sorry, in '26? Is it going to be 0? Is it going to be positive? Or you still expect some negative contribution next year?

Yes. Thanks, Chetan. Markus here. If I look at Q1, I mean, Dirk has described a little bit the dynamics. I don't want to now get into a too detailed number. But in general, the biggest effect that we have certainly is on Ag. As Dirk said, there has been a strong finish in Q1 -- strong finish in Q4. If you look Q4, Q1 together, we're fully on track. But you have seen a little bit of a shift also of EBITDA in the fourth quarter, and that puts a bit of a challenge into the Q1 numbers. But in general, we still expect fully that the full year will deliver. All other segments will start the year more or less in line with our operational planning. The biggest, let's say, challenges or question mark is, of course, in the upstream business right now. So as Dirk said, this is in tendency along -- didn't finish the year with a strong momentum overall. So this is where we have maybe a little bit of a downside, the Ag shift, everything else, especially our core businesses downstream looks quite robust. So I hope this gives you a flavor that Q1 will probably not be a super positive surprise, but you should -- with the history of BASF and the phasing, you should be able to work with that guidance and come up with a reasonable estimate. The second question, I'll take this as well, sorry. Yes, of course, Zhanjiang, it's too early to talk about 2026 now EBITDA contribution. But let me also clarify again the numbers we have given you on this slide, where we break out the 2025 effect. This is, of course, only the commissioning impact. So this is what we typically call the start-up costs. And as we promised, we broke this out here for you because these are such big numbers for 2025. These costs will then, let's say, not fully go away in 2026 because we will have some start-up and commissioning-related activities also in 2026, but this will ramp down significantly. And then, of course, the business will start up. And we will guide for, let's say, an EBITDA contribution in year 1 later this year, certainly, but it will certainly be a year where these start-up costs will ramp down quickly, and then we will see what the market and how quickly the volume uptake of the market is, but a number will come later, but right now, too early to say.

So the next questions come from Laurent Favre, and we will then have Alex Stewart, Barclays; and then Tony Jones, Redburn Atlantic, but now Laurent Favre, BNP Paribas Exane.

I've got a dual question on Chemicals. I guess first one is, can you help us on the cadence of the EUR 400 million commissioning burden between Q1, Q2 and the second half? I mean, should we expect most of this EUR 400 million to be in the second half? And then more broadly on the EBITDA guidance for a slight decrease, which implies less than, I guess, EUR 140 million of decline for the full year, but includes the start-up cost. So presumably, the underlying EBITDA is seen as growing considerably. And given what you've just been saying on the run rate on overcapacity, the market being long, et cetera, I'm just wondering what gives you the confidence that we end up with such a strong underlying EBITDA improvement for the base business in Chemicals?

Yes. Maybe, Laurent, I'll start with the cadence. We guided you that we will incur EUR 400 million over the year. And you are fully right, this is not fully distributed equally over the quarters, but it will be more backloaded towards the second half of the year. But still the EUR 100 million per quarter, I think is quite catchy and good to take away. But yes, it will be a little bit more backloaded towards the second half of the year.

Yes, Laurent, on Chemicals, we have different driving forces, of course, in that segment. You are right. We have significant, let's say, efforts and costs related to the start-up of Zhanjiang, which will mainly affect the Petrochemicals division. But we also have an ambition to have a pretty significant earnings increase in the Intermediates divisions, for example, where we, both on the volume side and on the margin side, will see a significant improvement in 2025 coming from a very challenging situation in 2024. And in that segment, we also have often quite significant cost shifts when we have significant turnaround activities. And we had a strong turnaround activity, in particular, in Intermediates in '24, which will be significantly less in '25. So all of these things are a little bit adding to the dynamic in this. Net-net, you are right. If you take the Zhanjiang effect out, it's a quite significant improvement of our earnings power in Chemicals, and this is justified both on the market side. Volumes will continue to grow. Margins will improve overall over the segment and also, let's say, non-start-up related costs will also improve.

Okay. So now Alex Stewart, Barclays.

