We forecast the BASF Group free cash flow to be between €0.1 billion and €0.6 billion. This is based on expected cash flows from operating activities of between €6.6 billion and €7.1 billion minus expected payments made for intangible assets and properties, plant and equipment in the amount of €6.5 billion. The high investment-related cash flow is mainly due to investments in the new Verbund site in China. In the context of our free cash flow forecast, please be reminded that BASF’s cash flow is typically weak in Q1 and strengthens in the further course of the year. This is mainly due to the seasonality of our Agricultural Solutions business. CO2 emissions are expected to be between 16.7 million and 17.7 million metric tons in 2024.
We anticipate additional emissions compared with the previous year from higher production volumes based on rising demand. We will counteract this increase with targeted emission reduction measures. Thank you. And now, Dirk and I are glad to take your questions.
Stefanie Wettberg: [Operator Instructions] We will begin with Sam Perry from UBS. Please go ahead. He will be followed then by Christian Faitz and then Matthew Yates. But now Sam Perry, please?
Sam Perry: Hi, there. Thanks for taking my question. A technical question on Winstershall Dea. Do you expect to receive the full cash proceeds at closing, so the $1.6 billion? Or is there a delay to the receipt of any of this cash based on the business performance? And related to this, do you expect to receive a dividend from Wintershall this year while the process is ongoing? And then secondly, previously, Chinese imports into Europe have been cited as a big disruptive issue for demand. Have you seen any signs that that’s coming off at all given demand picking up domestically and also shorter-term, the issues in the Red Sea? Thank you.
Dirk Elvermann: Hi, Sam. This is Dirk speaking. I’ll take the first question. So we are currently expecting the full cash proceeds of $1.56 billion to be received upon closing. In closing, we expect as said in the fourth quarter. Wintershall Dea will not pay to the shareholders a common dividend this year. So last year, we received the dividend, our share €290 million. This will not be the case this year. So full cash proceeds, yes. Dividend, no.
Martin Brudermuller: Sam, from my side, on the Chinese imports, we see imports from China coming in, in an order of magnitude like never before. Very clearly, there is capacity coming up in many product lines in China. Overcapacities for the domestic market and the market there is also sluggish. So they also take every opportunity for exporting and making every ton somewhere in the world. That’s particularly true also for the other Asian markets, but also South America, but also coming into Europe. They take certain advantage from the higher energy costs and their competitiveness they have. You mentioned the Houthi rebels disturbing the supply chain. Yes, there are effects. I think they are temporary. I mean there are some products where we actually see now that this inflow of Chinese volumes are interrupted, which then brings the customers in Europe to rethink their supply strategies and also go back to European ones to be more resilient.
But I think this is a temporary effect. I mean, overall, it is a question of competitiveness of Europe in the long run compared with China. But that is a very broad activity. We see Chinese materials flowing in, in a lot of product lines.
Sam Perry: Thank you.
Stefanie Wettberg: Okay. So now it’s Christian Faitz, Kepler Cheuvreux.
Christian Faitz: Yes. So, thank you, Stefanie. Good morning, everyone. I believe BASF considers itself the globally biggest automotive supplier still. Hence, what’s your view on general automotive demand globally this year? Any regional differences you are observing? And then my second question would be on agro chemicals, the left and right from industry sources and your peers that the channels are full into ‘24. I’m missing any of that in your statement. Is that not what you’re seeing as prominent number three player globally? And then finally to Martin, I believe this is one of your last official appearances in front of the aggregated analyst investor community as typically, the Q1 call on the day of the AGM is done by your CFO. Hence, thank you very much for all the good discussions over the past several years, in fact, decades and all the best for the future. I know it’s tough, but try to enjoy the after BASF life.
Martin Brudermuller: So Christian, thank you very much for that very nice words. I still intend to be somehow heard in the Q1 call. But yes, there could be things that, that is not going to happen. But thank you very much for the comment and only give that back to all you guys. It was always very enjoyable for me to interact with you. But it’s not my farewell now. A very quick one on the automotive industry. I mean, very clearly, in 2023, automotive industry helps globally because it was one of the healthy sectors that actually had quite a strong increase in production. That is not falling for 2024. Actually, if you look on the global expectations, then this is sought to be more, let’s say, flat, basically stagnating at the level of around 90 million units.
