BASF SE (BASFY) Q4 2022 Earnings Call Transcript

Feb. 24, 2023 11:26 AM ETBASF SE (BASFY), BFFAF

BASF SE (OTCQX:BASFY) Q4 2022 Earnings Conference Call February 23, 2023 2:00 AM ET

Company Participants

Stefanie Wettberg – SVP, IR

Martin Brudermuller – Chairman & CEO

Hans-Ulrich Engel – Supervisory Board Member

Martin Brudermuller

Good morning, ladies and gentlemen. Hans Engel and I would like to welcome you to our virtual conference for analysts and investors. Exactly 1 year ago, Russia invaded Ukraine. Since then, war has been raging in the middle of Europe. We condemn Russia’s attack. For the Ukrainian people, it is a catastrophe. And the past year has taught us all a harsh lesson. Peace and economic stability must never be taken for granted.

The consequences for the global economy have been tremendous. 2022 was marked by great uncertainties, rising energy prices, inflation and concerns about the widespread economic distortions. On January 17, BASF released preliminary figures for the full year 2022. Today, Hans and I will first provide you with further details regarding our business development in Q4 and the full year 2022. Subsequently, I will present the decisive actions we are taking to strengthen our competitiveness in Europe and particularly in Germany.

Let’s start with the challenging macroeconomic environment. Over the course of 2022, the global macroeconomic environment has deteriorated significantly. There are currently no signals of substantial improvement in the short term. Russia’s war against Ukraine, high inflation and the sharp increase in energy prices led to a slowdown in consumer demand, particularly in Europe. To combat inflation, Central Banks raised interest rates considerably, which further dampened consumer spending. Demand in our consumer industries softened in the course of 2022, with 2 exceptions.

According to the current data, global automotive production reached 82 million units in 2022 and thus increased by 6% compared with the very low level of previous year. Supply shortages, particularly for the semiconductors have gradually eased. For 2023, we expect a slight increase to around 84 million units. Global agriculture production also continued to grow moderately in the course of 2022. However, overall production growth was lower than in 2021, partially due to the normalization of growth rates after higher-than-average growth in 2021. In addition, production growth was impacted by longer spells of trough in several regions as well as production disruptions in Ukraine as a result of the war.

Let’s now look at chemical production by region. Full year growth is shown on the middle bar. Based on currently available data, global chemical production grew by only 2.2% in 2022. While the markets in China and North America grew, chemical production declined massively in Europe, and also fell in Asia, excluding China. Chemical production growth in China slowed slightly in 2022 compared with a strong baseline in 2021. This was mainly due to lower demand as a result of COVID-related lockdowns. In North America, chemical production growth increased compared with the previous year. In 2021, growth had been negatively impacted by the freeze in the first quarter and the hurricanes in summer and autumn. Chemical production in Europe declined substantially. Lower demand and higher energy prices led to shutdowns of selected production capacities, especially in the second half of 2022. This was particularly apparent in Germany, where chemical production declined by around 12% in 2022.

Lower demand and higher energy prices were also the main reasons for the decline in chemical production in Asia, excluding China. As the following slides, we’ll mainly focus on BASF’s business performance in Q4 2022, I will also briefly comment on chemical production in the last quarter of the year.

In Q4 2022, global chemical production increased by only 1%, a considerable increase, which was surprising in the overall weak environment was only seen in China. This was particularly driven by a base effect as chemical production in China had been negatively impacted by electricity cuts in the fourth quarter of 2021. All other regions recorded a decline in chemical production, which was most pronounced in Europe.

Moving on to BASF. In Q4 2022, our sales decreased by 2% to €19.3 billion, mainly on account of lower volumes. Sales volumes declined by 15%, with the exception of Agricultural Solutions, all segments recorded lower volumes. Sales prices increased by 9%. All segments were able to increase prices, except for chemicals, where prices declined on account of weak demand. Portfolio effects of minus 1% were mainly caused by the sale of the Kaolin Minerals business, which had been part of the Performance Chemicals division until the divesture. Currency effects of plus 4.5% had a positive impact on sales and were primarily related to the U.S. dollar.

