Good morning, ladies and gentlemen, and welcome to the BASF Investor Day Asia Pacific. This is a big, warm welcome from the entire BASF team here today. We are so pleased that so many of you have taken the opportunity and join us here today in Shanghai. As you know, the region Asia Pacific is not only of importance, great importance to the chemical industry, it is of equally great importance to BASF. Ladies and gentlemen, China has been in 2004, when we were first here in the country, already the hottest spot, and it is again the hottest spot today. At BASF, we have a relatively long history with China.
Believe it or not, in the year 1885, BASF had already been present in the country supplying China with important goods. If you add it all up, then, it's almost 130 years by now that BASF is represented here in China. I have brought a neat little example for you that to prove this. Yeah, what you see here this is a BASF label. Namely, you remember probably that in 1897, BASF has successfully launched its synthetic pure indigo, and with this, BASF won the race to produce the king of natural dyes. What you see on this chart is actually the label, a dye label, and it shows Chinese dye works. What BASF did at that time was a marketing trophy, I have to say.
It printed these magnificent motifs on glassine paper, and then it used the glassine paper to wrap the container. Then why was it done? Because when they shipped it overseas, this label served as a product identifier because many end users in the foreign markets, they were not able to read. With this, they got immediately an instruction how to use the product. A hundred years ago, in 1913, for instance, BASF had already quite some significant exports to China, namely 16.6 million marks. At that time, this was already 14% of total sales of BASF Group. Today, obviously, we have a strong and growing asset base and footprint here in this country, and we have grown our business here in China to almost EUR 7 billion in sales in the year 2012.
When we basically look back to our trip that we had in the year 2004, and here I see many familiar faces who have already been with us in the year 2004, then we probably remember that we got a firsthand view on Nanjing and Shanghai, but particularly our ongoing investment for Bund investment in Nanjing. At that time, it was still under construction. Since then, it has been totally completed, successfully put in operation, and even already expanded a couple times. Yeah, both partners, Sinopec and BASF, have already earmarked a combined $1 billion for further investments, which are currently being executed. All that, ladies and gentlemen, you will see on our trip tomorrow.
Coming back to today and tomorrow, basically the objective is in the next two days to talk in detail about our regional footprint here and our business approach in Asia Pacific. You will hear today that BASF has very long-term ambitious targets and a long-term strategy to further expand our position in this region. We basically want to show you in the next two days, and this is our agenda. This morning we would like to show you our BASF strategy for Asia Pacific. We also want to show you how this strategy Asia Pacific really ties into the BASF Group strategy 2011, which we communicated to you in November 2011.
Basically it will tell you how we translate the BASF Group strategy into the regional level, and we will discuss with you all the actions and measures that we are taking basically to complete our targets. You will have lunch here in the building, and in the afternoon we will walk over to our innovation campus, Asia Pacific. This will be very exciting for you because you will receive firsthand information on innovation projects which will drive BASF's future growth. For this purpose, I would like to introduce to you our speakers for this morning. I would like to start with Martin Brudermüller, our Vice Chairman of the Board and responsible for Asia. Then with us today is also Albert Heuser. He is the president of Greater China.
He's also basically the president of this site here and functions Asia Pacific as well. With us today is also Gops Pillay. He's the president, South and East Asia, ASEAN and Australia, New Zealand. The gentlemen will give their presentation together basically, and then after they have completed it, we will have an extensive Q&A session. We'd also like to inform you that we are videotaping and we are audio recording the presentations and the Q&A session, but it will not be a live webcast today.
Then following our lunch, which is downstairs at the bottom on the ground floor, we are then moving in the afternoon to the Innovation Campus, where, as I told you, we will discuss three exciting innovation examples, which you see here, CUBE tour, then the electronic specialties for LCD panels and mobile emission catalysts for Asia. Basically, the background is we not only wanted to show you the Innovation Campus, but we also want to show you what we innovate here in Asia for Asia. We have our colleague, Pearlie Piada here. She's here in the back, and Pearlie Piada is heading our research and development activities in Shanghai, and she will lead us through the afternoon.
To come to a close, I would now like to ask you to please turn off your mobiles and BlackBerries because they could interfere maybe with our microphone system. I ask you for your understanding. I would also like to refer you to the disclosure language, which is right here behind me on the screen. Finally, I would really like to wish you all a very interesting, exciting, but also a very fun day with BASF here in Shanghai today. With this, I would like to turn it over to Martin.
Yeah. Good morning, ladies and gentlemen. We are very happy that you are joining us today. I'm extremely happy that you dedicate so much of your time to us because I think talking, discussing is one thing, but I think also seeing is believing, and that is why I think to understand what we do here, it is also important to see the environment, to see China, but to see also our operations and our answers here. For that reason, thank you for taking the time. It is a very exciting time actually for us here in with BASF in Asia-Pacific and also, Maggie told you, BASF has been present in the region for more than a hundred years. The region is already a solid contributor to BASF growth.
We still believe that there are many more opportunities for us to capture here in the future. We have the solutions to create chemistry in Asia-Pacific, and we believe that we will be successful here by growing smartly. First, however, I would like to give you a little bit of global perspective to remember again, to let you know how this all fits together. You all know our global We create chemistry. I need to mention here just to remember, I'm sure you all know that, but just to capture everyone, a very important technical point. As you know, in March of this year, we adopt the new global IFRS 10 and 11 accounting standards. As one major effect, 50/50 joint ventures, such as our large operation BASF-YPC in Nanjing, are no longer consolidated.
