Basf Se S/Adr

Good morning, ladies and gentlemen. Welcome to BASF's conference call on the second quarter 2024 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 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 the call today are Markus Kamid, 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 Q2 2024. Now I would like to hand over to Markus Kamid.

Yeah, thanks, Steffi. Good morning, ladies and gentlemen. Dirk and I welcome you to our analyst conference call. And it's my first one since taking over as the chairman at the end of April. And I'm really looking forward to many more of those calls and our discussions about BSF. And you might have seen that something's changed, something's stayed the same. The music, at least, we have not changed while you were in the waiting line. We will provide you with details on our business development in the second quarter, and we will highlight some notable aspects today as well. Let's start with an overview slide. Overall, the development of EBITDA before special items in Q2 was in line with our expectations and the analyst consensus. We saw a continuation of the dynamics of the first quarter marked by positive volume momentum across most of our businesses. At BSF group level, volumes excluding precious and base metals increased by 2.4% compared with Q2 2023. Sales declined by 7% to 16.1 billion euros mainly due to lower prices. However, price pressure has eased. We achieved an EBITDA before special items of 2 billion euros, which is at prior year quarter level. Overall, stronger earnings in our chemical businesses were offset by considerably lower earnings in the agricultural solution segment due to a difficult market environment. Here is a snapshot of how the markets and our segment volumes and specific margins developed in the second quarter. In a slightly improving market environment for base chemicals, we were able to realize strong volume growth in both divisions in the chemical segment. EBITDA before special items increased considerably despite slightly lower segment margins due to a margin decline in the intermediates division. In the petrochemicals division, margins improved due to temporary supply constraints at competitors. The material segment benefited from slightly higher volumes, particularly in performance materials in an overall improving market. A considerable increase in margins was largely driven by a few product lines in the monomers division, especially in the ammonia value chain. Industrial solutions operated in an overall stable market environment. Nonetheless, both divisions achieved considerable volume growth and margin expansion. In particular, our dispersions and resins division contributed significantly to the strong performance of the segment. The global automotive production was basically flat in the second quarter. In this environment, volumes in our surface technology segment had a considerably negative impact on EBITDA before special items. In particular, environmental catalysts and metal solutions recorded lower volumes. Overall margins improved, mainly due to a continued strong performance of our coatings division. The market environment for nutrition and care further improved in the quarter. The considerable increase in EBITDA before special items compared with the prior year quarter was supported by higher volumes in both divisions as well as margin expansion, in particular in our personal care specialties and vitamins businesses. The crop protection market is characterized by continued destocking and faced adverse weather conditions that negatively affected business development in our agricultural solution segments. The segments EBITDA before special items was negatively impacted by considerably lower volumes and margins. The factors I have just described led to the following developments in EBITDA before special items compared with the prior year quarter. Despite the considerably lower earnings in agricultural solution segment, EBITDA before special items of BSF group was at the prior year quarter level. While the materials and the surface technology segments recorded slightly lower earnings, we were able to increase EBITDA before special items considerably in the industrial solutions, chemicals, and nutrition and care segments, as well as in other. With that, I would hand it over to Dirk.