Let’s now move on to our earnings development by segment in Q4 2022 compared with the strong prior year quarter. The overall decline in EBIT before special items resulted largely from considerably lower contributions from the Chemicals and Materials segments. In Q4 2022, these 2 segments contributed only €65 million to BASF’s group EBIT before special items compared with €933 million in the prior year quarter. This was mainly due to lower volumes and margins on the back of low demand in high energy and raw material prices. In total, earnings in BASF’s for downstream segments improved by €229 million and amounted to €393 million.

Hans-Ulrich Engel

Thank you, Martin. Good morning, ladies and gentlemen. In the following, I will provide you with further details of BASF Group’s financial figures in the fourth quarter of 2022 compared with the prior year quarter. I will start with EBITDA before special items, which decreased by 36% and amounted to €1.4 billion. EBITDA amounted to around €1.4 billion to a decrease of €862 million. At €373 million, EBIT before special items declined by 70%. Special items in EBIT amounted to minus €254 million compared with plus €1 million in the fourth quarter of 2021. The special items were mainly related to noncash effective impairments on plans in Ludwigshafen.

EBIT decreased by 90% to €119 million in Q4 2022. Income from nonintegral companies accounted for using the equity method amounted to minus €4.7 billion compared with plus €112 million in Q4 2021. The strong decline was driven by noncash effective impairments on the shareholdings in Wintershall Dea AG in the amount of about €4.7 billion in Q4 2022. These impairments resulted in particular from the deconsolidation of the Russian exploration and production activities of Wintershall Dea due to the loss of actual influence and economic expropriation. The remaining value of the Russian participations of Wintershall Dea declined significantly and further write-downs were made on the European gas transportation business.

Let’s now look at BASF’s operational earnings development from a regional perspective. Our competitiveness in Europe and particularly in Germany, has declined. In 2015, Germany, Europe, excluding Germany and the other regions each contributed around 1/3 to BASF Group’s EBIT before special items. In the strong business year 2021, Europe, including Germany, contributed only 1/3, while the other regions contributed 2/3. After the strongest ever first half, earnings softened in the further course of 2022 and we saw a particular deterioration in our German operations. In the second half of 2022, the contribution of Germany was even negative and we ended the year with an overall year before special items contribution of minus €126 million. This shows how important a balanced regional footprint is for our risk management. We will, therefore, continue to strengthen our business growth outside of Europe while adapting our business in our home region to reflect the changed framework conditions.

One explanation for the earnings decline in Europe are the elevated energy costs in the region. In 2022, our operational earnings were burdened by additional energy cost of €3.2 billion globally. Europe accounted for around 84% or €2.7 billion of this increase which mostly impacted our Verbund site and Ludwigshafen. Higher natural gas costs accounted for 69% or €2.2 billion of the overall increase in energy costs. And again, the main impact was on Europe and on Ludwigshafen. In 2022, we reduced our natural gas consumption by around 1/3 in Europe. This was primarily due to lower production volumes. Nevertheless, as mentioned before, we incurred €2 billion in additional cost for natural gas in Europe alone compared with 2021.

Martin Brudermuller

We anticipate only moderate growth in the majority of our customer industries in 2023. Our forecast assumes that the war in Ukraine will continue but not escalate further. Even so, the further developments of the war and its effects on economic growth are still subject to a high degree of uncertainty. In addition, we are assuming that an acute gas shortage with regulatory cuts to energy-intensive industries in Europe will not materialize. We expect that China’s departure from its Zero COVID strategy will have a positive impact on demand and will stimulate growth globally.

