Good afternoon, ladies and gentlemen. It is a pleasure to host you here at BASF in Ludwigshafen, and to again be having a physical meeting with investors and analysts. We are glad that you accepted our invitation. Let me remind you that today's keynote and Q&A session are being live streamed on the internet. A replay will later be available. One further organizational remark you are already familiar with: today's presentation contains forward-looking statements that may not prove to be accurate. We do not assume any obligation to update these forward-looking statements above and beyond the legal requirements. Now, it is my pleasure to introduce our keynote speakers for today, Dr. Martin Brudermüller, Chairman of the Board of Executive Directors, and Dr. Dirk Elvermann, Chief Financial Officer. Now, without further ado, let's move straight to the keynote presentation. Martin, Dirk, over to you.
Thank you, Stefanie. Ladies and gentlemen, thank you very much for joining our investor update. I'm very pleased that so many of you have found the time to attend in person, but also a very warm welcome to the participants who have dialed in. The focus of today's event is to provide an update on the progress we have made in implementing our corporate strategy from 2018. We also have some news to share that will already be reflected in our reporting for 2023. In the recent years, the three tasks shown here have made up a large part of the work of the Board of Executive Directors, and this is why they provide the basis for the structure of our keynote presentation today.
I will begin with a review chapter, then Dirk will speak about our new approach to steering our businesses and BASF Group. Finally, I will conclude with an update on our path to net zero. Let's get started right away with a look at how BASF is delivering on its priorities for the use of cash. At our Investors Day in November 2018, we gave clear guidance on our future capital allocation in the context of our new corporate strategy. Since then, we have used cash in line with the priorities we set. Between 2018 and 2022, we spent around EUR 50 billion. As our corporate strategy is based on organic growth, we allocated around 60% to capital expenditures and research and development. Shareholder returns and an attractive dividend are of high importance for BASF's board.
We have therefore increased the dividend in 3 of the past 5 years. In 2020 and 2022, we kept it stable at the respective prior year level due to the challenging framework conditions. The total dividend payout since 2018 amounts to EUR 15.8 billion, and the average dividend yield is 5.6% per year. Through our continuous portfolio management, we have focused our portfolio towards innovative growth businesses. In the past 5 years, we have divested businesses with sales of EUR 5 billion and acquired businesses with sales of EUR 4 billion. In total, net payments related to acquisitions and divestitures amounted to EUR 1.4 billion. Share buybacks are also part of our capital allocation framework.
Between January 2022 and February 2023, we purchased shares for around EUR 1.4 billion. This corresponds to 2.8% of the share capital when the program was announced. Currently, we are not buying back shares in view of the global economic and geopolitical environment. Let's take a closer look at our capital expenditures over the last five years and in the first 10 months of 2023. We actively reduced the share of investments in BASF's ongoing businesses, while deliberately increasing the share of spending on our major growth projects over time. Major investments that we have completed include the acetylene plant and the vitamin A expansion in Ludwigshafen, and the ethylene oxide expansion in Antwerp. Acetylene and ethylene oxide are versatile building blocks for products for a multitude of customer industries.
Vitamin A is used by the human and animal nutrition sector, as well as in personal care products. The construction of the HMD plant in Chalampé and the final phase of the MDI plant expansion in Geismar are still ongoing. HMD is a precursor to produce polyamide 6,6 plastics and coatings, for example, for use in the automotive industry. With the MDI plant, BASF will serve growing demand from North American customers in the construction and appliance, transportation, automotive, footwear, and furniture sectors. Over the last years, we have begun to focus CapEx more and more on the construction of the Verbund site in Zhanjiang and on our battery materials business. These are two pillars of BASF's future organic growth. As announced on our Q3-2023 analyst conference call in October, we will reduce CapEx by EUR 4 billion from 2023 to 2027.
Therefore, a reduction of EUR 1 billion will already be achieved in 2023. We are responding flexibly to the changes in the market environment. We are currently faced with a significant imbalance in supply and demand in several value chains, energy price increases, especially in Europe, and an overall subdued market demand. We will therefore maintain our focus on capital discipline across the entire portfolio of BASF Group. Which levers we are using to achieve the targeted CapEx reduction? In our ongoing businesses, we will postpone non-critical projects in line with market demand. Instead of investing in the construction of new plants and capacity expansions, we will focus on highly CapEx-efficient measures, such as debottlenecking or increasing capacity - increase capacities and to improve the overall utilization. We will also review plant replacement investments and, where appropriate, postpone them.
We are also tightening our belt somewhat with regard to our growth projects. At our Verbund site project in China, we will further leverage the favorable procurement environment and will also tailor additional plant investments beyond the current scope in line with market development. In our battery materials, we will use flexibility in scheduling and in the sequence of the investments, and we'll also evaluate partnerships to bring down CapEx. In BASF Net Zero transformation, we will maintain the overall investment scope with a clear focus on CO2 reduction, renewables, and recycling. We will, however, fund certain investments, such as wind farms, via project financing, which will require less CapEx. In addition, we will strike the right balance between power purchase agreement and on own investments in the production of green electricity.
This slide demonstrates that BASF has been a strong cash generator over the last decade, with average annual cash flows from operating activities of EUR 7.7 billion. In the same period, free cash flow amounted to EUR 3.4 billion on average and supported our attractive dividend policy. In the first 10 months of 2023, cash flows from operating activities amounted to EUR 5.1 billion, and free cash flow reached EUR 1.3 billion. The strong sequential improvement since Q2 this year reflects our further increased discipline in inventory management. Our strong balance sheet, high equity ratio, and good credit ratings give us the necessary financial strengths to deliver on our practice of keeping the dividend, at least at the previous year's level. At BASF, active portfolio management is an ongoing task.
Since 2018, we acquired emerging and innovation-driven businesses which enhanced our portfolio. This made us more resilient and enabled a fast entry into new markets like battery materials or seeds. The acquisition in polyamides improved our existing market position. Over the same period, we divested businesses such as the construction chemicals, pigments, as well as the water and paper chemicals. These businesses offered only a limited differentiation potential at the time of divestment. We also divested a couple of smaller businesses and sites. In this way, we have reduced complexity and sharpened management focus. For the last slide in this chapter, I will hand over to Dirk, who will then also present the second chapter.
Yeah. Thank you, Martin. Good afternoon, ladies and gentlemen. As you know, we continue to pursue our strategic goal of selling BASF's 72.7% share in Wintershall Dea, and we are working on the monetization options. Legal separation of Wintershall Dea's Russia-related business, announced in January 2023, is planned to be completed by mid-2024. In this context, the international E&P business, the German production, as well as the activities related to carbon management and hydrogen, are to be legally separated from all joint ventures involving a Russian interest. This includes stakes in joint ventures in Russia, the ownership interest in Wintershall AG in Libya, the Wintershall Nordsee GmbH in the Netherlands, as well as the shares in Nord Stream AG. Significant federal investment guarantees are in place, as you know, for the Russian assets.
Wintershall Dea has adjusted its corporate strategy to reflect the changes in the energy sector and particularly its exit from Russia. The company is reorganizing its company structure with a target of reducing administration costs by around EUR 200 million per year. In the future, the management board will comprise 3 instead of 5 members, and as part of the restructuring, the company plans to reduce around 500 positions. As soon as there is additional information to share on the progress of the monetization of our share in Wintershall Dea, we will certainly do so. With that, ladies and gentlemen, I will now move on to the second chapter and speak about how we are developing the steering of our businesses to generate higher profitability.
The transformation of BASF into an agile and customer-focused organization, and the empowerment of our businesses to better serve the needs of their customers, were a key part of the strategy presented in 2018. Following the principles of empowerment, differentiation, and simplification, BASF has taken measures to increase the steering abilities of the individual businesses. To sharpen our focus on customers, we started by embedding all business-critical services in the operating divisions. This empowered the business units by allowing them to define their own requirements, rather than having to follow a one-size-fits-all approach. In the next step, we brought customer-focused R&D into the operating divisions to increase the proximity between our businesses and their customers. This was then followed by the streamlining of business services, digital services, and R&D at the company level. Now, we will go one step further.
We will increase BASF's competitiveness by adapting how we steer our individual businesses. We are doing this in a changing global chemical market environment. Our competitors and our customers are also continuing to change considerably, and these changes are structural rather than temporary. Now, for battery materials, coatings, and agricultural solutions, we see a clear trend towards pure-play competitors that cater to the specific needs to the respective industries and customers they serve. For the Verbund businesses, there is growing competition from China and the Middle East. Many of these competitors are growing fast and have an efficient and focused product offering. They're expanding their product portfolios along the value chain step by step, and in some cases have started to export large volumes of chemicals to the European market. A third important aspect in our competitive environment is the shift in consumer demand.
Our customers' markets are moving toward Asia and especially to China. By 2030, around three-quarters of the growth of the chemical market is expected to come from China alone. In implementing our corporate strategy, we have already taken many steps to adjust BASF's organization to reflect these changes in the market environment. Now we will introduce what we call differentiated steering to address the industry-specific needs of our customers. So, how we will do this? Our Verbund businesses comprise the chemicals, materials, industrial solutions, and nutrition and care segments. We will continue to manage these businesses along value chains and generate values through the efficient use of resources, through bundling of demand, and synchronized, deeply integrated production. BASF's long value chains provide us with a cost and reliability advantage.
At our Verbund sites worldwide, we produce the basic building blocks in world-scale upstream operations that feed into our downstream specialties. The better we steer these value chains, the better we can serve our customers and strengthen BASF's profitability. Having full transparency across the entire chain is a unique advantage of BASF. So looking forward, value chain management will become even more crucial because we will attach sustainability attributes, such as the product carbon footprint or biomass or recycled content to our products. We want flexibility, and we want to have the best offerings of green attributes for those customers who are willing to pay for them. This will be a real differentiator for BASF and will capture value from the Verbund. Now, in the Verbund businesses, we target an EBITDA before special items margin of 17% over the cycle.
Although the chemicals and materials segments may contribute significant EBIT before special, EBITDA before special items, the respective margins, and can be highly volatile because sales fluctuate considerably due to market price developments. We will therefore also define absolute EBITDA before special item targets for these two segments each year. By setting an overall EBITDA before special items margin target for all Verbund businesses, we support maximum earnings generation along the value chains. With that, let's move on to the businesses that are less deeply integrated into the Verbund. We will give them more space to meet industry-specific needs while retaining the benefits of an integrated company. This will be supported by adapted process structures, IT systems, and governance frameworks. This approach will apply to battery materials and coatings within the surface technology segments, as well as to the agricultural solutions.