Yeah, thank you, Markus. Good morning, ladies and gentlemen. I will start with some further details regarding the development of our agricultural solution segment in the first half of 2024. ABTA before special items declined by 18% in the first half of 2024 compared with a strong prior year period and reached 1.5 billion euros. To a large extent, this was driven by herbicides, particularly glufosinate ammonium or GA for short. The GA business is increasingly affected by generic competition, alternative technologies as well as high energy and raw material costs. Hence, we took decisive action and will cease production of this active ingredient at the Knapsack and Frankfurt sites by the end of 2024. The formulation in Frankfurt will end in 2025. The closure of the GA production and formulation plants will result in additional special charges in a low triple-digit million-euro range in the third quarter of 2024. In the future, we will source the active ingredient from third-party suppliers. This will secure our competitiveness and profitability in the GA market in the long term. Let's now have a look at further financial details of the group for the second quarter of 2024 compared with Q2 2023. As Markus already mentioned, EBITDA before special items matched the level of the prior year quarter and was actually slightly higher. A bit before, special items amounted to 969 million euros and was dust almost at the prior year quarter level. Special items amounted to minus 453 million euros, of which around minus 300 million euros was related to the PFAS class settlement agreement between BASF Corporation and the US Public Water Systems announced in May. This amount was booked as a special item in other. The remaining special charges were mainly caused by restructuring measures, particularly in connection with the ongoing cost-saving programs focusing on Europe and the adjustments of production structures at the Ludwigshafen site. Net income came in at 430 million euros, 70 million euros below the figure of the prior year quarter. Cash flows from operating activities decreased by 10% to 2 billion euros, and free cash flow was 471 million euros compared with 905 million euros in Q2 2023. I will comment on the cash flow development in more detail on the next slide. With 44.5% at the end of June 2024, BASF's equity ratio remains solid and reflects our prudent financial policy. I will now continue with our cash flow development in Q2 2024. Cash flows from operating activities decreased by €228 million to €2 billion, mainly on account of lower dividend payments from equity-accounted companies. In Q2 2024, BASF received €363 million less in dividends from its equity-accounted companies compared with the prior year quarter. In Q2 2023, cash flows from operating activities had included a dividend payment of €291 million from Winter Saldea and a payment of 87 million euros from BSF YPC. In the second quarter of 2024, we did not receive dividend payments from these entities. In addition, lower cash inflows from charges changes in networking capital contributed to the decline in cash flows from operating activities. Payments made for property, plant and equipment and intangible assets rose by 16% to 1.5 billion euros particularly on account of the construction of our new verbund site in South China, which is progressing on time and in budget. Free cash flow amounted to 471 million euros compared with 905 million euros in the previous year's second quarter. On a half-year basis, free cash flow of minus 986 million euros was at the same level as the minus 977 million euros recorded in the first half of 2023. Here, it should be noted that the development of BSF's free cash flow has a strong seasonality due to our ex-solutions segment. Let's now turn to our balance sheet at the end of June 2024 compared with year-end 2023. Total assets increased by 5.1 billion euros to 82.4 billion euros. Non-current assets increased by 2.8 billion euros to 48.7 billion euros. mainly due to additions to property plant and equipment as a result of our investment in the new Verbund site in South China. Higher defined benefit assets, as well as our investment in the wind park projects Nordlicht 1 and 2, which are accounted for using the equity method, also contributed to the increase. Current assets rose by 7% to 33.8 billion euros. This was largely because of higher trading accounts receivable mainly due to the seasonality of our Exolutions business. Net debt increased to €21.4 billion at the end of June 2024, compared with €16.6 billion at the end of December 2023. Compared with net debt of €20.2 billion at the end of June 2023, the increase was slight. As mentioned, with 44.5%, our equity ratio at the end of June 24 remains healthy, and BASF's good credit ratings underline our solid balance sheet and overall financial policy. Finally, a short update on the implementation of BASF's cost savings programs. We are on track to achieve the targeted 2.1 billion euros annual cost savings by the end of 2026. The implementation of the cost savings programs announced in February 2023 is in full swing. As of the end of June 2024, we achieved a cost reduction run rate of around 700 million euros, which is associated with one-time cost of around 500 million euros. By the end of this year, we expect a cost reduction run rate of around 800 million euros and one-time cost of around 550 million euros in the aggregate. We are also making good progress with the program focused on the Ludwigshafen site that was announced in February 2024. The identification of cost-saving measures is almost completed and they will soon be implemented and swiftly. On top of previously announced programs, this program will deliver annual cost savings of around 1 billion euros by the end of 2026. The related one-time costs are expected to be around 1 billion euros. And with that, back to you, Markus.