Based on these assumptions, we expect the global economy to grow by only 1.6% in 2023. We forecast growth of 1.8% for global industrial production, while global chemical production is likely to expand by 2% in 2023. Our planning assumes an average exchange ratio of USD 1.05 per euro and an average oil price of USD 90 for a barrel of Brent crude. We anticipate elevated and very volatile gas prices in Europe. In few of these factors, we forecast BASF Group to generate sales of between €84 billion and €87 billion in 2023. EBIT before special items is expected to decline to between €4.8 billion and €5.4 billion.

We expect a weak first half of 2023, followed by an improved earnings environment in the second half of the year due to recovery effects, especially in China. Based on the weaker earnings performance and slightly higher cost of capital base is forecast for BASF Group in 2023, we anticipate a ROCE of between 7.2% and 8%. We expect CO2 emissions of between 18.1 million metric tons and 19.1 million metric tons as a result of moderate growth in production and slightly higher capacity utilization at emission-intensive plants.

We will now move on to the measures to increase the competitiveness and profitability of BASF Group. I will focus on 2 areas in the second part of today’s presentation. We will begin with the cost savings program focusing on Europe that we announced in October. This will be followed by a longer section on the adaption of our Verbund structures in Ludwigshafen. Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes and high costs for most of the production input factors. This has resulted in many years of low market growth. High energy prices are putting an additional burden on our profitability and competitiveness in Europe. Our cost savings program, therefore, focuses on rightsizing our cost structures in Europe and particularly in Germany to reflect these circumstances.

We will implement the program from 2023 to 2024. On completion, the program is expected to generate annual savings of more than €500 million in non-production areas. What do we mean with non-production areas? These include service, operating and research and development divisions as well as the corporate center. Roughly half of the cost savings are expected to be realized at the Ludwigshafen site. The measure under the program include the consistent bundling of services and hubs, simplifying structures in divisional management, the rightsizing of business services as well as increasing the efficiency in R&D activities. Globally, the measures are estimated to have a net effect on around 2,600 positions. This includes the creation of new positions, in particular in the hubs and program costs are expected to amount to around €400 million. This will cover training and qualification measures, relocation costs and severance packages. Employee representatives in the relevant bodies have been and will continue to be involved regarding the various measures.

Let’s now move from the non-production areas to production at our largest site worldwide in Ludwigshafen. This is a schematic picture of the Ludwigshafen and Verbund site today in terms of inputs and outputs. We require vast amounts of natural gas as an energy source to power our plants and as a feedstock for our products. Today, renewable energy and renewable feedstocks still play a relatively small role. As outputs, we currently sell significant volumes of several base chemicals to the market. However, we mainly use base chemicals within the Verbund to produce a vast range of around 8,000 downstream products for European and global customers. And as a collateral output, this site emits about 7 million metric tons of carbon dioxide per year. Based on 2021 figures, the Ludwigshafen site accounts for about 4% of Germany’s natural gas consumption. In few of the large amount of gas we consume, it comes as no surprise that our competitiveness in Ludwigshafen suffers in times of elevated energy prices.

European gas prices skyrocketed to unseen levels in August. Since then, prices have declined, but we expect them to stay considerably higher in the long run compared to what they were over the past several years. Furthermore, lower market growth in Europe has negatively impacted supply and demand dynamics in several value chains. We are, therefore, undertaking structural measures to improve our competitiveness over the long term in addition to the cost savings program we have initiated. During the past months, we have carried out a thorough analysis of our Verbund structures in Ludwigshafen. By assessing our asset base in detail, we reached a deep understanding of how to ensure the continuity of profitable business while making necessary adoptions.

Let me now highlight the major changes we will be implementing. Let’s start by looking at the ammonia value chain. Ammonia is the largest consumer of natural gas as a raw material in Ludwigshafen. Currently, we operate 2 ammonia plants at the site, which you see in a simplified diagram on the left side of the slide. Ammonia is an important input factor for caprolactam and with that for polyamide-6, adipic acid as well as nitrogen fertilizers. Caprolactam, in particular, has seen tremendous buildup of capacities in recent years, especially in China. As a result, European exports to Asia were already under pressure before the sharp increase in Europe’s energy prices. To reduce our exposure to the market, we intend to close our caprolactam production in Ludwigshafen. BASF caprolactam in [indiscernible] is sufficient to serve captive and merchant market demand in Europe going forward.