The battery materials business requires a high level of agility to respond to dynamic market developments and to form alliances and partnerships. By 2030, we continue to aim for an EBITDA before special items margin of at least 30%, excluding metals. Coatings requires a high level of flexibility as well as formulation and surface knowledge skills to serve customers from the automotive, aviation, and further industries. Due to the high number of customers and articles, managing complexity is crucial in this business. It is our goal to reach an EBITDA before special items margin of 15% or higher in the midterm. Agricultural Solutions has moved from producing crop protection products to providing farmers with agricultural solutions that connect crop protection, seeds, and digital solutions. Furthermore, it generates new business models by integrating data and mechanical hardware.
The additional step now is required to underpin our ambition to return to an EBITDA before special items margin of 23% or higher in the midterm. As I will explain in a moment, we also place a strong focus on cash generation across all our businesses. In a nutshell, we want to use differentiated steering to become even more focused and competitive. We are combining the benefits of a more differentiated approach to steering individual businesses, with the advantages provided by the Verbund and our setup as an integrated company. Our Verbund is characterized by interconnected value chains. We optimize the use of byproducts from one production process as input for other production plants. The Verbund also offers major economies of scale, for example, in terms of our power supply, where we can secure favorable cost positions by generating our own power and steam.
Lastly, the Verbund is a game changer on our journey toward net zero. With our unique setup, we can manage this transition far more efficiently than other companies can do. Ladies and gentlemen, differentiated steering will provide more transparency for steering and decision-making, and it will help us allocate inventories at the right points in our value chains. Overall, this will increase supply chain resilience and reduce inventories to free up cash. By better tailoring processes to the underlying business models, we will reduce complexity and increase our agility and speed. And as a result, all our businesses will benefit from more differentiation. In Battery Materials, Coatings, and Agricultural Solutions, this will be due to their ability to further increase industry focus. The Verbund businesses, on the other hand, will benefit from being able to focus even more strongly on the advantages of the Verbund.
BASF will remain an integrated company with a strong balance sheet, an A credit rating, and thus favorable financing conditions. Its broad portfolio and innovative strengths are appreciated by customers. They turn to BASF when chemistry is the key to finding solutions. In the following, I will show you the changes to our steering KPIs at BASF Group level that we will be implementing as of January 2024. Until now, we have provided forecasts for sales, EBIT before special items, and ROCE. We have also given guidance on capital expenditures at the corporate level. In 2018, we defined financial targets for organic volume growth and EBITDA before special items, and have reported on the respective target achievements every year since then. In the short term, we will now put an even stronger emphasis on managing EBITDA before special items and cash generation at the corporate level.
For the midterm steering of BASF Group, we will also use EBITDA before special items and, in addition, the cumulative free cash flow. With an absolute EBITDA before special items targets, we underline our commitment to profitable growth. A cumulative free cash flow target focuses on strong cash generation over the cycle. Furthermore, we will continue to have ROCE as a midterm steering KPI to emphasize the importance of steering toward asset profitability over time and taking appropriate decisions on capital allocation. The following slide shows that EBITDA before special items and free cash flow will become the most important financial KPIs for BASF Group instead of ROCE. We will maintain our focus on CapEx discipline and will steer it via the free cash flow. As part of differentiated steering, we will introduce new steering KPIs for our operating divisions and will report on segment level.
Key criteria when selecting the KPIs were the strategic direction of the business, the role of the business in BASF portfolio, and the contribution of the business towards our corporate targets. We will focus on industry-specific value drivers and have decided to set a maximum of three financial targets per business. A further aspect is that we will also benchmark our performance even more closely with that of our competitors. Going forward, the earnings KPI for the Chemicals and the Materials segments will be absolute EBITDA before special items. For the Industrial Solutions and the Nutrition and Care segments, sales growth and the EBITDA before special items margin are the new KPIs. For the Surface Technologies and the Agricultural Solutions segments, EBITDA before special items in absolute and relative terms will be the relevant KPI to measure earnings performance.
As an additional KPI, all segments will have a cash flow target to measure their contribution to BASF's free cash flow. To foster stronger performance, we already introduced a new short-term incentive system for senior executives in battery materials, coatings, and agricultural solutions in 2023. For senior executives in the Verbund businesses and in support units, the new STI will be introduced in 2024. In this way, we want to better adjust targets and rewards to the specific nature and performance of the individual business. The STI for our operating divisions will comprise three additive elements. 25% will be related to BASF Group performance, measured as ROCE 50% will be linked to distinct business-related financial KPIs of the respective operating division. For example, EBITDA before special items in absolute or relative terms, and the cash flow of the respective division.
25% will depend on the achievement of non-financial targets. Such non-financial targets are, for example, related to the transformation, sustainability, and safety, and corresponding KPIs. Now, this illustration shows what our forecast for 2024 will look like when we publish the BASF Report 2023 at the end of February next year. Instead of giving an outlook for sales, EBIT before special items and ROCE, we will forecast EBITDA before special items and free cash flow at group level. We will thus combine cash flows from operating activities and CapEx in the single forecast figure. Furthermore, we will provide a forecast for EBITDA before special items and cash flow for the segments.
It should be noted that the segment cash flows will not completely add up to the group cash flow, because P&L items below EBITDA, as well as certain balance sheet items, are not allocated to the segments, as you know. At the group level, we will further improve transparency on our cash drivers by providing more granularity in our cash flow statement in the BASF reporting. The forecast at BASF Group level will remain an interval forecast, where we will continue to use a qualified comparative forecast for the segment. That means that we will provide you with forecast ranges for EBITDA before special items and free cash flow for BASF Group. For the segments, we will continue to indicate whether a slight or considerable increase or decline is to be expected.
With a new approach, our external reporting and forecasting will be aligned with the internal steering toward EBITDA before special items and cash performance. With that, I would like to hand to you, Martin.
Yeah. Thank you, Dirk. Now, I would like to finish the presentation by talking about topics that are particularly close to my heart: sustainability and the transformation of BASF towards net zero. The enhanced Triple S methodology will be another valuable tool to help increase our customer focus. It makes sustainability measurable and helps us steer our portfolio towards solutions that contribute to climate protection, resource efficiency, and the circular economy. We took the opportunity to refine the Triple S method after achieving our 2025 target for increasing sales of accelerator products already ahead of schedule in 2021. Under the new approach, we analyze the positive and negative impacts of our 45,000 products over the full life cycle and assign them to one of five categories: pioneer, contributor, standard, monitored, and challenged. Pioneer products contribute significantly to sustainability and exceed the market standard.
By introducing Contributor as a new category, we are able to better show the contribution of products that meet the market standard, while still making a positive contribution to sustainability. The Triple S logic was adopted by the World Business Council for Sustainable Development when developing its portfolio sustainability assessment methodology. As a result, Triple S is aligned with the industry standard for product portfolio assessments. We are still finalizing the segmentation of the global product portfolio using Triple S. Following the validation by our auditor, the results will be shown in the BASF Report 2023. But today, I would like to give you a sneak preview. Based on forecasted figures for 2023, we expect that around EUR 57 billion in sales will be in scope for Triple S.
Sales of platinum group metals within ECMS and sales from strategically non-relevant businesses, such as IT services or licenses, are not included. Compared with the previous segmentation in 2021, the share of challenged solutions has increased. This is because we have included new hazard classes, even though REACH revision has not yet been adopted. In this regard, we are ahead of the curve and our industry peers…. We stand by our commitment of phasing out such products within five years of classification in this category. In the top two categories, Pioneer and Contributor, we expect that sales of products will amount to around EUR 24 billion in 2023. This corresponds to 42% of sales that are in scope of Triple S. We have now defined a new KPI of Sustainable Future Solutions as the sum of Pioneer and Contributor sales.
We aim to increase SFS sales from 42% in 2023 to more than 50% by 2030. This target setting is driven not only by sustainability considerations, but also by the fact that the margin of products in these two categories is up to 10 percentage points higher than for the rest of the portfolio and scope. In the past, sales of these products also grew faster than the rest of the portfolio. Here is a practical example where a Pioneer product can provide a competitive advantage among environmentally conscious consumers. Infinergy is an expanded thermoplastic polyurethane from which we have developed a very successful midsole for running shoes together with Adidas. By switching to a feedstock based on recycled materials, we can almost half the PCF, and the new variant is classed in as Pioneer in Triple S.
If in future we can succeed in closing the loop using suitable recycling methods, our customers will even be able to offer to offer products with a net zero carbon footprint. The original goal in our 2018 strategy was to ensure climate neutral growth. This was already ambitious in the view of the emission reductions we have implemented until then, and the expected emissions from growth, for example, from our new Verbund site in South China. The more we worked on this topic, the more possibilities we began to see. In March 2021, we therefore increased our ambition and set reduction targets for Scope 1 and 2 emissions. A 25% reduction by 2030 compared with 2018, and a net zero by 2050.
We also defined five levers for reducing Scope 1 and Scope 2 emissions as part of our carbon management. These can be summarized under the umbrella terms, renewable energies and carbon abatement. In addition, we are making ongoing improvements to our processes that can fall in either category. That is what we call operational excellence. Here you can see the progress we have made in reducing scope one and two emissions since 2021. The dotted line in orange at the top indicates the likely emissions path without mitigation methods based on the 2018 projections. The area within the two broken green lines shows the expected corridor for our annual CO₂ emissions, while the solid green line shows the trajectory of our actual emissions. Currently, the actual trajectory is below the forecast.
This is mainly due to the weak demand environment followed the corona pandemic in 2022. Our CO₂ emissions in 2023 will also be below forecast corridor. This is, among other things, due to ongoing weak demand and the fact that we have shut down some energy-intensive plants in Ludwigshafen, as announced earlier this year. A rise in Scope 1 and 2 emissions, the solid green line, is therefore likely when demand recovers and when we start up further plants as, for example, the Verbund site in Zhanjiang. Measures related to renewable energies will form the focus of the reduction efforts in the next few years. From 2025 onward, we should then see an increase in contribution from new technologies for carbon abatement. I will now give you an update on our progress in these two areas.
BASF has a make and buy strategy to meet its significantly rising demand for renewable power. On the one hand, we are investing in our own renewable power assets. On the other hand, we are purchasing green power from third parties via long-term agreements with terms of up to 25 years. All our renewable power projects lead to a corresponding expansion and development of additional capacities in the energy market. In 2022, renewable electricity accounted for 16% of BASF's global power demand. The share of renewable electricity is likely to remain flat this year, but is set to increase considerably in the coming years. The slide shows projected figures for the share of renewable electricity by region for 2026. This projection is based on signed contracts and includes own production amounts.