I wanted to start with Surface Technologies. It's the only division where you're expecting a considerable increase in EBITDA. I wonder if you could talk through some of the factors behind that projection, maybe some of the individual markets or some of the segments within that, which you expect to be particularly good. And then the second question is on the situation in Russia. There's been a lot of talk about a negotiated cease fire about potentially Russia selling more gas through the pipelines to Europe again. Would you mind giving the BASF view on this? Would you be in a position to buy gas again from Russia? Do you think that you've done enough work to diversify your input sources? What's your take as one of the biggest buyers of natural gas in Germany? I'd be very interested to hear that.

Yes. Thanks, Alex. Markus here. I'll take the Surface Tech question, and then Dirk is the expert on gas. He will take the second one. So on Surface Tech, yes, it looks a little bit maybe counterintuitive to see a considerable increase in the segment that has the highest share of automotive-related businesses, but let me give you some components of this, how we see it. We said the automotive market will be more or less flat. So we expect the same number of vehicles produced overall. However, still an increasing shift of EV penetration in 2025. So that's the macro scenario behind it. What we will see, of course, is earnings increase in both Coatings and our ECMS business, which is the automotive catalyst-related business, significantly driven by also our cost savings initiatives, because we have started already last year to work on our structures and to bring them also in line with an overall not as dynamic automotive market as we used to. So we did the carve-out in ECMS and that significantly helped to bring down cost. And also in our Coatings activities, we are addressing our cost situation. So we will see slight improvements there. Even if there are no market tailwinds, both businesses actually holding up very well in their respective markets, and both businesses, Coatings and ECMS, continue to increase also market share in an overall stagnating market. So a combination of cost savings -- ambitious cost savings, I have to say, in the automotive-related businesses plus share gains, both in Coatings and ECMS bring improvements. And the third element is also a significant improvement that we are planning in our Battery Materials business. As you know, we had, as everybody in this market, significant challenges over the last 2 years with regards to changes in market dynamics and also volumes. And we anticipate, in 2025, to make a significant step forward. So the business is going to see a significant improvement in EBITDA in 2025.

On the gas, we have no scenario to resume again, gas supply from Russia. As you know, our production participation via Wintershall Dea has been fully expropriated. Same goes for the pipelines, which are destroyed. We are not looking into a scenario to resume. We have secured gas supply via the European hubs, getting gas from the Netherlands, from Norway. And we have also secured a very long-term LNG gas supply contract with the U.S. that goes until 2043 or something. So you see we have taken an approach to fully go away from Russia and source our gas from other sources. So short answer, no resumption.

And may I -- just to add one thing, Alex, because we get this question a lot on potential, let's say, changes in the gas landscape. Just one additional point that you might want to take into consideration. There's nothing magic around Russian gas. So even if, what we don't assume, Russian gas should come back into the market somehow through pipelines into Europe, at the end of the day, it only changes supply/demand. There's nothing specific about Russian gas. It only changes the demand/supply balance. And of course, it will increase supply. So there might be a positive impact. But I sometimes feel like people are assuming a certain artificial or magic discount to Russian gas, which is not, from our perspective, realistic. So again, put this into perspective, we don't believe that there is going to be any short-term supply from there. But even if in a low likelihood scenario, there's not going to be anything super specific.

So the next questions are from Tony Jones, Redburn Atlantic. We will then have Sebastian Bray, then Peter Clark and then Andreas Heine. Please go ahead.

Yes. I've got two. Firstly, on the guidance, it's good to hear that major tailwinds are not captured in that, but at the low end and the upper end of the guidance range, what sort of volume growth are you assuming? And then secondly, on portfolio management, for the remaining coatings businesses, would you be open to selling this only in one transaction or would you be open to selling it in 2 or 3 parts to avoid antitrust issues?