Therefore, we provide you with both the former as well as with the restated figures 2012. I would like to make clear that all targets we mentioned in the presentation, going forward are on the basis of the new accounting standards. Let's have a closer look at the restated sales of EUR 12.5 billion that we have achieved in 2012. Our chemical activities, and that means the segments Chemicals, Performance Products, and Functional Materials & Solutions, accounted for 88%, and Agricultural Solutions accounted for 4% of the Asian sales respectively. BASF focuses its business activities on six subregions. That's how we organize. Greater China, South Korea, Japan, ASEAN, South Asia, which is mainly India, as well as Australia and New Zealand.
Greater China includes for us Taiwan, Hong Kong, Macau, and Mongolia, and it represents 42% of our total business in Asia Pacific in 2012, and thus is our most important market in the region. China is therefore one of the cornerstones of our grow smartly strategy, but we equally strive to develop the other strong growing markets in Asia Pacific as well. The question is: Can we still build on the trends in Asia Pacific that we have experienced over the past decade? A very clear answer is no, because the region is changing drastically. We have done some exercise to analyze those trends in more detail, and I would like to summarize here.
In the next decade, Asia Pacific will face a lot of huge challenges while remaining the world's largest growing market, and it's full of opportunities for the chemical industry. From a macroeconomic point and competitive point of view, Asia is already dominating growth. We see a rise of Asian global companies and champions in all industries in the marketplace, which results in a change of global trade patterns as well as an acceleration of the intra-Asian cooperation and trade agreements. Meanwhile, China's global influence is increasing. China is becoming a dominating not only economically, but also politically and military power in the region. The Chinese economy is a determining factor for Asia regarding growth, trade, as well as regulations. Competition for top talent has visibly intensified, particularly in China, but as well all over the region.
At the same time, societies and governments are becoming much more demanding for corporations. We see a more outspoken civic society and a stronger role of national governments in safety and regulation. This requires corporations to take up a more active social role. In particular, resource scarcity jeopardizes the current resource-intensive economic growth model and drives the need for more innovative and sustainable solutions. I think it is important to remark that volatility, geopolitical complexity, and uncertainty will be constant factors in the future, be it in the raw materials prices, a change in competitive environment, or game-changing technologies. I would say good old times will not come back. You will see later on how we are addressing these trends in our strategy. Let's turn the attention to some macroeconomic data.
The data you see here on the chart show how Asia Pacific will be dominating global growth in this decade and how the importance of the region will increase. With an annual growth rate of 4.8%, Asia will have a share of 1/3 of global GDP by 2020. Within Asia Pacific, China will become the dominating economy. We expect China's share of Asian GDP to grow from a little over 1/3 in 2012 to 41% by 2020. With all the focus on China, however, we should not forget that the other Asia Pacific markets together will stand and account for almost 60%, and they will also grow at very impressive rates. What does this mean now for our chemical markets?
Well, industrialization in the Asia Pacific region continues to drive the growth of chemicals. Higher disposable income, better living conditions, and investment in our customers' industries drive chemical demand. In 2020, Asia will make up half of the global chemical market. Within the Asia Pacific region, it's no surprise that China will be the dominating chemical market with nearly two-thirds of the region's chemical production by 2020. This means naturally that we need to intensify our relationship with our customers in China to participate adequately from increasing domestic demand. We must not, however, neglect the other Asian, Asia Pacific markets as they also offer very attractive growth potential for us. You will see later how we want to capture this opportunity. As outlined already, the region Asia Pacific drives the growth of chemicals.
Even more important, Asian companies increased their share in the global chemical market from 21% in 2006 to 30% in 2011. This expresses the speed of Asian competitors in catching up with their capabilities and competitiveness, that these competitors grow faster than the market and we have to admit they get better. In order to be successful in this dynamic and increasingly competitive market environment, companies have to secure access to competitive feedstock and attract excellent local talent. With the strengthening of Asian competitors, the share of local production has increased over the last 10 years from 60% in 2002 to 76% in 2012.
Due to the early stages of development of most markets in Asia Pacific, the demand for classical chemicals continues to grow at a rapid rate in the region, triggering capacity additions within the region and in the Middle East, fueled by favorable raw material conditions. Asia Pacific is, however, forecast to remain a net importer of basic chemicals such as ethylene and propylene derivatives until 2025. As you can see on the right-hand side, the chemical market in Asia Pacific is very fragmented. Sinopec and PetroChina, the biggest players, only account for a market share of about 4%, where thousands of SMEs are operating in certain market segments. At the same time, the competitive landscape will continue to change quite drastically in the future. Global companies are emerging as powerful competitors.
BASF is the world's leading chemical company on a global basis, and it is the only non-Asian company which makes it into the ranking of the top 10 chemical producers in Asia Pacific. Therefore, we are well-positioned to participate in the outstanding growth opportunities in the future in this region. The strong growth in the region has, however, a price tag. If you look at some of these figures here, it is very clear that the current resource-intensive growth models are reaching their limits. In 2050, more than 9 billion people will live on our planet, and we should be aware of which then more than 5 billion will live in Asia Pacific. This creates a unique set of economic, social, and environmental challenges for our region.
There is a strong recognition all across Asia that economic growth will only be possible within the framework of sustainable development. It's remarkable. Asian competitors across all industries are aware of the need for sustainable development. According to the Dow Jones Sustainability World Index, they have already overtaken U.S. companies. However, there's still a large gap to keep up with European companies. The urgent need for sustainable growth models is actively recognized by governments all over Asia Pacific, and they are increasingly driving initiatives to address the rising issues. As you see, the focus is very much on energy, water, waste, and waste management today, but regulations will intensify and cover more areas tomorrow. This is exactly where BASF comes in, where we have solutions to offer.