As you can see, we are well on track to reaching a share of at least 60% renewable electricity worldwide by 2030. Keep in mind that this figure is not only about substituting the gray power we currently use, it is also about meeting the rising demand from the electrification of our processes. Recent news show that executing competitive renewable power projects in the United States can be challenging. While the EU power market is deregulated and allows for investments by industrial players, the North American market is only partially deregulated, and access to renewable power project is somewhat limited. We are nevertheless investigating various investment opportunities in renewable power assets in this region and exploring the incentives provided, for example, by the Inflation Reduction Act. On the buy side, we have concluded long-term power purchase agreements in all regions.
The most recent example was the 25-year agreement with SPIC for the supply of renewable energy for the new Verbund site we are constructing in Zhanjiang in China. On the make side, we are constructing solar farms at some BASF sites, but our major focus will remain on wind power, reflecting the huge demand we have. In July 2023, BASF and Mingyang announced the joint construction and operation of a 500-megawatt offshore wind farm in South China that is expected to be fully operational in 2025. The majority of the power generated will be used to supply renewable electricity to BASF's Zhanjiang Verbund site.
In Europe, the Hollandse Kust Zuid offshore wind farm that we co-own with Vattenfall and Allianz, was inaugurated in September 2023, and will be fully operational in 2024, with a capacity of 1.5 gigawatts. Just a few days ago, we announced the signing of a memorandum of understanding on a further major wind energy project with Vattenfall. We are in advanced and exclusive discussions to acquire 49% shares in two neighboring offshore wind farm projects, Nordlicht I and Nordlicht II. The Nordlicht Wind Park zone is located 85 kilometers north of the island of Borkum in the German North Sea and has a planned capacity of 1.6 gigawatts.
Pending a final investment decision, which is expected in 2025, construction should start in 2026, and full operation could be expected in 2028. With a similar contractual framework as for HKZ, our minority shares in the Nordlicht Wind Farm would secure an additional supply of around 3 TWh per year of renewable electricity for BASF. This would be used to support chemical production sites in Europe, in particular, Ludwigshafen. The second lever for reducing our Scope one and two emissions is through new technologies for carbon abatement. Here, too, we are making good progress. Our steam crackers are currently heated with gas and are responsible for a large chunk of our Scope one and two emissions. We therefore aim to electrify our crackers and heat them with renewable electricity.
The demonstration plant in Ludwigshafen that we are building with SABIC and Linde is nearing completion. We will be able to start testing two different heating concepts for e-furnaces in the first quarter of 2024. By 2025, we will build a water electrolyzer for green hydrogen at our Ludwigshafen site with our partner, Siemens Energy. The Federal Ministry of Economic Affairs and Climate Action is supporting this project in cooperation with the state of Rhineland-Palatinate with up to EUR 124.3 billion. We received the funding approval at the end of November 2023. With an output of 54 megawatts and an annual capacity of up to 8,000 tons of green hydrogen, this proton exchange membrane electrolyzer will be one of the largest of its kind in Germany when completed.
Powered by renewable electricity, it will reduce greenhouse gas emissions at the Ludwigshafen site by up to 72,000 tons per year. Our aim is to gain insights into how and under what conditions we can use this technology within our production for Verbund. Carbon capture and storage is another carbon abatement method whose possibilities we are evaluating in various projects worldwide. On the one hand, we are investigating how CCS could be used in the process of product-producing low-emission chemicals. In this context, we are cooperating with Yara on a study, joint study, to develop and construct a world-scale low-carbon blue ammonia production facility with carbon capture in the US Gulf Coast region. On the other hand, we are looking into how we can use CCS to reduce emissions at our Antwerp site as part of the Kairos@C initiative together with Air Liquide.
Having spoken about the progress we are making on our Scope 1 and 2 emissions, I would now like to address the difficulties involved in setting a Scope 3 target. We focus on the emissions that are associated with the goods and services that we purchase from our suppliers as Scope 3.1 emissions in our corporate carbon footprint. In 2022, these emissions amounted to 51 million metric tons. The emissions associated with the purchased raw materials account on average for about 70% of the broader carbon footprint of our sales products, which are of great interest to an increasing number of customers. We currently use secondary data, in other words, industry averages, to calculate the product carbon footprint of our approximately 45,000 sales products. This is standard practice in the industry.
The majority of our suppliers have neither data on their carbon footprint nor their own CO₂ reduction plans. Even so, we expect transparency from them, and this is why BASF has put a lot of effort into its supplier CO₂ management program since 2021. We want to obtain reliable primary data from our suppliers, that we can use to generate more accurate PCF data to our customers. We are making very good progress, I have to say. We have approached more than 2,000 suppliers, who account for around 70% of our relevant scope 3.1 emissions. More importantly, we have validated the primary data for more than 25% of our relevant scope 3.1 emissions, and we are working to increase this figure day by day.
We are convinced that we have the most comprehensive and reliable data set in the chemical industry, and believe that very, very few companies in this sector come close. In view of our progress, we are confident that we have sufficiently solid foundation and can now justify setting a credible target for reducing BASF Scope 3.1 emissions. By 2030, we aim to reduce BASF specific Scope 3.1 emissions by 15% compared to 2022 across the portfolio, from 1.57 to 1.34 kilograms of CO₂ per kilogram of raw material bought. We are setting 2022 as the baseline for this new target, because the measures we are planning will now start to come into play.
We have defined a specific target because our focus is on improving the product carbon footprint of our sales products, which we calculate in kilograms of CO₂ per kilogram of BASF product sold. We are currently in negotiations with committed customers and are working on many individual projects. We decided against an absolute target for Scope 3.1 emissions because the varying capacity utilization rates of our production plants would lead to high volatility. This would make it hard to track our progress on an annual basis. BASF will nevertheless continue to report on its absolute Scope 3.1 emissions as part of its corporate carbon footprint. Our target applies to what we define as our relevant Scope 3.1 emissions. These amount to 48 million metric tons in 2022.
This figure includes emissions from technical goods and services, since they are of minor relevance for our product carbon footprints. Furthermore, emissions related to battery materials in our scope 3.1 are not included, as it will not be possible to still such emissions significantly until closed-loop business models for battery recycling become established. This is not expected before 2030. It should also be taken into account that the emissions from our battery materials will be outweighed by the reductions achieved due to the shift from combustion engines to electric vehicles. At this stage, BASF is not planning to submit its targets to the Science-Based Targets initiative. SBTi does not yet offer a sector-specific methodology for the chemical industry, and we do not expect the guideline to be published until the third quarter of 2024.
However, BASF wants to commit to a tangible, scientific, and also pragmatic approach now. We follow our approach of doing what we say and delivering on those things we can influence. Due to the enormous complexity and lack of data, this currently does not apply to Scope 3.12 emissions, which occur at the end of life of our products. In working towards our Scope 3.1 target, we will focus on raw materials for those products for which our customers are prepared to pay for a lower product carbon footprint. We will increasingly source raw materials from suppliers who can provide CO₂ emission data and offer raw materials with a lower CO₂ footprint. For example, because they are already making progress in reaching their own reduction targets.
We are also planning to cooperate with selected suppliers to reduce the carbon footprint of the raw materials that we buy from them. For example, we could consider providing suppliers with green or low-carbon electricity, the benefits of which would then be allocated to the products supplied to us. Our ambitions and efforts in the short and long term are clear. BASF will work with both customers and suppliers to find pragmatic solutions that are both cost efficient and good for the environment. Our long-term ambition is also clear. We are committed to achieving net zero Scope 3.1 emissions by 2050. I know that many of you, especially on the ESG side, would like to see a granular roadmap with project timelines and CapEx projections for our path to net zero.
We have a detailed roadmap with well-defined projects to reach our 2030 targets. However, we have to continuously review the technical and the economic feasibility of these projects due to the large number of regulations being introduced and the constantly changing framework conditions. We will therefore adjust our project list and shift projects from one region with an unfavorable condition to regions where regulations are more realistic and pragmatic. Please also understand that we do not wish to give too many insights for competitive reasons. Despite all the question marks and challenges, I would like to make it very clear that BASF is, and will continue to be, a reliable partner on the path to net zero for investors, for customers, and partners in the value chain, and for society. With that, I would like to open the floor for your questions. Thank you.
Yeah. Dear ladies and gentlemen, with this, we would like to open the floor for your questions. Investors and analysts who are participating virtually also have the opportunity to ask questions by inserting them into the chat tool below the video stream, but we will start with the participants in the room, and you also have priority today. It's a bit difficult for me, but I would start now on the right-hand side with Christian Faitz, Kepler Cheuvreux. Please go ahead. We'll then... I note, so you will raise your hand.
Yes
- and I note who wants to speak.
Yeah, thank you, Stephanie. Two questions, if I may. First of all, can you elucidate current demand trends, particularly pertaining to China? Any improvement in China, in your chemical activities? And the second question would be on, you're mentioning the potential use of IRA. I mean, this is not new, but is there any danger that, with a potential change in government in the U.S. per early 2025, the IRA program might not be fully used, if and when you come to a decision to go into an IRA-benefiting project, with or without Yara?
Christian, maybe I start with both. I mean, first, on the China numbers, I mean, I would say we can confirm what we said in the Q3 call, that actually the volume development is a positive one in China, so I think we mentioned that already. If it continues like this to year-end, I would say we've roughly finished with the same volumes we had last year, which is, I think, good, because given the first half, that was really quite lousy on volumes, that is really clearly an improvement. So that is a positive sign, and it looks like also there are certain restocking going on in China. If you go to retail in the numbers, it is still far away from being normal, so I would not say that the consumers have really kickstarted their behavior.
So let's see whether this is now only restocking and then collapses or weakens again, or whether this is really the proper preparation that maybe also with a new start, and I would say usually it is after Chinese New Year, when you have actually a more sustainable pattern than from retailers and from consumer behavior. So it is still soft, but it is definitely a big step forward, which we benefited from. And as I said earlier, some of our plants are really quite highly utilized, but I have to say, and this is reflecting, that it's not yet sustainable. We don't have pricing power yet, so there is a huge supply over there that squeezes the prices, and we set the margins. But let's say the first step is to get the volumes back.
