Good morning, ladies and gentlemen. Welcome to our Capital Markets Day. It's a pleasure to host you here in Ghent, Belgium. For this morning's presentation, the VEB, the Vlaams Institute For Biotechnology, kindly made this room, this auditorium available for us. BASF and the VEB have been cooperating for many years, and we are neighbors in the technology park here in Ghent.
Let me remind you that today's keynote presentations and the Q and As are livestreamed on the Internet, and the replay will later be available on bazfdot com. This Capital Markets Day is all about agricultural solutions. Therefore, Saor Olivier DuVour, Vincent Growe and Peter Ekers and other colleagues from the Agricultural Solutions division are here with us today. Over the course of this day, we will provide you with information on our legacy businesses, on the businesses acquired in August 2018 and on our positioning in the agricultural market going forward. Martin Brudermuller, Chairman of the Board of Executive Directors, has also joined us this morning.
He will take the opportunity to give us an update on the corporate strategy of BASF. Last but not least, Hans Engel has also joined us on short notice. He will participate in the Q and As this morning. Before we get started, I would like to make you aware of the emergency procedures for this building. In case of an emergency, we'll calmly and orderly exit this auditorium, take a left to the exit of the building and then just cross the street.
One final organizational remark. Today's presentations contain forward looking statements, which may not prove to be accurate. We do not assume any obligation to update these forward looking statements beyond the legal requirements. Now without further ado, let's move straight to Martin Brudemuller's keynote. Martin, the floor is yours.
Yes. Good morning, ladies and gentlemen. Warm welcome also from my side. Very happy that you joined us today or in the web. I'm looking forward to give you an update about the implementation of our corporate strategy and actually where we stand.
And the strategy, as you know, we announced last in November into last year. So to put it okay. So to put it right upfront, we at BASF are committed to our long term shareholder value, and that means our industry leading progressive dividend policy clearly reflects this. It is our aim to increase the dividend per share every year and I really say this that we stick to this policy also
during challenging times.
Over the last of around 4% average per year. To begin with, let me briefly give you an update about the current rating where we stand. In July August 2019, we saw a continuation of the business development of Q2. It can be characterized, I would say, by high uncertainty and volatility, particularly due to the ongoing trading conflicts between the U. S.
And China, but certainly also the limbo in the Brexit decision is contributing to macroeconomic headwinds. And as a result, we currently have a really low visibility in terms of customer orders. Sales volume of BASF Group declined in July August and this is mainly driven by the low demand in the automotive industry on one hand, but also the lower demand in our upstream businesses, namely the petrochemicals and the isocyanates and business and intermediates business. Overall, we have, however, I would say, resisted nicely in our downstream businesses, where stable to slightly positive developments have been noted. In the Agricultural Solutions, we saw a good start into the season in South America, but I think you will hear more about that during the day.
With respect to our earnings mix in July August, this was comparable to the Q2 2019. BASF's Chemicals segment and Monomers division continued to face considerable margin pressure, lower volumes due to a slowdown in demand on one hand, but also over capacities in the market on the other hand were the main reasons for that. Most of BASF's downstream businesses hold up, I would say, in difficult economic environment and in agricultural solutions. Volumes and prices improved in July August due to the good start into the season in South America. The acquired businesses and assets also contributed considerably to the positive sales development.
With regard to our strategy, we certainly in this environment accelerated the implementation of our excellence program and as a result, first benefits in 2019 will likely be compensated by the implementation costs. Our EBIT before special items, we continue to expect a considerable decline up to 30%. Despite the challenges ahead, we stick to our financial and non financial targets. We assure you that we will do everything we can to lay the foundation for an achievement of these targets on going forward. As you know, the year 2019 is a transition year for us with several one time effects such as the implementation of our strategy.
In addition, the sharp correction of the isocyanate prices and the oversupplied cracker markets considerably weigh on BASF's earnings. In our downstream businesses, we see an improvement. However, this is not sufficient to compensate the sharp earnings drop in our upstream businesses. I would like to go along 6 key points through my presentation today. They all have one common goal, and that is bring BASF back on the profitable growth track.
I will now give you some specific examples how we progress with our strategy implementation. Until 2030, we expect global chemical production to continue to grow slightly above GDP at the rate of above about 3.1% per year. The single largest and fast growing markets, you know that, is China. And already, China accounts today for about 40% of the global chemical production. By 2013, we still expect that the share will increase to almost 50% and this equals an above the global average rate of 4.4% for China.
Therefore, growing above global chemical production for us requires a strong participation in China's growth. With our announced investment projects, I think we are very well positioned to further expand our strong position in the region and also accelerate organic growth. We also have a strong record, as you can see on the right side of the picture, with respect to our earnings growth in China. So let me quickly update you on where we stand with our major investment projects in Asia Pacific. So first, there's a Changshan for Bund side in Guangdong.
You might remember in January 2019, BASF and provincial government of Guangdong have signed a framework and investment agreement setting out further details of BASF's plan to establish a new Verbund site in Zhanjiang. More than 9 square kilometers of land is reserved for us. This is about the size of Ludwigshafen. The project is now currently in the feasibility phase and we expect that first plants will be operational by 2022. In total, we estimate the capital expenditures of roughly being about $10,000,000,000 until 2,030.
And as you can imagine, such a huge project takes place in phases. Peak investments, most probably interesting for you, we expect between 20,012. The launching for Bund side, this is our flagship operation today in China, has also a positive our partnership in the upstream and in the downstream chemical production in Nanjing. And also I think this underlines the strong partnership we have with Sinopec and that this is not affected also by our large 100% owned project. We also jointly want to investigate our opportunities for joining for the battery materials market in China.
This is all on track and in the planning phase currently. Last not least, our chemical production complex in Mundra in India. You have also noticed that BASF and Adani, our local partner in India, signed an MoU to evaluate a major joint investment in the acrylics value chain. This would be by far the largest investment of BASF in India so far and the designed site would be located in Mundra, which is the state of Gujarat in India. BASF and Adani want to establish a joint venture.
So our local partner will provide mainly the infrastructure and BASF brings in the chemicals part and that will also mean that BASF will hold a majority in this JV. In line with BASF's overarching target of carbon neutral growth until 2,030, we are proud that the chemical site in Mundra will be the first CO2 neutral production site in the setup of BASF. The companies have developed an overall plan to include new technologies on one hand, which emit less CO2, but I think which is more important that the site will be supplied 100% by renewable energy. We have also set ourselves ambitious targets to considerably increase our sales of so called accelerator products from €22,000,000,000 to €22,000,000,000 in 2025. You might remember that accelerator products are those products in the BASF portfolio that have an advantageous profile towards sustainability compared with our competitors.
In 2018, these products accounted for roughly CHF 15,000,000,000 in sales and with this you can see that this target clearly reflects our strong commitment to further drive innovation. To achieve this goal, we will deeply integrate it our integrate our so called sustainable solution steering, which basically assesses our product offering in the R and D pipeline, in the business strategies as well as in M and A projects. And I think it is notable to say that the accelerator products not only have a stronger growth rate than the average part of BASF portfolio, but also significantly higher average margins. Let me make this a little bit more tangible with 3 examples. 1 here I would like to mention is Slantide.
This is the next generation insulation panels. You know that insulation materials is a strong story in BASF. This is a technically new idea, which is actually a material which has nanoporous structures embedded in a polyurethane aerochial. And with this new material, you can actually have the same insulation properties by having 25% of up to 50% thinner panels in the usage case. We have also the Acronal MB, which I think is an impressive product, which shows you how we move towards more renewable raw materials.
This is actually a product that stems from the certified biomass approach. So we have substituted some of the basic raw materials in the synthesis at the very beginning through and replaced basically the fossil raw materials through bio based raw materials. Then we have the Setiol Ultimate, which is a BASF product, which is 100% based on biodegradable or it is 100% biodegradable. Emollient, emollients are products which you use in cosmetics to basically protecting and moisturizing the skin. And I think these are 2 product examples in the bio area where we want also to extend further our portfolio in the future.
A very good example also how we innovate together with our customers is something I would like to present you here. This is a typical example how a collaboration of BASF with a customer goes. We call this so called co creation. You might know the company Humor. This is a company that is a leading manufacturing of premium motor homes.
And we have joined with them and have asked ourselves what is caravaning look like in 2025. And within 6 months, our specialists with the colleagues of Fumo, we have basically sit together and we have developed the joint vision. We have selected materials. We have stimulated critical components and have actually completed the study. This study is so called Vision Venture is a near serious outlook of the future of a motorhome.
It sets standards in that class of not only with light made construction materials, but also in terms of self sufficiency travel experience and also the design. Over the end, more than 20 innovative ideas of BASF from the plastics and other materials have made its way into this new car. It was presented at the Caravan Show recently, Caravan Show 2019, and people have actually stormed this vehicle and several of the guys just want to buy it right away. So also in the interior, you see this looks very fashionable, very modern. There are also our materials inside here.
So it's the slantite insulation material, which is very nicely fitting into the refrigerator, the door panels, window frame profiles, but also the underfloor construction. It is easily to use and it provides the right material properties for such an application, but there are also other polyurethane materials in there like the elastoflex or the elastofoam, which are used for the cushioning, but also new materials which we call haptex, which are materials that imitate leather, spans and are used in the interior of this car, of this caravan. I would like also to briefly discuss a little bit more detail about our innovation power. You know that this is fueling BASF's engine and this is the basis for the co creation with our customers. And important is to understand that, yes, about 80% of the research spending is actually in the responsibility of the divisions, I think it is also a unique situation in BASF that about 20% is so called corporate research.
We expect that our annual R and D expenditures this year will total to about CHF2.3 billion. We focus also here on long term development of key technologies and that is usually something which we have to take a little bit away from the divisions because that's something where you really need a long breath this is also why we decide to continue with this so called corporate research. To make this a little bit more tangible for you, where do we spend the money for? This is on one hand, we finance new business developments that have a little bit a longer ramp and where you need a little bit of persistence. So I'll give you an example over here.
This is, for example, our 3 d printing activities as well as the Trinemix activities, which we have introduced to you, which we finance out of the corporate port here. It's also about key capability key technology capabilities, our KTCs. This is a very well set up procedure where we have the research platform discussing with the divisions what is the future capabilities and skill sets our research platform needs to have in order to answer and respond to customer needs in the future. And with this, you'll find there processes in the heterogeneous catalysis, but also enzyme technology, but also a lot of our polymer formulation technologies. And then we have also one bucket which we call corporate projects.
You can imagine something like the carbon management program is also something that is fueled from the corporate pockets. And then there is something very special that I'm proud of, which we call the so called creativity budget that is actually a bit of money where people in the organization very unbureaucratically can prove ideas and make a kind of a proof of concept, which then actually fuel a pipeline for also the divisional research. Let me now move on to Verbund, our greatest asset in BASF. You know a lot about that as well and you know that this is a concept that go far beyond production only and this is the key message on this slide. Let me point out 5 major dimensions of the Verbund.
First of all, it is really about the interconnectedness of our Verbund sites or in the production in the Verbund sites, which bring us roughly savings of about €1,000,000,000 compared to a non integrated setup. But and I think this is very, very important going forward, there's actually also a sustainability aspect. I think there is no better way in terms of ecological footprint in doing chemistry in the Verbund. If you look at that a little bit more in detail, it prevents actually 6,300,000 tonnes of CO2 emissions, which we would have if we are not integrated. And I think given the fact that CO2 will have a price and also given the fact that CO2 footprint of products is an upcoming topic of our customers, I think we have very, very strong arguments to support our customers in future with products with a very favorable CO2 footprint.
Certainly, the Verbunden is also about managing our value chains. We ensure that the competitive and flexible supply of key raw material and products works within the divisional setups. But it is also a dimension of technology competence because you can imagine that you cannot maintain huge platforms in research and development if you don't have also a certain breadth of your portfolio. And last not least, we certainly have also several advantages here in terms of market access by really combining the different skills in the businesses and combine them to added value for our customers. When it comes to the technology aspect, I would like to point out your attention to the so called connectors, which we have defined, which are really connecting the different activities within BASF through technology because we develop our production processes in this central platform and there's tremendous synergies in learning from each others and with this really improving and also getting results others cannot do.
If you just think about Catalysis, this is relevant for about 90% of BASF production and this is not astonishing that we run the largest catalyst platform in our industry, you only afford if you have such a portfolio. Same is true with formulation. There's a lot of synergies about formulation skills and a lot of our products are actually formulated because before they go out to the customers. If we talk about bioscience research and Peter Eggers is here, there is also synergies not only within egg where we certainly have a major part of that, but it is also branching out with synergies into Nutrition and Care segment. When it comes to expertise, there's also huge opportunities for unique solutions in, for example, the mobility industry.
We have a very high exposure to automotive and I think with this also combining with certain things, understanding cars better, we have also much better opportunities in terms of delivering innovation. And then last not least, we should not forget about digitalization and AI, where you can imagine if we use the full potential here in the Verbund that this is also something that is not reachable from other competitors who do not run Verbund structures. And last not least, also using renewable raw materials and using chem cycling, which will have a more important role in the future, are unique in this Verbund setup. With this, let me come to a few charts about how we transform BASF into a more agile and customer focused organizations. I think we have reported you quite a bit on that, but it gives me the opportunity to update you.
We are in the midst of this transformation and reshaping of our organization. You know that we streamline our administration, sharpen the roles of services and regions. We simplify our processes and procedures. First, you know that embedding, that is a part where we bring in functional services into our operating divisions if they are crucial for having best service offers for our customers. We will embed overall about 20,000 people into the division.
