Basf Se S/Adr

Well, ladies and gentlemen, good morning and a very warm welcome to our half-year press conference of BSF SE, which today is done as a team's call. Thank you very much that you have dialed in. And today we are going to present to you the financial figures for the second quarter 2025. And you're going to be talking to Markus Kamit, who is the chairman of the Board of Executive Directors, and Dirk-Elfer Milvermann, CFO of BASF. Let's start right away. Just a few technical pieces of housekeeping. The conference language is German. with a simultaneous interpretation into English, and the charts that you are going to see in the Teams meeting are in German, and the English version is available for a download on our press website, and you can see the link in the Teams chat. And I give the floor to you.

Thank you, Nina. Good morning, and welcome to our Teams or video call. Today we are presenting our results for the second quarter and the first half year of 2025. On July 11th, we pre-released some of our key figures due to the adjustment of our full year guidance. Dirk and I will provide you with more details today and the rationale for the revised outlook. Before we take a closer look at the sales development, let me give you a brief overview of the quarter. BSF generated EBITDA before special items of around 1.8 billion euros in the second quarter of 2025. The agricultural solutions segment considerably increased earnings. The surface technologies and nutrition and care segments achieved slightly higher earnings. In the base chemicals businesses, margins remained under pressure due to high product availability on the market. Let's now take a look at the sales performance of BASF Group. Overall, sales were almost at the level of the prior year quarter, thanks to volume growth. Volumes grew particularly strongly in the agricultural solutions and surface technology segments. Prices declined in 4 of 6 segments, particularly in the chemical segment. We managed to achieve price increases in the surface technologies and nutrition and care segments. Contrary to the first quarter, currency effects in the second quarter dampened sales in all segments and were mainly caused by the significant depreciation of the US dollar. Reflecting this underlying sales development, EBITDA before special items came in at 1.8 billion euros compared with 2 billion euros in the prior year quarter. Here you can see how the markets, volumes and specific margins of our segments developed in the second quarter of 2025. In general, the business environment in our upstream businesses was very challenging. Compared with the second quarter of previous years, we generated significantly lower EBITDA before special items in these divisions. This can be attributed to the high level of uncertainty and cautiousness of our customers in most markets globally. I'd like to highlight some segment-specific aspects. As mentioned, the market environment for base chemicals remained difficult. Nonetheless, volumes in the chemical segment were almost stable. Specific margins declined in both divisions, particularly in petrochemicals. Despite the tough market environment, the materials segment showed robust volumes and earnings performance. I will touch upon the standalone businesses only briefly as we have more detailed slides coming up. According to the latest data, global light vehicle production increased by 2.6% in the second quarter of 2025 compared with the prior year quarter, mainly on account of production growth in China. In this environment, the surface technology segment recorded robust volume growth and outperformed the automotive market. Specific margins in this segment were almost flat. In the agricultural solutions segment, we achieved strong volume growth and were able to considerably increase specific margins. Now let's take a look at EBITDA before special items by segment. Considerable earnings growth in agricultural solutions and slight growth in surface technologies and nutrition and care partially offset lower earnings in the remaining segments. Earnings in agricultural solutions increased across all regions, particularly in North America, followed by South America and Europe. In the surface technology segment, the main earnings driver was the higher contribution from the environment catalyst and metal solutions division, which added to a continued strong performance by coatings. In the nutrition and care segment, EBITDA before special items increased thanks to improved earnings in the nutrition and health division. Here, earnings were supported by a low double-digit million euro insurance payment related to the fire that occurred one year ago at the isophytol plant at the Ludwigshafen site. In the meantime, production has resumed at our plants for vitamin A and E as well as for aroma ingredients. Force majeure for most products has been lifted. This will support volume growth in the nutrition and health division as of the second half of 2025. By contrast, earnings declined particularly in the chemical segment because of the still unfavorable supply and demand situation for base chemicals. In addition, startup costs related to our new verbund site in Sanjiang burdened earnings by around 70 million euros in the second quarter of 2025. These startup costs will ramp up considerably during the next quarters to total around 400 million euros in the full year 2025. Lower earnings in the industrial solutions and materials segments also contributed to the overall decline in earnings at group level. Compared with the second quarter of 2024, EBITDA before special items in other was considerably weaker. This was mainly because of the reversal of bonus provisions in the prior year quarter. In BASF's new remuneration system, the influence of Group ROSI has been reduced, while EBITDA before special items, cash flows and non-financial targets are gaining in importance. In the following, I'll provide some additional colour on the strong performance of the Agricultural Solutions and Surface Technologies segments. Compared with the prior year quarter, our Agricultural Solutions segment achieved remarkable growth of 21%. volumes rose in all indications and sectors except for seed treatment. The absolute volume increase was most pronounced in herbicides. Compared with the second quarter of 2024, segment earnings improved by €282 million to €417 million. On a half-year basis, earnings rose by a remarkable 8% to €1.6 billion, resulting in a strong EBITDA margin before special items of 30%. As forecasted in February, we continue to expect a slight increase in earnings for the agricultural solutions segment for the full year 2025. Let's move on to the strong performance in the surface technology segment. All three divisions in this segment achieved volume growth. Overall, volumes increased by 6.5%, even when excluding volumes from precious and base metals. Compared with the second quarter of 2024, EBITDA before special items in the surface technology segment rose by around 10% to €350 million. All divisions contributed to this increase. The highest contribution came from environmental catalysts and metal solutions. Now I'll provide a short update on our portfolio management. As announced at our Capital Markets Day in September 2024, our goal is to fully unlock the value of our standalone businesses. In a first step, we agreed in February to sell our decorative paints business to Sherwin-Williams. The purchase price amounts to 1.15 billion US dollars on a cash and debt-free basis. We are well on track to close the divestiture in the second half of 2025, pending approval from the relevant competition authority. As planned and previously communicated, we approached the market in the second quarter of 2025 to explore strategic options for the remainder of our coatings activities. These activities, which comprise automotive OEM coatings, refinished coatings and surface treatment, generated sales of 3.8 billion euros. We've received a considerable number of bids from private equity and strategic buyers, and the process is well on track. In the agricultural solutions segment, we are making good progress with our plans. This business has global scale, strong growth potential and attractive cash flow characteristics. We are currently focusing on executing the legal separation and the implementation of a dedicated industry-specific ERP system. In parallel, we are preparing for a potential listing. We remain committed to completing all internal preparations for a successful IPO by 2027. In summary, we are executing our portfolio management strategy as announced.