Focusing our portfolio more on sustainability is a clear differentiator for us. It makes us an attractive partner in the region, and it offers us many new opportunities. Positioning in sustainability is becoming key in Asia Pacific. Asian companies are catching up quickly with global players, but we can see this in the approaches adopted by various companies. They start from a rather risk reduction basis and grow then to include various EHS and CSR activities, the development of sustainable products and solutions by looking into energy and resource efficiency, and ultimately, it leads to an overall holistic approach for sustainability. Well, let's now focus on our new Asia Pacific strategy in this framework. In a nutshell, grow smartly means that we want to develop sustainable solutions in the most efficient way in Asia Pacific.
Our new strategy will balance the three dimensions of sustainability: economy, society, and environment, and we will measure ourselves along the three dimensions. First, economy. We aim to grow profitably at least 2 percentage points above chemical market production. In 2020, BASF targets to generate EUR 25 billion sales in Asia Pacific with an EBITDA in line with the profitability targets of the BASF Group. Environment. We aim to foster a resource-efficient growth model. With a capital investment plan of roughly EUR 10 billion, including partners and equity participations, we want to ensure that 75% of what we sell in Asia Pacific is also manufactured here. This kind of local production is one important way to minimize our ecological footprint stemming from imports, but we also have other important measures in this area, which we will talk about in a moment.
Last but not least, society, we also aim to contribute to a continuous development of society. We will create around 9,000 new jobs in Asia Pacific and will engage with society and stakeholders to operate as well-accepted part of society. This brings me now to the implementation of the strategy. We have developed measures along six strategic levers in line with our global strategy, which is market, innovation, portfolio, investment, people, and excellence. At that point, I will hand over to my colleague, Albert Heuser, to take you through the strategic levers. Albert, please.
Yeah. Thank you, Martin, and a warm welcome from my side here to the Shanghai Pudong site, which is our BASF China headquarters and innovation campus and production site at the same time. Let's start to look into the strategic levers and starting with the first one, market. By 2020, we aim to increase our sales to customers in Asia Pacific to EUR 25 billion. We will do this by working even closer with our customers and business partners and by exploring opportunities in new markets. Given the volatility of the markets we are in and the growing strength of our competitors, this is for sure not an easy task. We have set ourselves ambitious targets, and BASF intends to grow by about 9% per year until 2020 and thus double total sales to EUR 25 billion.
This means growing more than 2 percentage points above our market assumptions. Reflecting on the currently weaker growth in 2012 to date, this is very challenging. Organic growth will be the main driver of our sales growth. We can build on our strong footprint we have and local presence, our portfolio, and our innovation capabilities. Cross-business growth initiatives, investments, innovations, and acquisitions will all contribute to this strong growth. Let's have a closer look at the industry. Where does the growth come from? We show here our 8 key customer industries on the right side of this chart. For BASF, the most important customer industries in terms of sales are chemicals and plastics, consumer goods in orange, and transportation in red. BASF is outgrowing the strategically relevant markets in all key customer industries except chemicals and plastics, as you see on that chart.
The operating divisions focused on the key industries, transportation, energy and resources, consumer goods, electrical and electronics, and construction drive BASF sales growth in Asia Pacific. Several years ago, we introduced the concept of industry teams at BASF in specific here in Asia Pacific. The objective of the industry teams is to fully leverage BASF's capabilities across divisions. As you can see on the slide, we have already a broad cross-divisional portfolio serving all these industries, and we are constantly analyzing the components, the players, and the dynamics of important value chains. This we use as our industry knowledge base, which is accessible to all of our divisions, and we systematically build on these foundations to significantly enhance the regional industry expertise.
We are now extending this very successful approach to other industries as well as indicated here to mining, food, agriculture, electrical and electronics, wind energy, and textiles. We have dedicated growth rates in mind for these industries as well. Take for example, mining, 11%, food and agriculture, 8%, electrical, electronics, 9%. Wind energy and textiles need still to be defined in a deeper dive. Now let's have a look at our sales growth in the ones for us strategically relevant markets, and this again for the entire region, Asia Pacific. As mentioned before, Greater China will account for a large chunk of the overall chemical market, and this is and will be reflected in our sales as well as you see here dominantly by the red spot.
You can also see that in all subregions we have ambitious targets and intend to grow above the market. We also want to look at the untapped markets. Of course, they do not compare in size with our established markets. By being involved in those emerging markets, we not only open up new growth opportunities beyond 2020, but we will become part of the growing emerging industry structure in these countries. We will set up a task force to explore the potentials in Asia-Pacific's untapped markets, like Laos, Cambodia, Mongolia, and Myanmar. We will also explore opportunities in the base of the pyramid market. The base of the pyramid as a new market suggests that new business opportunities lie in developing and selling products and solutions for customer segments on subsistence and low-income level.
We will start to enter with the right customers in India and later extend this approach to other markets as well. For instance, in ASEAN and other countries in South Asia. Our focus area in this market segment are solutions for affordable mass housing, food fortification, solar and wind energy, and water purification. The strategic lever of innovation will be strengthened in the upcoming years, and this afternoon you will get a much deeper dive into this topic. With increasing consumption in Asia-Pacific, local consumers and increasingly more sophisticated end user industries are demanding products and solutions being tailored for Asia and the requirements there. Based on our strong global R&D network, we will considerably strengthen our innovation capabilities in Asia-Pacific, enabling us to better serve our customers in this region.
Our objective is to create innovation from Asia-Pacific for Asia and for sure for the globe and for the world. By 2020, we plan to have around 3,500 employees in R&D in Asia-Pacific. A huge increase compared to the roughly 800 we have as of today. Building on our global R&D platform, we will address regionally specific R&D areas with importance for Asia-Pacific. In particular, electronic materials, agriculture, catalysis, polymers and materials, mining and water. It is through these research areas that we can develop innovative solutions for our customers in Asia, because they address the major challenges in this region. By 2020, BASF will conduct around one quarter of its global research activities in Asia-Pacific. One quarter. For this, we need to expand our R&D footprint in the region and to develop products and solutions for and with our customers.