Thanks, Dirk. In view of recent market developments in the entire battery value chain, I would like to give you further information on how we will move forward in battery materials. We are confident that the trend towards electric vehicles will continue and that battery materials remain a significant growth opportunity for the chemical industry. However, recent dynamics have changed and the market penetration of electric vehicles has slowed down significantly outside of China, as also shown by a number of announcements by companies in the e-mobility value chain. Over the last years, BSF has established competitive cathode active materials production capacities in the most important battery electric vehicles markets worldwide. We will continue to ramp up and fill these existing capacities. At the same time, we are taking action to further de-risk our path forward in the currently uncertain market environment. We continue with our prudent approach to add new capacities only where we have secured longer-term off-take agreements with established cell manufacturers. Our recent announcement against an investment into a nickel-cobalt refining complex in Indonesia was made in line with developments in the nickel market, which has changed significantly in the past years. The supply options have evolved, and with that, BASF's access to battery-grade nickel. This decision will significantly lower future capital requirements. We have also decided to pause our large-scale refinery project for battery recycling in Tarragona until cell capacity build-up and the XEV adoption rate in Europe regain momentum. Now let's turn to the outlook. BSF's outlook for 2024 and the underlying assumption remain unchanged. As published in the BSF report 2023, we expect BSF's Groups EBITDA before special items to reach between 8 and 8.6 billion euro in 2024. Our forecast assumes a certain improvement in pricing power in the second half of the year. From today's perspective, we expect market conditions in the seasonally lower Q3 to continue to develop in line with Q2 2024. In the fourth quarter, we anticipate an uptick in earnings compared with the prior year quarter. Our forecast for BSS Group's free cash flow continues to be between 0.1 and 0.6 billion euros. CO2 emissions are still expected to be between 16.7 and 17.7 million metric tons in 2024. Before we start the Q&A, let me draw your attention to BSF's upcoming Capital Markets Day, which will take place in Ludwigshafen on September 26 and 27. Following a keynote with an update on our strategy, all members of BSF's Board of Executive Directors will present their respective business segments over the course of two half days. The event will also feature a tour of the Agricultural Center in Limburger Hof, after which analysts and investors will have the opportunity for informal discussions at a dinner. We will send out personal invitations at the beginning of next week, and I would be very pleased if you are able to participate, especially in person. And now, Dirk and I are glad to take your questions.

If you wish to ask a question, please press the star key followed by one on your touch-tone telephone. For the best sound quality, we kindly ask you to be sure to unmute your phone and use your headset when asking your question. In view of a lot of reporting today, please limit your questions to only two at a time so that everybody has a chance to ask their questions. The first question will be from Matthew Yates. Bank of America. We will then have Christian Feitz and then Jaydeep Pandya. Now, Matthew Yates, Bank of America. Please go ahead.

Thanks, Stephanie. Good morning, everyone. Marcus, I wanted to ask about the timing of the Capital Markets Day in September. You've only been CEO since the end of April, so effectively giving yourself less than six months to come up with a plan. I appreciate strategy at BSF is much more than a one-man show, and you've obviously been at the company a long time. But I wanted to understand the logic here on the timing. Did you think September was right because there's a sense of urgency in the company? Some would even say crisis that you need to tackle urgently, or should I conclude that the speed is such that we won't actually see much in the way of a radical strategy shift, and it will be more evolutionary around the edges. Thank you.

Yeah, thanks, Matthew. Thanks for the question. First of all, I think you gave part of the answer yourself. I mean, I'm not new to BSF. I've been on the board of executive directors for seven years, so a lot of the topics and key questions are certainly known to me. As you know, we have a relatively new board team that came together over the last couple of years, and I have to say my current feeling is that the board has come together very well, and we have made good progress in defining our path forward, so I don't see any reason to wait. And so September feels good. We are ready, and I think we have a plausible path forward for the group, and we feel confident that September is the right timing. No need to wait. Okay. Thank you.

And then just a separate question on ag. Are you able to quantify the benefit from closing the two GA plants and the changing strategy? Is it fair to say that that is currently a loss-making operation? And if so, how can we quantify the size of losses versus that low triple-digit million restructuring cost you've called out?

Matthew, good morning. This is Dirk. I take this one. I don't have a specific number for you now today, but if you look into the segment results and if you take into consideration that it was glufosinate ammonium predominantly that was driving down the X segment, you can already get an impression of the order of magnitude here, so no clear quantification. What I can say is in the third quarter, we will take the decisive action and also book the one-timer that is coming with that, and that is a low triple-digit number, so that together might give you an impression here. Okay. Thank you both.

So now we move on to Christian Feitz, Kepler Chevrolet. Please go ahead. Sorry, Christian, try again.

Yeah, sorry. Can you hear me now?

Yes.

All right. Good morning, Markus, dear Stephanie and team, and Markus, well done for your first official analyst call. Two questions, please. First of all, what is your current order book visibility in your more traditional chemical activities? Would it be fair to assume four to six weeks? And what kind of demand trends do you see at present in automotive construction and in electroelectronics out of this order book? And then I'll come back with a second question.

