Basf Se S/Adr

Good morning, ladies and gentlemen. Welcome to BASF's conference call on the third quarter 2023 results. Today's presentation is being recorded. All participants will be in listen-only mode throughout. The presentation will be followed by a question and answer session. If you have any difficulties hearing the conference, please press the star key followed by zero on your telephone for operator assistance. Today's presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in Opportunities and Risks of the BASF Report 2022. 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 the call today are Martin Brudermüller, 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 bsf.com slash Q3 2023. Now I would like to hand over to Martin Brudermüller.

Good morning, ladies and gentlemen. Dirk Elbermann and I would like to welcome you to our analyst conference call on the third quarter of 2023. Let's start with the development of global chemical production. Based on currently available data, the chemical industry was under further stress in Q3 as all regions exhibited a decline in production versus the prior year quarter, with the exception of China. The development in China was driven by a recovering domestic demand for a broad range of chemical products in association with low sales prices, where As global chemical production in total grew by 4.8%, including China, it decreased by 4.4% without China. In Europe, chemical production slowed considerably compared with the prior year quarter. This was due to lower demand resulting from high inflation, increased interest rates, and a renewed rise in natural gas prices, as well as front-loading of durable goods consumption during the COVID years. In Q3 2023, European natural gas prices were still around 40% higher than the average between 2019 and 2021 and four times higher than the Henry Hub quotation for the quarter. Consequently, European chemical production continued to decline in Q3 2023 and shrank by 6.6% compared with the prior year quarter. In North America, chemical production also declined compared with the prior year quarter in an environment of weak domestic demand from industries and end consumers. Compared with the prior year quarter, chemical production was also weaker in Asia, excluding China. Subdued consumer spending and a strong import competition from China were the main reasons for this. Let's again have a closer look on current and historic levels of indicators for inventories in the manufacturing industry. On the slide, values below 50 indicate declining inventories, values above 50 indicate restocking. In our Q2 2023 conference call, we mentioned that these indicators were below their long-term averages and in the range of historic inflection points from destocking to inventory buildup for Western Europe and North America. The figures for Q3 2023 broadly confirm our expectations. The indicator for Western Europe improved marginally, signaling a slightly lower decline in inventories. The indicator for North America has moved further towards neutral. In Asia Pacific, the inventory indicator is continuing to edge up, pointing to increasing inventories amid the ongoing slow recovery of industrial production. Overall, These observations and statistical data remain in line with the current development of order entries in our operating divisions. Particularly in China and India, we see firmer demand while order entries are stabilizing in the other regions. We now move on to BSS performance. Overall, BSS group sales declined by 28% to 15.7 billion euros in Q3 2023, mainly due to lower prices and volumes. Prices fell particularly in the materials, chemicals, and surface technology segments, but we are able to increase prices in agricultural solutions. Sales volumes were considerably lower than in the prior year quarter across all industries, with the exception of automotive. In the surface technology segment, which supplies most of its products and solutions to the automotive industry, volumes, excluding precious metals, were fairly stable. In the course of the year, the sequential volume decline slowed down. In the third quarter of 2023, volumes declined by 3% compared with the second quarter of 2023. Compared with the prior year quarter, earnings in the agricultural solutions and surface technology segment increased, while the remaining segments recorded considerably lower earnings. Overall, EBIT before special items declined by 772 million euros compared with Q3 2022 and amounted to 575 million euros. This is in line with the average analyst estimates of 601 million euros compiled by VARA on behalf of BASF in October 2023. With that, to Dirk for more financial information.