BASF established a BASF Innovation Campus Asia-Pacific in Shanghai in 2012, and you will be the testimony later this afternoon to see under the headline, Seeing Is Believing, like you said, Martin, what we have started to do and to achieve here. We are now planning a second such kind of innovation campus for India. The Shanghai Innovation Campus is the first innovation center for the region. Additionally, we will establish industry-specific R&D centers in key markets, such as a global R&D center for electrical and electronics in Korea, an R&D center for water solutions in Singapore, and for mining in Australia. Our third lever is portfolio enhancement. Many of the innovations in new businesses for BASF, but also acquisitions will help us to continuously enhance our portfolio.
Our goal is to generate more than EUR 2 billion in regional sales through new businesses and acquisitions. On this chart, you can see our current portfolio of 11 growth fields, which will deliver innovative, sustainable solutions for 7 key customer industries. We will continuously develop this portfolio and examples of growth fields in which we already offer solutions are batteries for electro mobility, water treatment and wind energy. Let me elaborate one example and let's take the battery material. Battery materials are a very attractive future market, and the vast majority of that market is and will be in Asia-Pacific. We want to position ourselves as a system suppliers and solutions provider for cell manufacturers. We see a sales potential for battery materials of more than EUR 350 million in the region, and this in 2020.
This number will represent 70% of our global sales potential. Therefore, we have acquired Novolyte Technologies, a manufacturer of electrolyte formulations for lithium-ion batteries. In addition, we have established an R&D laboratory just recently and an application technology center for battery materials in Japan, and we are intensifying our cooperation with universities in the region and globally. Let me conclude talking about the portfolio to show you how this developed over the recent years. From 2001 until today, we have divested in Asia-Pacific businesses with sales of about EUR 500 million and bought businesses with sales over EUR 3 billion. We divested more commoditized and cyclical businesses while acquiring close to customer specialized businesses. This has increased our customer focus and made us more resilient to economic cycles.
Our portfolio strategy also includes powerful partnerships with strong Asian companies such as Petronas, Sinopec, and Heesung Chemical, just to name a few. This portfolio development shows that we never rest on our laurels, but shape actively our successful future. With this, I hand over to Gops Pillay to take you through the other three strategic levers.
Thanks, Albert. With the measures under our strategic lever investments, we aim to further expand our local production network. Our ambitious goal is that 75% of the products we sell in Asia-Pacific are produced here in the region. We refer to this as our OMP ratio, meaning Own Manufactured Products. To achieve our target of 75% OMP by 2020, we aim to invest approximately EUR 10 billion in the region together with partners. Why do we want to produce locally? First, local production allows us to be closer to our customers, enabling us to address their requirements much more flexibly and improving our supply capabilities.
At the same time, a stronger local footprint also improves resource efficiency by reducing the transportation needed for imports and exports, and by enhancing energy and raw material efficiency through highly integrated production systems close to customers. This in turn means lower energy use and thus a lower environmental impact. To achieve our target OMP of 75%, we plan to invest EUR 10 billion together with partners by 2020 in Asia-Pacific. We expect the planned BASF share to be at a lower level, as in the last two decades, expressing that we want to benefit from partnering opportunities also in the future. This is a very strong increase in investment compared to the previous years because we have numerous major projects initiated and even more in the pipeline. Now let's have a deeper look at the regional split and the key investment projects.
According to the market development, it is not surprisingly, as Albert has hinted to, the largest market is China and the largest share of our investments would go to Greater China. It is, however, important to express that we see major investment opportunities also in South Asia and ASEAN, which also mitigate our risk not to be over-invested in China. Some examples. Construction of our new world-class MDA complex in Chongqing, Western China, is well underway. We expect first units of the facility to be operational in 2014. The EUR 860 million investment will be an important first step in our Go West initiative in China. We stepwise expand our footprint in Nanjing. Together with our joint venture partner, Sinopec, we are currently building plants for acrylic acid, butyl acrylate, and super absorbent polymer, and study further possibilities for expansion of this site.
In Maoming, we are building a world-class isononanol plant jointly with Sinopec. Isononanol is used as the feedstock for the production of next-generation plasticizers. You can also see that we have significant projects underway in India and Malaysia. In India, we are planning to open a site in Dahej for polyurethanes, surfactants, and dispersions. With this location, we are closer to raw materials and to our customers. BASF would be able to grow its business in the important northern and western regions of India. In Malaysia, we are planning to invest around EUR 500 million together with our partner, Petronas, to build an integrated aromas ingredients complex containing plants for citral as well as downstream products such as citronellal and L-menthol. With this investment, we will serve the globally growing demand of our customers in the flavor and fragrance industry, especially in Asia-Pacific.
To make all this happen, we need the best team. It's all about people. Our employees are key to our long-term success in Asia-Pacific. We are focusing on attracting, retaining, and developing the most qualified talent. By 2020, we need to create around 9,000 new jobs in the region to execute our ambitious targets. We are implementing our global Best Team Strategy in Asia based on the strategic priorities of excellence in people, leadership, and place to work. Excellent people is about attracting the right people and creating the space for their professional and personal development. To groom excellent leaders, we need to foster a feedback culture with clarity on expected leadership behavior and demonstrated competencies to live our values and implement our strategy. To make BASF an excellent place to work, we wanna cultivate a working environment that inspires and connects people.