This will be completed in October 1. 2nd, it is about lean corporate center. So we will actually clearly divide governance task from service task. We have now set up or we have defined the setup with less than 1,000 people working in the corporate headquarter. Just to remind you, this is less than 1% of BASF's employee and that will start in the 1st January.
The roles of the regions have been redefined. We take them more off the administration and we more face them towards supporting the divisions on the customer and the market side and with this also helping to strengthen and accelerate our business development. We are also simplifying our process landscape. I have to say this is a cumbersome exercise. I call that going to the machinery room and climbing through the pipes because there are so many processes and we have actually take everyone everything in hand.
So they have now already redesigned 40 about 40 major processes. They are currently working on another additional 100 and 10 and we have a long list of opportunities where we can improve. And I think with all that, we foster the establishment of an more entrepreneurial or more performance driven culture and I can show you that as one small example Here on this chart, as part of the embedding was also to bring the maintenance people and the engineering people closer to the production. So we have actually integrated them. They form now an operations team in the plant.
And with this, you have a much more linked and comprehensive way how you approach things. What you see here is an example is the Luzmarail plant. This is actually a plant of our nutrition business, which produces aroma chemicals in the perfume and also in the laundry area and we have embedded here because it's a smaller plant, just 11 maintenance people and they have also within a short period of time found ways how they actually can accelerate things. And I think a good example is that the plant the plant turnaround which they conducted this year was actually finalized much ahead of time, actually 15% less time we have needed by integrating this better and this is we have also saved €1,000,000 on this plant level. Actually, what is behind that is that people can take more ownership, that there is really more entrepreneurial spirit and that is exactly the culture we want to establish in BASF and going forward.
You can imagine that in these difficult times, we do everything we can do and which is in our hands even better and faster. And this is also why we have accelerated our excellence program as much as we can. And in order to really achieve our €2,000,000,000 annual EBITDA contribution at the end of 2021. We have been a little bit more foggy when we showed you that in the past. We want to deliver a little bit more detailed pictures for you how that is basically going to work.
The program is focusing on, one hand, on operational excellence, but it is also and this in the area of production, logistic and planning, but it also will have components of the streamlining of the organization, developing leaner structures in the area of services, R and D and also the headquarters. So you can see here on this picture that in 2019, we will have a first significant EBITDA contribution, but and this is also what we told you already in our last meetings that this is basically compensated also by the spending and the related costs we have with the initiation of these measures. What you can see from the picture is also about where we will be at the end of 2020. So we expect an EBITDA contribution in the range of CHF 1,000,000,000 to CHF 1 point €3,000,000,000 and you see that this will be associated with additional €200,000,000 to €300,000,000 of costs. So let me come quickly to the non financial targets.
We create chemistry for a sustainable future. You know this is and remains our purpose. So I think we could all see that on the EU level, but also in Germany, the discussion about climate change and about CO2 cost is really accelerating. So in order to achieve that, and we are very proud that I think we have set the tone in our industry with CO2 neutral growth until 2,030. We have now initiated our carbon management program.
As you know, that is not coming out of the blue. We have also done good work and significant work in the past. Just to remind you, since 2,002, we have actually reduced our greenhouse gases in absolute terms by 34% on product sorry, on specific level per tonne of product and until 2,030, we are going to reduce the carbon intensity by another 30% compared to 2018. A significant part of the lever is then also what I mentioned already, the steering of our product portfolio in the sustainable solution steering method. We have had and I mentioned the accelerator sales already.
We had about 28% of our products being in that area and we will work on that that this is all over the businesses contributing and actually really accelerating in terms of what we have to offer. On the other hand, and this is also something which I think becomes increasingly important as a corporate to really fully show what our contribution to society is And this is also why we very much engage in making this transparent and Sabor is here in the lead by driving us also as a founding member in the cross industry value industry activity value based alliance. This is where we join up with other companies, but also with the OECD, but also with some of the auditing companies in order to drive a new standard, not only showing our one dimension of numbers, but also on our footprint ecology and also on the societal impact. One example, how we also support the development of climate friendly technology is a picture here you see this was a workshop we have conducted. We have invited SPSF, but we have done this together with the World Economic Forum in Ludwigshafen in July.
It's the first time ever that 20 CTOs of chemical companies, worldwide chemical companies, were coming together and discussing in a workshop in Ludwigshafen how we could actually also join forces because there are some of the technologies where you not necessarily need to have everything in hand of a company only. If you, for example, think about steam cracker technology, we all buy that from 2, 3 sources. So we could also share some spending here and then also accelerate the 1 or the other development. At the very end, I think we have also not only SBSF, but we have also to see that the chemical industry as such is contributing quickly also to the reduction of CO2 emissions and they think this is very promising activities. Let me also give you another example where you see that you come to the limits what you can do as a company.
This is the example of plastic waste. This is just such a huge endeavor to tackle that, that we have actually joined forces with other companies. I'm very proud that BASF is one of the 5 founding members of the Alliance to End Plastic Waste. We have in the meantime 43 companies with another 90 companies standing in line to join where we really bundle our resources and our activities and our attention in order to drive and to really impact on the waste problem all over the world. That is also including projects single companies do.
And I give you here one example where we have a waste to chemicals project in Nigeria. Nigeria is a very unstructured country in terms of waste management. They produce about 750,000 tonnes of plastic waste and this at the end, very end all ends up in the or mainly ends up in the Atlantic Ocean. And what we actually do now is to work on a project where Nigeria's crude is having a second life by basically bringing back the plastics into the cycle. And the idea is here that we take roughly about 100,000 tonnes of this waste together with local partners to build up a structure where we can basically then convert this material into pyrolysis oil, which then can be reused in the Verbunden.
And I think the nice aspect is here where a reasonable nice ecological thing comes at the very end together with social impact and also with an economic part also for us and the people involved in this. With this, I come to the capital allocation framework. Would like to remind you that we have a very clear guidance how to use our cash. We have here 4 focus areas, and I mentioned them in the order of priority. Organic growth, this is what comes first of all.
You know that we want to grow slightly above the market, the global markets, and that means we have to spend in production via innovation and also CapEx. We have planned for the next 5 years to invest roughly €21,300,000,000 For 2019, we are targeting CapEx below the budgeted level of €3,800,000,000 It is also about the important progressive dividend policy. We aim to increase our dividend every year and our strong balance sheet supports this commitment even in times of slower free cash flow generation driven, for example, by a weak macroeconomic environment like we have it in this year. The 3rd priority is upgrading our portfolio. We strive to enhance BASF's portfolio through smaller bolt on acquisitions and to further focus the portfolio through continued pruning measures.
And let me also ensure you that we will keep discipline in terms of pricing in M and A. And last not least, we also told you that share buyback is part of our toolbox, and we also consider share buybacks to return cash to our shareholders at the appropriate point of time. With this, I come into the end of my presentation. I would like to give you an update quickly on our portfolio measures, where we stand. You know that we drive our portfolio development in a very active way.
We move forward towards higher value and more focus. We are executing the announced portfolio measures as swiftly as possible. On the divestiture side, you know that BASF brought in its water and paper chemicals business in Solenis. Let me tell you that this works very, very smoothly. We are very happy about how that operates.
You know also that Wintershall and DEA became effective on May 1. We are now very much concentrating on bringing the I would say it's also very well run, the process which we had in the pigments business. You know that we have very swiftly found an agreement with the fine chemicals company, DIC, Sun, Japanese player who bought now our global pigment business. We are now working on bringing this forward to a close in Q4 in 2020. We are in the midst of structured processes and are actually on track also with the carve out, but also the sales process of the Construction Chemicals business, we received now confirmatory bids and we expect the signing of this deal until end of 2019.
When it comes to the acquisitions, we are happy that we finally, I have to say, could conclude the deal with Solvay. That was also for us a special exercise and a very strong involvement also about the EU Commission, but we are happy that we have now, I think, a very viable setup where BASF can take over the global and non European polyamide66 business from Solvay. And I think very importantly, this includes the 50% share of Putakimi, which is basically also very much the driver of that existing to back integrate us in this product line. Subject to the approval of relevant competition authorities, we expect also that the transaction is actually closing at the end of 2019. With this, I'm already then at the buyer part, which you know also integrated very nicely, which I can keep short because that is actually what the whole day is about and with this, I would like to close and ask Hans to join me for answering your questions.
Thanks, Severo. Thank you very much.
Yes. Thank you, Martin, for your presentation. For the Q and A, yes, Hans will join us. Dear, ladies and gentlemen, I would like to open the Q and A for your questions. Please raise your hand.
We are a bit more simple here. If you would like to ask a question, and then a colleague from the IR team will give you the mic. Perhaps we start with Christian Faitz, Kepler Cheuvreux.
Thank you. Probably won't get an answer to that, but I'll ask it anyway. Martin, you talked a lot about July, August. What about September in terms of business conditions? What do you have seen?
Well, actually, as the September is not in the books yet, that's why we did not talk about it. But I can tell you it's continuation of July August.
Then Peter Clark, Societe. Can I follow-up
on that? Sorry. My apologies. You talked about comparable earnings growth in July August. I presume you're talking before the exceptionals you saw in Q2 because Q2 was down 47%.
And if you're doing July August, of course, you're trending below your minus 30% for the year. So I'm assuming you're excluding all the maintenance shutdowns, etcetera.
I think what Martin just answered was the general question on what's the overall environment. And clearly, in BASF business, you've seen with the cracker turnarounds, significant onetime costs in Q2. In Q3, we have now the turnaround of the smaller cracker in Ludwigshaf, but significantly less cost. The overall environment, as Martin has described, we saw a deep summer hole, in particular in Europe. We came out of that with the to be expected seasonal improvement, but not more than that.
Tim Jones, Deutsche Bank, please.
Yes. Thank you. Two questions, if I may. Firstly, about M and A. If you look to 2020 and all the changes you have going on at the group level, is BASF capable of doing any large acquisitions in 2020?
Or was the pace of change from a cultural perspective too high and it will create too much disruption? That's the first
question.
When you look at what we have on the plate right now, it is not only a question of the resources, financial resources. It's also the question obviously of management resources. And all these activities that we have currently going on, the constructions, chemicals, the divestiture, the carve out that comes with that, the pigment divestiture, the carve out that comes with that. There's significant work on our plate in 2020. So I think that will be a year with less activity.
You will have what we've shown, but I don't expect a lot more to happen in 2020.
And then a second quick question. Post the profit warning that you had in the second quarter, do you think the organization internally really gets the need for change now, particularly in the specialty business, where margins in many areas are still quite poor? And how much pressure are you applying to divisional heads?
Well, you can imagine that Hansen and myself make a lot of pressure. Mean, we talk about this intensively. I think we have the full transparency of the numbers. The guys in the business feel it on their own business portfolio. So I think the sense of urgency is very clearly there.
We are working on all these topics, and I have to tell you, I mean, you know that I'm more than 30 years in BASF. I have never seen any phase in BASF in the past where we have changed so many pieces so quickly at the same time. So I would say the team is fully on board with this, and they get it. What is, however, difficult is to manage this complexity, and I would say the most difficult part is this turnaround part into organic growth because we have now this transition year, which clearly has to go that also the mindset is the more hunting spirit in really going for volumes. That is certainly a thing that is more difficult in a depressed environment than in an environment when you have 3%, 4% growth and your customers can more easily also distribute their growth opportunities.
So I would say that is a mentality shift that is difficult to achieve, but we push on that. We talk about this. We have activities on customer level where also the full management is on board to really impact. So I would say that the team got it. And we have never planned that we do all this restructuring in a phase where we have also economic headwinds.
But actually what is happening, I think, now it's very clear to everyone that certain things in BASF have to change. So to a certain extent, this more difficult environment helps us to bring also the, let's say, the heart of believers in the organization now also on track and to support.
Andreas Heine, MainFirst. Please go ahead.
Two questions, if I may. The first, on the financial leverage and the debt load, do you feel comfortable with this? So you have off the oil and gas business, Pigments business, which obviously lowers a little bit the earnings, and the earnings are anyhow depressed. So what is your view about the debt load is looking forward before you start thinking about share buybacks? That's the first question.
And the second, you initiated the cost saving program at a time where you could not predict that the market environment is as challenging as it is right now. We have seen quite some self help action across the industry, but none of these self help was because of the challenging environment. Do you have to do more if the environment stays as it is?
So Hans takes the first, I take the second.
And Rios, on your question, debt, where are we right now? We're running at a net debt level of €18,500,000,000 That's quite a bit more than what we had prior to the acquisition of the Bayer assets in August of last year, increased order of magnitude there of SEK 7,000,000,000 We target actually to bring this back to a level of, let's say, around about €15,000,000,000 That's something that we would feel very comfortable with And that then should also fully support what we're striving for with respect to rating, which is a solid A rating.
Andreas, as I mentioned, we have so many things on the blade that I think we can hardly take anything on top of that. But what we try to do certainly is to accelerate as much as we can do. The 6,000 people we have mentioned is there's one part certainly coming out of this new structure of the service structures we generate, but also the lean corporate center. But there's also a significant part of that coming out of the businesses. This is always meant as a cross number.
Certainly, if we build a plant in China, we need new people in the China plant, but they have also to look in their structures. And to be very honest, the one or the other was a little bit more hesitant in terms of restructuring, for example, marketing or sales structure or whatever, but that is now clearly pushed to accelerate. And I would say we go now as quick as we can for the 6,000 and for the structures which we have here. That should have a significant impact because we have thought this through to bring also our cost basis down, but also what is at least as important as the cost basis is really that we are quick and agile to respond on the customer side. So let's see where we are then, and then we have to see what we do.