The second part on the IRA, I mean, highly speculative, to say really, if the Republicans would win the election, whether they really go backwards. I think this depends also how the economy is over there, and I think now we all read, is the U.S. going really into a recession or not? I would doubt whether a new government, if the U.S. would be in a recession environment, really to cancel this, because I think that would have also quite a destructive force for investing in the U.S. But let me also say one thing very clear, and this is maybe a bit to the benefit and the positive to Europe, because we discuss now currently that everything that was once planned for Europe goes to the U.S.
Two remarks to that: In the chemical industry, they build now capacities the U.S. market doesn't need. You know that the market is about, in 2030, only 30% of the 13% of the global market. So they build the capacities over there because it's competitive, but they have to export to China. Given the, the trade frictions and the geopolitical conflict between the White House and Beijing, it's also quite risky to build capacities in the U.S., and you don't know whether they find their door into China. If not, the U.S. is over-supplied. That's the one remark I want to make, and the second remark I want to make is, you hear now from this long list of projects that have been announced, that the investment costs go through the roof.
Because you have also to say that, let's say, the capacity of construction companies, engineering capabilities, it's also limited. It's not an industry that can now suddenly digest three or four times as many investments. So with that, actually the price for investments go up. And I would say those who are early might have a good business case, but I would say also those who are late, they might see that investment costs are ruined in the business case. Nevertheless, you have tax incentives, so that relativates certain things, and I think not everything that was announced to go to the U.S. with the IRA will be really be built.
I suggest we go from the right to the left. So now, Sebastian B ray, Berenberg, please.
... Thank you, and good afternoon. Thank you for taking my questions. I'd have two, please. The first is just on a technical point. The other segment, from what I can see, BASF will not provide guidance on it on a going-forward basis. It hasn't done to date anyway. Given that EBITDA is going to become the new base of reporting for the company at the segment level, what is a normal EBITDA negative result for the other segment to assume on a going-forward basis? It's my first question. And the second one is related to politics, but this side, on the European side of the equation: Would BASF expect any substantial new government support at the German or European level to materialize over the next six to eight months?
What's the base case assumption for European politics as it relates to both German budgetary discussions and the potential passage of a Net Zero Industry Act in Europe? Thank you.
You start with the first one.
I start with the other. So indeed, we did not provide guidance on other in the past. We are not going to provide guidance on other in the future. So you ask about, so what's the normal level of other in the future? I'd say this will be seen in the course of the first year. We will provide the guidance on the basis of the new metrics for all the segments then in February as normal. And I think then in summer, autumn, you will see then also the residual, which is then equivalent to the other. So no guidance going forward and no guesstimate right now, but I think it will not be a big surprise.
So the second question is certainly a little bit more difficult to answer, but let me start with the one that I think as a citizen, I think we should be happy about the decision in Karlsruhe. Nevertheless, that is certainly clear that this will have an impact on how Germany can position and what will be invested in, I think, a deficiently developed infrastructure over the recent decades, I would say. I think to make any prediction where they save and what is the final budget, I think is much too early, because when I'm in Berlin, the lowest number I hear is EUR 18 billion, the highest I heard is EUR 82 billion gap. So at the very end, and I think this is a positive signal, we had a government which did not prioritize anything.
So all the project ideas from everyone got through, I think, because every party had its own agenda. So all was followed, and we poured money on oil. And I think somehow we knew, this is far beyond what is coming in as money. So I think now they are forced in a, in a reprioritization, which I think is, primarily good. How they decide, I don't, I don't really know. And let me also generally say, we benefit from some funding when we go for innovation. So we got some money for the electrolyzer, and we get also some money for the e-furnace.
I think this is also justified, because if we go for an entrepreneurial risk and we check and try out a technology that has no business case, but we still do it because we want to prepare ourselves for future, that there is a certain funding, I think is okay. But at the very end, we have also to see whether really subsidies in each and everything we do in this country is the right policy. I would much more prefer to have a regulatory framework that allows us to be entrepreneurial. That was actually how our company got big: by taking risk, by developing technology, by doing the right investments and in earning money with it. And that is a little bit lost in Europe because we are too over-regulated, and with that, basically for this whole transformation, we lack a business case.
So if that all settles a little bit, and that's also the signals I hear from Brussels, because Berlin, at the very end, can only decide in a limited way. Everything is connected with Brussels. That there is a little bit more a view, again, about European competitiveness and that the regulation has maybe to review, to be reviewed, how actually the industry can pragmatically do what we want to achieve as targets for the Green Deal is not a bad thing. But I think now, after just a couple of weeks from this decision, it's very early to decide on that. But I would estimate that the one or the other thing is really going on, will be off the table.
But I truly hope that they focus on the stuff that is really important to develop our country, because doing nothing is the other extreme and I think not possible. So we are somewhere in between. We have a lot of dialogues. They also come to us, not to us, BASF, only to the industry in Europe, to have dialogue, how priorities should be set and what is really crucial and what not. So I think it's a good development at that time.
So now, the DZ Bank, Peter Spengler, please.
Thank you. Good afternoon. I have two portfolio questions. First, on your Wintershall business, you said the carve-out is going on until 2024, mid of 2024. So can there be an agreement reached before mid of 2024? Or can it be sold before? And the second question is on your agri business. Could you think of strategic options for the agri business as well? Like, I mean, float a participation or so in the near future, or is it an integral part of your business?
Dirk, two for you.
Two for me. Okay, so then I start with the oil and gas question. So as you rightfully said, we are continuing with the separation of the Russian and the non-Russian related. That is truly important because we want to come back to a point where the non-Russian related part is fully fungible and transactionable. So that is going on. And the timeline that we have given to that until mid-2024 turns out to be pretty accurate. So why does it take it so long, you might ask? It's simply because-
... You cannot take off the Russian part from the non-Russian part, but you have to do it the other way around in order to get the approvals that you need to get, because you would not get approvals from the Russian government to do any transactional split here. So you have to do it the other way around. So it's quite a lengthy process. It's, at the same time, a straightforward process, so there is no doubt that it will be reached at the end, but it certainly takes its time. And we do that, first of all, as a separated thing. So we want, by all means, to have these two business strings separated, because we clearly said and the Wintershall Dea management announced strategic exit from Russia.
So this restructuring project for stands for its own. Then for the portfolio options, we have never stopped to look into that and to prepare that also, going forward. So, we are doing this in parallel, and you are right. In order to sell finally the non-Russian part, you need to have that separation being done. But this does not mean that you have to stop thinking about the transaction all the time. And we said very clearly when we merged Wintershall and DEA that the prime goal was an IPO. That was obviously not possible in 2021. It was almost possible at the end of 2020.
It was almost possible at the end of 2021. Then, war in Ukraine broke out, and we were then having the setback. But, monetization intention remains. What it will be then? Will it be an IPO? These days, more unlikely than likely, or will it be a straight transaction, remains to be seen. But a very short answer, we work on both things in parallel. On the ag business, here, what we want to do with this differentiated steering approach is we want to profile the business. We are not doing that as a preparatory step to monetize the business, to lose control here or to generate a sales proceeds.
But we are doing that in order to have a really clearly defined business that can, more than it can today, compare itself against the competition that has its own steering KPIs and that is really doing hard benchmarking also. With that comes changes in the legal entity setup and changes in the IT and reporting systems. But all this we are doing in order to profile the business, not in order to get rid of it.
Thank you very much.
Okay, so we move on to Martin Evans now, HSBC.
Thanks. So, yeah, just following up on this differentiated steering sort of theme, I don't really fully understand what it means, such that if I was a BASF employee, for example, on January the first next year, with the same colleagues, the same business groupings, what would it in a meeting physically or yeah in real terms involve in terms of achieving ultimately the better margins? Because when Martin took over, I remember five years ago at Investor Day, you had a lot of enthusiasm for making the group more flexible and responsive to customers and getting closer to the end markets, which I'm assuming is a similar thing to steering of the businesses as well. So what's the difference? What has been achieved-
Maybe I-
Why will it be different this time?
Martin, I'm. And I think the one slide was showing this. It's actually a longer journey, and that's why we said it's the last conclusive step. I mean, the first thing we did is that we had the relatively slim operating divisions, who basically had sales and marketing and production, and R&D was in the central platform, and all the services was in the platform. First step we did is embedding the business-critical services. It was these 16,000 people, I think, if I remember the number right, that we actually integrated into the division. That was the first thing to digest. They started to organize the things then totally different in the group and in the management meetings, like for example, supply chain and everything. It went from a one-size-fits-all how the company do it already to something more specific.
Next step then we did is that we took more than 6,000 people from the research into the division, which can be then also integrated in terms of how they work with the customer and the marketing into action, and they are really then on the payroll, basically, of this division. Was the next, I think, very important step. Let me also say we have not talked much about that, but we have introduced since 2018, Salesforce as a tool where our, all our people use to much better interact with their customers, and we have also introduced the NPS, the Net Promoter Score. That was something which I think was very valuable for BASF to see also how the numbers went up from the very beginning when we started with the feedback of the customers, who is actually say it's a different BASF.
Also, the primary loops, how fast you respond, you can measure that, and we have the numbers that we really made an improvement over there. But what is still limit, I mean, I'll give you just one example: if you look on an average normal master data set, that is a huge master data set in BASF, because it has to cope for everything, for the plant protection business, for the coatings business, for petrochemicals. Everything is reflected in this whole thing. But you can imagine a lot of divisions actually move data they don't need for their business.
And now, as we also have any way to move from R/3 to S/4HANA, because SAP calls off the R/3 at the end of the decade, this is a good opportunity now with the S/4HANA, that you give actually the businesses now an opportunity to shrink their data, master data set to what they really need, and then also to hardwire the processes, which are then individual for this business and not reflecting somehow the needs from everyone in BASF.
... And there's no surprise that we had one of the largest SAP systems in the world, because it was reflecting the compromise for each and everything. There were good times in the R/3 logic, this was also the right thing to do. But S/4HANA has now the opportunity to give them the freedom on the process side, while still integrating them with the ledger for the financing and the reporting and the risk management, and everything like this. So that is why, Martin, this is a next step. It's not something in contrast, but it's just the next step, and I think looking at the environment which Dirk described, it's getting fierce in our industry, so we have to do more.
I think the fact that we have any way to do something on the SAP that somehow time-wise coincides to do this now, it's not that SAP is the justification for that, it's just also one tool that helps you in doing this. So, I think with giving the signal to the teams, they actually have now not to always compromise what they do in BASF, but it's really that you say: Build your processes, your response, your agility, exactly like your pure-play peers do. And I think with this, we make another big step forward because they will shed off what they don't need, which is a compromise, and really focus themselves on the business.