Yeah, thanks, Christian. Analyst call is not over yet, so let's wait, I would guess. So overall, I think the current order book visibility is tough to always put one number in there, but it hasn't changed dramatically. It has been shorter than historically visible already for quite some time, and I would say four to six weeks is probably a good guess. Some businesses a little bit longer, of course, some businesses less, but overall across our chemicals business, that's a pretty good assumption. I'll comment a little bit on trends that we see currently. I mean, heading into the third quarter, I already said in my speech that the current momentum that we saw in the second quarter already shapes up to be valid for the third quarter as well. So in most industries, a rather sideways movement on demand. And that also relates to the segments that you have pointed out. Automotive has been, for the first half of the year, flat compared to prior year. And we expect the second half to be even a bit more under pressure, so maybe even a slightly lower number compared to last year's number if you look at the global picture. And this comes with a bit of a conservative look also on the inventory developments in the automotive industry, which are increasing, especially in Asia. So a bit of a cautious approach there. Overall, we expect build numbers automotive to be in line with last year's roughly around 89 million cars. Construction overall also, I would say, unspectacular development right now, a little bit positive developments in the more commercial construction segment, and infrastructure is also doing okay in all regions, but the residential construction market is depressed, especially in in Europe and in North America. And here the high interest rate environment and the inflationary environment certainly are not going away so quickly. And then electronics, I have to say also here, this is one of the few exceptions where we see continued good growth, especially in the more in the semiconductor slash chips segment. When you go into the consumer electronics segment, I would say also here rather sideways movement because also here we see consumer spending and consumer confidence in most areas not really growing strongly.

Thank you very much. So second question on crop. Is destocking and crop protection still happening as we speak, or would you see the channels at customer level now being cleared?

Yeah, this one I take again. I think if we were to describe the overall market development, it's still what I would call cautious and leaner buying behavior. So channel inventory, destocking ongoing. we see some normalizing of the commodity price development, and this goes together with some further product price pressure here. So it's in the egg from the macro point of view. It's not falling off the cliff, but it is currently a subdued environment in which we are.

Okay. Thanks very much, Markus and Jörg.

So the next analyst is Jaide Pandia from On-Field Research. We will then have Chetan Udeshi and then Laurent Farmer. But now first, Jaide Pandia, On-Field Research. Please go ahead.

Thanks a lot. And yeah, good luck to you, Marcus, for your CEO role. My first question is on ag. Could you give us some color about what is the sales exposure for GA for you these days? And I think your capacity used to be about 12 KT and you acquired a new technology I think a few years ago. So are you going to like transfer this technology to whoever is your new job worker? And does these two plans closures mean that that whole capacity then is sort of shut down? And obviously, if you're pointing to GA estimate reason for disappointment in ag in Q2, will this shutdown lead to a very quick improvement in results in 2025, 2026? That's my first question. And the second question is really around nutrition and care. Could you give us some more color on the volume and the price development in both care and in nutrition? Is it really that animal nutrition is isolated and everything else is doing much better? And if so, then when do you expect animal nutrition to join the party? Thanks a lot.

Yeah, again, I'm today answering the egg questions. So to give you a couple of ideas, and I think I answered partly already. So, glufosinate, ammonium, you can think about 20% is a non-selective herbicide, and you can think about it as being 20% of the herbicide sales, which is one of our important indications. So, this is quite something. With what we are now announcing and implementing, we will... and not forego the sales, but we make it profitable again. We have secured third-party supply for GA on competitive terms. This is meant as a complete replacement of it. We are not foregoing any business or market share here, but we make it profitable again. This is the idea we already last year started with structural measures on GA, and now we are completing it with the closure of the sites, bringing down the fixed cost and in the new setup with in-sourced GA from third-party suppliers, which is more or less generic now, we will certainly expand our margin and return also with non-selective GA and herbicides into the profitable arena again.