From these priorities, we have derived key strategic measures. Based on a strengthened brand, we will implement a more differentiated recruitment approach, addressing the right talent for the right job. We will bring our learning offerings under one umbrella via BASF Learning Campus, with Asia Pacific being the pilot region. We will ensure that our competencies address the needs of the customers and markets in Asia Pacific. This includes an employee and leadership engagement program to embed sustainability into everything that we do. We will adapt our performance management system so that it allows us to leverage fully on the strength of BASF. Our work in the areas of human resources in Asia Pacific has been very successful so far. Recent studies confirm that BASF is already a valued employer in the region.
In our latest employee survey, 74% of our employees in Asia Pacific showed higher levels of commitment than industry average. With respect to the attrition rate, BASF comes in with 6.8%, significantly below peer average. Thanks, Martin. Sorry about that. To further improve professional and personal growth for BASF employees in Asia, we will establish the pilot for the Global Learning Campus. The first facility of the Global Learning Campus will be in Singapore. The Learning Campus will present specific learning offerings for all employee groups, as well as flagship programs in cooperation with best-in-class external partner institutions. This concept will contribute to further reduce attrition, as well as improve attraction. The Learning Campus will have also a key role in our sustainability engagement training. Excellence. This brings me to the final lever, but a very crucial one.
A key driver to achieve our ambitious profitable growth is excellence. We need to continuously improve our operational efficiency and our organizational effectiveness to lift our profitability to counteract a tougher competitive environment. As a result, we plan to achieve annual cost savings of EUR 1 billion by 2020. We address excellence in everything we do. Excellence in functional units, marketing and sales, organizational structures, investment executions, and operations are the four key areas addressed in the excellence initiative to establish a competitive advantage for BASF in the region. This is one of the examples. This chart gives you some background to the potential that we have by improving our investment process in excellence. This includes measures in engineering, procurement, and scheduling. Project A and B are investment projects which are being or have been implemented under this approach and show impressive results.
The improvements are around 30% lower engineering service costs, 50% reduction of imported equipment, and project realization in 10 months shorter time. Our investment in water treatment and paper chemicals plant in Nanjing, which Albert will show you tomorrow, was fully implemented in only 18 months, which is almost one year faster than usual. Thus, we have a huge lever to reduce specific investment costs and depreciation in the future. We will consequently execute this approach for all future investments. Our excellence measures overall will improve our productivity per employee. While sales are expected to double from 2012 to 2020, personnel costs will only rise by 80%. Most of you are from the investor community, and you will say, "Gops, this does not sound so terrific at first glance." However, these are good fixed costs.
The planned headcount increase in R&D, plus the additional headcount in production to raise our OMP to 75%, covers about 80% of the total headcount increase. This shows we are drastically increasing our productivity per employee in all other disciplines in the coming years. With this, I hand back to Martin for the wrap-up.
Thank you, Gops. Thank you, Albert. Ladies and gentlemen, you can see that we have a very concrete plan how to profitably grow in Asia Pacific and how to achieve our objectives. It is all about growing smartly, developing sustainable solutions in the most efficient way. By staying close to the markets, focusing on innovation, and expanding our portfolio, we will develop and bring those solutions to our customers. By localizing our production, engaging our people, and focusing on efficiency, we will ensure that Asia Pacific is contributing strongly to the BASF overall mid and long-term growth and profitability targets. With this, we come to the end of the presentation. Thank you for your patience, and we are happy to take all your questions. Thank you very much.
Thank you.
Yeah, I would like to thank all three gentlemen for their interesting presentations. Ladies and gentlemen, I would now like to open up the question and answer session. There is a little change today. Namely, I would like to allow you to put two questions.
Whoa.
My dear friend, Tim Jones, at the last analyst conference has a little bit been critical that I'm so strict. Insofar, I would like to put the first two questions to Tim, if you would like to. Tim, do you have some questions? You will get first chance.
Is it on? Do we use this?
Yes.
Dr. Brudermüller, back to your presentation. You referred to EBITDA trends in the region in line with the group targets. Do you mean that margins in the region will be in line with the group by 2020, or do you mean that EBITDA relative to sales will outgrow by 2020? That's the first question. Second question is, I haven't heard the phrase earn a premium on cost of capital in the presentations. Can you talk a little bit about the trend for earning a premium on cost of capital, both in China and Asia? And specifically, can you comment on whether you earned a premium in Asia and China in 2012? And if not, when you think you will earn a premium on the cost of capital in those regions? Thank you.
Yeah.
I mean, let me elaborate a little bit on this EBITDA, and I was sure that this is the first question because we did not pinpoint out specifically on the, on the EBITDA, which we want to achieve in the region. Why is this the case? I really would like to explain a little bit. I think you cannot expect from an Asian operation as we have it today, which after the IFRS correction fell back to 54% of OMP, that this region contributes the same EBITDA margin than a region like Europe that produces OMP 100% and exports. Because we get for all the products we sell here from import, we get a sales margin. All the pre-earnings are in the European operations.
If you think about an export, which is significant from Ludwigshafen, for example, to the region, which is between almost EUR 2 billion, for example, then all the pre-earnings for the market from Asia-Pacific are shown to you in the European operations. Then you say, "Well, this is the very profitable Europe, and that is the not profitable Asia-Pacific operations." We have only a chance to bring up the EBITDA contribution in Asia if we increase OMP. Theoretically, if we have 100% OMP here, I would say it is very clear that this operation in average has to bring the same profitability than any other region. We will not come to 100%.
We will most probably never come to 100% because you will always have some plants where you have one globally specialized plant which serves the world, and that most of the time, most probably will not be in Asia. With this, we stay at a lower point. If you take the overall portfolio, Tim, I would say if we go the way as we described in the strategy, that we go more to innovation, that we basically serve EUR 25 billion out of a market with EUR 1.1 trillion, we select very much the market segments and pockets where we can differentiate. Yes, then I would say on average, we should have about similar margins, or if we have lower margins, we have to do everything with lower cost.