But, and this is important, they still stay a part of an integrated BASF part, because they will be connected with the service bench and also with the corporate center and all these issues. So that's maximum freedom, but also giving them the advantage to be part of an integrated company. So I think, I hope I could frame it a little bit, that this is just now the last logic step in this strategy we have posted in 2018.
And Martin, if I may add-
Sure.
One thing. What changes immediately, the KPIs for the business change immediately. The incentives for the people running the business are changing. And then next step is putting the colleagues in separate legal entities in order to facilitate what Martin described, the own ERP system, the agility that you need to run such an industry customer-specific business. But first step is KPIs, incentives.
Now, Charlie Webb, Morgan Stanley, please.
Thank you very much. Yeah, so just two questions from me. So just one on the competitive landscape in Europe. I mean, we touched on it already, but in terms of what you, you've already taken steps at the start of the year, obviously, to take out capacity, and people, obviously, here in Ludwigshafen primarily, but across Europe and globally. But do you feel there's more to be done? You know, where, where is the European chemical industry kind of competitiveness today? Do you see others, you know, addressing this more seriously than perhaps they have so far? And do you think you need to do more there to kind of get the industry more competitive here, you know, in Europe, for Europe?
And I guess that's kind of the first part of the question as it relates to the chemical industry, but how also do you see your customer industries in Europe? You know, are they also, you know, addressing some of these similar challenges when you're speaking to them? You know, I suspect it's probably sector by sector, it varies, but interested to hear your thoughts on, on the competitive of the customer base. Then maybe short term, or more short term, more kind of looking in crystal ball into next year. Autos, you know, we're hearing kind of some deterioration in some of the headlines around autos and some more cracks kind of appearing on pricing and a potential slowdown, EV, in Europe. You know, we're hearing, you know, again, possibly too much supply around, not enough demand.
So just how do you see autos into next year? Obviously, it's been good with the backlog, you know, being worked through, supply chain being being solved, issues being solved. But into next year, do you see any risks there building that we might get a slightly more challenging year, whether that's mix, volume-wise?
So Charlie, I try the first one, and you take the other two? So let me start with that way. If you look since the outbreak of the Ukraine war, European chemical industry lost about 25% of its volume as industry in Europe. That's heavy. So that means the capacity utilization is not very high, and that is certainly also mounting on the cost and is bothering on the competitiveness. If you try to analyze it with the data, and we have also done this in CEFIC, and I think a good rule of thumb is maybe half of that is lost position that the European chemical industry was exporting and cannot export anymore because others offer it cheaper. That has very much to do with the energy costs.
And the other half is that actually our customers order less and have a problem with their competitiveness. Now, to predict how, what, when this is all coming back is very difficult. I would assume not everything is coming back, because some of the export positions will not be possible to gain back because, first of all, there's a lot of capacity in other places and regions that have better cost positions. We all know that the energy never comes back to what was prior the Ukraine war, because pipeline gas is simply cheaper than LNG. And I think a three to five times higher gas costs compared to the Henry Hub is most probably also a good rule of thumb. So some stuff will be lost over there.
The hardest part is to predict are the competitiveness of the thousands of customers you have. That's hard to predict. How do they prepare, and what is important for them? So that is why I know from talks in the industry, and if you look then via CEFIC, a little bit into the sector, I would say a lot of companies are hesitating still to take a measure, because the last thing you do is shutting down a capacity, because when you do that, it's no way of return. So that is why people wait until the pain point and the evidence is so clear it will not come back, then you will close it. So what I want to say is, I would expect that capacities are lost for good in European chemical industry. So we lose world market position.
I think there's no question like on that. On the other hand, it will also be partly streamlined. It will be most probably also some consolidation. So the sector is in movement, I would say. The key question is: what is the volume growth in the future? And that is hard to predict because that has a lot to do with, again, with Berlin and Brussels industry policy. Do they deregulate? Ursula von der Leyen, the Madam President, said 25% of the regulation will be called off. If you talk to them, they say, "I have no clue how to do that." So it's very hard to predict this environment. But if we look to us, we very clearly knew from day one, and that's why we have been early, and we started this exercise much earlier.
We clearly saw there are some products, no chance that this really comes back. And I think we explained this, this was not a one-dimensional analysis. We were looking on the age of the assets, how high is in the maintenance cost, because you know, if you are higher, the percentage point is higher. We looked in the cost for decarbonization. We looked when is the replacement value, what we have to put in as CapEx, what is the cost position with higher energy, and, and, and. And then in this multidimensional conclusion room, we have then drawn decisions. You say, might there something more coming up? I think so. That can happen, and that's why this is a continuous job to look into.
I think we have good databases on doing this, and I think we have also shown that even a Verbund, where people always say it's totally flexible, cannot change anything. We have shut down plants in the Verbund and still run it. So but I think the industry is still a bit lacking behind the reality. I would expect that in the next year, 2024, we see in the industry quite some movement. And without giving a guidance now, I think the closer we get to 2024, and we have said that the start will not be easy, I think the likelihood at least, that 2024 will be another difficult year, is going up. Without saying that this will be really the case, but there is a likelihood for that.
Now it must respond to automotive.
With that, turning Charlie to automotive. Automotive and agricultural solutions, these were the two strong businesses in BASF 2023, and this is going to be sustained. So auto is sustained for 2023. So Coatings business has one of, if not the strongest, years in its, in its history. Also for the carved-out ECMS business, so for the automotive catalysts, we can confirm very strong results. And now looking a little bit into the Q4 current trading, I also don't see that falling off the cliff at all. So I think for 2023, very strong auto. Then I think the pent-up demand from the bottlenecks that we had beforehand, they are more or less made up now.
So 2024, I would call losing a little bit of steam for 2024, but again, not falling off the cliff. So again, we will rely on a, on a strong, auto business, and that goes again for, for Coatings, that goes for, the Catalyst, but also for the lightweight plastics and the others. So auto is certainly one of the, industries that we, that we see okay. Also, let's, remind us that in the meantime, in China, which is the growth region, there is significant auto also coming. And, luckily, we are also very much, in these customers, from China, in the OEM, so that also from a regional footprint, perspective, I'm quite confident for auto, but, it will not be, of course, a year, increasing significantly again, as it was the case in 2023.
Okay, so now Oliver Schwarz, Barclays, please, and then we have Andreas Heine in follow.
Thank you very much for taking my two questions. First one is, in relation to, the steering of the Verbund businesses. The 17% over the cycle target, what would you define as a cycle? And if you say it's probably 5-7 years or something, would we then have to measure the performance versus the target by mostly using historic data? So let's say, if we look at 2023, we would look 6 months 6 years into the past and 1 year, 2023, into the present, to gauge whether you did or did not achieve that target.
And, probably interwoven to that, I saw that the Verbund businesses is without the part that is Coatings having moved to the non-Verbund business, and there's no mentioning of the remaining Catalyst business in that Verbund business anymore. So if you take the historic data, where would you be at the moment in relation to your 17% target? As we have to exclude, obviously, the performance of the Catalyst business, which is always held down by the metal trading part of the business.
I'll give it a start. So first of all, how do we measure the mid-cycle? So what we typically do is, we are compounding the same one margins of the big upstream products that help us to define where we are in the chemical cycle. First information. Second, if we talk about cycle, midterm, we would typically regard as three to four years, not six to seven years. And then, of course, you are right. It is difficult if you just stay on the margin level to steer that because the volatility obviously is quite a significant one.
This is why, of course, for the chemicals businesses and the business pertaining to the Verbund, we will not only steer by the margins over the cycle, we will also, particularly for the short term, we will have absolute EBITDA targets to steer these business. And this will also be part of the guidance, because the guidance will be different. It will not be only one figure anymore, but it will be short term, that is more the absolute, and it will be midterm, and that is then also pertaining to the margin. So no worries, we will not confuse you there. Last information piece here, currently, we are obviously at the bottom of the cycle.
Yeah, I expect that. But if I'm taking the results of the last 3-4 years, without the impact of the earnings of the catalyst business, where would you be? Below or above or at the 17% at the moment?
Here I have to beg a little bit your patience, because what we did not do is to disclose the margins on the divisional level. So, when we are coming out next year, then with the guidance - this is obviously not the guidance, this is the concept that we are presenting today. When we are coming out with the guidance, then you will also get then the transparency on this one. But the guidance - It's not guidance day today, it's the concept day today.
Isn't that the data of the four segments, which was disclosed quarterly in the past on EBITDA before exceptional level? That has to be compounded to come to an idea whether the EBITDA margin is 17% or more or less.
It's-
That's basically all.
Yes. And we also showed the excluding metals margin. This we also showed on the EBITDA level, but we did not disclose the EBITDA margins then for the specific businesses.
Yeah, but-
So therefore-
... you just excluded one segment as such. That's not a divisional thing, that's a segmental thing, isn't it?
Yeah.
You disclosed the data on the segments, right? Completely-
We disclosed the data on the segments, exactly.
Yeah. Yeah, so why are you not able to provide a margin for that compounded four segments? And I'm a bit confused, sorry.
No, we are—we will be doing that.
Yeah, yeah, but-
We'll be doing that.
... you could do it already using the historic data.
I'm a bit confused now.
I'm also a little bit. I mean, you asked basically, is the guidance going forward for the, let's say, next 4-45 years containing something backwards, or do you see the-
N-
... average cycle going forward?
No, it's, it's, it's even more simple than that. I just wanted to know, if you say, "Okay, we are now in 2023, and we take the, let's say, past 3 years for that, in addition to, to get a full cycle to come to 4 years." We know the data for chemicals, for materials, industrial solutions, and nutrition and care. Where would we be, basically, by the end of 2023 in regard to the 17%?
Okay.
Give or take.
So you basically-
No exact number, obviously.
... do the projection of the four years backwards to-
Yeah
... get an idea, is this on the lower or the higher?
Yeah.
I think we can say it's an ambitious margin target.
We are, we are currently below, I mean, that's clear, but,
The question was whether they get the numbers.
Yeah.
And I think we have to discuss about that, what is really needed. I think the very clear message we want to send here, first of all, over the cycle, the upstream part is a damn good business. But what we also cannot deny that it has a certain cyclicality, and that is exactly what we also see now. And I think that is also what we want to reflect over the cycle. I mean, we have years, and you remember them, not many years ago, where we had, for example, the diisocyanates, the best years ever of that history, and it was really printing money. And then you have also periods where this is exactly the opposite. So you somehow have to deal with this, and that is why we want to give this. Give us a little bit more time.