And maybe to add on this, you asked also about the new technology that we have sourced. Our plan is to bring this new technology, this new glyphosate technology to market later in the decade. And this will also be a sourcing strategy. So we will have this produced for us. So overall, you can think about this really as a replacement of own manufacturing versus sourcing, and this will happen with the classical glufosinate ammonium now, immediately contributing right away, and then later on with the new version in a few years. Let me give you a little bit of color on the nutrition and care segment. Here we had a very positive development, especially in our care chemicals division based on strong volume increase, as I already mentioned earlier, and also lower fixed cost. And here we continue to see good demand in most of our markets. And we see also that our recently made investments are already contributing positively to a good volume outlook. In nutrition and health, and that we refer to specifically to the animal nutrition business, here we are seeing continued price pressure. However, we are seeing a positive price impact compared to last year already, especially in vitamin E and vitamin A. Also now we anticipate sequential price improvement and that comes on top of our positive volume development, which especially in vitamin A is supported by our new capacities now coming back on stream. So also here the outlook is overall positive and we can see that this segment also will contribute to the further improvement of our earnings going forward.

If I can just ask one follow-up on the comment you made about the supply sourcing. Are you going to make sure that your regional footprint is mirrored, i.e. the outsourced supply is European, or would you go to Asia because a lot of the hub has shifted to Asia for GA production?

I hope you understand that we are not going to comment specifically now on our future sourcing strategy, but be assured that we are, let's say, doing our diligence in finding the best possible supply sources for GA, and we take, of course, a mirrored view on where this product is sold, and you know GA for us is largely a North American product, so we take this into account and overall optimize profitability as well as risk.

Thanks a lot. Thank you so much.

So now we move on to Chita Nodeshi, JP Morgan.

Hi, thanks. Can you maybe give a bit more color on what do you think is the normal seasonality in Q3? Because you are saying Q3 is broadly consistent with Q2 except for normal seasonality. And I think given a lot of changes in the last few years, it's difficult to understand what is the normal seasonality. So How would you characterize your normal seasonality these days? So let's say your Q2 was close to 1.97 billion. The consensus is 1.85 or somewhere thereabouts. Is that consistent with what you would think is a normal seasonality or should we add a bit more decline on top of that in Q2? And just related to that, I'm sorry if I missed this previously, but Given all the new slow in autos at the moment, do you see more incremental softness in autos? Or at the moment you see more, again, usual seasonal pattern in autos in Q3 where you typically see some shutdowns in Europe? Or are you seeing much more negative impact from that in your numbers as we speak? Thank you.

Chetan is speaking. I take your first one. As you know, the BASF result over the years is a little bit front-low to the first half of the year. This is predominantly due to egg. So this year, with the weaker egg result, this might be a little bit more balanced and tilting towards a more balance between first and second half of the year. And frankly, it all depends... on the future development of prices as you have seen also the the volume development and this goes mainly across the businesses is continuously now positive particularly if you take out precious metal effects while the price development is still negative quarter over previous year quarter But it is easing a bit, and if this easing were to continue and even go into the positive territory, then I think we also will have a stronger second half of the year. But prices, pricing power, certainly is a very important factor in this equation.

And I'll take the question on auto, just to maybe – lead that development a little bit. As I said, in the first half of the year, we're roughly on prior year level. So the same amount of car builds, a little bit different regional split. We had significant negative growth in Western Europe in particular, down 7%. But we had good growth in China, plus 7%, and also India, plus 8% almost. So a little bit different regional composition, but same number of cars globally year to date. For the full year, we are expecting modest, so a small declining number, maybe 1% down overall. That's our current assumption. So that means the second half of the year will be slightly lower than last, than the second half of 2023. And that, to a large extent, at least in our projections, comes with a weaker fourth quarter in China. China typically has a strong fourth quarter in automotive markets. But as I said, we're seeing increasing inventories in automotive in China. So we are a bit cautious to expect another strong fourth quarter like we had last year. And this is where the majority of the second quarter slowdown comes from. So dynamics stay more or less the same for the full year. Western Europe down 6%. But in China, we see a certain, let's say, downside for the fourth quarter. So not as strong as usual because of the high inventories. That's basically the assumption. But as I said, overall, we'll end up at roughly 89 million according to our current forecast.

Thank you.

We now have Laurent Favre, BNP Paribas, and we'll then have Andreas Heine and finally Peter Clark. But now, Laurent Favre, BNP Paribas. Please go ahead.

Thanks, Jesse, and good morning all. Maybe for the first question, I'll try to ask Chetan's question differently. You have Q2 flat year-on-year. You're specifically talking about earnings growth in Q4 year-on-year. Should we be assuming that your comments on Q3 are basically saying like Q2, i.e., fairly stable compared to Q3 last year, which on a maybe bad basis was around 1.5, 1.6? That's the first question. And then the second question around the lower investment in batteries. You gave us a fairly specific budget for the next four years, so 2024 to 2027 at $19.5 billion. I was wondering, when you gave us that capex envelope, how much, I guess, of that $19.5 billion capex was meant to go into those battery investments that you seem to be curtailing now? Thank you.

