Basf Se S/Adr

Good morning, everyone. Welcome to BASF's conference call for analysts and investors on the second quarter 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. 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. 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 bsf.com slash Q2 2026. Now I would like to hand over to Markus.

Thanks Steffi and good morning everyone. Happy that Dirk and I can welcome you today to our Q2 conference call. We pre-released second quarter results already as our EBITDA before special items considerably exceeded consensus expectations. Stronger prices and higher volumes as well as lower cash fixed costs drove earnings growth in all but one segment. We strengthened our position in the market and advanced our restructuring as well as portfolio measures. You may recall our priorities for 2026, which I presented during the full year conference call in February. Today, I am pleased to share that we have achieved major progress in all three areas. We are successfully implementing our winning ways strategy. In the following, we will show you How we delivered on our priorities and created value in the first half of this year. As we already held a dedicated virtual deep dive on the Sanjang-Verbund site in June, we will not address this achievement in detail today. To begin with, let's take a closer look at the factors that drove BASF sales development. In light of the geopolitical developments, we present monthly figures compared with the corresponding months of the prior year and excluding the impact of metals. At the beginning of the year, declining prices for key raw materials such as NAFTA and natural gas resulted in lower sales prices. This trend reversed in the second quarter of 2026, following the escalation of the conflict in the Middle East and the blockade of the Strait of Hormuz. In response, we successfully implemented significant price increases, particularly in our upstream businesses. From a volume perspective, we captured considerable growth throughout the first half of 2026. This was supported by the startup of our new verbund site in China and our ability to maintain uninterrupted supply by leveraging our local for local production footprint, flex feed steam crackers and dedicated trading operations to source key feedstocks. Our unique setup provided a clear competitive advantage. Volume growth accelerated significantly in March. The high uncertainty led customers to secure supply through some advanced purchases. In the second quarter, volumes continued to grow considerably compared with the prior year months, particularly in the core businesses. Currency headwinds eased over the recent months. Portfolio effects were minor and were mainly caused by the sale of the decorative paints business as well as the food and health performance ingredients business in the second half of 2025. A slightly positive portfolio effect resulted from the acquisition of AgBiTech, a company specializing in biological insect control solutions, completed in March this year. Let's now take a brief look at regional volume and price developments compared with the prior year quarter, excluding metals. Following the strong momentum in the first quarter, we continue to deliver considerable volume growth in Greater China, supported by the successful ramp up of our new Verbund site in Sanjiang. As a result of the Middle East conflict, prices rose significantly in Greater China, as well as in almost all other regions, particularly in the upstream businesses. In Asia-Pacific, excluding Greater China, we also recorded considerable volume growth, mainly driven by the chemical segment. In this region, prices rose considerably too, especially in the materials and chemical segments. In Europe, all core businesses contributed to volume growth. Prices in Europe increased strongly, especially in the chemicals and materials segments. In North America, we recorded slightly lower volumes, mainly on account of a scheduled turnaround of the steam cracker in Port Arthur, while prices increased considerably. In South America, Africa, Middle East, volumes increased significantly, mainly because of the agricultural solutions, chemicals and industrial solutions segments. Prices declined slightly, particularly on account of the ag solution segment. Moving on to the earnings bridge. EBITDA before special items rose significantly by 54% to 2.4 billion euros. The increase was primarily driven by continued volume growth and higher specific margins. Earnings grew in all segments except surface technologies. The strongest contributors were the core businesses, particularly the materials, chemicals and industrial solution segments. Other also contributed to the considerable earnings increase, mainly due to commodity derivatives used for hedging. In the material segment, higher contribution margins and lower fixed costs in both divisions led to a considerable increase in EBITDA before special items. The polyurethane and ammonia value chains contributed most strongly. The chemical segment recorded a considerable increase in earnings, mainly driven by petrochemicals due to higher contribution margins. Scheduled maintenance turnarounds in Ludwigshafen and of the cracker at the Port Arthur site were a drag on earnings growth. Industrial solutions also delivered strong results. The significant earnings improvement was driven by lower fixed costs in the performance chemicals division and higher contribution margins in the dispersions and resins division. In the nutrition and care segment, earnings came in slightly above the level of the prior year quarter, mainly due to lower fixed costs in the care chemicals division. By contrast, EBITDA B4 special items in the surface technology segment fell considerably compared with the prior year quarter. Earnings in the ECMS division declined mainly because of lower earnings in precious metal services. This could partly be offset by higher earnings in the emission catalyst business. In the battery materials division, earnings declined due to the expiry of subsidies, which led to higher fixed costs compared with the prior year quarter. Now let's turn to agricultural solutions in a bit more detail. The next key milestone for our largest and most profitable standalone business is reaching IPO readiness by