And I would say January was much stronger than that, actually a double-digit volume growth here if you look at the numbers. And China actually was an increase in January of 46% of its production. But I think this is not really an indicator for the overall year. So we expect this to get slower. But as you know, Chinese domestic sales out for cars is actually flat for many years now. So you see also here the Chinese cars and the increase in product China is actually flowing out into the world. So that’s a new focus area of Chinese automotive industry. And let’s be seen how successful they are and what the impacts are on the production in the other regions, very hard to predict. But I would say from a global perspective, automotive industry should be rather flat this year.
Dirk Elvermann: And Christian, I’ll take your question on Ag. So first of all, we expect another good year from our agricultural division. Fundamental demand of the farmers is seen. The start into the year will be weaker than last year. And indeed, what you quoted is right. Also, we see channel inventory, we see pressure on the prices and we see the destocking on the distributor level. So what is happening there, it seems that distributors are not taking the long short, but rather wait a little bit longer and are buying according to season. We have to bear in mind there are also higher financing costs out there now. So we see a little bit of a shift from Q1 to Q2. But fundamentally, we see also in 2024 demand from the farmers, and this is what ultimately counts. So some clouds, but still a strong business also 2024.
Christian Faitz: Very helpful. Thank you, both.
Stefanie Wettberg: So, the next one is Matthew Yates from Bank of America. We will then have Chetan Udeshi and then Laurent Favre. But now Matthew Yates, Bank of America. Please go ahead.
Matthew Yates: Thanks, Stefanie. Two questions about Germany, please, one short-term, one long-term. The short-term one, there was a story on ICIS recently about restarting the smaller cracker at Ludwigshafen. Is that just an automatic return post maintenance? Or was there any discretion in that to respond to demand patterns that you may be seeing so far this year? Maybe that related to Sam’s question about the impact of the Red Sea on trade flows. And then the more longer-term question. You showed in the deck that Germany lost €600 million last year. This time, you already took the decision to shut down a few product lines and you’re alluding to potentially more restructuring to come in the second half. I mean, Martin, you say the situation is serious.
But how radical is the BASF Board really willing to be? Because if I look at headcount, German headcount is only down by 300 jobs year-on-year or about 0.5%. So are we going to see a much more radical approach to the German footprint in order to restore that competitiveness over the long-term?
Dirk Elvermann: Matthew, I shall start very shortly with the short-term. So indeed, crackers in Ludwigshafen is also our other crackers in the worldwide grids are now running. They run according to demand. We are, at the same time, standing on our tiptoes being as flexible as we can to adjust to the demand that we are seeing. But currently, indeed, the crackers are up and running.
Martin Brudermuller: So Matthew, I try to be somehow concise. But yes, I said it’s serious because you can really see that, first of all, Europe, in as such, compared to other regions, lost really competitiveness, but within Europe, Germany particularly less competitiveness. And it has in our industry, to do certainly with the product late because we have a lot of base chemicals, more base chemicals than the other European countries. That’s why the volumes have been further down in Europe than compared with the average or in Germany compared with the average in Europe. And that’s also why, let’s say, our headache in terms of competitiveness is really culminating on Ludwigshafen. Let me also mention that have actually had in a difficult time, really good earnings all over the world, but in Germany.
So we are resilient and, I would say, also competitive. But we have to do something here. And now when it comes to measures, I think why I said serious is that some of the stuff where people and politicians always think the market will come back and then everything is fine. You have to say some stuff in Europe and in Germany getting structural. That means there are framework conditions. BASF will have in the long run, and that’s also why Ludwigshafen has to adapt itself to these new market realities. When it comes to chops and employment, unfortunately, in Germany particularly, to release people is a difficult task because you have a very intensive protection basically by labor laws. And this is also why this goes rather slow unless you really put a lot of money and one-time costs on them to pay them actually to leave.
So we use, to a certain extent, also the fluctuation and also the demographic, let’s say, a situation that we have a lot of retirements going forward. I think that’s a cheaper solution than throwing really money by that. When I say structural changes, then I think I have to look into more of the production facilities. They most probably are not competitive anymore for exporting as Europe. So you have a look at the European market realities. You have to look on what is the decarbonization costs for these assets, what is actually – and this is also a fact in Ludwigshafen that the assets are more old than in average than in other sites, whether it really makes sense to maintain and to invest further to keep them. So that’s an exercise that the new Board will do.