So we bring that home now as quickly as we can.
Oliver Schwarz from Bloomberg Research.
Just
a quick one on the net debt level. With the ever declining interest rates, obviously, the burden of the pension provision is bound to increase. Any plans to put money into pension assets to stem the tide of what policy is currently doing to BASF and other companies?
We are continuously funding our pension plans, in particular in Germany, because we simply have to. Our pension obligation over the last 4 years have moved between 11 so the provision between 11,000,000,000 was as low as €6,000,000,000 is currently standing at roughly €9,000,000,000 Do we have any plans to do some extraordinary funding of the pension plans? No, we don't have any such plans by
now. Thank
you. Andrew?
Andrew Stott from UBS. Please go ahead.
Yes. Morning. Thank you. Question for Martin, given your long experience in China. If you look at the next few years and think about some of the ambitions in certain chemistries, obviously, polyurethanes
is top of
the page still, but even ethylene. How do you feel about that as it looks as a prospect compared to what we saw, say, in 2012 to 2015 when it was a different battleground? It was acrylic acid, it was caprolactam, it's different streams. Do you think the motivation of China overall is the same? It's just we want to be bigger and more self sufficient?
Or do you think it's different?
I mean, I could talk now hours about that because I had also several contacts in China. I mean, this whole trade conflict makes me also think about how they go to in the future. And I think one of the other thing changes, I think they go even more now for domestic development. They really deemphasize the export. I mean, when you talk to some of these people, they actually say, well, we are too dependent also from the U.
S. Let's take this 20% of our exports to the U. S. Either to other countries or basically bring it down and reinvest into domestic demand. So there is a lot of focus how they can stimulate the own demand.
That gives me actually more confidence that the demand is even more solid because they depend less on own society. And I talked to one of these people and he was saying with a smile, I leave it to you, whether 300,000,000 indebted U. S. Consumers or 1,400,000,000 Chinese who just start to consume have the better perspective for the future. So I think in that respect, it makes even more sense for our endeavors and our investments we have in the future in China.
So I think that does not change our picture. I mean what is very clearly from the political side, which you also read everywhere, if the 2 superpowers don't get along and this gets more tension and you have more political divide eitheror, then this might create a different environment. But I think overall, the growth rates will come down in China a little bit. We have factored that in. I mean the crazy numbers of double digit, this is the past because it's also a question of the basis you have.
But I think if you look forward into this, this makes still a lot of sense. And there will be also more drive towards sustainability. We should not underestimate that. They are not principally on another agenda as we are. And with all these incidents you had in our industry, there's also very high attention now to shut down the companies who don't stay to the rules.
So that makes also, I think, for companies like us with high ethics and with good EHS system and corporate responsibility makes the world even better. So I would say over that, it still stays a very positive future picture for China in the future.
Chetan from JPMorgan. The first question on this verbal concept, has it evolved in VSF over the past few years in the face of challenges that the business has faced. I think the question is more around like the need to do a big cracker in China in this age when you've got so much already being planned by other parties? And the second question is, would you maybe able to quantify how much do you think are actual one off items this year, which might not be present next year?
The one offs?
On the one offs, we have a lot of moving pieces in 2019. I think we will end up with total amount of special items in the order of magnitude of €500,000,000 In that €500,000,000 are already €500,000,000 as you've seen that are coming from the restructuring program. But we also have significant positive special items that come from things like the divestiture of our water and paper chemicals business, like a real estate transaction that we've done recently in Switzerland and so on. So the net, I expect to be order of magnitude €500,000,000 on special items. In that, you have, as mentioned, the restructuring program.
You've seen that for this year, we have about €500,000,000 targeted. For next year, about half of that amount. €1,000,000 targeted. For next year, about half of that amount. We have about €300,000,000 in integration costs that comes with the integration of the Bayer assets.
That will be amount significantly lower than that next year. What else is there? Well, I think these are the major special items that we have in 2019. Then on the one off side that goes into the underlying result, we already mentioned the significant cost that we had from the 3 cracker turnarounds in the year 2019. That will not repeat itself in the year 2020.
So we expect turnaround costs significantly lower in '20 than it is in 'nineteen.
Look, when it comes to upstream structures like cracker, I mean, you know that we are not the company in line to build now one cracker after the other. And if you look at the setup which we have in Nanjing, which we are actually very happy that we have a light asset setup because the major part will be this 50% Sinopec and then the other 50% is the JV. So at the very end, 25% for BASF and 75 Sinopec that takes the load on these structures off from us and we can basically focus on the materials to do downstream. The only place where we really think about this cracker is really the new Verbund site in Guangdong because this is where we want to unfold really the full power of building a new Verbunden. That means we really need also economies of scale and also the full ownership of basically where everything starts with the raw materials and the basic materials in the basic chemistry arena.
So we are very sensitive about that, and we are not having planned now other crackers all over the world.
Sebastian Bray, Berenberg. Please go ahead once you have the mic.
Good morning and thank you for taking my questions. I would have 2, please. 1 technical, 1 a bit more philosophical. The first technical one is after the reduction in scope of the Solvay acquisition, what is the implied EBITDA for that takeover? And the second more open ended question of a source of the €2,000,000,000 of cost savings because BASF has run large programs in the past and it has been perhaps difficult to see the impact on the bottom line.
Could you perhaps break down the €2,000,000,000 between things like personnel reductions, process efficiencies and that sort of thing? Thank you.
First question, Sebastian, do me a favor, repeat this quickly. It was the EV EBITDA question. Of the business consolidation. That's right. Still order of magnitude, as we've said before, for the full business, so below 10.
So when it comes to the €2,000,000,000 I mean we have not given you the detailed structures in this. I mean we show I think we have mentioned a sum of CHF 300,000,000 for the part now coming from the GBS and the corporate center restructuring. I mentioned that production is a certain part of that, and this is actually a very big part of that because the OpEx where we have to spend much more, that is actually a super lever because when you reduce variable costs and also fixed costs, it's going directly into your cost structure. But and there is also certainly also a growth part included. If you have additional capacities, you have to sell the capacities.
If you don't sell the capacities, you don't see it in the P and L. And I think this is the crucial part why also the excellence program comes here together with our growth ambitions. If we are not managing the growth, then this will be difficult to deliver. So that has to come together.
Chris Cooneyhan, Credit Suisse. Please go ahead.
Thank you. I suppose I know there's a lot of moving parts when it comes to working capital. But under your guidance assumptions and where we're at today, saying there's no improvement in Q3, are you able to give us maybe a ballpark as to what your working capital inflow might be by year end as to how much that could contribute to the cash flow? That's question 1. And then I see again today you reiterate the potential to do a buyback, but then obviously very organic growth focused, dividend growth focused.
So even with divestments and the potential
Clear CFO question.
Your capital allocation question first, Chris. When you look at the priorities that we have on how to spend our cash, you've seen that the 4th priority is the one that deals with share buybacks, and there's obviously a reason for that. And there's also a clear link that we've established there. We said we will consider in the context of the cash inflows that we will have as a result of the divestitures. So the cash inflows we are expecting there in the second half of next year, which will give us sufficient room and time to actually think about where we will be, frankly, predicting the economic environment.
In the past, I think Martin and I would have said we feel quite comfortable to give you a relatively clear view on what's going to happen during the next 3 to 6 months because that's what our order book allowed us to do. Today, we can give you a relatively good idea of what's happening in our business for the next 1 to 2 months. 55% of our order book is months 1, 75% to 80% are months 1 and 2. And there is an awful lot of volatility, and we talked about that in the beginning of the month. There's an awful lot of volatility in the system.
So it is unfortunately the situation that we are in. But again, it is priority number 4 from what we've as we've defined it, and we've clearly linked it to the cash inflows that we expect to have then from the divestiture in the second half of twenty twenty. Your first question, Chris, again, was?
Of inventories.
Inventories and the cash inflows to be expected there. That's an area that we are working on intensely. You've seen us with a gross working capital level that is higher per the end of Q2 twenty nineteen. That is higher than where we usually are. Q3 and Q4, despite the fact that in the Ag business, we will see the usual buildup for the beginning season then in the Northern Hemisphere.
The clear target is to see a sizable amount of cash inflow coming out of our working capital.
Given the time, perhaps 1 or 2 more questions. Laurent Favre, Exane BNP Paribas. Please go ahead.
Yes. Thank you. It's a question on the CapEx budget through 2023. The fact that you did not change this, is it because you're still working on the usual cycle and you will talk to us in February?
Yes.
Okay. Yes.
We will talk about that in February. This is the number we have our debt given to you. You can imagine given the times where we are in, that we look now twice and three times on that, how to develop that.
Okay, thank you.
One last question up there.
Thank you. Charlie Webb from Morgan Stanley. Just perhaps on carbon and the cost of carbon, you mentioned it a few times. Clearly, it feels like you're taking a kind of a forward move on this in terms of decarbonizing. Have you gauged what the cost would be for BASF and how you see that over the next 5, 10, 15, I guess even I guess you start thinking 20 and so on many years out.
I mean how big a cost is that and how does that fit into the CapEx budgets and how you think about that as well?
I cannot give you a real number on that. But certainly, we look on this. We also started actually a senior project to look in this even more in detail to understand this whole landscape also of renewable energy. I think there are so many factors coming in. I mean, first of all, let me tell you, we have several opportunities now to really cater this target over the next years by measures optimizing the Verbund, buying in some other mix of energy from the outside.
So this is all not so difficult and I think it will not come with much higher cost. If you look then long term, when we might substitute bigger part of our energy supply from fossil structures to renewables, The interesting thing is actually, if you look on the generation cost of renewables, like, for example, in offshore wind park, actually the cost per kilowatt hour is in the same ballpark like a good gas fired power plant. It's not a big difference anymore. What comes with it is taxes, EEG, this is the special thing which we have in Germany and then the network costs or the transportation costs through the grids. So that is a very strong cost driver.
So how that develops, how the political framework develops to facilitate, believe me, I spend a lot of time to politicians also to tell them clearly,
we will
be technologically fit to do that move. But if the politics and the society is not moving with the framework conditions, it will not be economic. But that is a totally different discussion now over the next years to come. Instead of saying not possible, not possible, not possible, we say it is possible if you provide that in that framework. And this is why it's very difficult to say how that impacts.
That will also depend on how fast and what the schemes finally will be on CO2 price. If it's an additional CO2 price, which we clearly say reduce the taxes and the energy costs, make electrical energy as cheap as possible so that people can actually use more energy, it's wrongly incentivized today in Germany at least, that you have high cost in order to bring people to not use much. If you would reduce that, by then you would say, if you use electrical energy that produces CO2, then you have to pay. If they would generate over the next, let's say, 4, 5, 6 years, such an environment, you would have actually an economic case to change. So we look in all to this, and certainly, we don't talk only about Germany.
We have a much better condition in Belgium if you look on the framework and where this is the ocean, you could connect that much more straightforwardly into an offshore wind park or something like that. You have actually to look very detailed into each and every site, and this is what we do, and then we will come out with the right road map in order to go forward, certainly to keep that on the cost side as good as possible as where we are. But if it has some additional cost, we have either to talk about it, what it's worth to do that or we have then to compensate this with other measures, which I told you already, then we have to be in innovation and everything better than others in order to come out where we have to be. So this is an equation. I think it's too early to say something about that.
But give you a little bit about an idea what kind of impact factors we looked into, and we studied this in very, very big detail.
At this point, I would like to close the Q and A. Thank you for the discussion. We have a short break and resume the program at 9:15 sharp, please.
Thanks. Life. It's like riding a bicycle. To keep your balance, you have to keep moving. But in today's world, that's not so easy when life sometimes seems so out of balance, with opinions becoming extreme as our climate when there's not enough food for some and far too much for others.
We all want balance at home, at work, in our diet, and especially in nature because caring for the land and the well-being of people is an act of balance like no other, balancing supply, demand, the environment, and making a living. Well, what if it's about changing our thinking? What if it's asking the right questions as well as finding the right answers and knowing that the first solution is never the last one? What if balance is about making sure we don't do too much or too little? What if it's understanding challenges and seeing opportunities in equal measure and taking them on with creativity and courage.
What if balance is never standing still, but still finding time to pause, to think, to learn, generating new ideas with pride, and knowing when to listen with humility. Is innovation the answer? What if balance is working with nature as well as working for it? Season after season, generation after generation, knowing that an idea is just an idea until it's proven in the field. What if it's doing the right thing, not the easy thing, and recognizing that none of us can solve everything on our own.
The needs of feeding our planet and caring for it depend on the balance of everyone pulling together, trusting each other, respecting each other, because this is how life works. Sometimes it's tough. Sometimes it's exhilarating and amazing, but we must never stop. So like riding that bicycle, we'll keep moving forward, finding the right balance for success for farmers, for agriculture and for future generations. BASF, we create chemistry.
Let's now move to Agricultural Solutions. It's my pleasure to introduce the keynote speakers, Zaworri Dubour. Zaworri is a member of the Board of Executive Directors since May 2017. She is responsible for BASF's Global Agricultural Solutions Businesses and for Bioscience Research. She is also responsible for the region Europe and is leading the BASF Corporate Sustainability Board.