I, I know now what you want, and we can see when we give the guidance in February, how we actually do this, because you can also make it overcomplicated. Two years back, three ahead, four back, and today, so we have to see what is also makes sense, because it is at the very end, we will give you a midterm guidance over there also, and then let's see how we do that.
Thank you very much.
But I understand what you want. That's very clear.
Yeah.
Thank you.
We move on to Andreas Heine, Stifel, please, and then...
I'd like also to discuss the targets, but for the other part, not the Verbund part. Coatings, you said, had one of very good year, and you were describing the automotive industry as very healthy, and at the same time, raw material costs were declining. So that's quite a good environment for Coatings. If I look now on that margin, is that already above the 15, so that you're trying to defend the 15% margin in a more difficult environment? That's the first question. Agro is actually a little bit the other way around. It's only 100 basis points below your target for this year, if my forecast is reasonable.
In formulations, you had a target of 25%, and now it's 23%, despite the fact that you have strengthened your business with the Bayer acquisition and with the integration and synergies of that. Why is there the margin less?
That's right.
I'm not talking about each and every division to get to the 17%, but as long as I followed in Care Chemical Nutrition, it was never really good, and this year it was really pretty bad. How is your strategy to change this? Because this nutrition part, especially was a tough one, and it looks like, if I look on the prices of these products and the Chinese competition, that won't get easier.
... You start?
Okay, good. I start maybe with the present and then hand over for the future. So for Coatings, yes, I think you are right. This year was extraordinary, benefited from different sides from the automotive industry. So the 15% margin is something which is not a high ambition on top of, but is rather an ambition that we have to sustain. For Ag, it's different. We are below. We had, I think, a very strong first half of the year, with a very strong EBITDA margin, but second half of the year, as we all know, is softening and also the margins going down a little bit. Also again, not falling off the cliff, but going down.
On years average, we expect below 23%. So, this is an ambition that has to be reached again. So this is what we have today.
Let me add on this, on this margin for the Ag business. I mean, first of all, I think it is—you have to look in detail how much seed and how much chemical crop protection you have. And then I think also varies the threshold, actually, the competitors get. The more seed you have, usually the higher is also the EBITDA margin here. And so I think we have bought a seed business, we are happy about this, but our seed business is still comparably smaller than those of the peers. That's, I think, the first thing you have to take in mind. And then I think it is a good example.
I would say all the peers have reduced their margin, they have achieved over the recent years, which only shows that this is one good example for a more fierce competition. And this is also why we do all these measures, actually, to keep them at the, at the very top. We have not done great in this business over the last two, three years, I have to say. That's why we have kicked them, that they have to improve the performance. And I can only say I'm very proud of the, of the Ag team. They have done a super job this year, and they have also helped, and that's what we talked about, having a broad portfolio and being resilient. They have definitely contributed to stabilize BASF in this very difficult period, where the biggest pain is upstream.
So in that respect, I think you have to see it also in that context. We give them, I think, a very good challenge. That is the orientation, that's the bar, where they have to be in the long term. There will be better and worse years, it's always the case, but that's where they have orient, to orient there. And, I think you mentioned that also within this new differentiated steering, we will dramatically step up also the benchmark exercise.
Absolutely.
So we do that certainly regularly. You can imagine, I mean, we are not running blind through the world, but that will be also much more part of their incentives, that you really measure them, what is the peers? And then you will see the industry sometimes flowing up and down as industry as well, and then single companies going up and down against the trend. But that's where, well, how we want to get the maximum out. And in that respect, I think, yes, Coatings might have a super good year, but we are all clear that is not a normal year, for all the time. And that's why I think you have to give them also a threshold and an ambition that is a stretch, but also doable. And I think in that respect, it's a good target.
A word about Nutrition and Care, also difficulties?
Yeah, I mean, with, with Nutrition and Care, I mean, I think there are two components in this. You know that, that we had some problems with some of our facilities in the past, that kicked out BASF in terms of market share. We are crawling back on that because we have now these new facilities. We have the new dryer for the powders, and we have also the additional capacity on the vitamin A. I was in earlier times in that business; we do regular benchmark. We have really a super cost position here, particularly on the vitamin A. But you also saw that additional capacity came up. It is a very low-growing industry. It's not one with high growth rates.
And also in the COVID piece, meat consumption and everything, I mean, for animal nutrition, significantly, the demand went down. And I think these two effects basically brought the problems to everyone. And I don't want to quote any of the, of our competitors, but there are some good names, in this field who have their big problems as well. So there is a big share, I would say, in the supply, demand of this industry. And the more that is the case, the one with the strongest cost position will have the best perspective going forward. And I think this is at least for a significant part of the business, vitamin A and also the, aroma chemicals, we have an excellent cost position.
That is why I think this is well-positioned now, but it, it has also to do some work to get back to where we want to have it.
And Martin, I think, for the vitamins, vitamin A, this is on historic low price levels right now, so-
Absolutely
... I mean, you can be sad about this, but you can also say there's a lot of upside. Because we have now a plant in place, and when prices go up, we will definitely be benefiting from that.
Okay. So we move on to Peter Clark now, Société Générale, and then we'll have Michael Schaefer.
Yes, thank you. It feels very much like 2018 in terms of evolutionary strategy, not a revolutionary strategy, and there are clearly some positive things in here. But if I take restructuring first, I was surprised we didn't get a slide on why you think the current restructuring plan makes the business competitive, particularly the Verbund restructuring, the EUR 200 million. Now, did I pick up earlier, you said that that course can change? Because on the face of it, it doesn't seem enough to make these assets competitive in Europe. And then on the reshaping, obviously, you've spent a lot of time looking at the pure plays in the businesses that compete against them.
But again, coming on Coatings, your target for the midterm, a 15% EBITDA margin, whatever, 12% EBIT margin, doesn't look demanding compared to them in terms of where they are. So how does the best owner tests work for a business like Coatings? I hear it's integrated in BASF today. You're determined to keep it, but how does the best owner tests work in a business like that?
... You know, maybe start with the first one, you take the second one. I mean, the first one, we did not take much time because we had so many other topics there, and I think there's not so much new. We have reported you at the beginning of the year very much on the assets we take, and if you give insights, how much we actually shut down and which areas it is and what it saves in CO2. So I can only say, given the situation where we are in, with an extremely unfavorable supply-demand, that's why the volumes are not there and the pricing is not there. I'm actually happy that we did this already.
So, and that's why I said also, you have to continuously look into this and going forward and looking at the projections also for our customers, you cannot exclude that you need even to look another time and more. And I mean, certainly we know the areas which would be then the next critical ones, but that's, I think, the job we have to do. We just did not give additional pieces now, because I think there is nothing additional which I can say. I can only say that the majority of the plants are standing; they are off operation already. So. And I'm happy, happy that we have this, and the people we have there, we all need basically in operations; we are anyway short. You don't get people anymore from the market.
So yes, the positions are lost, and with that we have savings, but we still need the people who have a vast experience base, and we are happy that we have such. So for that reason, I think that makes all sense. I think with all what I said to the restructuring, I think the chemical industry in Europe is hampered. But on the other hand, I'm also happy not only with the restructuring part, we have also talked one time about our vulnerability, about natural gas, which we have dramatically reduced. I think more a year ago when we talked, there was in the room that we might have to shut down Ludwigshafen if there is no gas, it's basically off the table.
We can manage that, very well, and I would not exclude if the winter is getting cold, that in a couple of weeks we talk about shortage of gas in Germany. I mean, that is not off the table. I mean, very clearly. Some of the politicians run around and say they have saved as a nation, so much gas and it's great. The majority is coming because the production is down, not only in our industry, glass, everything, alumina, take what you want. It's all basically at a reduced level because of the lowering demand. Celebrating this as a great restructuring success is maybe a little bit, too, too much. I think we will report continuously on that topic.
But, I have to say, I'm super happy that we did take these measures, and really prove that we are proactive here with the industry, because competitiveness in Europe is an issue, and it will not go away over the next years.
Thank you for the challenge on EC. First of all, thanks for the appreciation for the approach that we are taking to profile that business and crystallize the value more. I would say for the margin, give us a little bit of time. We looked into that. We find that this is a midterm reachable. The Coatings division has lots of work on their table now to develop on the tail end and on the front end the even more distinct business model, and we find this is demanding for the time being. Can we, in the future, also change again this guidance? It's a midterm, and I said midterm is 3-4 years. There will be a new midterm target then after this midterm target.
So this is dynamic, and I think, for the time being, it is ambitious from our point of view, and give us a little bit of time.
I think it's fair to say, Dirk, I mean, they have a stellar performance this year.
Yeah.
If we take the comparison to last year, I mean, they have done really everything right, I would say.
Absolutely.
I mean, they have the right products. They have taken market share from customers. They have put the prices up. They reduced their raw material costs. They have been restructuring. They have really pulled on all the levers, and I think it came together extremely well, and it's a record earnings which they provide.
The target is 15% or more, so leave some room, upside as well. Okay, so now we move on to Michael Schaefer, ODDO BHF. We will then have Sam Perry, and then I know Tim.
Yeah, thanks for taking my questions. First one, coming back to Ag Solutions, and elaborating on what Andreas asked before. So previously, you had also something like a 50% sales growth target back at the CMD for Ag and a 5% annual EBITDA growth target. So there's nothing found now in the, let's say, key KPI for the segment. So has this changed? Have you lift them off the hook, basically, in terms of growth potential, or how should we read this? And maybe related, to sneaking into next year. So you had a very strong H1 2023, as you elaborated on. So how would you describe the challenges heading into 2024 in Ag? So this would be the first question.
The second is coming back to your steering model, and that Triple S lacks a battery material. So what's the starting point in terms of EBITDA margin? So 2022, 2023 indication would be a good one. And the third one is also to the steering model. On the segment level, you are also guiding for cash flow going forward. How are you dealing with network and capital volatility then? Because obviously in the past, it has been rather volatile at group level, so obviously it's also very volatile on segment level. So how should we deal with that one?
You start.
Thanks. I start with Ag. So first of all, nobody left off the hook, and also not the Ag business. We are proud of the Ag business this year. Ag business is supposed to be strong next year in a more difficult environment, so it's more demanding. We have the soft commodities coming a little bit softer. So, and the competition is also going, I would say, quite aggressive on prices and customers. So it will not become easier for them, nevertheless, we will not let anybody off the hook. Growth will be, will stay important, but what we are even stronger focusing on is the profitability of the growth. So it's not about growth per se, per se, and it has to be accompanied also by a good cash performance.