Yes. Thanks for your questions, Tony. Overall, our guidance on our operational planning is based on an overall volume growth of BASF Group in line with what we project of the chemical market. This is not the guiding theme, so to say, it's a coincidence, but it's roughly around the 3% number. Both numbers are about the same. So 3% volume growth that should get us into that range that we have given you. The volatility from our perspective is almost more on the margin side, or the spread, so to say, is more given by the margin side than it is on the volume side. We're relatively comfortable with seeing a slight volume growth across the board. But the question mark, and this is why the range is there, is more on how will margin recovery, especially in the upstream side, clearly develop. So that maybe gives you a guidance there. And we believe it's not overly ambitious, but it's achievable and also takes into account the insecurities that we have currently in the market. Second question on Coatings. I mean, we are approaching the market, as we said in the speech in Q2 now. Our idea is clearly that we look at this Coatings division minus the Suvinil business now as one integrated and one entity, so to say. I think there are synergies within the portfolio that are, from our perspective, quite attractive and significant and also part of the reason why the division has been very successful over the last years. And this is why we believe the most plausible and attractive way to crystallize the value of this division is to take this to market in one entity, and that is the path we are preparing now and pursuing in 2025.

Okay. We now have Sebastian Bray, Berenberg; will be followed by Peter Clark, Andreas Heine and then Matthew Yates. But now Sebastian Bray, Berenberg.

My first is on gas price and in particular, hedging policy. How heavily hedged is BASF for this year? And does it have built in flat, up, or down energy costs at the group level, especially in Europe? My second question is on Upstream Chemicals. Are cracker margins getting modestly better in Europe at the moment? Or are they flattish, go down? It's a little bit difficult to tell, but any color you can provide is helpful. And my third question is on the EUR 800 million guided as a cash flow headwind from the ramp-up of the Zhanjiang site, the Verbund site. Is this all working capital? And is a reasonable assumption flat working capital, excluding this ramp-up year-on-year? Or do you need to take some more on to support the volume growth?

Yes. So Sebastian, I start with the gas price. Given the current price levels, we haven't changed our approach to hedging. As you know, we have a mixed hedging approach, which obviously also is encompassing the gas prices. And for the year 2025, we are also hedging gas, but in the normal level, I would say. Currently, with regard to the price levels, we see gas prices rather on the high end with above $16 per MMBtu. We think over the year, this will probably go down because currently, the European gas situation is rather under stress with low storage levels. But over the year, this will normalize. So we believe that gas prices will also come down. And we do not see it as a major influence factor then also for the business if you take the group overall. But yes, we are also hedging using the well-known instruments, mostly forwards, but also some options here.

Then I'll maybe try to answer your question on cracker margins, especially in Europe. I mean the cracker margins in Europe are walking sideways, I would say, on a low level. Nothing spectacular now. We don't assume that they are now further deteriorating or significantly going up. So I would say nothing to expect that this will be a significant game changer. But you always have to also keep in mind that, in particular, in Europe, we have a very integrated setup. So most of the olefins we make in Europe, we consume also within the Verbund. So yes, cracker margins are important. But of course, we always have to look at the integrated value of our value chain. So we're not as exposed as many other players on the actual cracker margin in Europe due to our setup. But I would say, overall, from the numbers I've seen, I would guide your expectations towards a rather sideway on spectacular movement. The third question on working capital on Zhanjiang. Dirk, you want to take this?

Yes, I can take this. And we guided already last year that, obviously, 2025 is the year where we have to fill this entire site. So it's not just filling a plant, but it's an entire site with also product partly has to be shipped in. I think if you take an overall ballpark, but this goes beyond 2025, Sebastian, then I think an order of EUR 700 million, EUR 800 million will be in order. Part of that, maybe half of that you will see this year. The other half of that, you will still see next year.

Okay. So we move on to Peter Clark, Bernstein.

Two questions, please. Firstly, you mentioned about the expropriated assets. Just wondering how the discussions are going on the federal guarantees, because you mentioned it was a very structured process, I think, on the last call. And then on the iso-Phytol hit in Nutrition & Care, you've guided Nutrition & Care slightly up, I think, this year on EBITDA. You were pointing at this iso-Phytol hit of sort of a couple of hundred million, I think, in Q4, then you guided it down a little bit from there. Just wondering what it was in Q4 and how much rolls into this year in terms of that full year guidance?