By closing the caprolactam plant in Ludwigshafen, we will significantly reduce captive demand for the precursor ammonia. And in turn, this allows us to close 1 of the 2 ammonia plants as well as associated fertilizer facilities. At the same time, we will use the changes as an opportunity to optimize our polyamide 6 production network and further strengthen this important business for BASF Group. High value-added products such as standard and specialty amines and the AdBlue business, for example, will be unaffected and will remain competitive. They will be supplied via the second ammonia plant at the Ludwigshafen site.

Let us now move on to the next value chain, adipic acid. As 1 of the main precursors of polyamide 6.6, adipic acid is an essential part of our Engineering Plastics business. In addition, to serving captive demand, we sell production volumes to the merchant market. Over recent years, however, margins in this part of the business have been steadily eroded due to overcapacities in Asia and lower-than-anticipated domestic market growth. This situation became even worse with the sharp increase in European energy prices. In response to this changed market environment, we will reduce our adipic acid production capacity in Ludwigshafen and will close the precursor plant for cyclohexanol and cyclohexanone as well as the production of soda ash. With these measures, we will reduce our merchant market exposure while improving our overall earnings. Adipic acid production at our joint venture with Domo in Chalampe in France will remain unchanged and has sufficient capacity to supply our business in Europe. We will also continue to operate our polyamide 6.6 production plants in Ludwigshafen.

The certain value chain I want to address is the TDI production complex in Ludwigshafen. Over the past years, both MDI and TDI have gone through significant demand and profitability cycles. Overall, market demand for MDI is healthy as expected and continues to grow. Demand for TDI for however, did not grow as expected and has been especially weak in Europe, Middle East and Africa. We do not expect this to change. As a result, our TDI complex in Ludwigshafen has been underutilized and has not met our expectations in terms of economic performance. This situation has further worsened with sharply increasing energy and utility costs. We have, therefore, decided to close our TDI plant and the precursor plants for DNT and TDA. We remain fully committed to our European customers, and we’ll continue to serve them via our global production network with our existing TDI plants in Geismar, Louisiana, Yeosu, South Korea and Shanghai, China.

As I mentioned earlier, we thoroughly analyzed our asset base in Ludwigshafen. This included the gas intensive acetylene value chain as well as olefins from our 2 steam crackers in Ludwigshafen. While we identified some optimization potential in these value chains, our analysis shows that these assets will remain competitive in the long term, even under the changed framework conditions. In total, 10% the replacement — asset replacement value at the site will be affected by the measures. This will likely affect around 700 positions in production. However, we are very confident that we will find suitable positions for most of the affected employees since there are vacancies in production and many colleagues will retire in the next few years.

The measures will be implemented stepwise by the end of 2026 and are expected to reduce fixed costs by more than €200 million per year. These structural changes will also lead to a significant reduction in power and natural gas demand at the Ludwigshafen site. Consequently, CO2 emissions in Ludwigshafen will be reduced by around 0.9 million metric tons per year. This corresponds to a reduction of around 4% in our global CO2 emissions.

Since the start of the Russian war against Ukraine, we had analyzed in depth what factors influence the gas consumption of our Verbund, both positively and negatively. When uncertainties regarding gas supply first arose, we mentioned 50% at a minimum for operating the Ludwigshafen for Verbund site. Now we are able to continue operations even if the gas supply were to drop as far as 30% of our average consumption in 2021. This is thanks to optimization measures that including using the byproduct ethane from our steam crackers to feed our acetylene plant and the recommissioning of sections in the synthesis gas plant that is independent from natural gas.