Thank you, Martin, and good morning, ladies and gentlemen, also from my side. I will now provide you with further details of BASF Group's key financial figures in the third quarter of 2023, compared always with the prior year period. EBITDA before special items decreased by 34% and amounted to 1.5 billion euros. EBIT before special items declined by 57% to 575 million euros. I will go into the details at segment level on the next slide. Net income amounted to minus 249 million euros compared with 909 million euros in the prior year quarter. Besides the lower EBIT, this decline was driven by the overall negative earnings of Winter Saldea due to special items. In Q3 2023, Winter Saldea recognized impairments on assets in the Middle East and also booked provisions for restructuring measures relating to the adjustment of the company structure that they announced in September. BSF's cash flows from operating activities increased by 17% to 2.7 billion euros, mainly due to considerably higher cash inflows from changes in networking capital. This resulted particularly from reductions in inventories. Now let's take a look at EBITB4 special items in the segments in Q3 2023 compared with the prior year quarter. The agricultural solutions and surface technology segments increased EBITB4 special items compared with Q3 2022. The considerable increase in agricultural solutions mainly resulted from higher prices and a one-time effect from insurance payments. The slight increase in surface technologies was driven by considerably considerable earnings growth in the coatings division on account of higher prices and volumes. This more than compensated for significantly lower EBITB4 special items in the catalyst division. Overall, BASF's earnings reflected significantly lower EBITB4 special items in the chemicals, nutrition and care, industrial solutions, and materials segments. In the chemical segments, both divisions recorded significantly lower EBITB4 special items, mainly due to lower margins and volumes. In the petrochemical division, the unplanned outages of the crackers in Port Arthur, Texas and Nanjing, China, in September, additionally burdened earnings. In the material segments, the considerable decline in EBITB4 special items was driven by significantly lower earnings in the monomers division, particularly as a result of lower prices. Earnings in the performance materials division fell slightly, mainly due to lower prices and volumes. The industrial solutions segment recorded considerably lower EBIT before special items in both divisions, particularly on account of lower volumes and margins. EBIT before special items in the nutrition and care segment declined significantly. In the nutrition and health division, EBIT before special items was negative, mainly because of currently very low prices in the vitamins industry. This was partly offset by positive earnings in care chemicals. These were, however, also significantly below the level of the prior year quarter due to lower margins on account of lower prices. While earnings in the individual segments diverged from average analyst estimates, EBIT before special items at group level was in line with consensus. I will now continue with our cash flow development, again focusing on our performance in the third quarter. Cash flows from operating activities increased by €384 million to €2.7 billion. This is a remarkable improvement in view of the significantly lower net income. The cash flow generation was largely driven by cash inflows of €1.9 billion from changes in net working capital. This is an increase of €1.2 billion compared with Q3 2022. Lower inventories resulted in a cash release of 488 million euros, while in the prior year quarter, inventory build-up of 834 million euros had tied up cash. This reflects our high discipline in inventory management as part of our self-help measures in the currently difficult economic environment. Compared with the prior year quarter, payments made for property, plant and equipment and intangible assets rose by 215 million euros to 1.2 billion euros. This increase was mainly related to our growth projects, particularly our investment in China. In the third quarter, free cash flow increased by 170 million euros compared with Q3 2022 and reached 1.5 billion euros. Let's now take a look at our balance sheet at the end of September 2023 compared with year end 2022. Total assets declined by 1.9 billion euros and amounted to 82.6 billion euros. This decline was driven by lower current assets, mainly on account of lower other receivables and miscellaneous assets, reduced inventories, and lower trade accounts receivable. Overall, current assets decreased by 3 billion euros. Non-current assets increased by 1.1 billion euros, particularly because additions to property, plant, and equipment exceeded depreciation. On September 30th, 2023, net debt amounted to 18.9 billion euros. This was an increase of 2.6 billion euros compared with year-end 2022, but a decrease of 1.4 billion euros compared with June 30th, 2023. Compared with September 30th, 2022, net debt was slightly lower. The equity ratio at the end of the third quarter of 23 was slightly higher than at the end of the year 2022 and stood at 48.8%. Overall, this demonstrates BASF's financial strength. We have a strong balance sheet and good credit ratings, especially compared with peers in the chemical industry. We are also consistently working on our cost structures to improve BASF's competitiveness, particularly in Europe. As announced at the end of February, we are executing a cost savings program focusing on Europe and are adapting our verbund structures in Ludwigshafen. By the end of 2023, we will achieve the run rate of more than 300 million euros from our cost savings programs with a focus on Europe, as already indicated in our Q2 reporting. For the end of 2024, we now expect annual cost savings in non-production areas to reach more than 600 million euros. By the end of 2026, we anticipate savings of more than 700 million euros. These figures include measures related to Europe in the global business services and global digital services units. Additional measures in these two service units in other regions will contribute a further 200 million euros. Together with the 200 million euros savings from the adaptation of the verbund structures in Ludwigshafen, we are confident of reaching total annual savings of around 1.1 billion euros by the end of 2026. With that, back to you, Martin.