She joined BASF in 1996 and has since then taken over various business management positions and functional roles in Ludwigshafen, Tokyo, Singapore and Hong Kong. Then we have Vincent Growe on the right hand side. He's President of BASF's Agricultural Solutions Division headquartered in Limbogo Hoof, Germany. He studied agronomy and graduated as an engineer in Montpellier. He joined BASF in France in 1992, the Agro division, and has since then taken over various roles in the Agricultural Solutions division of BASF in France and Germany.
In 2010, he became Head of Crop Protection in Europe, Middle East, Africa and Central Asia. Between 2017 2019, he led the Global Integration Management before succeeding Marcus Held, who retired end of June this year. Then we have Peter Ekges. He is President of the Bioscience Research Division. He's a chemist by education and did his PhD in organic chemistry in Frankfurt.
He joined BASF in 1992, the same year Marcin Gro and has been committed to an R and D in ag since 2002, heading the Plant Science division since 2009 and then later Bioscience Research since 2015. He is based in Research Triangle Park in North Carolina. Some of you might remember him. He has already joined several IR activities in the past. And with that, I hand things over to Zara Rori.
So a warm welcome also from my side here at the Agricultural Innovation Center in Ghent. And I would like to welcome all people here in the room as well as on the web. So as you have seen, agricultural is central. You saw in the movie, it's the essence of nutritioning the world, but it's coming with a lot of different opportunities and challenges, but also responsibilities. And this is very much linked to what we would like to show you today to give you an in-depth insight in our strategy and how we think about the topic of Agricultural Solutions today and specifically going forward.
And it's my specific pleasure today that I will do this presentation together with my 2 colleagues, Vincent Growe, the Head of the Operating Division, Agricultural Solutions as well as Peter Ekers, the leader for the Bioscience part. And now let me go forward to the presentation. 1st, market environment. When we look into the market environment, there are a couple of key trends because before you do a strategy, it's very important to understand the underlying framework conditions. And as such, it's very important to understand the basics of these underlying trends until 2,030.
So when you think about the population growth of €9,000,000,000 it's a very robust growth pattern that we will see in that business because this can be projected, it's there and there's significant need for food over the next decades to come. But there's also an additional driver for growth. And this is the demand for more calories, more proteins, because there is a rise of middle class globally that will go into that kind of consumption pattern and that's the underlying robust structure of that business. But there is an additional element that I would like to share with you and this is actually the loss of arable land, which has been quite pronounced, especially in the last years, a loss of almost 23%. And this will be part of a driver for more innovation in this industry than ever before, because it means we need much more clever technologies to really increase yield, increase productivity per square meter.
And on top of that, there's additional volatility that came up in the market and this is climate change. Well, what might sound in the beginning is a challenge, it's also an opportunity field, because also this can be addressed with various technologies, which you will see in the presentations to come. When you look at the societal needs and this is something that was extremely important for us when we looked at the strategy in this sector. Agricultural businesses is about managing trust and it's about being aware of how innovations can add value to true societal needs. And there is transformation in the society, not only that we will enter an age where personalized food, digital technologies, but also ag labor shortages will be influenced by a lot of technologies.
There's also a consumer trend towards more healthy and sustainable food across various regions and countries. So the transparency and sustainability issue will become very pronounced and it already is reflected in regulations that you see. And so one of the key things that we identified where we have to really focus on is to really structure innovation towards societal needs and be more effective in preventing regulations that are against society rather than pro society. So if you think pro society, automatically regulatory risk is reduced. What we can't influence, of course, is trade conflicts, which had a significant impact this year.
As you all know, 2019 has been seen that there is a lot of volume shifts around the globe, specifically North America, China. We will talk about this pattern in our speech. But this is something we see more as short to midterm. Hopefully, this will be resolved at some point in time, but it has an impact on this industry at this point in time for sure. And then last but not least, as I mentioned, the regulatory trends, We have done an intensive study of 9,000 experts around the world until 2,030.
What are upcoming trends from NGOs, politicians, and also the framework we are operating on and we are very well prepared. We know what are the key trends that might come up and this has to be linked to the innovation pipeline we are focusing on. And when I talk about balance, it's not only global megatrends in society that impacts this business, it's also the farm level. And this is where we are most passionate about because farming in 2,030 will significantly change from the arable land as one sector which needs higher productivity. It's also driving growth on the field.
And this is something where the combination of seed and crop protection is a paradigm for the future because you need a lot of technologies to make that productivity work. We see a trend towards 40% of future farms being medium and large sized globally. And that means productivity management of these farms will become a major topic. And that's an opportunity field, especially for those players in the market that have this offering. For us in Crop Protection, there is also a shift and that's also some trend that is different to the past, because we saw a lot of crop protection products being on the market, some of them turning generics and this was the driver for the growth in the generics area in the past.
However, if you look at the regulations over the last 1 to 2 years, there's a tightening of older crop protection products being phased out and there's a significant need from a regulatory perspective for new products. But on top of that, there is also more and more resistancy against existing products. So this means we have strong demand for novel mode of action in this particular industry. And this means whenever you have a good and filled pipeline for novel mode actions plus environmentally friendly products, there is a high chance to really gain market share. And last but not least, on the farm trend, the professionalization linked to digitalization and farm management is pretty key.
And here we are well equipped also looking at various factors going forward because this is a major opportunity. So it's not only about the volume related business that you will see in future. It's also about how do you account digital business in future. So let me first give you an insight of how we see the market developing. What you see here actually is that this market will continue to grow.
Its crop protection and seed together. The main drivers will be still yields, but also a lot of technology adoption. And this is why in the second phase between 2018 to 30, you see the CAGR to go to 3%. And this is linked to the fact that we see some of the big crop protection products because of higher regulatory pressure, but also increased applications of precision farming to slow down a little bit in terms of growth compared to 2010 to 2018. However, there is an opportunity of €10,000,000,000 according to our estimates applying digital technologies in this field and this is until 2013.
So farmers actually will look in a combination of crop protection seed, digital and application technologies to fully meet societal demands. When you look at the regional size, it's actually pretty pronounced, this growth in various angles. Most pronounced is the growth in South America and Asia because these are markets that are still growing very nicely. We see that North America and Europe are continuing to grow. Locally, we are present in all these markets equally and therefore, I think there's a lot of opportunity to locally participate.
Now today is about the strategy. And let me say one thing. For us, what was of importance in the strategy is to be very, very clear on the positioning where is the space to win for BASF. It's not about being present everywhere, specifically with the portfolio we have. And before we go there, we will first talk about the meaning of agricultural solutions for BASF Group overall.
So as you have seen in the past between 2012 and '18, the sales to 3rd party was 5%. And this is a mixture of M and A, but also organic growth, which was at the 3% level. If you look at the pure play innovation players, this is right in the middle of these growths. It's not the growth of the it's slightly below the growth of the generic players, but this is where we are in an average. Then we have the product sales and market average annual growth during the last 5 years, 2012 to 2018, this was roughly €2,300,000,000 and what is very pronounced is the very good EBITDA margin performance before special items between 2012 'eighteen, which was at 23%.
So this business within BASF Group is a very, very profitable business. What we are specifically proud of is that going forward, we have between 2018 to 2028 more than 30 new projects in the pipeline, which have a total sales potential of €6,000,000,000 This is a lot, especially in our industry. And this is something we are very proud of because this is very well filled as a pipeline. What is most pronounced that from all the products we have, there is products that less than 5 years old, more than 1 third of our pipeline are less than 5 years old. So it's a very young and very pronounced good pipeline.
So this is something we can build on also going forward. And then on the capital employed, we have a rate of 13% between 2012 to 2018. So this is also something within the group that is quite solid. So if you look at the sales across what we see basically within BASF Group, what we have done here because we wanted to give you a little bit of a picture as we have integrated the Bayer acquisition in August last year, there is no full year data available yet. So we try to help in terms of looking at a 12 months view.
And what you see here basically is the share of sales of Agricultural Solutions within BASF Group. It's 12% out of the €62,500,000,000 with an EBITDA contribution of 18%, which is quite pronounced. The positive part about Eckem is it's a very asset light business. So the CapEx budget is only 6%. But we are heavily investing in R and D because this is absolutely fundamental for future growth.
And so we have almost 39% of corporate budget of €2,300,000,000 in this business. And in the presentation of Martin Brudermuhl, it was very pronounced that we also benefit from different, yes, Verbund structures in BASF. And this is really important going forward and I would like to stress this even more. If you think about businesses like vegetable seeds, for example, it's a lot about understanding nutritional consumer behaviors. So the fact alone that we have Nutrition and Care, for example, in our portfolio helps a lot because we have science inside the human body, how nutrition works inside the human body and what is needed in terms of micronutrients.
This is know how that I think which is very valuable going forward because there's additional know how that we can now apply to the newly acquired Bayer business just as one example. We have a pronounced position also with Agricultural Solutions because 25% of the raw materials we use are sourced from within BASF. And this is important because it makes us much more independent from raw material dependencies of external supply, specifically in times of trade conflicts and so on. This is very helpful. And also the integrated biotech platform that is led by Peter Ekers is very fundamental because we have formulation on how that is unique across the Verbund.
Martin Brueder, when I talked about these connectors and the formulation platform just to give you a feeling, we have more than 240 formulations in BASF that we can draw from, knowledge from all the industries. And this leads to quite unique innovations. Let me just shortly show you 2 examples. Number 1, a product called Revizole that we now registered in several countries very successfully with a sales peak potential of €1,000,000,000 What is unique about this product, it's not only linked to the whole bioscience platform that we have, but it was also developed based on bioscience research using machine learning and modeling techniques. So here our investment in digitalization really pays off.
What we have done for the first time, we have used an AASOL and modular wise calculated what's the ideal environmental composition of different elements. And this is what made this so unique. It was immediately registered with the EU Commission and others. It was a very good profiling because people really appreciated. This product has a better profile than even a biological product.
And this can be done via technology. A second very nice example for the Verbund is in Scalis, a very important addition to our insecticide portfolio, which in the past sometimes was considered weaker. But this is a very strong candidate and we're very happy because it's linked to our bioscience platform. But also it's drawing it came from fermentation where it's derived from and then was used via formulations and optimized via formulation so that it can be applied to different application fields. It's almost yes, that's something where we have a low triple digit €1,000,000 potential, but it shows you that the whole connectors of the research bund can be applied here very successfully.
This is one field where innovation is key as you see and there's really interesting opportunity fields, but it goes beyond. We talked about the right balance and the acceptance of our industry. Now we also looked in detail about CO2 neutrality, how to contribute to this aspect, also droughts, which is increasing across the world. And I think these are yield and stress tolerant crops that will be needed. So we have made a very active decision, our strategy to really look much more into these weather and climate related products that help.
And this is where we are also investing now more and look into the pipeline. The other topic is biodiversity, where BASF traditionally has a lot of cooperations with different farms and works on the issue with digital applications, but also has very clear practice on the ground and sustainability. And finally, industry leading science where we really look into how can we improve for farmers and growers on the ground their CO2 footprint and their climate impact. This only can be done by data. And I want to show you with Ag Balance, we have one of the tools that is unique in this industry because BASF traditionally has environmental data since more than 30 years.
We have a very robust data set overall in BASF for BASF Group. We own 8,000,000 data on the connection of greenhouse gas, sea rise level and so on and so forth. And for ADKEM, we can tap into some of these potential, helping to assess in a holistic method based on the data we have, how can we enable our customers to get a further footprint, which will be important going forward as one of the major contributors for CO2. So one very nice product example that we could develop from that is the application of an Uryas inhibitor limous in wheat farming, where the greenhouse gas emission can be reduced, but also the acidification, which is a major issue on the soil, can be optimized. So these are just a few examples about what it means to find the right balance.
Why is this unique? Because this industry is an industry that sees a lot of transformation. And positioning yourself well means considering societal change, regulatory trends and factoring this in early on proactively because if you react, you are basically too late. And so in order to do this, we have thought very carefully also about how to make a difference to the market. And with that, I would like to invite Vincent now to show you much more details about our ag strategy.
Thanks.
Thank you, Savi. Good morning and a warm welcome from my side. We have in BASF a legacy over 105 years in agriculture. And since the invention of the ammonia synthesis, we have come a long way. But I have to say, the acquisition of the Bayer businesses this is a key step.
This is a decisive milestone in our already long history in agriculture. Why? Because it's not only extending our capabilities. It's not only broadening our portfolio, it is deeply transforming our strategy. It is changing our way to do business for the better of our customers.
And of course for me, it's a privilege to begin to start this new chapter of BSF in agriculture. And together with Savi and with Peter this morning, we want first of all to show our confidence in the future and we have also to explain to you how we contribute to make farmers of course more successful, how we will improve their profitability, but at the same time how we will make farmers more resilient and also more sustainable. But before speaking about the new strategy, a short update about the integration process. In the last 2 years have been a very complex, intense and exciting journey, but I have to say a little bit more than 1 year after closing, we have every reason to be extremely proud about what has been achieved. First of all, we have been extremely fast.
Immediately after day 1, the new organization was in place, the key processes were in place. In June 2019, we have completed the full IT and ERP migration which was a key, key milestone in the integration process. Even more important, we have secured a seamless R and D and business continuity. Since closing, we didn't lose one single order and we have very positive feedbacks from the customer. Another very encouraging aspect is that the business for the acquired seed and trade activities developed extremely well in 2019.
I will come back on that one. And last but not least, of course, we have welcomed more than 4,500 new colleagues transferring from Bahia. I think we have warmly welcomed our new colleagues and they are making our team in agriculture much stronger with new competencies, with new capabilities, with new talents. So following the integration of the acquired businesses, we are now focusing on realizing top line synergies. And here basically we are speaking about cross selling synergies between crop protection and seed and traits.