We are now executing further projects that will reduce gas consumption in Ludwigshafen even further. By the end of this year, we will convert 2 of our 4 natural gas turbines in our combined heat and power plants to allow operation with either natural gas or fuel oil. Gas allocation would nevertheless force us to shut down many production plants at the site, but under optimal conditions and this natural gas consumers taken offline, we would, however, still be able to run the Ludwigshafen site at a supply rate of around 10% of our average gas consumption in 2021. Thanks to a possible partial conversion to fuel oil, we will thus be able to avoid a complete shutdown.

I congratulate the BASF team for its creativity and dedication in developing the required solutions during the last 12 months. Reducing the demand for natural gas is 1 of the elements in the transformation of the Ludwigshafen site. We want to develop Ludwigshafen into the leading low-emission chemical production site in Europe and are initiating further changes needed to achieve this. The green arrows indicate the time lines for preparations and investments while the extended arrows indicate better transformation along the particular levers has more or less ended steady state. We are exploring how we can best accelerate the transformation and how we can move forward most efficiently with regard to abatement costs.

We are making good progress. As part of the gray to green lever, we will secure further supplies of renewable energy in line with our Make & Buy strategy. With regard to the electrification of the Ludwigshafen site, we are taking steps to establish the platforms and infrastructure that we need to supply the site with renewable electricity and hydrogen. We are planning the use of heat pumps and cleaner ways of generating steam. In a transition phase, we are also looking into possibilities for using carbon capture and storage for hard-to-abate CO2 streams before moving to carbon capture and utilization. In addition, we will employ new CO2-free technologies such as water electrolysis to produce hydrogen. And finally, we plan to use the flexible entry options offered by our Verbund to switch from fossil to circular and renewable raw materials.

I’m concluding my remarks, and I want to reemphasize what BASF stands for. You can rely on BASF to continue to deliver what is known and where we are — what is known from us and what we are respected for. Connectedness lies at the core of BASF and is exemplified by our Verbund. The flexibility of our Verbund clearly demonstrated by the measures we have taken, and we will continue to take to reduce our natural gas demand. We will build on the benefit it offers both in Ludwigshafen and at other Verbund sites worldwide. Our global footprint with production assets close to our customers in all regions, proves to be the right setup particularly in a world that is becoming increasingly multipolar.

With our ongoing investments in China and the United States, we continue to improve our regional footprint. We are expanding our global presence in growing market segments, for example, in the battery materials value chain. Our transformation towards Net Zero will enable us to provide our customers with a complete portfolio of products that have reduced or even net zero carbon footprint. This will differentiate us from our competitors. Here, too, the Verbund plays an important role, and we will be — and will be supported by our powerful global R&D teams. All of these things would not be possible without our employees. And I’m therefore proud that we can count on such a great team at BASF, and I thank the team for its commitment in these challenging times. Thus, our shareholders can rely on BASF for value generation over the long term. Thank you.

Stefanie Wettberg

There’s a bit more specific questions on the closures in Ludwigshafen. It’s from Markus Mayer, Baader-Helvea. Why does the closure of plants in Ludwigshafen not trigger further impairments? Do you not need to write down the TDI plant? Is the TDI pant closure more linked to the energy situation or to production issues the plant had?

Martin Brudermuller

I mean, first of all, let me say some of the plants I have mentioned, adipic acid, caprolactam are part of BASF’s structure for a long time. These are rather old plants that have been totally depreciated. So from that point of you don’t see any write-downs or impairments coming with that. I think I mentioned also that they have been under pressure also from market points in terms of utilization. And now really, they get another hit by the energy prices. And this is, I think, while we also have a good opportunity to now, let’s say, restructure 1 of the oldest parts, I think, in the Ludwigshafen part.

The TDI plant is certainly a more new one. And I think I mentioned that also here, I think — the most disappointing part is actually the market development in Europe, which is significantly below what we have expected. It grows below 1%, most probably going forward in the next 10 years. If you look on to the supply balance — supply-demand balance on a global point of view, we have a very low utilization on the global level for all the plants. It is also a product which is not so difficult to transport much easier than actually MDI. So that is — you can run that as a global business. And this is why actually all the assets all over the world can participate in regional markets. And I think this is one of the major aspects also where we see not the scenario that we can really fully load these plants economically in terms of a market development.