At the very end, this is what it is about, and that is why we have the excellence lever. We really need to reduce also the operating cost on one hand to respond to the fact that in some of the sectors where we are in, particularly in the base chemicals, we probably have lower margins in the region than in the other comparable regions. That is why we have not given you a clear EBITDA target. We have also not given an EBITDA margin on the group level, as you know. I think with this and the understanding working on the cost base on one hand and with the portfolio on the other hand, we come in this direction that Asia-Pacific is delivering its fair and necessary share in the overall global EBITDA number.
I think this is, which is reasonable and understandable. In terms of cost of capital, Tim, we have never released the cost of capital, the premium we achieve per region. I'm looking a little bit what I'm allowed to say and can say. I think that it's fair to say if I say in the past that most of the times we have generated also something positive here in the region. I would not go further and then even break that down in China. You will see also from the presentation of Albert tomorrow, where he shows you the sales development and the EBITDA development, how profitable the China operations are doing. That is clear. One last word, sorry.
That also shows a lot of assets which we have in Asia are in China, that is why China is good because it has high OMP. If you have in Japan, where most is merchant business, you have low margins also.
The next on my list would be Christian Faitz. I have Norbert Barth, and then I have Jean-Philippe de la Vattel . I have put you down, but a little bit later, okay? We start with Christian Faitz. 15.
Enough time for all those.
Yeah. 15 B.
Okay. Thanks. Christian Faitz from Macquarie. Two questions. First of all, nine years ago when we had a similar event here with BASF, apart from Nanjing, obviously, Caojing was very much in focus. What is happening there at the moment? Because I don't see a lot of mentioning of Caojing here in the presentation. How happy are you there with the joint venture structure? Can you update us, please on the Caojing operations? And then second of all, can you update us on recent demand trends in China after the relatively slow demand trends, even post the Chinese New Year? What's happening at the moment? What are you seeing here on the ground? What are your sales people saying on the ground? Thank you.
I think both questions for the president. Great timing.
Yeah, happy to take that. Caojing was your first question. You mentioned nine years ago there was a lot of talk. I have to say meanwhile, there was a lot of action.
Perhaps you have seen it on the one slide, ongoing investments in the region. Yes, at Caojing we do investments as well, just right now under execution. For instance, a new coatings plant, which is for the waterborne coatings for the automotive industry, very much important. This is just under construction. Yesterday, we had the piling of our polyamide 6 plant, which is a 100,000 tons capacity, in the SCIP park, so Caojing. We have other ideas what to do at the SCIP park as well. You might have seen that we are going to look into the expansion together with our partners for our polyurethane capacities we have for at Caojing.
Conclusion to your first question, Caojing is a very important pillar in our asset structure here in China. For sure, we look into opportunities which will come up when Gaoqiao, the refinery next door of Sinopec, will relocate to the SCIP park. We have two joint ventures together with Gaoqiao. We will look into the opportunities to use this relocation of the refinery as well. Clear answer, Caojing important for us. Demand trends in China, the current trends you were asking. When we look into the different industries, there is a different picture.
When we look into, for instance, the olefins, then we see that the demand is not that terrific as it used to be. This is associated to less demand for polyolefins, where you know that this is not our core business. For sure when we talk about olefins, they are the trendsetter. When we look into the automotive industry, which is very important for us, then we see a very stable high growth for material we are supplying to the automotive industry. You see, already with these two examples, there is a mixed picture, and from that there is not one clear answer to that.
I guess maybe I should specify the last question. March was kind of slow post the Chinese New Year. I take it from other companies' comments that April was slow as well, but May sequentially has improved. Is that what you see as well?
I would not say that we see the same. What perhaps we see after Chinese New Year that it was not a terrific start as we had seen in the past, in several years after Chinese New Year. It was a good, I would say, a healthy growth, not a huge dynamic, and differentiated to the different industry segments as I elaborated.
I think it's fair if you compare last year with this year, you have also the Q1 , which is harder to compare because there is Chinese New Year. It was in February and January. It changed over the years. To compare January and February doesn't make sense.
Yeah.
If you take this together, we have to clearly say March, where everyone expected now it's picking up, did not happen. April was better than March.
It is, I think, very much also with expectation management.
Okay.
I think first of all, everyone expected, and that was also what mainly the Western world did. If the new government comes in place. Can we close the door here, please? That when the new government comes, we see a huge stimulus, and they need, when they are in place, to show that the economy goes up. Obviously, that was also my impression when Li Keqiang was in Germany just one and a half weeks ago. The Chinese government is not unhappy with the current situation and the current growth. That for that reason, it did not have many stimulus. For that reason, I think we all talked us in the mode that this has to take up now after Chinese New Year, which didn't happen.
In that respect, we see an improvement, but not in the way that it's a hockey stick or it goes back to old times.
Right.
Our next question comes from Norbert Barth, which is 14B, right next.
Coming back first to the sales target of this EUR 25 billion compared to the former EUR 29. It looks to me that it is mainly the correction of the new accounting rules. Nevertheless, what I think you included differently to former targets, this EUR 2 billion for new business and acquisition. Looks to be a little bit to fill a gap. Was that the case? Or why you mentioned especially also acquisition, is there something more close to that we can expect something in the near term or why you mentioned that? And second question is about the excellence program. This EUR 1 billion target, can you give a little bit more a time schedule to ramp up to this EUR 1 billion in the next years?
Perhaps are there also some additional expenses where you have to do to come to that level?