So after the acquisition, we have extended our customer platforms. We have new customers, customers that are now buying crop protection from BASF, customers from BASF that are buying the new acquired seed and trade businesses. The target is to achieve mid triple digit €1,000,000 cross selling synergies by 2025 and we have started this approach, this process in 2019 already and we are very much on track. In parallel, in January 2019, we have started an efficiency program. So we have listed and documented more than 350 initiatives in different areas in R and D, in regulatory, in inventory and capital expenditures, but also in procurement we are rationalizing our organization and we are also looking at ways to improve our commercial excellence.
So, the target here is to achieve at least €200,000,000 savings by 2022 at the latest and we are already on track because we will materialize already in 2019 €40,000,000 savings. So, we have started already the concrete and measurable implementation of our efficiency program. That said just 2 minutes ago, it's a new chapter for BASF in agriculture, a new chapter because we are just a different animal. We are not anymore a reliable innovative crop rotation company. We are now offering connected solutions combining crop protection, seed treatment, organic products, seeds, traits and also digital tools and this makes a huge difference for the better of our customers.
We are not yet of course a global seed player, but we have a very, very strong foundation. So we have this outstanding market positions in the canola seed business in North America. We are a strong market leader in this segment and we have even increased our market share in 2019. We have a very robust position in the cottonseed business in the U. S, in Brazil, but also in Europe.
We have still a relatively marginal position in the soy seed business. It's a kind of startup for BASF at the moment, but you will see that soy seed and traits is one of the key growth lever we have in our strategy. And last but not least, we have this very interesting growing profitable vegetable seed business extremely inspiring because it helps us to be directly in touch with the consumers and this is something which will help us a lot to make the right decisions in the future. And then we have this super exciting breakthrough hybrid with technology, another very important cross lever in our strategy. And last but not least, we have integrated the new Xavio digital platform.
This is a decisive step forward and thanks to this integration we are one of the top 3, 4 Ag players in the marketplace. So we have a comprehensive portfolio of new products, of new technologies and this comprehensive portfolio is supported by very strong brands. And let me give you just two examples. The Inviggo brand. Inviggo is the brand of our seed canola business in North America.
This brand has power. It is incredible to see the outstanding credibility of this brand for farmers. Actually, when the farmers buy our canola seeds varieties, they are buying a way to have much more efficient farming operation. They are buying a way to have a more flexible harvesting. They are buying a way of course to increase their yields.
And to make it short, Envigo is not anymore a BASF brand. It's a brand of our customers of the farmers and they have just internalized this brand. Another good example is our fungicide plants and I can tell you I am absolutely sure that we will have a very strong and fast adoption of our new Revysoil technology because we have a very long successful track record in this fungicide segment and that the farmers know that when they buy Revizole, they get not only superior biological performance, they increase the quality of their production and have also very efficient ways to manage resistance. Another way to look at the added value of the acquired businesses is to look at the business over the last 12 months. In the past 15 years ago and I make it very black and white, Our business in agriculture was very much driven by fungicides in Europe, completely different picture in 2019.
You see that now North America is the biggest region for agricultural solution. You see that the herbicides, thanks to the Glufosinate business is now a bigger market segment than the fungicide segment. You see also the importance of the seed treatment sales. We are the number 1 now in the seed treatment segment. And last but not least, seed and traits almost 20% of our current business over the last 12 months.
If we focus on our results over the 1st 6 months of the year, the added value of the acquired businesses is even more important because the majority of the ceded freight sales are happening in the first half of the year. You see that over the 1st 6 months North America is representing 44% of our overall business and then the seed and trades sales more than 20% of our overall business in the 1st semester. This is extremely important because it's a very efficient way to mitigate the business risk and also to capture all the market opportunities. There is still a segment where we have a kind of weak position. This is the insecticide.
Historically, we are not very strong in insecticide. This is something which will change dramatically short term with the launch of 2, 3 fantastic innovations on this very attractive and profitable segment. So, a very good start of our seed and trade business. Record sales in canola in North America, increased market share on this segment, record sales in the vegetable seeds, We are gaining market share on this segment as well in 2019. We have consolidated our position also in the cotton business in the Americas and also in Europe.
So, I guess, this is just indication that the integration went well. On the other hand, we know that we are facing a challenging business situation in the crop protection business mainly in North America. This is something you know perfectly. We have this trade war and unfortunately we are not sure that this will come to an end soon. We faced very adverse weather conditions with the flooding in the U.
S. With this very late planting, with this very compressed period to use crop protection products, then the drought in Canada and then a massive destocking of some of our key distributors. So this makes the business, the crop protection business in North America very challenging so far. The good news is that we know that at the end of the crop year 2018 2019, we have decreased our level of inventories in the channel significantly. And what I hear is that our competitors are showing a different picture.
This is very important for us because this creates a strong foundation for the next season. End of June in Europe, in Asia business pretty much in line with our expectations. The big, big satisfaction of the crop year is our business in Latin America. We have had a very strong start during the first half. We are gaining market share here.
We have a low level of inventories in the channel and the business development over the last 2, 3 months is confirming this very encouraging picture during the first half of the year. Another interesting observation is that the acquired businesses are increasing the seasonality of our business because 70% of the sales in seed and trades happen during the first half. And of course, this has had a massive impact on our sales, plus 40% for the first half plus 50% in terms of EBIT before special item. But we will have positive effect during the second half because we have a seasonally weaker business during the second half, but with stable fixed costs. So here we will have, let's say, a negative earning contribution during the second half of the year.
So this is what I wanted to share with you regarding the integration and the added value of the acquired businesses. Let's speak now about our new strategy. Let's speak about the market segments we want to focus on. Let's speak about what will make BASF different from our competitors. And this is the starting point.
This is the competitive landscape after the unprecedented consolidation of the industry over the last 2 years. We are a strong number 3 in crop protection. We are number 4 in seed and trades. And when I show that picture internally to the colleagues very often I have the question, okay Vincent, what's going to be the picture in 2,030? Are we going to be number 3, number 4, number 5?
Actually, I don't know because I don't have crystal ball and it's difficult to foresee what's going to happen to our competitors. But it's not a topic that makes me awake at night because the only thing that matters for us is to make sure that we focus our energy, that we focus our resources on the segments where we have a winning offer, on the segments when we can make a difference, on the segments where we can increase our market share. And this is exactly what we did when we worked on our new strategy. We have selected 4 crop systems and we are not speaking about niche markets. Those 4 crop systems are representing 70% of the overall crop protection and seed market and they are representing already today 85% of our existing business.
So, what are those 4 crop systems? The first one very important, the biggest one, 30% of the overall market potential, the crop system, soy, cotton and corn. Here, our basis ambition is to become a strong innovator. We will launch a lot of new crop protection products. We will see that with Peter.
We will launch also new soy and cotton traits. This will allow us to increase significantly our market share on the segment. 2nd crop system, rice. Why Rice? Because today we have a relatively marginal presence in Asia and if we want to be a significant player, if we want to increase our market coverage, we need to be present in the Rice segment.
This is why we will invest R and D resources in rice for Asia. 3rd crop system wheat, canola, sunflower. On this segment, I can tell you I'm ready to bet a good bottle of French wine. We will be a strong number one player on this segment because we are launching short and mid term a series of crop protection blockbusters. It starts with Revizole.
We hear a lot about Revizole today, but we have also LUXIMO another very interesting We are launching new insecticides. So we will increase dramatically our market share on this crop system also because we will keep this very strong position in canola seeds and we will launch this breakthrough technology in hybrid wheat. This will make a huge difference. And last but not least, we have the crop system fruits and vegetables. It's a very fragmented market, but very attractive because very profitable for the growers, for the customers and also less volatile than the raw crop market.
Here also we increased our market share. We will launch new fungicides and we will continue to develop our business in vegetable seeds. So, why do we speak about crop systems? And sorry here if I state the obvious, but the farmers they don't think in terms of indications. They don't think in terms of insecticides, fungicides, seed and traits.
They don't even think in terms of individual crop. They want to consider their farm as a whole in its entirety. Why? Because this is the only way for them to protect their soil quality. This is the only way for them to manage the weeds, the insects or the disease resistance.
This is the only way for them to protect their profitability especially in times where the commodity prices are very low. This is the only way for them to make the best use of their farm's assets like machinery. And we in BASF, we believe that if we understand the challenges farmers have to optimize their crop systems, we will establish a unique relationship with them. And we have the tools in hand to have this conversation because of our incredible portfolio and pipeline for the future. Just a couple of examples.
So, when it comes to the soy cotton corn crop system, here we will launch new herbicides. We will launch new HT traits and we will contribute in a massive way to the resistance, the weed resistance management, which is a huge problem in the Americas. In wheat, canola, sunflower, here we saw a pipeline of innovation. We will help farmers to considerably increase their profitability. In Europe, for example, I mean the yields in CEROs are reaching a plateau.
With this hybrid with technology, we will manage to increase the yields by 7%, 10%, 12%, massive change. With Trevisole, we have enhanced the future backbone of the fungicide protection of farmers in Europe, but also in North America and in Australia. And last but not least, fruits and vegetables. As already said, we can really help farmers to anticipate the consumer needs. We have very close relationship with the supermarkets and this makes a big difference.
We are launching in 2020 a tierless onion. This is coming directly from the needs of the consumers and this is also something extremely inspiring for the other businesses. Differentiators, if we want to grow faster than the market, if we want to increase our market share, we need to be faster and better than our competitors. And for that, we have identified 4 key differentiators, 4 key strategic levers. And the first one is of course innovation, of course innovation because innovation is our DNA.
Innovation is what justifies our presence in the marketplace. And to speak about our pipeline to convince you that we have the best pipeline in the industry, I hand over to
Peter.
Yes. Good morning, ladies and gentlemen. Also from my side, I think, Vincent, you have set the stage. Expectation are high, but I think we really have a great pipeline. I want to show you and give you some more insights into our pipeline in the next 10 or so minutes.
But maybe let me start first with a couple of stats on really our research engine and where we are today. So we have in our pipeline more than 30 innovations in the area of crop protection, seed and trade and digital solutions. With that, we have a really, really strong foundation, as Vincent mentioned, for future growth. Now we are really focusing on these 4 segments. And I think this is really important that with the change, with the acquisition, we are now focusing on Crop Systems.
We're really thinking, as Vincent mentioned, holistically. Now in order to really bring this pipeline to fruition, we are investing significant amount of money around €900,000,000 a year. Now key for the success at the end are people. And we have 3,000 very, very passionate researchers that really are thinking these innovations. And I think we are all sharing the passion for agriculture.
We are all sharing actually the passion that we want to make a contribution to sustainable agriculture. We have concentrated our R and D activities in 4 research hubs. These are global research facilities, and they are complemented by 26 R and D sites globally and over 200 research and field facilities. So what you see here is there is a clear global strategy and thought, but then there is a local implementation and assurance that we are really also locally ensuring innovation for our customers. Now with the acquisition last year, we have substantially actually strengthened our industry leading R and D product, particularly in the area of seeds and traits.
This has been a very, very important step for us. And on this slide, you see the complementary nature. You see those competencies that we brought from the BASF business in green and those competencies actually complemented us from the acquisition in gray. And with this, we have now everything that we really need to be successful in the marketplace. Now most importantly, we have strengthened significantly our capabilities really in the trade area.
And we have a very solid now foundation on the breeding side with really a seed entry position that allows future growth. Now you all know that BASF is a powerhouse in crop protection. But I think this picture shows a little bit that we are now also on an eye to eye level with our major peers in the trade areas. This is the patent asset index of trades and you see that we are really in line with our major competitors here. Now the Patent Asset Index is not just counting patents, but it's looking at really the significant of a patent and it looks at the global reach.
And I think the data show convincingly that through the acquisition that we have strengthened this area substantially. Now I will talk a little bit later on some of the examples. And I think when I think about our soybean cyst nematode trait that we are preparing for the market, when I think about our innovation to bring the 1st Asian soybean rust trait in the market, These are true differentiators and show how strong we are in this area. Now in this world, we cannot innovate by ourselves. We are really also fostering an open network, and we are working with over 100 research institutions, universities and innovation startups.
And also in certain areas for market access, we are working with industrial partners. One example you see here is our collaboration with Cargill. With Cargill, we bring an innovative technology for sustainable plant based omega-three oils to the market. Now we just received actually the registration approval for cultivation in the U. S, and our partner, Cargill, is ready to launch this product as soon as next year into the market with the brand name under the brand name Latitude.
Now this is a game changing technology that brings really a sustainable new source, And we are both convinced, Cargill and us, that this will be a significant product in the future. So another collaboration is our collaboration with Bayer. Now Bayer continues to develop yield and stress traits. And the new short stature corn that they develop is part of our joint activities and really has the great potential to actually change the way corn is grown in the future. Now from a BASF perspective, we are looking forward that we will share 40% of the residual value of this innovation that will be brought to the market into the future.
Now here you have a spot on this slide and the next slide on our pipeline. And I think you will see that with this pipeline, as Francois mentioned, we have everything in hand to be successful and to address customer needs in the segments in the 4 crop segments that we are looking at. Now the peak sales potential, and Zohri mentioned that, of our pipeline is 6 in excess of 6,000,000,000 and it's all focused now on the 4 major crop segments. Now when we look at this activity, you can see that we have on the left side a whole set of innovations that are in launch and products in development, and these are products that will be launched between 2020 2025. Now we have also included in this pipeline view to the right side those products that are advanced research.