I'll take the question on the FIG. I'd say still nothing spectacular to report. Proceedings are ongoing. It's difficult for me to comment on details of a pending process. It is getting more concrete. I really do hope that we see further progress in the course of this year. But yet, at this point in time, nothing more to report.

Yes, Peter, and on iso-Phytol, I can report that we're making good progress on restoring our production capabilities. It's in line with expectations. So no setbacks here. We are planning to get back with vitamin A production in April and vitamin E production in July. So teams are really working on this diligently. That means also from then on, we have to first replenish our inventories for the value chain, and then we will start supplying these materials in the second half of the year and then ramp up sales then. So we will still have a significant EBITDA drag in 2025. You asked specifically for the Q4 effect. And I have to say I have not broke -- I don't have that number broken out now. But what we can say is for the second half, so since the accident happened, for the second half of 2024, it was a high double-digit million euro impact. Originally, we thought it would be higher, but our teams did a really good job in containing this and also starting up some smaller molecules more in the aroma area a little bit earlier. But for 2025, we still have a low triple-digit million euro EBITDA drag that we have to assume in the Nutrition & Care forecast overall. And this will subsequently phase out towards the end of the year when we are really back with volumes in the market.

Makes sense. Maybe if I just may add. So aroma back online, vitamin A coming early second quarter with leading cost position, vitamin E coming in the summertime back online.

Okay. Now we move on to Andreas Heine, Stifel.

Two questions, if I may. The first is, how do you think about the Harbour Energy stake? Is there something where you would start to sell down in this year? Or will you hold this more for midterm? The second is, again, on the outlook on Surface Technology, especially on the Catalysts and battery materials. Looking on what we can expect from Europe due to the EU regulation, the increase in EVs has to be quite considerable. Some forecasts say that EVs in Europe have to increase by at least 30%, 40%. That would eat into the high-margin Catalysts business, while battery materials, which would benefit from this, is rather low margin. So how the net impact can be a double-digit increase is not what I not fully get. And maybe you elucidated a little bit what the precious metal trading that were commented quite negatively over the last 2 years. Is that something that a normalization speaks for an earnings level as we have seen it last year? Or would the normalization mean considerably up?

I'll start with the Surface Tech question, then Dick will take the Harbour question. I mean, Andreas, one thing is, I think, very difficult in this segment to get out of a very high macro view. So how many EV cars are being sold in Europe down to dynamics in our 2 divisions. This is a very complicated correlation you're trying to do there because, first of all, these businesses, both on the catalyst side as on the battery side, heavily dependent on in which platform are you in, which specific OEMs are you supplying, with which models, in which region, and where, in the case of batteries, are the battery cells actually produced? Are they produced in China and transported to Europe? Or are they made in Europe and so forth. So the correlation you're trying to do is, from my perspective, highly difficult to get to a good result. Let me still give you a couple of indications there. First of all, on the automotive catalyst side, we are seeing, of course -- we are impacted, as everybody in this market, by the continued penetration of EVs versus ICEs in the world. However, if you're really looking at this at daylight, this only happens in a large scale in China. Outside of China, it's rather going the opposite. In 2024, less EVs were sold in Europe, if I'm not mistaken, than the year prior. So the dynamic is not favorable. So overall, the ambitions in 2025 by all OEMs also in Europe to increase the EV shares are high, but we are not seeing it yet in our numbers. And in automotive catalysts, we are still making excellent progress in winning platforms from competitors. So we are increasing market share as we speak. So this is the dynamic I can tell you there. And I'm not looking -- if I look at how comfortable do I feel with my automotive catalyst business, I am not looking at the EV sales in Germany. This is not a proxy for this. On batteries, a similar thing. I mean, if you look at the current state of battery manufacturing in Europe, cell production in Europe, you all know the public headlines on this. It's also a very difficult environment, and there's not many battery cells now being produced in Europe as we speak. And most of the production is happening in China. We have good assets in China, and most of our improvement of the battery business, besides the significant cost restructuring that we are doing in battery materials, like we discussed over the last month is coming from increasing volumes in China. So here in Europe, not so much dynamic happening in this market. And then Dirk, maybe on Harbour?