But believe me, we are very, very determined to bring the cost down, and this is this €1 billion here, which I think is significantly on top of what we had already. We have good ideas where this is coming out. But let me also say it’s not only releasing people, but it is also excellent actually in everything we do, like purchasing and so on. So we will reduce stuff we have to buy. We will change how we buy and so on. So I think it’s important to say that’s not only personnel costs. But I would predict over the years to come that the amount of people working in Ludwigshafen will continuously go down in a quite significant way going forward. And with that, we are also confident that we will have a Ludwigshafen site, and you will hear then also how that should look like from Marcus and the new Board team in the second half of this year.
We have an idea how that should look like, but it is a smaller site and it is a site that is actually focused on the European markets and the opportunities there.
Matthew Yates: Thank you.
Stefanie Wettberg: So now Chetan Udeshi, JPMorgan. Please go ahead.
Chetan Udeshi: Sorry two questions. First, just on your guidance. You ended the year with a very, very low number in terms of EBIT or EBITDA and you are guiding full year EBITDA to be in line with consensus. And what I am trying to get to is, are you happy with Q1 consensus as it stands today, or any sense of how Q1 earnings should be, because even last year, as we thought about recovery in second half, which didn’t play out. And I am just curious how much of that is still the case in this year’s guidance that it’s still very back-end loaded in terms of recovery and what if it doesn’t come through. So, just curious how would you guide us on Q1, whether related to consensus or any some sort of number. So, we get a bit more conviction that this guidance is not like the one last year where it was very back-end loaded and hence, subject to risk of clearly, things not materializing in terms of improvement.
The second question, I am sorry to be a bit more difficult with this one. I am just reading, Martin, your comment in the annual report, which says BASF remains an integrated company with broad portfolio. Particularly in a year such as 2023, the structure proved its value once again. I am just looking at your numbers in 2023, and it’s hard to see the value of the integrated approach. In fact, if I am a bit more critical, your capital employed from 2007 to 2023 has doubled, but your EBIT is still down in that period. So, again, just going back to the point we have had this discussion as also a new Board looks at the strategic alternatives, why is the structure of BASF not up for debate, because clearly, to your comment, it feels to us, at least the integrated approach is not delivering the value just from an external point of view.
Thank you.
Martin Brudermuller: Hi Chetan. And I will start with the second one and then Dirk takes over the first one. I mean first of all, we have explained to you our so-called differentiated steering approach, which is trying really that those units that are less integrated in the Verbund and honestly speaking, coatings, battery materials and of course agricultural solutions are not so heavily integrated that we give them more space to actually add as the pure play. And I think that they will bring the performance up and will allow performance increase. On the other hand, I think where you really have an economies of scale effect is all the services that are provided also from financial to R&D and to digitalization and whatever. So, we keep them in this because we think they will have lower service costs than actually allowing them to build up their own piece.
So, I think this is the concept. This is why I said integrated company because I am very honest here, some of the people, in particular, labor – on the labor side, they think this is now going to be a holding. And that is not the intention of that approach, at least not at that moment of time. When you now say you don’t see Verbund coming in, I have to clearly say, if you don’t have volumes, and you have your chemical – your huge plants in chemicals and materials standing, you don’t see the Verbund advantage. You see the Verbund advantage when they are loaded. And this is always when you praise us in the times when commodities are great, then BASF is super, super stocked and strong and much stronger than the competitors because that’s then actually where the materials and the volumes flow and where then the full Verbund advantage comes in.
With the low utilization, you really don’t see it. And this is also why I cannot say that and give you big arguments why you would have seen Verbund advantage in 2023. But it is really in the core and that is also an approach that we strengthen the differentiated steering because we will have then one ERP system, one S4 HANA core that really caters only for the Verbund issues will be much simpler and with that also much cheaper. And I am still convinced in this true value chain thing. If the plans are under full steam, I say there is a clear advantage for the Verbund, but not with low load.
Dirk Elvermann: Hi Chetan. I will continue with the guidance. I think first of all, it’s great that the analyst consensus is matching our guidance in terms of EBITDA. It’s in line with consensus, yes. Our guidance builds on indeed recovery of the economy. In the course of the year, we will see volume growth throughout the businesses, but we also bank on a margin recovery, the first one kicking in earlier, the margin recovery kicking in a little bit later. And then also supported by strong and strict cost discipline, which we already now explained again in our speech and to notice that we are not only saving cost on the go, but that we are also taking another step of structural measures, and that will also contribute to that overall. So, we stand by that guidance for sure.