And in advanced research, these are products that will be launched in the second half of next decade, But we know already today what are the commercial candidates that actually we are addressing. And in the early research, this is the feeder long term that will hit basically our business to make it long term successful at the end of next decade. And you see that in soybean, cotton and corn as well as in rice, we have a very balanced portfolio. And this is also true for the 2 other crop segments, which is wheat, canola and sunflower and fruit and vegetable. Now in the last 6 months, and this is was a really important task, we have taken the time to really reshape and resharpen also our R and D program.
So we have actually really taken a deep look, and we have stopped a number of projects that did not contribute first to the strategy and also to our financial targets. With this, in the next year, we have stopped project and there is savings in the order of €100,000,000 that we can in the future reinvest in other areas that really contribute to our strategy. Now overall, I have to say, yes, I'm in this business you've heard for quite a number of years. And I think our pipeline has never been more exciting than today. Now a piece that I think is important for success, and this is not so easy to see if you are not really entrenched in this R and D, is actually that also in this area of research, our know how for bund is actually a really differentiator.
And we take advantage of the capabilities we have in chemistry, in bioscience and in digitalization to all these areas. They have really enabled us to be bigger than we really are. So in this, I think the Fabund know how is a real accelerator. Now I want to give you a little bit more tangible insight. I think Zohre has prepared already the ground with the example of Revizole and in Scarless.
I want to build and give you a little bit more detail and flavor also how that works actually the know how Fabb wound. And I want to start with these two products because they fit perfectly in here. Now for us, one of the key things in the innovation space in crop protection is that we have to look and really comply with the increased regulatory hurdles. So basically designing products that are not just performing, but then at the same time are benign by design, I think is a key task and has changed the way we're doing today R and D totally. Now with Revizole, what we can leverage is actually that over the last 15 years, we have already developed alternative toxicological method to assess really side effects.
And this we are using today everywhere in BASF because when we actually look in our reach program, this is where we use these technologies. Now for Revizole, we have actually designed specific indicator tests that really are specific for this class of chemistry. And this allowed us to reach something that I think nobody in the industry expected that there is really a breakthrough with this new azole chemistry in Revozole that will differentiate us with this offering from all competitors. And I think this is the effect that we have this know how, this abundant know how in the toxicological method. This is where we use, as Aure has mentioned, digitalization in the design of the molecule and we use to combine the perform biological performance and to minimize the side effect machine learning tools to optimize really the active ingredients.
Now in SCALIS is a second example. It's an insecticide. And I think the insecticide pipeline that we have, as Vincent mentioned, is really now coming to fruition. And Inscalis is the first product of a series of innovation that we have here. Also here, the fabont know how was very key.
Why was it very key? Because we have on we had on one hand the possibility to use our fermentation capabilities and on the other side our formulation capabilities. So our formulation team took on the challenge to improve the cost of goods. They actually cut the cost in half. And then we have a patent protected micro emulsion formulation technology that actually reduced the rate by 4 to 5 times.
Now all of this together basically created now a market space for this active ingredient that at the outset looked relatively small that is in the at least low $1,000,000 range. So I think this is shows how our know how fab one works. I want to talk a little bit more about our offering and our innovations that are upcoming in soybean. I think here we have really a blockbuster portfolio going forward. Now you see here, Tyrexa, which is a new herbicide.
It is really an innovation because it has a low user rate and it has a broad wheat spectrum. Now what is important that at the same time, we can actually combine in the future this active ingredient with the leading herbicide tolerant trait that really makes it a package and allows farmers to address wheat problems that they can't tackle today. ILEVO is a seed treatment that we have, and it is a seed treatment that is tackling topics like nematodes and soybeans. We will in the future combine this with the 1st non native trait for actually soybean cyst nematode. And then the 3rd area, I've talked about Revysobel, which also will be applied in soybeans, and we are in the future combining that with the first non native Asian soybean trade.
And if you see in the field the result of this trade, you know that pharma will love it. This is an option that they are looking for. That's something that they are really, I think, will make some active contribution to them. Last topic I want to share. And Vincent has talked about wheat and that we want to have a leadership.
And the foundation is our R and D activity. Now wheat is the most important and the largest crop actually on this globe. And I think what we are tackling here to complement our very strong portfolio that we have to do today on the crop protection side with a missing piece which is seed and combine it to a position that will allow us to get the leadership position that Vincent was talking about. And we want to convert this open pollinated crop wheat into a hybrid system. And the hybrid system is what really will differentiate us and allow us then to provide a holistic solution.
Now we are very far along already with this hybrid system today, and we are ready to introduce the first hybrids into the market by the mid of this decade. Now there are multiple advantages where they grow. There will be higher yield, as was mentioned. But then you have better emergent. And you have also higher resilience to adverse weather conditions.
So I think hopefully these three examples showed you our powerhouse that we have in R and D. And there are many more opportunities actually during the breakout session to learn more about our crop protection portfolio, the seed and trade portfolio we have in going forward. I think you can feel it's exciting time. But innovation is not the only excitement we're having, digitalization as well. And I hand with that over to Vincent again.
Vincent?
Thank you. Thank you, Peter. So first, strategic lever, innovation second, differentiator, digital. So, we are convinced that the future of farming is digital and BESF is committed to a digital future in agriculture. We are using already a lot of digital tools in our operations in R and D, in our production plants, in supply chain, in planning.
But this morning, I would like to focus on the added value of the digital tools in our customer facing activities. And our digital offering is combined under the Xavio brand. And our strategy is articulated around 3 key pillars. 1st pillar, we want to smarten our portfolio of crop protection and seeds and we can do it in many ways. We can, thanks to digital tools, significantly improve products stewardship.
I will come back on that one. We can have a much more impactful launches for our new innovations. The release of launch will be backed by digital tools like software to foresee the disease pressure, software to make sure that farmers will use Revizole at the right moment. It's always a compromise between preventive and curative biological effect. And by doing that, we can speed up the conversion to our new technologies.
And last but not least, we want to equip our sales force in order to facilitate their conversation with the farmers. It's what the customer navigator tool will bring to the party. 2nd pillar of our strategy, we want to establish data relationship with growers and with channel partners. We all know that data access is paramount when we spoke about digital. We have already direct digital contact with 1,200,000 farmers around the world.
This figure is increasing each and every day in exponential way. And last but not least, we want to develop new digital business models, thanks to a new tool, the so called healthy fields. And this is a very disruptive approach. Basically, farmers in this business model don't buy any more individual crop protection products. They buy the assurance and the convenience that their field will be well protected throughout the season.
Basically, they buy a weed free field, a pest free field or a disease free field and they will pay fees for that. Very innovative and disruptive model because it is decoupled from the physical sales of our core protection products. If you want to know more about the business model, I can just encourage you to be part of the breakout session after the plenary session. We know also that digital is a very complex matter. We know that we don't have all the capabilities, all the features and all the competencies and this is why we are actively partnering.
And I can tell you it's really rewarding to see that key stakeholders are proactively contacting BASF to establish this kind of partnerships. Just two example, Nutrien. Nutrien is the biggest distributor we have in North America. BASF collaborates with Nutrien Ag Solutions to provide their customers with Xavio products, with Xavio's coating, with Xavio Field Manager. Agrostar, another interesting example, Agrostar is a leading Asian e commerce provider for agricultural input and they are also using our Xaviyo tool to help small holders understand what's happening in their field.
3rd, key strategic lever, digital. Martin and Sohri showed very clearly that sustainability is a key priority for BASF. Sustainability is part of our purpose. We create chemistry for a sustainable future. And sustainability is not really a new topic for BASF in agriculture, but what is new is that we want to embed sustainability in all what we are doing.
We want to make it very concrete, very tangible. And we have many ways to get there and the first one is to contribute to achieve the €22,000,000,000 sales with Accelerator products and we can make here a very big contribution in our division. And here I have three examples, all the Revizol based products and so just with this portfolio Revizole base, we will have more than €1,000,000,000 sales. I mean, I am an old crocodile in this industry. I have launched epoxyconazole, A500, Boscali, Xemium.
I can tell you Revysoil, it's a bigger animal. And when I see the number of companies that are trying to get access to Revizole this is probably the signal that this product will finalize the fungicide protection because it's combining outstanding biological performance and a very favorable regulatory profile. In the inoculants is another interesting product family to improve the route modulation, to improve the route architecture and at the end of the day to optimize yields. And I have another example, the Sharpen portfolio based on our Kickstart technology. It's also an accelerator product because we are using lower dose rates and because it's a very efficient tool to manage the increasing glyphosate with resistance.
Another way to be much more sustainable is to improve products stewardship. It's a topic very close to my heart because it's a way to better explain to the outside world what we are doing in a very concrete and tangible way. It's also a way hopefully to decrease the regulatory pressure. 2 examples here, buffer zone smart spraying. With the existing technology we are able to create detailed field mapping and the sprayer will be steered by those digital maps and automatically spray or not spray depending on the data that the farmers will not treat the more vulnerable areas of the pepper strips.
Another example, the Engenia herbicide spray tool. Engenia is our dicamba based herbicide portfolio and here we are speaking about a free mobile friendly website that gives farmers key localized weather informations for determining the right time to apply angenia herbicide in order also to reduce drift on the neighboring crops. Customer experience, the last key differentiator here very clearly we want to improve the customer experience and our journey starts and ends with customers. So, by definition, the customer facing activities, it's a local topic because farmers' needs are different, because market approaches differ from a country to another, because the farmer segmentation is also very different between France, Brazil or North America. But we can clearly determine a couple of common features.
And the good news is that already today BASF is perceived as a reliable, approachable and consistent partner for farmers. It's all the customer satisfaction surveys are showing. The farmers tell us guys you could be you are not perfect, you could be faster, you could be more flexible, but you are very credible. You are very technically credible. You walk the talk.
You do what you say, you say what you do. And this is a very important asset we want to build on in the future. So when it comes to the customer experience, we want to change the mindset of the organization. We want to make sure that we are really customer centric. It's a culture issue.
We want to make sure that we have a better intimacy with customers and that all our employees understand the role they play to better serve our customers. We want also to increase what we call the customer coverage. And for that, we will use the data relationship we are developing to have this direct connection with farmers. We will create more and more demand directly at the farmers level. We will make sure that we will have systematically feedback via the implementation of a tool like NPS, the Net Promoter Score, we will also make sure that our CRM tools will be well documented by our sales force.
This is how our offer will look like in one crop system. It's only one example, but we have a very similar picture in the crop system, corn, soy, cotton. It's a very busy slide, but it's on purpose because it's to show you how robust, how compelling, how attractive, how connected offers will be for the better of the farmers. We will have a lot of new launches. We will continue to rely on our InVigor portfolio.
We will launch new varieties, the so called yellow seed canola to help farmers to plant canola in drier regions. We will launch our new hybrid weed technology. We will launch a long series of crop protection blockbusters. We have all our digital tools, the existing one and the future ones. And at the end of the day, for the farmers, for our customers, it's much more than just buying new products, new technology.
It's a way to increase their yields, to increase their profitability. It's a way to be more sustainable. It's a way to make a better use of their farmers' assets via more flexibility in terms of harvesting, they are also reducing the number of crop protection treatments. Key measures to design a new strategy is good to implement it is of course better. So, we have broken down our strategy in roadmaps for each and every country, for each and every global unit.
And of course, this is impossible to show all the milestones we have in the different regions, but it's a good executive summary of what we plan to do. When it comes to innovation, we will implement this crop system approach and this is something which will trigger a lot of changes internally because we are still very much driven by indications. We will have to establish bridges in the organization to have this crop system view. We will launch 8 new active ingredients for protection products. We will launch the new soy trade platform.
We will launch the new hybrid wheat technology. When it comes to digital, you have in mind the 3 pillars. We will smarten our portfolio. We will create this data relationship with farmers. We will develop new disruptive business model.
When it comes to sustainability, we will reshape our portfolio, we will push the accelerator of sales, we will improve the product stewardship. When it comes to customers, we want to listen more. We want to be part of the crop systems of our of the farmers. And last but not least, all of that will happen with capturing synergies and with implementing our efficiency programs. Of course, to make that happen, we need to invest.
We will massively invest in R and D €900,000,000 already in 2019 and the picture will look similar in 2020. In the big four, we are the company with the highest R and D intensity. Capital expenditure, €260,000,000 per year. I mean this is something we can fluctuate depending on the business situation, but it is really important for us to have in house production for our key active ingredients for our key intermediates. Customer facing digital offering, we are already spending €70,000,000 in digital customer facing activities.
This figure will increase up to 2% of our sales because digital is a key success factor for BASF in agriculture. And last but not least, major acquisitions. First of all, at the moment, I'm looking at Hans. We are focusing on the integration of the acquired businesses, But we are of course very open and we are looking at potential opportunities. The focus is very clearly on seeds business, on digital technologies and only on individual active ingredients because here because of the antitrust laws the room to maneuver is very, very narrow.
Another way to accelerate our business is also to develop new partnerships. And this bring a lot of different added value. First of all, it's a way to close portfolio gaps. We have co developed new insecticides with Japanese companies with Meiji, Mitsui. We have co developed Pavecto, our new fungicide Sumitomo and this is something we will continue.