I take the first one, Laurent. Good morning. So as you see, we are holding our full year forecast, which obviously also gives you our opinion for Q3 and Q4. Again, I think the pricing part, this is really essential now. Will the easing of the price pressure continue? I think then we are in good shape. But this is really now the question for the second half of the year. From what we see today, the full year outlook that we have given, which includes Q3 and Q4, is really the best view that we have.

And as far as I remember, Laurent, that in the 19.5, we already did not have a huge number in there for batteries in the last CapEx envelope that we gave you. We will update this, of course, when we talk to you in September. We will give you an updated CapEx forecast as well. Currently, as we react with this slowdown of capex in battery materials to a very recent dynamic market development, as you probably have followed as well, I don't want to now give you an updated outlook off the cuff. But in general, I think you get the point that right now we're taking a more cautious approach. But that by itself does not lead now to an automatic significant reduction of the 19.5%. Thank you.

And if I can just come back on your points on the second half. I think we've already heard on this call that you expect nutrition prices to improve in the second half. Can you talk about the other value chains where you are seeing this improvement on pricing and margins, especially given what you said on autos assumed to be down year on year in H2?

Overall, I think we have still in most of our chemical value chains still strong price pressure. Price effects are still negative compared to prior year, but the pricing pressure is easing overall. So the negative deviation is receding. So I would say pricing power is slowly but steadily increasing. That's a very general statement across our very broad portfolio, of course, but that's generally the trend that we're seeing. So that's why we're also saying for the second half outlook, we are expecting also further restoration of pricing power across the of course, the portfolio, but, of course, that also is contingent upon also further stabilization of the demand trends, which were so far positive. First quarter, second quarter, we have seen good volume growth. If you look at our chemicals business, so our four, let's say, very chemically driven businesses, so chemicals, materials, industrial solutions, nutrition and care, they, in the second quarter, had a positive volume effect, almost 6%. and a positive EBITDA of plus 16%. So you can see there is positive momentum there. However, we are still cautious, especially with the third quarter, because the second quarter dynamic was that April was very good, March was so-so, and then June was a bit of a disappointment. That shows you that the overall robustness of the market heading into Q3 is not exciting, and that's why we say volume trend will continue, but pricing power still needs to continue, and that to a large extent will then be a supply-demand question in H2, but we are confident that it will gradually improve. Okay, thank you.

So now it's Andreas Heine, Stiefel. Please go ahead.

Yeah, thanks for speaking. Again on the volume, in the first quarter we had a lot that the improvement in volume might be driven by two factors. One is restocking from the very week before, and the second is the volatility situation as a Red Sea. If you now describe the second quarter, were these two factors still a positive driver or is what you have seen in the second quarter the underlying demand improvement? And the last very short question, in attrition, the decline in earnings you have seen there, coup on coup, was partly due to a turnaround. Could you elaborate how much this impact from the turnaround was in the second quarter?

Yeah, I'll take the first question, then Dick will talk about nutrition and care and the turnaround. So you're right, Andreas, of course, the Q1 was a positive surprise for most people in the, I would say, chemical industry, and we saw significant impacts of value chain restocking after a very challenging end of 2023 in most consumer customer industries of supply chain destocking so that was one effect we saw the political uncertainties red sea crisis but also i always think in in anticipation of increasing raw material costs also led to a positive first quarter in the second quarter we brought in a good momentum in april into the second quarter but We already saw in May, June, then, that the underlying fundamentals did not support this really sequential quarter-over-quarter strong volume growth overall. If you look at some of the macro indicators, chemical industry versus the PMI indices of important customer industries of us, you can see that there is no underlying really strong growth momentum in any of the customer industries. So in manufacturing, PMI data basically is around the 50 mark. So there's nothing really that drives it up in Western Europe, even below that. Consumer confidence, as I said, also overall not really improving strongly anywhere. And that means that Volume growth in the chemical industry right now still has probably some technical impacts included, but certainly not as much as in Q2. So the volume growth that we saw in Q1, the volume growth we have seen in Q2 is cleaner, and we expect this to go on like this in that order of magnitude. But based on still strong pricing pressure and, I would say, still not supported by strong end-customer or end-use growth in our industries.