When it comes to the depreciation part, I quickly hand over to Hans because that is the only plant that has a little bit less history in BASF and the other ones.

Hans-Ulrich Engel

Yes. And Markus, when you look closely at the Q4 P&L, you see that there is a €0.25 billion in special items there. The vast majority of that are write-down/impairments on plants in Ludwigshafen resulting from the high gas and energy cost or in other words, part of the closures that we are now announcing. And I’d say digesting that in the quarter is a significant number.

Stefanie Wettberg

Okay. So we continue another question related to that topic area. Mubasher Chaudhry from Citi. With regard to the various shutdowns announced, is there any option to bring any of these plants back online? Should the demand picture improve in the medium term?

Martin Brudermuller

No. I think this is more or less excluded because, first of all, when you start to shut down these plants and you really want to reduce the fixed cost. You have also to solve the teams and have really to get the fixed cost off and also not stay with remnant costs or holding a team for such a moment, then you don’t gain anything. We will then clean up the plants, and we will really shut them down. We will not demolish everything on the right on the spot. We don’t need the space in Ludwigshafen. We will then do that or use it or demolish it when we need a certain phases also for growth again. But I think in order to really tap into this roughly €200 million of fixed cost reduction, you really also have to eliminate the structures.

I would also say, once we have started to then bring down an ammonia plant, which is branching out is a very important raw material also, you adapt a lot of service, utility in precursor plants than to the new scenario, you certainly also reduce costs in these plants if they have lower capacities. So if you do that in a way that you actually say, more and a most appalling thing than you do not get the cost reduction. So for that reason, we decided to do that for good.

Stefanie Wettberg

Now there’s a question from Georgina Fraser, Goldman Sachs. It’s a combination of outlook and the measures announced for Ludwigshafen. What are your midterm energy cost assumptions for Europe? What was the scenario under which the site closure decisions have or the plant closure decisions have been taken?

Hans-Ulrich Engel

Georgina, what we’ve done is we worked with the overall assumption that the very competitive, not to say price advantaged gas deliveries from Russia will not play a role in Europe, and in particular, in Northwestern Europe going forward. What does that lead to? That leads to the question, what will be price setting for Northwestern Europe going forward? We think that there is a high likelihood that the price for Northwestern Europe for natural gas and then resulting from that to a certain extent also for power will be set on the basis of LNG imports. What are the key sources for LNG imports, as we all know, that is the U.S. and also Qatar.

We think there is a high likelihood that the base for price will be Henry Hub price plus then the cost of the LNG supply chain. In other words, from the liquefaction transportation to gasification. That cost is somewhere in the order of magnitude of $5 to $6 per million BTU. So Henry Hub plus supply chain costs for LNG is what we think will form the basis for prices going forward. We also think it will take probably about 2 years to get to this situation. This is with all the problems in the entire system currently, probably the time to establish a full LNG supply chain, the situation in Germany, where thankfully, the first FSRUs. So the floating terminals are now up and running, but to create and establish an LNG import structure will take a bit of time. But in the end, these are the assumptions that we used. In other words, with respect to natural gas and also power situation where prices should be higher in Europe than they were in the past.

Martin Brudermuller

And maybe to add 1 part on that because, I mean, competitiveness is a relative thing and not an absolute thing. And if you now hear politicians talking, okay, energy price is getting low now. So — or the danger, everything is off that of the political agenda or the society feel safe. But I think if you actually take the current prices of roughly €50 per megawatt hour you have today and you compare it with the low number you have in the annually up in the moment, you have actually a factor of 6 in between Europe and the U.S. and that is quite significant if you are in the energy-intensive business.