Partnering is also a way to maximize our market coverage. In Asia, very fragmented market, we are already partnering with local stakeholders to maximize our market coverage. But it's a two way approach. We have a partnership with Euralis and because of our strong presence in Eastern Europe, we are distributing the Sunflare portfolio of Euralis because it's good for their market coverage. We want to develop new business models and this is very much about expanding ecosystems and this is what will happen with this new disruptive digital business model with the healthy field concept.
And last but not least, when it comes to data platform, we want also to partner because data sharing, data access is paramount when it comes to digital. It's what we are doing with Nutrien for example. So, we have a very strong strategy. We focus our resource on the very specific and attractive market segments and in these segments we will have a very strong and winning offer for the better of our customers and this approach will translate into tangible financial results. So, we gave us the following financial and non financial targets for Agricultural Solutions.
These targets
are fully aligned with the targets of the BASF Group. We want to grow 1 percentage point above market and by 2,030 our business is 50% larger than in 2019. We want to grow in a profitable way and it is expected that EBITDA before special items will grow on average by 5%. We target an EBITDA margin before special items of 23%. Compared to 2018, this reflects an improvement of around 500 basis points.
It also reflects the increased R and D intensity of the business especially the upfront investment for hybrid REIT. The return on capital employed is currently impacted by the asset step up related to the acquisition the businesses and assets from Bahia, but the target is clear. After a couple of years, we want to again achieve a return above our cost of capital rate. Our strong R and D pipeline is also a major contributor to BSLF Innovation targets of €22,000,000,000 of sales with Accelerators products by 2025. Agricultural Solution is also a major contributor to reduce CO2 emissions.
We do not only optimize our own processes to reduce our CO2 footprint, we also offer solutions to the farmers of this world that help them to reduce CO2 emission and to mitigate the effects of climate change. So, this is my very last slide. We have the best in class R and D pipeline. We want to establish a unique customer experience based on Crop Systems approach. We consider that sustainability is not only a must, but a way to make our customers, the farmers more successful.
And by implementing that, our agricultural solutions will be a major contributor to BASF Group's profitable growth. But what you can't see in the strategy is the power of our team And I can tell you I'm so impressed by the passion we have in the organization. We have a team which is sharing the same vision, a team that considers that to work under uncertainty is a fantastic opportunity to make a difference and with these teams we will move mountains. Thank you very much.
Yes. With that, we would like to open the Q and A. The colleagues just come down to be a bit closer. Oh, it's a whole list, so perhaps you haven't. So we start with Thomas Wigglesworth from Citi.
Thanks very much. Two questions if I may. On the €6,000,000,000 peak sales, are there a number of projects that have disproportionate amounts of contribution to others? Could you identify that? And secondly, on the GT27, I think you were waiting for HPPD to be approved by the European Union.
Is there any update on that process and where you are with that? Thank you. Yes.
I think to the can you hear me? To the first question, you have heard a lot about it. It is also that it's certainly something that stands out in this overall mix, yes? So clearly, this is a blockbuster, something that we have introduced. And particular in the timeframe that you are also looking at analysts making a significant contribution.
If I may add something. When it comes to insecticides, when it comes to new trades, this is just incremental business. When it comes to 4 gs size, of course, there is a part of cannibalism, but we plan to increase significantly our market share also in 4 gs size and this will lead to additional revenue.
So then we stay in the first row for a moment. Oliver Schwarz from Warburg, other side.
Yes. Thank you. Just trying to wrap my head around of your 1% above market. Looking at Slide 8, market growth seems to be expected by 2% to 3% CAGR. So that's basically 1% plus is more or less 50% above market growth, right?
How much M and A is in that? Or is that organically?
Maybe Vincent, because you talked about the 50% is organic, yes.
So it's organic growth. So potential M and As are not in, future collaborations are not in.
Okay. And second question quickly on your expected increase in development costs. You stated that there's only a slight increase earmarked for that in the coming years. But given the your pipeline and the huge number of projects in development, how is it that costs are not increasing more than that?
I think Peter mentioned that because what we looked at is focus, focus on the winning place and that also applies to R and D. So we looked at the crop protection products we had and reallocate it to the crop systems and then some of them were just things you can do, but it doesn't add to crop systems. And so that's how we shaped it, right Peter?
Yes. I think I talked about that with the optimization of the portfolio and the focus on these 4 crop systems, we're actually reducing those projects that are not considered really in our strategy as key. So there are €100,000,000 that we can re employ basically also to drive the pipeline for crop systems then.
Then. So
Andrew Stott, UBS. So we go the row.
Just wondering if you'd share your ambitions, even if not in detail, some broader sense of your commercial revenues from digital. I get those costs. You said that clearly the €70,000,000 investment. But you said 1,200,000 users. I'm assuming not all those are fee paying, but can you give us an idea of how many are fee paying today?
And is there a specific target you can share with us on that? And then on a per acre basis, can you give us a range?
So I don't have precise figures to share with you. But what I can tell you is that the number of direct digital contacts we have with farmers is increasing each and every day in an exponential way. So we are speaking in the future of tens, 1,000,000 of direct contracts. When it comes to the revenue generated by the new digital tools. This will have an impact on the sales of our existing portfolio of crop protection and seeds and this is already included in our strategy in our sales plan over the next 10 years.
Then on top, we have this new disruptive business model. And just to answer to your question, when it comes to fungicide protection and this is something we will launch in 2020 already in a couple of countries. The fee to have a disease free field for farmers will be €250 per hectare, but you have everything in. So you have the cost of the products, you have the treatment, this will be done by a contractor plus all the recommendations provided by our digital tools. The question is, are you invoicing separately for the access to the app?
Yes,
But the most important part to this is what we reshaped strategically is originally Exabeo was more linked to a long term target based on data generation. What we try to do is create revenue streams immediately by linking it into the crop system plus the service package. And I think that's the biggest change, yes, because we want to have revenue as soon as possible, yes?
Yes, we go. Patrik Janneve from Deca is the next question.
Just a sort of more macro question. How much is the business about taking market share? And how much is it about growing? Because I think as a theory out there that basically you're so successful that it's a deflationary business that you're raising yields so much that prices are not really going up.
Yes. Good question. It's more or less fifty-fifty. So half of the growth is driven by the market growth, the rest is driven by market share increase.
Then we have Tony Jones, Redburn. Please go ahead.
Thank you. I've got 2. Following on from Xavio? So how much is it per acre or is there some other sort of way you do it? And then also, could you talk about your capabilities in gene editing?
And is that featuring in the current pipeline or is this a longer dated type thing?
Thank you.
So I think you take
the So to extract value out of the digital tool is a challenge because for the moment it's not what we observe in the marketplace. So there is different ways to extract value out of it. We can sell the services per se. We can also increase the loyalty of our customers and to get revenue via more sales of our existing portfolio of crop protection crop protection and seeds. So when it comes to the disruptive business model, again, we will invoice directly farmers.
They will have fees to get this guarantee and this convenience of having protected fields. And but we don't share how much it will represent in our maybe growth.
Maybe the G
editing I give to you, Peter, right?
Sure. So genome editing, actually, we established that technology in BASF as key technology capabilities that Martin was talking about. This is where actually we built the base because it's of relevance not only to the Ag business but also to the industrial biotech. And now in Ag, there is a real challenge. We use the technology really for, I say, discovery.
So for example, in the wheat program, we use it to really understand how we have to optimize in this breeding process the genome. But we will not use it in products because with the current EU court ruling last year, this would not be possible. I actually was on Wednesday here in the EU Parliament to talk with members of the Parliament because that is truly an issue, I think, for the entire industry. But right now, we have to basically state we will not move forward with products based on genome editing in our portfolio.
Doron Favre, Exane BNP.
My question would be related to the market assumptions on the 3% for or 2%, 3% for the market. Every innovator that has talked publicly in the past 9 months has said, I will outgrow the market. Do you think that we may enter stage where the generics may go from the ungrovers to the ungrovers versus the market? Or do you think that only you
would expect that? [SPEAKER JEAN FRANCOIS VAN
BOXMEER:] I can start and then Vincent will add. I think what we try to show you in the trendings that we have seen a trend where generics over the years were growing a little bit faster than the classical innovators. But given the framework conditions changing so much now, volatility, weather, the crop protection portfolios being much more regulated, there's a unique opportunity that this will now shift in the market. And this is why the innovators, I guess, across the board are more confident of gaining market share because it's simply about an innovation play, yes? The challenges are multiple in order to capture them.
And you saw this in the pipeline of Peter as well as in the crop system approach that, you know, Van Selle showed, it's getting a very professionalized business where you need technologies. And this is where I think there's a game change.
I would say, as a matter of fact, the generic companies over the last 10 years gained ground. We think that the trend for the next 10 years will be very different because the regulatory environment is getting more and more challenging for the generic companies. And this is an opportunity for the R and D companies.
Now Tim Jones, Deutsche Bank in the middle.
Yes, thank you. Two questions, if I may. If you look at 2020, what is the uplift you would get for EBIT if the North American season wasn't the disaster it was this year?
If you
just give us a rough number. And then secondly, can you talk more generally about crop chance of market share, but if you look at companies like Corteva and Bio and Syngenta, they've all got their own pressures for different reasons perhaps. So how worried are you that we're going to go for the next 2, 3 years into quite a price driven market in crop protection?
So, honestly speaking, it's a little bit too early to speak about the season 2020 in North America, because we want to see the product underground figures. This is something which will be available in October and based on that we will have a much more accurate view on what's possible to do. But we expect Maybe if I rephrase the question, if you look at your budget for 2019, which I'll
Maybe if
I rephrase the question, if you look at your budget for 2019, which I presume in January assumed the normal weather and what came out, how much did you lose in North America because the weather was really bad?
Yes. So, I mean, our volumes are significantly below 2018 and I'm speaking about our legacy crop protection business. But what matters to us is more the product on the ground picture because as already said, we have decreased our inventories significantly both in Canada and in the U. S. And we expect that we didn't lose ground that we didn't lose market share at the farmers level in North America.
Okay. So now Matthew Yates, Bank of America Merrill Lynch.
Thank you. I'd like to just ask about the market share assumption and the ability for you to outgrow the market, which you showed on the slide prior, you are number 3 or number 4 in this industry. So there's other companies out there with more scale in distribution, with broader product portfolios. And arguably, next year, we'll begin to be more aggressive in cross selling those portfolios given the consolidations happen. So why is it that you're going to gain share and not actually lose share?
I mean, this is mainly driven by our future and existing pipeline. And what are our key growth levers? The growth lever number 1 is the new hybrid wheat technology. And here we are speaking about the Blue Ocean in its pure incremental business. We have no business in this segment so far.
And by developing this technology, we will have a direct effect on our market share. Then it's also driven by our insecticide new active ingredients. We have a very low market share at the moment. So, this will be mainly also incremental business and more market share. The 3rd lever is our new soy traits, very profitable business and we are almost not present in this segment for the moment.
So, when I look at our pipeline, this will trigger a lot of net incremental sales and this is why we believe that we have very good chance to achieve our market share growth.
Thank you. And I can just ask a quick follow-up. Are you budgeting any share loss on Liberty Link from the launch of Extend?
So that's something of course we are investigating. Of course, our competitors are launching new technologies and this is something which is fully integrated in our strategy of course.
Okay. So now we move perhaps first Christian Faitz, and then we move on.
Actually, on Matthew's Liberty Link question, can you talk about the performance of Liberty Link this year, maybe trade and glufosinate ammonia separately? And then also I mean legacy Bayer was not exactly known for having reoriented the VLAN Digital AG. So what has changed since you got that asset? And have you brought any BASF owned technologies into Xario, for example? Thank you.
So regarding our glufosinate business, and this has been of course impacted by the very challenging business environment in North America, because this is where the sales are happening, but it's a contrasted picture. Again, in Canada, we have increased further our market share in the canola seeds segments and this led also to increased sales of Glyphosate. In North America, again different pictures because of the weather conditions, because of the very, very compressed season. It's a matter of fact that we are undergoing also an increasing generic pressure in this segment. And this is also something we are looking at and we are implementing measures to defend our market share and to make sure that we have a volume strategy.
The Xavier question, what is different, right, was the second one that you asked, correct?
My proposal is that you address this question during the breakout session because we have Toby, who is coming from Bahia and who is now fully part of the family and I think he's the best person to answer to that interesting question. I think
he has various factors he will show of combined ecosystems and business models that are different, significantly different.
Okay. One follow-up question.
Yes. Since I have to ask my second question in the session. 2nd question, number 2. Short sector corn, mean, when Bob Ryder presented this at the Bayer CMD presented this very much as a Bayer Monsanto baby. So you mentioned your economic interest is 40% essentially?
This is correct. I think those that follow us for a while, the commercial term have not changed that there's 50% of the investment is on BASF side and 40% of the residual trade value.
Yes. And that's we're talking about 2,030 here or something, right?
You probably have asked that question, Bob Ryder, and he gave you the perfect answer.
Now Peter Clark, Societe Generale,
please. Yes. Thank you. It's just on the EBITDA growth target of 5% on average. I mean, if you're looking at growing a premium of 100 basis points, you're maybe 4%.
So you're looking at another 100 basis points on that in terms of the EBITDA. By my calculation, your sort of cost synergies efficiencies pretty much would get you that on a 10 year view. So why not more ambition in where you take the margin?
Because we want to make sure that we achieve our targets, That we when we meet again, we will show you that we are very much on track. But yes, and with you, those are achievable targets.
Now Andreas Heine, mine first.
Please go ahead. The first is on this digital platform. In completely other markets, we learned that basically the leader takes all. And in digitization, you're probably not the leader. So how do you see the risk that the leader takes, let's say, 80%, 90% of the market?