mid-2027, and we are well on track to achieve this. Agricultural solutions delivered a very robust performance in the first half of this year. While sales declined slightly on account of currency headwinds and slightly lower prices, we captured volume growth in all regions. volumes rose particularly in fungicides, herbicides, and seed treatment. Thanks to the earnings increase in the second quarter, EBITDA B4 special items almost matched the strong level of the prior year first half. In the current market environment, this is a strong achievement by the team. Let me add that the second quarter growth in South America benefited to some extent from volumes brought forward ahead of the ERP system conversion in this region. At 29%, the EBITDA margin before special items remained almost at the level of the first half of last year. This brings me to our efforts to further enhance BSF's competitiveness. We are successfully accelerating the streamlining of our global organization. This chart shows that in the first half of 2026, we already reduced more positions than in the prior two years combined. I would like to emphasize two figures that further illustrate the momentum behind our efforts. From January 2024 until the end of June 2026, we reduced the number of employees by around 7,000. Please note that this figure excludes both the reductions resulting from divestitures and the workforce build-up associated with our Sanjang Verbund site. On the left-hand side, we highlight another milestone. In May 2026, the number of full-time equivalents at BSF SE in Ludwigshafen was brought below 30,000. for the first time since 1954. This is an important and necessary step toward restoring the site's competitiveness. Let me continue with some further updates on the structural improvements at our Ludwigshafen site. We are well advanced with the necessary asset restructuring. Since 2024, the share of highly competitive production units at the site increased from 78% to 88%. With its broad and diversified portfolio of upstream and downstream chemicals, Ludwigshafen is by far the largest site in BASF Group and has a very high degree of integration. Over the past few years, the site has increasingly focused on supplying the European market. This is in line with our local for local approach, which we apply globally. More recently, plant utilization rates improved amid the supply disruptions caused by the Middle East conflict. We will continue to review and adjust our asset portfolio as needed to be a reliable and best-in-class supplier for our customers from various industries. In this context, I will provide a brief update on the progress of BASF's cost savings programs. We are confident of achieving our annual cost savings target of around 2.3 billion euros by the end of this year. At the end of June, we already have achieved a total annual run rate of 2 billion euros. We continue to expect total one-time costs of at least 1.9 billion euros by year-end 2026. We have also made progress on our portfolio measures. As you are aware, we successfully closed the Codings transaction with Carlyle on June 30th. The enterprise value of the transaction amounted to 7.7 billion euros and the cash consideration received was around 5.8 billion euros on a pre-tax basis. The disposal gain after taxes of 3.5 billion euros is reflected in net income and earnings per share of BSF Group in the second quarter. We now hold a 40% equity share in Cervantes. Through this equity stake, we will continue to participate in the future value creation of the coatings business while sharpening BSF's strategic focus. This successful closing marks a key milestone in the swift execution of our Winning Ways strategy to unlock the value of BSF's standalone businesses. I would also like to mention that we have accelerated the sell-down of our participation in Haber Energy and generated cash proceeds of more than 800 million euros since March 2026. We have reduced our stake in Haber Energy to under 25% of the voting shares. The reduction reflects the successful sale of 80 million shares via an accelerated book building in March 2026, the agreed block sale of 150 million shares in May 2026, and a number of smaller share sales into the market. Our remaining share in the company is currently worth roughly 1 billion euros. As communicated on various occasions, it is our strategy to exit the financial investment in Haber Energy over time while being mindful of value. With the standalone businesses on their own successful paths, our core has become more focused and coherent. This creates new opportunities to unlock synergies and to work more effectively across BSF's core businesses. As announced in May, we aim to operate the core businesses at up to 20% lower net cash fixed costs by 2029, compared with the 2024 baseline. In the first half of 2026, our ongoing measures to improve competitiveness already led to a 4% reduction in net cash fixed costs in the core compared with the prior year period. And there was a strong positive momentum in the second quarter. And this figure relates to BASF's core businesses and other and is adjusted for currency portfolio and one time effects, making it comparable. Since the baseline for CoreShift is 2024, part of the cost savings measures already initiated contribute to the program. However, CoreShift will go significantly further. We will create a new, tailor-made operating model for our core and leverage synergies across the core businesses, R&D, service units and corporate units. We focus on our activities on what truly matters. We harmonize our processes across the core and expand the use of AI. We standardize our systems and tools to create even more synergies, reducing variety, enforcing common solutions, and focusing on what works best overall. We increase flexibility in task location and organizational design to realize cost advantages and benefit from synergies through bundling. In a nutshell, we change what holds us back and boost what makes us strong. This will position us to win in our markets and create the financial flexibility we need to keep strengthening and growing our core businesses. I am convinced that our core has the scale to lead, the focus to compete and the power to perform. And most importantly, the people to win. And with that, I hand over to Dirk.