With that, I'll hand over to Dirk Elvermann. Thank you very much, Markus, and good morning, ladies and gentlemen. I would like to begin by taking a closer look at the financial details of BSF Group for the first half of 2025. At 4.4 billion euros, EBITDA before special items was slightly below the level of the first half of 2024. The adjusted EBITDA margin before special items remained almost stable at around 15%. EBITs before special items reached €2.5 billion, compared with €2.7 billion in the prior year period. Special charges were largely incurred for restructuring measures, as well as for the sale of BSF's equity share in the Nordlicht 1 and 2 wind farms back to Vattenfall, which took place in the first quarter of 2025. Net income decreased to 887 million euros. Compared with the first half of 2024, net income from shareholdings declined significantly, mainly due to negative contributions from Haber Energy, which was burdened by negative tax effects in the United Kingdom, and from Winter Saldir. Cash flows from operating activities amounted to €603 million compared with €1.4 billion in the first half of 2024. The decline was particularly driven by the lower net income and higher cash outflows from changes in net working capital. Payments made for property, plant and equipment and intangible assets decreased by 554 million euros compared with the prior year first half to 1.9 billion euros. This shows that we have passed the peak investment phase for our South China for Bund sites. Free cash flow was minus 1.3 billion euros in the first half of 2025. In the second quarter of 2025, cash flows from operating activities decreased by €365 million. Changes in net working capital led to a cash inflow of €38 million compared with a cash inflow of €710 million in the prior year quarter. The main reason for this was the change in trade accounts payable. Payments made for property, plant and equipment and intangible assets decreased by €428 million compared with the second quarter of 2024 to €1.1 billion. Free cash flow increased and came in at €533 million compared to €471 million in the second quarter of 2024. Ladies and gentlemen, now let us talk about the measures we are taking to protect our balance sheet. Our top priority is maintaining BSF's financial strength. We are fully committed to our financial policy. We aim for a single A credit rating, which is the best in class in the chemical industry. Standard & Poor's recently confirmed our single A credit rating, which is also our rating at Moody's & Fitch. Over the last three years, our financial debt and leverage ratio have increased. This was driven by lower earnings and a cyclical downturn, and by our considerable investments, mainly in our Forbund site in South China. This mega project is on time and below budget. We have already entered the commissioning phase and will start up most of the plans at the end of 2025. Our capex peaked in 2024. and we will bring it down below the level of depreciation as of 2026. At 5 billion euros, payments made for property, plant and equipment and intangible assets in 2025 are expected to be 200 million euros lower than forecasted in February. Furthermore, we will use part of the proceeds from divestitures to reduce our financial debt and to deleverage our balance sheet. We have also accelerated our cost savings programs. We now expect to generate annual cost savings of €1.6 billion by year-end 2025, €100 million more than originally anticipated. We are well on track to achieve the targeted 2.1 billion euros in annual cost savings by the end of 26. And finally, we continue to have a strict focus on further reducing inventories while remaining a reliable and trusted partner for our customers also in challenging times. Now I would like to share some information about our energy and feedstock supply. To safeguard our long-term competitiveness and operational resilience in Europe, we have established a very robust and flexible setup for procuring natural gas with two cornerstone supply agreements. The first agreement with Equinor will start this October. Equinor will supply us with up to 23 TWh of Norwegian natural gas annually for the next 10 years. This contract ensures long-term supply security, competitive terms and a lower product carbon footprint due to Norway's efficient infrastructure. It covers a substantial share of BASF's European gas needs, particularly for our major sites in Germany and Belgium. The second agreement, signed with Chenier, will start in mid-2026. BASF will receive up to approximately 12 TWh of liquefied natural gas per year through 2043. This agreement introduces strategic price diversification via Henry Hub indexing and gives us full control over an end-to-end LNG supply chain. It offers a critical hedge against European gas price volatility and complements our pipeline gas portfolio. These two agreements ensure long-term energy and feedstock security, as well as high-volume flexibility for demand-driven operations. Further advantages include diversification across geographies, pricing models, and delivery modes, and last but not least, a lower carbon footprint. Together, these two agreements form the backbone of our gas supply strategy, balancing reliability, cost efficiency and sustainability.