Because nonfarmers will not have all the different apps which are available on their iPad? And that's the first question. And the second one, a little bit more on these fungus trade you have in the soybean. I was only aware about 2 mechanisms in the market, the insecticides and the herbicides. It seems to be new.
But whenever I asked about this, it was said that the food was changed so fast in the generation that it is basically almost impossible to come up with a trade in an area where resistance might start immediately.
Yes. Maybe just short too because we will have the session later on, but it's not about just taking all the data, yes? You have to look very specifically into the applications. And for example, if you talk about diseases, we have quite a big know how in that area that is unique. So it's not that everyone has the same.
There are distinct differences of what kind of platforms are created. We have a wide net of partners also that we are collaborating with, which will expand the access to customers. That is what Vincent talked about. So that's why we're very confident because the access to the customers only in this year has quadrupled, yes? So we have really seen a very high offtake of this.
And you have to look application wise. It's not just that everyone has a weather app and shows you how to apply different fungicides or herbicides. It's really driven by applications. Do you want to do the second question from Isai?
Absolutely. This might now be a little bit technical, but you're absolutely right. I think a key is in the design of how we go for a trade that we think about how can we make it sustainable. Now what we have in the discovery strategy is really look not at one gene, but combine multiple genes with different mode of actions get going that you have multiple mode of action to prevent that this is falling down. And then I think this is part why we are excited it's a solution approach because it's not one or the other.
It means it's not just trade or chemistry. I think the secret is that this will be basically be developed as a holistic system. And yes, you can only manage disease if you actually have, I say, rotation and additional effects. So we are looking now and this is actually for 5 years of field data. We have not seen any resistance result results getting a year on year better.
And usually when we do the same thing with chemistry with just one mode of action, we would usually already see first signs of resistance. So in that respect, it's good. And then you have to make sure that you stay up to date. So I think what you see with herbicide traits, what you see with insect traits is also that there is basically we are opening a new field coming back to what Vincent said is, again, this is also why we're optimistic. This is adding at the end to the top line, yes.
Okay.
So sorry, perhaps we go up for a moment and then come back, Mr. Papelenburg from Apergy.
Yes. Thank you. So you clearly state how your R and D pipeline is aligned with sustainability objectives. In your current portfolio, you have some products subject to controversies and regulatory pressure like vipronil and dicamba. So what is there in your portfolio to substitute these products?
And when would you expect this to come to market?
Maybe let me start a little bit how we actually approach today R and D, yes? Yes? And I think this is if I look over the last 15 years, the fundamental changes and you will hear some from Jurgen later on in the breakout session is that from the get going, instead of just screening performance, you really actually screen performance and at the same time you look at the side effects. So this has fundamentally changed the way that we are doing the research. So in that respect also, I'm very optimistic that pretty much anything that we will put into the pipeline in the future will be accelerator sales.
So in that respect, also coming to a point that Verso made is this helps us really to contribute to BASF's group achievement to get to the sales. So I think this is a fundamental way. Now it doesn't happen overnight. That is clear because, yes, the R and D times are considerable in our industry. But I would say with the concept, we have been well ahead in the industry.
We have been really at the need to do this early on. So I think we're in a pretty good position.
So now Chris Cooneyon, Credit Suisse on the right hand side.
Thank you. On the R and D side, you present I think the €6,000,000,000 of new sales pipeline opportunity. Could you maybe talk about what your assumptions are either on What proportion of your business is sold through distributors? And how What proportion of your business is sold through distributors? And how will you act to make sure that you do not marginalize them through this focus?
Maybe I'll start with the first one and then Vincent can add and get the second one. I think Vincent has pretty much covered a lot of the aspects already because if you look at the different areas, so the wheat part is overall on top. If you look in insecticides, anything that we bring to the market will be on top. In fungicide, it's a balance, yes, as Lorenzo has described. And in a herbicide, as soon as we combine things with a trade, we actually really open up also new markets.
So again, it's a balanced picture. You have to look indication by indication here.
So regarding the market approach, thank you for the question. What is changing in BASF already today and what we continue to change is what we call demand creation. And demand creation is something different than whom do we invoice. The most important for us is to be able to understand the farmers' crop systems and how we can meet their needs and their expectations. And here we are investing a lot.
So, we are creating the demand, for example, in Eastern Europe, very strongly, same approach also in North America, in Latin America. But the distributors are and will continue to be our partners. And then the picture differs from a country to another. But the only thing we are making sure is that there is no overlapping between what the distributors are doing and what we are doing.
Just to add to this thought of crop system that you know what this means for farmer from a farmer's perspective because we had some press discussion on Monday already where this question was asked. And we see that with the combined technology of agronomy advice, different technologies, different products, you can really optimize the yield on the ground. So we have examples in North America, right, that goes from times 2 up to times 5 times optimized yield depending on how you apply the different elements. And this is where the beauty is. This is also partially one of the answers of how we apply, for example, digital, which makes it different, yes?
So it's an integrated approach of different technologies that might make that difference, yes?
Okay. So now I think it was also Chetan Udeshi, JPMorgan.
I think can you talk about the regulatory scrutiny the industry is getting these days? Just recently there was news about one of the fungicides in France being banned and you are the biggest producer. How have you taken that into account in your targets? That's number 1. And number 2, this whole digital, it seems every month there is some digital offering in Ag these days.
Yara has 1, Nutrien probably has 1, Bayer has 1, you guys have 1, who is going to win? And how are you taking that risk that eventually there are going to be more losers than winners in this digital offering?
So for the regulatory picture? Yes. So yes, the one thing is pretty much certain that actually regulatory demands will increase, yes? So I think this is something that we have to bet on. It's pretty difficult to predict how because it's also regional difference.
You have different basically demands in Europe versus North America. But I think what is for at least for me personally, it's an opportunity because it will require innovation. And this is what I said is, I think, setting up your R and D to make sure that you can have an advantage out of this, I think this is, from my viewpoint, really key for us, yes? And this is where we have invested and that's where I feel very good there.
So building on what Peter said, what you have seen
in the pipeline, we have actively decided to build sustainability into everything
we do in the lower the risk of regulatory hurdles. And we have proven with Revysol as a platform that we have the tools for it. 2nd, as we said in the beginning, we have asked 2 years ago, 9,000 experts around the world, globally also for BASF, what are the upcoming trends from NGOs, society, politicians. So we have a lot of data by each industry. And what we can at least foresee a few things that will come up.
And one topic that was just recently discussed at the G7 was biodiversity. And so we are preparing for that because we have all kinds of collaboration. It's not only product related. It's also building these farm collaborations. So the customers acknowledge our know how in this sector.
And thirdly, and personally a lot in the EU Commission talking to the different parties. What is really missing is a scientific understanding. And there's a lot of emotional discussion going on. This is certainly something that applies to the entire industry. It's not only agriculture.
It's going across all industries at this point in time. You saw it in other industries as well where emotion is going overboard, singular topics are picked up, then hyped and nobody is talking about facts and real numbers. So at the moment, what we see, CO2 is and circularity are the 2 big things, 2 big topics. But we have made an in-depth analysis of the trends and when they evolve. So we have very much details on that.
And so based on this, we have embedded some of the actions already in our portfolio. Weather related climate change will be something that will come up, and that's why I'm very proud that we have a lot of knowledge on this. And as I said, the advantage of BASF is we have 8,000,000 data around every single country knowing what is the impact of greenhouse gas related to all kinds of factors, and we have the input factors. So this is something we could use when we discuss with customers about how they can make an impact on their farm, yes?
If I may add something, we are very much welcoming regulations that are science based. But we are very worried to see this increasing mistrust or distrust in science and that the regulatory decisions are more and more driven by political considerations. And for a company like this, this is not something easy to anticipate. Yes. But we are prepared for that and we are thinking about ways to create the conditions of a more balanced debate on innovation in agriculture in particular.
And part of the solution is our dialogue, for example, with stakeholders. Vincent and the whole team have entertained public dialogues with NGOs, politicians and the industry together, talking about, so how do we solve the challenges and not only divide, yes? So this is part of what we have to change as an industry.
And then coming to your second question, you are absolutely right. There is a lot of players and there will be probably less winners at the end of the day. We believe that in BASF with this integration of the Xavio platform, we have a couple of key competitive advantage and we are well ahead of a large number of players. But at the end of the day, I think the key success factor is to establish the right partnerships. There is no company in the market today, even the biggest one you have in mind that has all the solutions in hand.
And we want to be very smart here in BASF and you heard what we are doing with Nutrien, for example. We have also very interesting partnerships with machinery company to develop new tools like smart sprayers. This ability to develop the right partnerships for me is the key success factor.
So now Sebastian Bray, Berenberg and after that then yes.
Thank you for the presentation. I had a question about the margin target of 500 to 600 basis points of improvement. The BASF's margins in agriculture in the past have tracked farmer incomes in the U. S. Quite closely.
And I'm wondering BASF was spending a lot on R and D and innovating quite well back 4 or 5 years ago in this area, albeit without the benefit of having the buyer seeds portfolio. What convinces you that this relationship can be uncoupled and that there can be a margin recovery without a recovery in farmer income? So I guess what I'm getting at is given farmer incomes on your all time lows, what convinces you of this appetite for this innovation? Thank you.
Hans, do you have an opinion on the equation? Actually, we'd like to rely on Europe. I don't know exactly what happens.
We find ourselves obviously right now in a rather difficult environment. Tim, to your question, you alluded to the significant challenges that we faced in North America in this season. And I think while Vincent was careful with giving you an idea there, that's clearly a low triple digit million figure that we're talking about in North America. On top of that, in 2019, we are faced with integration costs. Not all of that is running through the special items only.
A good part of that also sits in the underlying operating performance. We'll be through that in 2019, so we'll get with a clean bill of health into the year 2020. That alone should give us a margin improvement. What farmer income will do in the U. S, I cannot tell you, I cannot predict you, but I think what we've done for planning purposes, we've used an environment that looks more like the years 'sixteen 'seventeen and not like the very difficult years that required significant amounts of subsidies 2018 2019 and that all should help to get us back to a 23%, which should be very well achievable with the portfolio that we are currently having.
Hope, Sebastian, that helps.
And maybe I'll address to the innovation piece and the appetite for innovation. I think if you as many of you track us for multiple years, but I think if you look at the launches, yes, I think there are really more launches that are now starting. We talked extensively about Revizole. We talked to StenFlo, Inscalis. And I think, again, this has an impact.
And it is an industry where farmers, because of regulatory scrutiny, they actually substitute products that actually comply better with their needs. So I think this is the piece that is an important part of the equation.
Okay. So now Charlie Webb from Morgan Stanley, please.
Thank you very much. Yes, just maybe some clarification ones. Around the integration process with Bayer, just thinking about what service agreements you still have in place with Bayer that perhaps are going to roll off. I mean, is that incorporated in the synergy target you have set out in terms of mid I'm sorry, triple digit million number is incorporated. Can you give us any sense how much that is?
And also what timeframe you would try to internalize that that you currently use Bayer for? And then secondly, just on coming back to kind of that efficiency of R and D. So I understand why customers want your offering and why the pipeline looks very exciting, but their willingness to pay for that has obviously been tougher and we've kind of touched on farm profitability being the reason perhaps behind that. What assumptions do you take on that pipeline in terms of your customers' willingness to pay for innovation? Looking forward?
Are we talking about an environment that's more like 2016, 2017 versus 2018, 2019? And just what assumptions are going into that would be helpful?
So regarding the integration and the synergies, So the figures I've mentioned in my presentation are 100% driven by cross selling synergies and also by development of new products, new formulations based on active ingredients we have acquired from Bayer and that are very complementary with our own active ingredients. So, when it comes to our commitments post closing, there is still some things to do to disentangle BASF from Baie when it comes for example to the production of some active ingredients. We are relying still on Bayer supply for the moment, but this has to change and we have very clear milestones for that. Regarding our ability to create value out of our new active ingredients or our new traits or our new seeds, you are right, the low commodity prices are increasing the pressure. But if we are able to show evidences that our products, our solutions are just increasing the profitability of the farmers, then without being naive the price tag itself is not the problem per se.
It's really about our ability to show what our technologies are bringing in terms of profitability at the farmers' level.
And maybe if and I just add, I think this is you will see that later on when Ralf and Juergen are talking. I think we really take a great deal of care to make sure that there is a very strong link between R and D targets and what we think is achievable in the market. Now for each of these areas, we define to the best what we can to define what are the value proposition and then match basically the way we screen and we redevelop with this. Things are changing, particularly when you think about the long time lines. But I think this is really this I think there is a, I would say, a culture where we take this.
It's not just let's screen and see what the interesting things we're getting out. I think this is something that has been a stronghold, I would say, and has changed and I would say professionalized how we do things over the last decade, yes? I think you will see that nicely later on the breakout.
We had a conversation with farmers last Monday, just this week. And you know profitability is one aspect, but if you stand in front of a field of wheat that is growing like hell, I mean, in terms of things that you don't want to interfere, and it's growing very fast. We have seen a couple of farmers who had zero income because the resistances are increasing very rapidly at this point in time. So this is why Vincent is right. The closeness of and the collaboration with R and D is pretty extensive.
But if you have a choice between a whole field that you have to erase, and that's what you have to actually do, if this pops up and something that really helps you, it's pretty clear that you need good agronomic technologies and advice.
At this point, looking at the clock, I would like to close the Q and A. And we have come to the end of today's webcasted part. So thank you very much for joining us online, and goodbye for now.