Yes. On Harbour, as you know, the lockup periods, where we are not allowed to sell our shares, ends next week, basically. And we want to monetize our 39.6% share over time, but we do not have the need to do this immediately. We consider this shareholding as a financial participation. We are mindful of the value. And given the current value of the shares, we also see some upside there. So this, I think, is in line with what we said also back in the Capital Markets Day, no need to do it immediately. But over time, we certainly will monetize it.

So now we have final questions from Matthew Yates, Bank of America.

I'd like to follow up actually on Andreas' question about Surface Tech there, because I'm struggling to put it together. When I look at the Q4 performance, profits were down close to 10% year-on-year. So when you talk about your confidence this year in growing profits from cost cutting and share gains, we didn't see any evidence of that really in the Q4 number. So are those measures basically only coming through now and you have line of sight on? I was wondering if maybe you could talk about what share of the EUR 500 million of group cost savings accrue specifically to Surface Tech? And if I can squeeze in a second one, just around the ramping the new Verbund site. Markus, you said this project is unique in size and complexity, which therefore sounds quite daunting. Can you just talk a little bit about the challenges you need to overcome as we go through the year to ensure the plant is working smoothly and what sort of lessons you can draw upon from projects that you've done in the past, appreciating that this one is even bigger magnitude?

Thanks, Matthew. Thanks for your question. Well, if I scared you a little bit with my comment on size and complexity, that was not the intention. Actually, I think I put this half sentence into the speech because I'm actually proud of this exercise, because it's something that I think not so many chemical companies in the world can actually do, and I'm fascinated by technically. So as I said, I have every confidence that this works, but I wanted to also express with this that it is something that also BASF has never done on this scale. We have never started up a Verbund site of that level of integration of that size in the history of our company. So it requires a lot of respect. It requires really to put your best hands around it, and that's what we have done. So we are confident that we can do it, but certainly, it's a significant moment for us, and it requires a lot of diligence. So I didn't want it to sound too daunting, but I wanted to make sure that we have a lot of respect for this, and this is a major task and technically quite unique. Your question on Surface Tech. I mean, yes, the dynamic in the fourth quarter was certainly not favorable. As you know, the automotive industry in general has had a difficult year with also quite a lot of stress towards year-end also to correct for certain developments, for example, also addressing inventory situation. So I would say, overall, Q4 was not as doom and gloom as people had expected it in automotive, but it was certainly not strong. So the improvement comes, as you rightfully said, both on the volume side, market share gain side, but also on the cost side. But I still want to also emphasize that, yes, we are, let's say, forcefully addressing also our structures, our costs in both Coatings and ECMS and to bring this in line with a, let's say, also midterm, not so high growth outlook in the automotive industry, but we also are targeting a quite significant improvement in battery materials. And this is basically the result of adjusting also our outlook, our approach towards the much more challenging market situation in battery materials like we discussed also at the Capital Markets Day. And if you stop a lot of future investment projects, if you scale down also your research and development activities to bring this all in line with a more modest outlook and rather focus on filling your existing capacities and not expanding your footprint dramatically. This, of course, brings down your cost also significantly in this organization. And all of this combined leads us to find and seek a significant share also coming from cost savings. So overall, I think Q4 was maybe slightly lower than what we had hoped for, but it is also not as bad development as you described it. So I think this makes sense. It's plausible for us. And in general, maybe the automotive build rate is not the best proxy for our Surface Tech segment. That's maybe a good way to summarize it.

Ladies and gentlemen, we are now at the end of today's conference call. We will present our first quarter results on May 2, right before our virtual annual shareholders meeting on that day. Should you have any further questions, please do not hesitate to contact a member of the BASF IR team. Thank you for joining us today, and goodbye for now.