Yeah, and I take the question on nutrition. Yeah, you're fully right. We had in nutrition in the vitamins area we had a turnaround. This goes with the vitamin A production that we have restarted and reconfigured, I would say. As you know, we have a big vitamin A investment that comes in two pieces and one piece of that was subject to a planned turnaround that ended in June. So the vitamin A production is now again ramping up, and the effect from the turnaround we can describe in the low double-digit million arena. Thanks a lot.

We now have Peter Clark, and then we'll have a final question from Georgina Fraser. But first, Peter Clark, Bernstein.

Yes, good morning, and nice to hear you, Markus. I've got one clarification and two questions. The first clarification, in September, we're going to hear from the divisions as well as the update on Ludwig Scharfen. And then the questions, you announced the ring fencing in December, so we're almost nine months on from the ring fencing at the Verwund via the versus the pure play business. It's just wondering how that's progressing and we're still looking at 2026. And then on the fixed cost performance, obviously in the first quarter, I was certainly encouraged that fixed costs pretty much went down in every segment. A couple of segments saw them up. I know the one-off effects preparing for a shutdown, etc. But just getting on top of that fixed cost, again, as we go forward from here and making sure all the divisions or segments start to see them come down. Thank you.

I tried to take the first two questions, but I didn't quite get the second one, so you might have to help me with that, Peter. So, yes, to clarify, on the Capital Markets Day, we are going to give you, let's say, in the keynote, a strategy update, so where the board sees the priorities for BSF Group going forward. What's our strategic pathway? We're going to go into the divisional details, into the segments, and we're also going to give an update on what we call target picture, Ludwigshafen, so basically how and where we will develop the site towards short-term and long-term. The question on the capital market reference to last December, I didn't quite get that question acoustically. Could you repeat that, please, Peter?

Yeah, the ring fencing was announced in December last year, obviously with the target date of ring fencing for wound operations from PAG, cosings, etc., by 26. Just wondering how that's progressing, because we're nine months in now from that announcement.

Okay, I didn't quite get that word, ring fencing, that word I would not have used. But anyway, I get your question. Yes, we are well underway with our structural measures, as we have announced. We are We are in the course of putting our non-verbund businesses into a more independent structure with regards to legal entities, but also in the process environment, IT, for example, putting them on separate SAP instances and so forth. And these projects are all progressing well and in line with our original plan, so no further updates or news there.

And then the other was the fixed costs. Obviously, in the first quarter, every segment saw the fixed costs down pretty much. Some have creeped up in the second quarter, just wondering on getting on top of that. So they're all down again as we go from here.

Yeah, Peter, it's never so easy to find then all the savings that we are tracking accurately in the system than also actually in the P&L. I think what you have seen as in GNA, as in R&D, but also in the ODs, is a good cost development. So we are tracking accurately and very, very confident that the 800 million run rate will be achieved by the end of the year and then also visible in the P&L. Of course, you have some Counter effects, as always, inflation plays a role. You have salary increases and all of that, which are countering the efforts, if you will. But I think overall, you see it in the fixed cost lines that we are making progress here, even though you cannot always one-to-one translate the cost savings into the P&L due to the multitude of factors. Thank you.

So now it's Georgina Fraser's turn, Goldman Sachs.

Thank you, Stephanie. Good morning, everyone, and thank you for fitting me in. I've got two questions. The first one is, would you agree that given the weak local demand and a lot of extra capacity that China has been responsible for a lot of the pricing pressure that you've seen in the first half of the year? and that we might be starting to see a stronger anti-dumping duty response from other producing regions that are feeling pressure from China. Does your expectation of improving pricing power factor in a tighter global tariff regime? And just any comments that you could give on the impact of possible tariffs for BASF. And then my second question is a bit more philosophical, and it's following up on the question that Peter asked about the verbund. What do you think is the reason that we haven't seen more recent players in the chemical market, thinking particularly in China and Asia, adopt the same verbund business model and the reason that some players in regions like the U.S. have been exiting this business model in recent years? We'd love to hear your thoughts on that.