So we have — and that’s what I said this earlier when I got the question of Tim whether there’s more to come. I think we have a robust scenario with different scenarios where we actually back tested that situation. And I can only warn that this is not a topic that is quickly off. I mean we have really to look into the whole value chains in Europe. It’s not only about ours that we have to bring the material still competitively to our customers. But also our customers throughout the value chain, they have to take care about their competitiveness that they keep their market share that they keep their export businesses. If they would actually also fail, then you will see a further softening of the demand in the long run, which makes it difficult to keep the whole ecosystem of Europe, which is 1 of the very last remaining or the only ones where you have full value chains and interlinked value chain.

So I would say we will do our share, but I hope also our customers are bold enough to restructure and take the right steps to ensure that the whole value chain stays competitive. We have talked to a lot of customers about that. but that is also what we cannot totally factor in on our own exercise. We have to do our step and the others have to do their share.

Stefanie Wettberg

Charlie Webb from Morgan Stanley has a related question, but it’s a bit broader, not only focused on BASF, is your TDI production of the cost curve at current energy prices and no longer competitive domestically? It’s hard to talk for others, but — I mean.

Martin Brudermuller

I mean, I think I mentioned it already. I mean I said that competitiveness is a relative term. And I mean if you look into the energy situation in some of the countries where other production positions are, depreciated plants, very well established plants also in their local and regional markets where the base load is then they have also a good — a better, let’s say, competitive position gain now over the recent times since Europe got in this difficult situation. So that also import material is coming into Europe. So for that reason, yes, that’s a good example where Europe, as such, I would say, has lost competitiveness.

Stefanie Wettberg

This related question to, in this case, Region North America. It’s from Sebastian Satz, Barclays. Can you elaborate to what extent BASF may be able to benefit from various government support packages for the energy transition? And specifically thinking about the U.S. Inflation Reduction Act, for example, blue ammonia, or the discussions of an industry power price in Germany?

Hans-Ulrich Engel

Yes. Thank you, Sebastian, for your question. Of course, we are looking into the incentives that come with the Inflation Reduction Act, which, by the way, is the misnomer of the year 2022, but that’s different. That is a different story. As you know, what we do as BASF, we invest in the markets where our customers are. So we are investing in North America for our North American customers. We’re investing in Europe for our European and in Asia for our Asian customers. That’s our basic philosophy. And this basic philosophy will not be changed as a result of support schemes such as, for example, the IRA. Nevertheless, we are looking into it.

There can be certain activities that clearly benefit. As you know, we have big activities in the U.S. Gulf Coast. We have a major investment in our site at Geismar, Louisiana, the new MDI plant there. You look at what we’ve just announced with respect to the 5-year CapEx plan were around about €4 billion to €4.5 billion is earmarked for North America for the next 5 years. So you see this is a significant investment that we intend to do there. And in a scenario such as, for example, carbon capture and storage, the IRA provides, I would say, highly attractive incentives and we’ll certainly look into that. But again, basic philosophy is we produce where our customers are.

Stefanie Wettberg

I think with that, you answered, there were a few more questions from Laurent Favre, Sebastian Bray on Wintershall Dea, but that is covered. So I switch back to TDI and a question from Sebastian Bray, Berenberg. There’s quite a lot of TDI capacity exiting the market as a result of changes announced, will BASF need to spend on expanding assets elsewhere to compensate for this. Will you need additional shipping capacity for TDI? Also how much soda ash capacity is being shut?

Martin Brudermuller

I mean, first of all, a clear no. No, we don’t need additional CapEx to expand capacities in other sites. So we really can use existing capacities for covering our European market position. Certainly, we have to increase logistics. This is clear, you have to organize this. You have then to establish the supply chain that you also ensure that you have enough volumes here then in Europe from the imports to be on the safe side for your customers. This is all very clear. Please understand for the competitive reasons that I’m not going to talk about capacities now also for soda ash.

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Interesting to note that all questions went through Stefanie. I’ll have to research if this is standard procedure for BASF or a one time thing, but it isn’t for other companies. Editor Comments