No, but I take the first and second one, because they're requests. With respect to the corrections, yes, when we on November 10 released the global We Create Chemistry strategy, we had 29 target for Asia-Pacific. We reduced to 25, which is basically the IFRS correction. You saw that also at the global level, what Hans did when he communicated in March, we come down 5 on the target from 115. Or if I have to say the 80 and 115 to 110. There, 4 are in Asia-Pacific. The reason is that we have the big 50-50 joint ventures here.
It is basically only the correction of the IFRS and the expectation how these businesses would have developed until 2025 in our plan. Now the reason why we have put out this EUR 2 billion and show you.
Billion.
In BASF, EUR 2 billion, the major part is organic growth. Our businesses have done for this strategy a very diligent, detailed bottom-up plan. Each and every SBU has clearly a plan, what they need to do, how much they invest, how much R&D they have and all this. This adds up in the current portfolio to the growth of about EUR 10 billion. What we wanted to make clear out of these growth fields, which we have indicated, one always means that these sophisticated markets are mainly in the U.S. and in Europe. In fact, that is not true. A major part of these new markets will be in Asia-Pacific, and I think in the battery case it was very impressive to show you that 350 out of the 500 million are here.
These are no businesses that are planned today because we don't have them. In the bottom-up plan they missed. For that reason, we have said we have to show this space, that there is EUR 2 billion coming from new businesses which we don't have today. We really wanted to indicate this. It's a portfolio development which is happening over there. The acquisition part, and most probably we'll talk about that later a bit more in detail, because you will have more questions on it. We go away a bit from the strategy to do the big acquisitions, more to the technology-driven acquisitions. Some acquisitions are factored in in the base plans of the operational divisions. They are part of this 25 path. There will be also acquisitions in new businesses which are not part of the plan.
For example, this Novolyte is very much a technology-driven business to supplement our own skills in the battery field. We wanted just to indicate that both on developing the new businesses and also acquiring technology-driven businesses in Asia-Pacific add up to something significantly in this EUR 25 billion because it's almost 10% of our businesses in 2020. That is why it's not a residual thing.
Yes.
It is really to highlight to you that there is in Asia, not only more of the same, but there is something new coming up. That was the reason for that. Maybe later on Asia on M&A, we can talk more how, let's say what you at all can do in M&A because I think we all know it's not so easy. It's more easier, the small ones than in the big ones. This costs a bit more to them.
EUR 1 billion.
I think what is important is not only the EUR 25 billion from the EUR 1 trillion market. I think we agree to both. It's also about our fixed cost base. As I hinted to it earlier on, by 2020 we will have a lower fixed cost base of EUR 1 billion. I gave you one example of the project execution. I think this is just one example. I think the other side where we have is also the structural excellence program. Simply put, how can we as BASF be a little bit smarter. For example, reducing interfaces within the organization to become much more market focused. I think this is another example. To give, I don't know whether I like it or not, but for example, to change the tradition of how we work together.
Myself and Martin in Hong Kong in the future will share an office. I don't think this is unheard of in the chemical industry. This is really where the genetic makeup of the company has to change. The other part is really to be very clinical, and I think, I remember my time when I was in the M&A department, you have a lot of spreadsheets. It's really about being clinical, how we approach our cost base. For example, certain processes that can go more to back office. We have the shared services center. We basically decentralize and bundle. I think moving forward, we have to do this. I would imagine if we are sitting here in 2020, probably we need another structural excellence program for another EUR 1 billion. I think we need to do both.
It's not only about the top line. I think this is something, it's very much becoming more and more part of our DNA. There's a lot of initiatives, and we can also chat later on, about more details.
Maybe just one addition here. I mean, let's talk really about people and cost of people. I mean, what we have seen in the last years is dramatic salary increases that were partly at up to 10% here in China per year. I have made this very, very rude to our people here when we had the last employee meeting. I asked them. I said, "You don't deserve your salary." They were very angry with me, but I think I'm right. We had a 10% salary increase-
Of course.
The productivity did not rise 10%. If we just go on like this to raise the costs, and we don't, on the other side, react to bring home productivity so that they can earn their salary increase, we slowly go down. This is not possible. This is why the mentality has to change, which we had in the past, that labor is so cheap. You just get a few hands from the market to grab all the nuggets that are on the floor. First of all, there are less nuggets on the floor. Second, the hands are more expensive. I had to teach the people to come to a working together where we say we have to do more with less. That is why we said you cannot recruit so many people as you have in your minds.
You have to learn to organize yourself. In a way that you can do things with less people. The good news is, which I told also the people, I think, if you look on salary levels and efficiency in Europe and the one we have here, then there's room, big room for improvement. That is in every process you have. You really want to afford to handle work with five people in a row, or you just say three people in one process is enough. You really engineer. This is all these pieces which is in this process. It's a very diligent one. There is also, for example, another one, purchasing. If we tell you for the investments, we purchase more locally and spend less. Yes, then I have to build up a purchasing organization here in Asia-Pacific that is capable to do that.
That is a pre-investment, and at the same moment, I later on increase the efficiency of my purchasing, and I buy the stuff cheaper.
Yeah.
All these kind of things add up to EUR 1 billion. As you have the step program in on a global level, you have it in a similar way here. We have collected a lot of single things that come up to EUR 1 billion, and we are basically the whole organization in Asia-Pacific is somehow involved in contributing.
Once again, is there from year to year, can we have a little bit, is it more a late-stage ramp-up? What we can expect the years to come, the next years to come?
I mean, we have a plan here. I would dare to say now this is the contribution per year. I might in the future, next time, really give a little bit more on that. We have a plan there.
Absolutely.
We are in the middle now of the structural excellence program, where we define roles and responsibility and all this. I would not now give you next year is that and that. You can assume that, let's say, from the investment part, which is the lower depreciation.