Stefanie Wettberg: Given that we have only 10 more minutes and eight people still queuing here for the Q&A, I would suggest that we move to one question per analyst. We will have now Chris Counihan, Jefferies, then Jaideep Pandya and then Martin Evans, so now Chris Counihan. Please go ahead.
Chris Counihan: Thanks so much for the opportunity. On Nutrition & Care, could you talk us through the steps to bring this business back to the targeted mid-cycle EBITDA margin and the timing to realize this? I just ask it as the business used to contribute closer to high hundreds of millions of EBIT, but it’s now closer to breakeven. The strategy has been a low-cost producer waiting for others to drop out of the market. And that’s probably going to take even longer as your European peer is cutting costs, divesting its vitamins business and presumably selling to someone who will drive further cost reduction on its own accord. It also seems opposite to the new cost savings program, where you talk about it adapting production for end market demand. So, how long do you continue to accept these results, and what’s the way out?
Dirk Elvermann: Chris, thanks for this one, and I will take it up. So, if we talk about our nutrition business, we have to see, these are three businesses, actually. There is an aroma business. There is a vitamins business. And there is a pharma business. So, for aroma, there is currently a good volume growth momentum that we are seeing. There, colleagues are in a hunting mode also to get the volumes in because that is very crucial for this business, and we see that happening price is still under pressure. But we anticipate that the prices are bottoming out here and we see pricing upside here over the time. So, then for the nutrition business, this is basically with vitamin A and vitamin E. So, what do we see here, for vitamin A, we have brought upstream now the full-fledged vitamin A plant, which should have the full cash cost advantage in the overall landscape.
So here, we are leveraging on the economies of scale now have to fill that plant, but also with what we elsewhere see in the market are confident that we are getting a leading position. If you look into the vitamin A prices, historically, they are really at the bottom. So here, we are banking on the pricing upside that should come. Vitamin E, the other one, you currently see, and I think you alluded to that also longer shutdowns of plants, respective plants in China, so it’s in the overall, getting a little bit more difficult here, which we see also as a possibility to gain momentum on price and volumes. And pharma, the smallest of the businesses, but also worth noting here, if you take just biopharma, for instance, there was a long, long destocking after COVID.
But now finally, we see the recovery here, so some very positive views. But you are right, it takes a long breath. It takes patience to bring that business back into the profitable arena.
Chris Counihan: Thank you.
Stefanie Wettberg: Okay. So now, Jaideep Pandya, On Field Research, your turn. Jaideep, we can’t hear you. We will move on then to Martin Evans, HSBC.
Martin Evans: Thanks Stefanie. Back to guidance for this year and the risks to it, particularly given last year, and if I turn to Page 174 of your own report and accounts, the risk section, the potential short-term risks to your EBITDA of key metrics is quite a negative table you present with the risk to your margins of up to sort of €1 billion and a risk to your business from competition of another €1 billion. I appreciate this is the Risk Committee and they have to be cautious. But you have discussed margin risk from weaker prices, and you have discussed competition risk from China. So, what is the chance that you come back to sort of later in the year, particularly with the new Board and so on and say that in fact, you have taken onboard your Risk Committee’s issues with the business and we get a fairly substantial cut to that €8 billion plus guidance, because the Risk Committee’s concerns on margins, in particular, look quite scary, can you discuss?
Thanks.
Martin Brudermuller: Maybe, Martin, this is the good thing that the old CEO can do that, so that the new one can correct it. No, I am joking. I mean we have certainly put a lot of thoughts into this. And I think it is a very true and honest risk pattern, which we show you. But let me also very clearly say, I mean, I think our guidance is this time not to sell hockey sticks, so everything gets great at the end of the year. But – and I told this in my speech, that we rather think it will basically be at a similar level and only slowly crawl up everything else then is upside and positive if we take it as we get it. For that reason, I think if you look at that situation, others getting maybe nervous there is the risk, the highest risk on push on prices and losing margins and volumes.
But let me also say, yes, we have a volume target, which is higher than the market, which all you had to do that we lost some volumes with outages of plants and so on. So – and it is also very different by product lines. I think we took it more aggressive where we are strong than in others. So – but I have to say most of also the power that is coming from inside from structures. And this is the cost reduction and all that, what you mentioned. And this is why it is not a very intensive, let’s say, market-driven loaded guidance we give. This is why I think it is an ambitious guidance. I have no question about that. But it’s no unrealistic one. And that’s why I think if the environment stays like this, that means we don’t have additional wars and interruptions and whatever, I think we have an ambitious, but also realistic guidance.