Yeah, Georgina, thanks for your questions. First of all, I would say that the... The situation in China certainly has an impact on the overall pricing situation in the world. There's no question on that because China is by far the largest chemical market in most of the chemical categories that we are. Looking at here, as you know, we talk always about the overall chemical market. China represents 50%. And, of course, it requires tremendous capacity buildups to continue to support a growth of maybe in the past 5%, 6%, 7% per year in this industry. Now, China over the last three years has grown lower than expected in GDP, in industrial activity. And that also meant that overcapacities also in the chemical markets have built up. And these products are looking for a home. And of course, that sets price pressure. There's export pressure. also in all regions impacting pricing. However, given the size of the Chinese industry, that also can change very quickly, because when China's industrial activity also goes up, domestic manufacturing again strengthens, which currently in 2024 is happening, then this capacity will also be quickly absorbed. But I would say overall, you see, and especially export markets for China that are easy to reach, Southeast Asia, South Asia, Latin America, where you see particularly strong price pressure coming from the Chinese volume. So I think this is fair. I cannot talk so specifically to your question on anti-dumping duty responses. It's a bit hypothetical. I think overall I have not seen a wave of anti-dumping tariffs now being applied for being implemented overall. This is not something that drives our thinking, and that's certainly also not something we see as a general theme in the industry. There's always specific cases that you look at where we are also, of course, protecting our interest in the one or the other case, but it's spotty. It's not a general broad theme, I think, in the chemical industry. Your question on the verbund business model, it's very difficult to answer, I have to say, because this word verbund means a lot, and it means a lot of things. And I think our specific setup that we have at our verbund sites works very well for us. It's a particular strength for us. And we also build our future view of BASF very much on this strength that we have in the Verbund at our Verbund sites, because it will give us a lot of opportunities, especially in the new regime where the green transformation of the chemical industry will happen over the next 10, 20 years. And this is where Verbund sites or integrated setups will play out their particular strength. So we very much are convinced that for a large part of our portfolio, verbund or more specific integrated production setups really make a lot of sense and also in the future will rather gain in competitiveness than the opposite. So I cannot comment now specifically on why other people chose other different setups, but we feel very comfortable with what we are doing. And as you know, our new site in South China is a very integrated site. And also here we expect especially with regards to lowering the carbon footprint, introducing circularity, that the Forbund setup will definitely be a strong asset for BSF also in the future.

Thank you so much, Markus.

We have one follow-up question from Jaideep Pandya. Given the time, please go ahead, but ideally only one final question. Thank you.

Yes, thanks a lot. I will ask only one. Sorry to ask this ahead of the CMB, Marcus, but could you be, I mean, there is obviously a bit of a drought in coatings world with regards to volume growth. You have a very, very interesting asset, which you are increasing strategic flexibility. Do you, when you look at this business, feel like some of your peers need for partnerships and need for size increase? to sort of jumpstart growth, or actually you're just increasing strategic flexibility because somebody with a Fed paycheck could come and you could potentially look at cashing in the proceeds and investing it somewhere else. Thanks a lot.

Thanks, Jaydeep. Let me just say that we are extremely happy with our coatings business. The coatings business of BASF has developed very positively over the last years, and over many years now, I would say, we have become a very focused coatings player. We're in size not as big as some of the industry-leading coatings companies, but they, of course, touch all the segments. We are focused very much on our strengths in the automotive area in particular. We have a strong deco business in Brazil, and we have added, I think, a very great franchise with the Chametal business back in 2017. It creates a very focused coatings player with a strong performance profile, strong cash flow, and low capex demand. So we're very happy, and we are in every segment where we're in. We are amongst the top three market players, so we're really happy to have this business, and we continue to expect good performance. but based on the large exposure to automotive that we have in coatings, this certainly will not be a business that will grow continuously with 7%, 8%, or 9% because it will grow more or less in line with automotive, maybe slightly above that because we have a really good business, but that's about it. So the role in the portfolio of coatings is not necessarily to provide strong top-line growth. It's to provide a strong cash conversion based on a solid earnings profile.

Thank you. Ladies and gentlemen, we have reached the end of today's conference call. At least there are no further questions from your side. Should you have any further questions, please do not hesitate to contact a member of the BASF IR team. We wish you all a great summer break once the reporting season is over. We will present our third quarter results on October 30 and look forward to welcoming many of you at our Capital Markets Day on September 26 and 27. Goodbye, and thank you for joining us this morning.