So this is the tweak that we are seeing here. It's great to have sales and top-line growth. It's great to have EBITDA, but we also want to see the cash. We cannot afford any business just to deliver on the P&L, but not on the cash. On the steering?
Battery, yeah.
I go on—I honestly missed the first, but I can comment on the second part on the net working capital. That is the assumption that net working capital will be very volatile, so that we can't properly steer. But I think this is not the right assumption. First of all, the mid-term cash flow, we will guide in a cumulative way, so there is still room for a little bit lower cash performance in one year and a higher cash performance in another year. For working capital altogether, we are targeting a lower level anyways.
And we have put even across the company a senior project to trim that down again, because we had the feeling that the levels of working capital with which we are running the businesses are too high. And you will see that also in our cash flow statement this year what the result of this project is. Because I think relative to the earnings, the cash flow performance this year, year to date, and also what I see going forward is exceptional. So we don't want to accompany increasing sales with ever-increasing working capital. And the first part I missed, honestly.
There was one on battery materials, and then-
Thirty percent-
Yeah, where we
Margin was the starting point for this.
True.
But I... Maybe one argument and point also through to the supply chain, the inventories. I mean, that is a continuous topic in a company like ours, and most probably in all the competitors as well as leadership is. There are these pieces that you always discuss. I think what is fair to say, that now with AI also, you have an opportunity to bring all the different data you have on supply chain and consumption and raw material through the whole chain in a totally different way together, if you really use that also on an AI base. And this is why we think you can steer that even better and release money out of that.
I think this is also why we want to bring this into the focus of the divisions, that they don't look only on the result, where we push certainly very much because we have to deliver this prime KPI to you. But now we really make it that you have to look on both to make this even more, let's say, focused and then also incentivize this. I think your point was on the 30% margin on the battery materials. I mean, let me clearly say, this is on one hand, the largest chemical market that is involving. This is still true, but it is also an incredible dynamic one. I mean, you read also the news.
Basically, there's almost no day where some news in that supply, in this chain, moving on, including shuffling around, let's say, rationale and realities in a way that... I give you one example, because we were mentioning the IRA. It looked for a long time that the least attractive region to build a Verbund is the U.S. But now, with the IRA, it's actually one of the most attractive places to do. So we have a long list of projects over there, which is our roadmap, which was the basis for that. What we do now is look very much into what is the right order of the projects, what is the prioritizing, which we go first, which we go later. And that, I think, is then also where we update you when the time is mature for that.
But we have looked into this, and, independent from how the priorities are, we think still this 30% EBITDA margin is a reasonable target, if you exclude the margins. And that will also guide how much we actually will put into this business overall. But, that is a very, very dynamic field, I have to say.
Mm-hmm.
Okay, then we have Samuel Perry, UBS.
So first question regarding the EUR 3 billion CapEx cut that you recently announced for 2024 to 2027. What proportion of this is a slowing of CapEx into China and batteries projects versus the underlying business? And how much scope is there for a further reduction over this period if demand doesn't pick up? And then secondly, given you're moving towards more granular free cash flow guidance and the volatility in chemicals and materials, can you give any indication of what peak and trough cycle free cash flow is for these businesses? Thanks.
You start with the last one?
Yeah, with the last one, again, I have to beg your pardon and ask for your patience because guiding time is really then in February. As I said, what we will try to do and what we will do is to clearly differentiate between a one-year guidance and then a cumulative guidance that will then absorb also the volatility through the cycle. You will see that. In order to make it very tangible for you for the short term, we will show the operating cash flow and the CapEx so that you can retrace exactly, so what are we doing to see what is the capital allocation discipline that the management is applying. And the specific numbers are coming in February.
... So on the EUR 3 billion, just because I think you mentioned China and battery materials. First of all, we don't have big projects for battery materials in China, so it's different project lines we actually have. And if we look on the big project in Zhanjiang, I think we mentioned that also. We have actually been a little bit surprised how positive the environment is for investments over there. I mean, that has to do with some pieces. I mean, first of all, while we were talking about 6%-7% inflation, there was 0.9% inflation in China, so things did not get as expensive as outside of China.
And with that, we also, steel and materials did not increase in price, and that surprised us rather on the low side with the contracts we did. And the second thing was, the armies of workers from these construction companies, and you know, these huge companies have a lot of labor force. They were actually, because of the low economics in activity in China, they were actually very eager to get contracts to employ their people. So we also get, with these 15,000 workers, very good conditions, to build their plant. And so I would say, normally for such a project, you always beg pardon, that this is getting a little bit more expensive than foreseen. I would dare to say that we most probably even a little bit lower than we expected because of that environment.
So that helps us a bit on that. We can certainly not sacrifice. You optimize a little bit here and right and left between these two years of heavy investment coming in 2024 and 2025, but it will not change anything that we have to finish the whole project as such, because you cannot build 80% of a building and leave the rest of the 20%. So but I would say we are very good on this big chunk of investment. And as I mentioned a little bit in the list, we are really now super critical, and we have always competition for money in BASF. We have thankfully enough, we have more projects than money, so that gives certain competition. But that's now certainly stepping up when we reduce the available money, so there is more projects.
We go very clearly through that. Where are the profitables? Where are some must-be's? Because you have also those with when it comes to safety. And then we're also looking and challenge them, whether there are cheaper solutions than they come up with. And I think all these elements, we are very confident that we actually can do that, and I think I mentioned the capacity side. If you have in Europe, 25% of capacity not left, please fill for first before you build the next plant. So and I think this will all contribute to this, but there's no special chunk from China.
So now we take Riya from Bank of America before we go to here, Baader Helvea, and then there, and then on out.
Hi, I've got two questions, please. My first one is on the EBITDA margin and battery materials being the same as the 2021 target. Yet over the past two years, we've seen a lot of industry supply coming in from China and key players, as well as price pressure from cheaper LFP. So what makes you confident that you can still achieve this margin despite the changes that you track as well? Other European cathode competitors target 25% EBITDA margins. And so what are the reasons that BASF might have a superior margin, in the same products? And then my second question is: What is the status on the Canada battery materials plant? The progress seems a little bit slower than other players who announced plants at the same time.
When do you plan to commission it, and any updates on the contracting or orders?
Mm-hmm. You go.
Yep. Thank you. Yeah, on the margin, indeed we are, we stay here confident because we, we are positive on the supply-demand side. We see that demand curve going up. I think the challenge for battery materials with the very high investment hurdles is really how much money you will have to deploy and whether you can do that alone or whether you need partners. But the business model and the margin assumptions we feel still they are intact, and probably we are on the optimistic side there, but we also see really that not only the supply going up, but also the demand. On the plant side, you're talking specifically about Europe, Europe.
We have the CAM production in Schwarzheide, where we have commissioned the two production lines, and that was according to plan. We still have the challenge of the precursor plant in Finland. This is in Harjavalta, where we obtained the permission to produce after court ruling and authority ruling at beginning of September. Unfortunately, there was again a appeal by two NGOs in Finland, which is currently under debate and discussion, and as soon as this is done, then we would also have the precursor plant in Finland readily available. But with the European production of CAM in Schwarzheide, Germany, we are according to plan.
I think there was one with the Canada thing. I mean, this is a bit where what I said before, where I have been not precise enough because I talked about the US, I should talk about North America. Because in fact, there is also quite some attractive investment conditions in Canada. This is, I think, why this also attracted some investment decisions already, and this is definitely a location that is also we look into. It's no secret, you could read something about this. But it is very clearly that we have not yet finally decided what the right order is, because there is quite some demand on our side both in Asia, but also in Europe and the US for CAM, and we have to see. We cannot do everything at the same time.
You know, it's CapEx intensive, and we cut the CapEx, so we have to look into what it is, but that is definitely one of the options we have.
... Okay, so now we move to the last row, Konstantin Wiechert, Baader Helvea. Please go ahead.
Yeah. Hi, I would like to go back to the political questions, if I may. Maybe starting with the Carbon Border Adjustment Mechanism. Here, how successful and how important and how is the successful and comprehensive implementation of the Carbon Border Adjustment Mechanism for your European carbon reduction investments, such as the electrolyzer or also potential e-furnace in the future? And as far as I'm aware, this has now currently started with very commodity products. So, regarding this, what is your view on the potential risk that this will only accelerate the de-industrialization of Europe as the manufacturing outside Europe becomes even more attractive with that? And then maybe another one on the progress the EU lately made on the prohibition of products made with forced labor.
Maybe how would that impact your business, especially, as it's discussed, that this will again significantly increase the administrative expenses to ensure that your supply chain is forced labor-free? And given that you have already invested into your supplier data set over the last years, should we assume that you already also collected this data and therefore are pretty much prepared for this already? Thank you.
So I think this is in the heart of my CEFIC work. So let me start on the CBAM. I mean, first of all, I think it is a bureaucratic monster, or you can also quote me by saying it's a nightmare. It is an instrument which I think will not do the job. Why? Because it basically has the idea that those who import have to pay for the CO2 footprint they have. But it starts already, what is the CO2 footprint? I think I said this when I talked about Scope 3.1
They most probably start with an average footprint, so the company is lower, that will go to court and say, "My footprint is in reality much lower." What do you do, actually, if a Chinese competitor comes in and they use mass balance, and they allocate their wind energy on export products, and they say, "I don't have a CO2 footprint. I produced everything with wind energy." So how do you deal with that? You take an industry average, or you really want to go for the real footprint. So you see already from that example, actually, if you start that with fertilizers and ammonia, this is the two products where it started. I predict they will make so much experience, and they see that this is very, very difficult to handle.
I'm actually very happy that we could avoid that, all the chemicals go in, because that was one pledge that came out of the parliament. I think we could convince them and say, "Go, please, step by step. If you want that tool, try to collect some experience and then think about what you do." And I think in the ammonia case, this will be very evident. If you look at then blue ammonia from other regions, they have a lower footprint in CO2, and then the EU plans to take the certificates away from the producers in Europe. And that means the European producers pay for a high CO2 footprint and increase their cost, where they're already the natural gas is more expensive.
And those who come in from regions with low cost from natural gas and a lower footprint because the IRA paid them the decarbonization, then I leave it to you whether this is a useful instrument to protect the European industry. And the third element is that actually, there's no ruling for exporting. Do you get a credit for your CO2 you paid basically in Europe when you export to somewhere else? So there's a lot of open question, and I think it's a good step. It starts now, let them collect data, and I'm quite sure they will realize that is close to a nightmare, particularly if you then have thousands of chemicals into this scheme. But let me also say, there are some companies promoting it and supporting it. Other industries, for example, the cement industry, very much advocates for that.