Thanks, Markus. Good morning, everyone. Let's now take a look at the key financial figures in the first half of 2026 compared with the prior year period. At 4.8 billion euros, EBDA before special items improved significantly by 715 million euros compared with the prior year period. Especially the materials, industrial solutions, chemicals and surface technology segments contributed to this increase. Cash fix cost of BSF Group declined by around 4% to 7.9 billion euros. This is the result of the ongoing restructuring efforts, particularly in our core businesses and the favorable FX Development. Net income improved by 4.2 billion euros and came in at 5.1 billion euros. This includes the disposal gain of 3.5 billion euros after tax from the coatings transaction with Carlyle. Pre-cash flow decreased and came in at minus 1.6 billion euros. Lower payments made for property, plant and equipment and intangible assets partly offset the decline in cash flows from operating activities. Turning to the cash flow development in the second quarter of 2026, let's have a look at more details. Cash flow from operating activities declined to 524 million euros, mainly due to a higher cash tied up in the net working capital. This resulted primarily from two effects. On the one hand, higher sales led to higher trade accounts receivable. On the other hand, capital tied up in inventories increased as a result of higher raw material prices. In addition, the cash flow from operating activities was burdened by spending of around 200 million euros related to the transformation of BSF Group. In particular, this was for cash effective restructuring measures and introduction of the new ERP system needed in agricultural solutions and the core businesses. Payments made for property, plant and equipment and intangible assets decreased to 713 million euros. Free cash flow thus came in at minus 189 million euros compared with plus 533 million euros in Q2 2025. We still expect to achieve our full-year free cash flow forecast. In the second half, our operating divisions are expected to collect even higher receivables than last year. The level of inventory reduction will largely depend on price levels. Payments made for property, plant and equipment and intangible assets are likely to come in below the 3.4 billion euros forecasted for the full year. Let us now turn to our capital allocation framework. On the left hand side you can see the cash contributions which Markus has already largely covered. I will now focus on the use of cash on the right hand side. We are committed to attractive shareholder distributions and paid a dividend of €2.25 per share for the business year 2025 at the beginning of May. We are also making swift progress with the second pillar of shareholder distributions, the share buybacks. I will provide more information on the next slide. As previously communicated, we are using a significant share of the cash proceeds from portfolio measures to strengthen our balance sheet through deleveraging. We will continue to do so in order to support our single A credit rating. Compared with the prior planning period, we will reduce capital expenditures in the next four years by 20%. We expect capex to consistently stay below depreciation until 2028. We will also consider value accretive M&A as a potential lever to strengthen and grow BASF's core businesses. In the current market environment, the relative attractiveness of inorganic versus organic growth opportunities has increased. We have just announced a 1 billion euros program to be executed between August 2026 and April 2027. This is part of the total buyback volume of at least 4 billion euros by the end of 2028 announced in September 2024. Between November 25 and June 26, we have already bought back around 3.5% of the outstanding shares for around 1.5 billion euros. Given our strong cash position, we are now continuing the successful program with the next tranche. And furthermore, we focus on deleveraging, supported by the maturity profile of outstanding bonds and loans. In the first half of 26, we repaid a bond with a nominal value of 1 billion and a loan of 250 million euros. In the second half of 2026, we will repay maturing bonds and loans with a total value of 900 million euros. and in addition we will redeem bonds and loans with a combined nominal value of around 1.6 billion euros in 2026 ahead of their maturities which extend through 2029. This includes bonds with nominal value of 1.25 billion euros that will already be redeemed in August. Let's now briefly touch on our balance sheet at the end of the second quarter compared with the end of June 2025. At around 84 billion euros, total assets increased by 8%, mainly on account of higher current assets. The main reason is the considerable increase in cash due to the closing of the coatings transaction and the related purchase price payment by Carlyle. BSF's equity ratio improved by 1.5 percentage points to 44.6% and remained very solid despite our ongoing share buyback program. Net debt declined by 4.2 billion euros to 17 billion euros. We continue to have a single A credit rating which ensures unrestricted access to financial markets in favorable financing conditions. With that, back to you Markus.