In the chemical industry, you have some companies against and some for. If you look at the from a CEFIC point of view, the vast majority is actually against this instrument because it will not do the job for the chemical industry, at least. So the other one was about forced labor. I mean, I guess you refer about these two smaller activities we have in China. I guess this is what you refer to, where we have these two joint ventures, a very limited number of people, 120 people. We have code of conduct over our code of conduct over there. We have actually installed all the mechanisms we have everywhere in the world. We have actually audit that.
We have asked all the supplier and all to document and to subscribe and sign all these important, let's say,
Commitments
... that they basically comply. Sorry, that was the word I would, comply with our things. So I think we do the utmost that this is okay, as we do everywhere in the world. I mean, human rights and, and this is very high on our agenda. This is also part of the audits everywhere. I'm not so sure whether the new supply chain laws on the European and German level really add on that. I think the good companies have installed a lot of measures and processes to ensure that you are operating in the right corridor and window. And I think if you would clearly see that there is something which is not okay and this is heavy, then we would also draw the consequences out of this.
That's what I can say to this. Yeah, I think the effort's very high on the agenda for BASF.
Okay, so now we go again to Kepler Cheuvreux. This time, Martin Rödiger , please.
Yes, thanks. It's a bit related to your statements about the competitiveness in Europe, and this is not a question, it is a request. When the cameras are off later on and you do your dinner speech tonight, could you talk about the energy policy by the German government and its impact on the future of BASF's production facilities in Germany? Now coming to my two questions, because we see several chemical companies talking about digitalization, artificial intelligence, and I have not heard much about that today. To which extent can the usage of artificial intelligence improve the efficiency of BASF? And as a follow-up question, to which extent is your supercomputer Quriosity, which you have implemented six years ago, up to date still, and delivers on your expectations? Thanks.
Maybe I start with the last one, yes, because I was the one who pushed for that when I was CTO. That was a 1.7 petaflop. We have, in the meantime, a new one. You might have not seen this. We have replaced that by a better one. It's now 3.0 petaflop, and I think that only shows you that actually it totally lived up to the experience and the expectations we had. I think we have great results. That is basically was totally used, the capacity, and this is why we decided once these facilities get a little bit old, because the processors, they suffer from several years of running continuously at high level. And that's why we said we even go for a bigger one, which can even take more complex tasks.
And if you think about material questions and also understanding properties, mechanisms, you need ever more, let's say, capacity. So I would say we are in a very good way, and I would say we are leading in that, that the in silico experiment in the computer goes together with the real experiments in the lab. And in the meantime, a lot of the projects, research project, they actually start in the computer, and the computer allows you to narrow down the space of where you find the solution, which makes it more easy and shortens the research project actually for the researcher. So I would say we're very happy on that, and the fact that we have built a bigger one is actually proving that this is really working.
On the energy policy, Martin, that is a long topic, which I cannot really not take all the aspects over there. I mean, this. The one thing is, the fact is the energy-intensive industry suffer from currently the prices. I mean, I don't talk about the spikes we had. Now, a lot of people say, "Well, this is back to normal." But if you look into the comparison with Henry Hub, it's 3-4 times more expensive natural gas. I leave it also to you, how you judge on the energy policy of the German government about electrical power.
I mean, shutting down the nuclear power plants and, now the new headlines that the gas-fired power plants we need actually as a backup for the renewable energy because we run more and more with a higher share in this extreme availability and demand and supply topics, that they are delayed again. I mean, all that, including a huge, super huge investment into the infrastructure, because if you take to the grid companies, what they have to do to cope with all that, also all the solar roofs, to actually manage that in the national grid, that's huge amount of money. So that all drives up the electricity price in Germany. And, that is definitely something which also the VCI, and with that, the chemical industry, has voiced out very strongly that actually the companies need some support now.
Can this be a subsidy forever? I think this would not be the right thing. But coming from COVID, coming from the energy crisis, a lot of industries, a lot of companies, also the small and medium-sized, are actually in critical waters. And this is why they asked for the industry power price that the government helps over there. How much will really come out of that? I think we will see then with the new budget discussions. I mean, let's see whether this is then still all on the list. So far, I think it was confirmed, but whether this stays, I don't know. But it's definitely clear that something has to happen over there. If we really go into higher power prices, the industrial base in Germany and in Europe will be endangered.
The only thing I can tell you is, the wind park projects we have, I think from a competitiveness point of view, HKZ was a fantastic investment that has actually very, very good power price. I will not tell you how much that is, but it's a good one. And also the new one is still an attractive one, but you can clearly, clearly the trend is going up. If you take the auction, the German dynamic auction, about three wind parks in the North Sea and one in the Baltic, where they ended, they ended with the oil companies, who paid really a lot, which is nothing else than making the kilowatt hour more expensive.
So we need a political discussion about that, by the way, not only in the German level but also in the European level, because actually we do not have any European energy policy or strategy, and this is, I think, desperately needed. Connect the infrastructure, make connectors between the countries, make this truly European, and then somehow start to stop the fight between the French, who want nuclear, and the German, who want wind power. We most probably need both. So, I think there's a whole lot of work to do, and that will be a critical point for the level of industry we will keep in the long run.
Looking at the time, do you agree to extend this by?
Sure
... 10 minutes?
Yeah, yeah.
I think then-
Yeah
... because there's another call. So we-
I think there was one, there was one left on the digital.
Yeah, the Mr. Digital AI.
So I hard break from energy and jumping on this one. First one, yes, we embrace it. So digital AI is something that we do. I think as the biggest chemical company, you want to be also on the top of things here. We have our own chatbot, but it's not OpenAI, but it's in a contained system. And we are experimenting on top line and on bottom line projects with that. Having said that, we have the most digital IP of a chemical company in the world. We have lots of people deployed there.
And we are continuing the final judgment call, whether this all works out, and whether you as a chemical company really can make that profit jump; this is still to be tested. So we look at that confident, but at the same time, we are also looking very critical, and we are not deploying tons of money into that, but we are looking carefully in terms of capital allocation, how much should go to digital and artificial intelligence, because at the end, it has to hit also the P&L. And there are some work to be done, but definitely, we are there on top of things.
So, given the time, I would really appreciate if you could have one question, but Arne Rautenberg, Union Investment, is now. Then I have Rikin Patel on my list for a second question. It's a bit hot and late at the moment. So now, Arne Rautenberg.
Yeah, shorter now, answers, too.
Yeah. Only yours short.
Thanks, thanks. You just highlighted the dynamic nature of the battery materials industry, and my question would be, how technology-agnostic are you from a product-offering side when it comes to solid state, semi-solid state, or some other technology? How technology-agnostic are you from a competitiveness side? And also, how technology-agnostic is your 30% EBIT margin ambition when it comes to new technologies? So if there will be a breakthrough in solid state, is it all—Are you completely agnostic? Is it the same target, or would you need some changes to your plans?
Yeah. Arne, maybe only two, three marks to that. I mean, the first one, I think, is a new reality, which is totally new for the sector. LFP came back. That was actually something where people thought this is dead, but that made its road back because I think they made a lot of improvement with energy density and the new battery stacks based on LFP. And for the lower, let's say, level cars, that is clearly the right answer because it's much cheaper, but it's difficult to get the reach on the high-performance side. So this is why this sneaked in, and I think it's an important part. I clearly say we don't step into LFP, so we stay with what we have planned, and this is really focusing on the NCMs.
The market is still very big for NCMs. Even if you take the LFP out, it's still huge growth numbers and absolute growth. And then, if you come to these different technologies on the cell side, it usually does not impact that the material for the cathodes is still the NCM. There are different types of products where we also talk, certainly, and we are in discussion for all kind of battery types, and that is where also the innovative pieces kick in. So we are open to that, and we work on projects like that. But on the other hand, I have to say, the business is done also with some grades, where you just have to deliver grades where the mass market is. So you have to do both.
You have to deliver competitively on a few major, major grades, and then you have to be, let's say, on the, on the forefront with these special projects. Because if you talk about the very expensive cars, where it's about high energy density, where, well, customers pay EUR 10,000 more for a 100-kilometer reach because the battery is stronger, that is then maybe not the mainstream part, but it's an important one because usually margin is higher. So we look into both, but I think you have to be competitive in the, in the mass, let's say, product grades. So I would leave it with that, and we are not tempted now to step into each and every other thing with the battery. We really stay with the cathode materials.
Now we have Rikin Patel, BNP Paribas.
Thanks. Just one question left. I guess with the greater autonomy you're now giving batteries, ag, and coatings, are there any upfront costs or exceptionals you may have to book next year? And could you maybe quantify those?
You take?
Special items, I think.
Special items.
No, nothing that is planned there, no.
Okay, so now, really, excuse us that we couldn't take in a lot or none so far from the chat. I would like to summarize two that are a bit connected, one from Chetan Udeshi, J.P. Morgan, one from James Hooper, Bernstein. And it is about the less integrated Verbund businesses. Chetan is asking: Are you ruling out a separation of any of the three businesses not integrated so deeply into the Verbund? And James Hooper, Bernstein, asked: What about the plans for the carved-out ECMS catalyst business? Are they subject to targets? We haven't talked about them yet, so perhaps you could give some insights here. And for the others, we will do our best on IR level to give you a follow-up.
Yeah, Chetan, thanks very much for your questions on the three business that you mentioned. It is not part of our portfolio planning to separate them further. So as we said, we profile them now in a new way. They stay within the BASF group under supervision of the board, with the governance from our units, with the services also provided from within. So what we explained under differentiated steering is just about that, and this is not about a portfolio planning. For ECMS, this is a different thing. Here we performed really a carve-out. They are also running their own balance sheet and with an own governance framework now.
And for ECMS, we said very clearly, this is the business that we truly like because it's highly invested, it's very cash generative. And we'd also say, the sunset of that business, which is truly there, is a very long sunset. So we can enjoy that business still for a very long time. Can still be that there are somebody coming, attributing more value to the cash flows than we do. But I think for the time being, it sits well in our portfolio, and we are happy actually with the team that the carve-out was performed so well, and we could show that we can also really single out one business out of the group so well.
With that, I would like to close the Q&A. We have come to the end of the live stream program today. Thank you very much for joining us online, and goodbye.