Which is also part of that.
Yeah.
Kicks in later because it can only come as the investments come. Some of the structural piece, which we are going to start to establish end of the year, this year.
Absolutely. Yeah.
Should also be visible in 2014 already.
Yeah.
I think if you take your best assumptions today, the different ingredients kick in slow, longer term, shorter term, take a little bit of a linear ramp. We certainly try to speed that up in the next years more, but I cannot give you detailed numbers now because, I mean, it was strategy, now it's implementation. We have an idea, but give us a bit more time to make it a bit more precise.
Good. We move on to the next question from Jean-Philippe de la Vattel , 7B.
Yes. Hi, good morning. Two questions on competitiveness and efficiency again. First of all, as you said in your presentation, of course, access to cheap feedstock is very important. Can you share with us what are you doing and what will you do to optimize access to cheap feedstock? Will you invest in some of the alternative gas opportunity? There are some investments on the way currently in China. I'm interested about the role you intend to play for these investments. Second question is about manufacturing setup. Forgive me if I'm wrong, but you know, looking from the outside, when you look at the BASF setup in Asia, it probably looks less optimized than what you have in other regions.
With a partnership in Nanjing, a partnership in Chongqing, the Pudong site, now the investment in Chongqing and the sites in Kuantan. You know, you have not realized a centralized hub the way you have in Europe with Ludwigshafen. From an external perspective, it seems that probably your setup is not as optimized as you could reach. I would be very interested to have your view on that and what you can do to improve the development of a centralized hub to improve competitiveness. Thank you.
I'll take over first one. Second one is Albert's. Let me elaborate a little bit on this, a little bit more in detail on this feedstock piece, because I think this is really important to define about the future or define the future competitiveness. If we step back a little bit and let's stay here first, maybe in China, the legal situation is that still as a foreigner, you are only allowed to have 50% in a cracker. The government is actively approving this centrally at NDRC, and that means that CNOOC, PetroChina and Sinopec are the three fellows who have the crackers. If they are generous, they share it with you in a 50/50 joint venture. If not, then you're the minority. That was the landscape in the past to get access to key building blocks in the chemical industry.
What happened in the meantime is that there is many other opportunities in doing chemistry, first of all, gas. You have then the methanol to propylene, and now coming up, coal. With this, you have, or first of all, on-purpose technologies which are not falling under any rule about access things. It increases the field of people who can get access to building blocks. Also, new technology owners because the cracker is one thing, but the coal chemistry and the MTP, MTO things is other people who hold these technologies. In that respect, it's good because it's opening up the opportunities, how you can get access. On the other hand, we have also to say there is no one in the world who ever made a gift to BASF.
There is no one who ever will make a gift to us. The old deal for us was partnering up. You give us access to cheap feedstock, we provide good technology and do the integration and have your whole portfolio to run something integrated. That was the model of the past, how it worked. That still works to a certain extent, but it also only works to a certain extent because there is more technology proliferation. Also, those partners here have more choices. That's why it's not only BASF, the only guy who could do this. You can do it with others. That's why you see they spread their portfolio also into others. We are pretty rude on that and pretty sharp.
You can see from the fact that we dropped out of the summer process with Petronas, where everyone expected that if you announce such a huge project, then it's a done thing and you anyway do it. I think it's a very good example that we invest two years of heavy resources to study this, to negotiate this, and walk away at the end because we say the conditions are not fine. One of the reasons for that was Malaysia wants to have a natural gas price of LNG pricing. It's not competitive in this world. Is that just the last word? No, we don't do it. That's why we walked away.
On the other hand, the Markor announcement which we did, that joint venture with BDO and PolyTHF now in the Xinjiang province, which is far away, but which is the province where most of the Chinese gas reserves are. This is the Tarim Basin, where most of the conventional gas comes from today. We have a partner who has access to very cheap, profitable gas, which was willing to go for the deal, cheap raw material against technology. We bring in our PolyTHF technology, share it with them, and get cheap feedstock. You have to be much more selective in the opportunities where you go to. This also means you have to be ready to open up your partnership portfolio.
That means you have most probably new players in, where you go for a certain location, for a certain product, it fits and you do it because it's good. That requests more flexibility from our side. Maybe let me point out one last point in this elaboration, coal chemistry. If you look into this, there was quite a hesitant reaction first on the Chinese government. They were not so sure whether they should do it. You also saw that some of the projects have been on hold. You, on the other hand, saw since about six months, everything gets the go and green light to go for coal projects. There is now a huge wave of coal projects coming on. It's investments. It's about billions for this stuff because it's very, very capital intensive.
It goes from coal to olefins, and then mostly to ordinary commodities, which means you are in a commodity business later, which doesn't have differentiation, but huge capital binding. In the same moment, yes, if you look at cash cost of coal in China, this is also easy to mine because you don't have to go down. It's basically daylight mining, so you have very low cash costs for coal. They are competitive with shale gas in the U.S., but you have this huge amount of capital in there first, and second, millions of tons of CO2. You have to think about whether you really want that one. As long as there is no CO2 costs, okay, that is competitive.
I leave it to your judgment whether regulation in 10, 20 years in China, whether CO2 still has no cost. If it would become a cost, all these projects struggle. If you invest $3 billion-$5 billion for such a coal project, you need a long time in commodities to get the money back. I think you have to think about that one also very wisely, whether and under which circumstances and what the product portfolio could be if you participate. What I wanna tell you is this, the situation has been much more complex. There is no gift out there. It's hard work to assess and access those resources. You have to be flexible, not dogmatic, not arrogant, in order to really catch up the opportunities. For that reason, not everything will be the same.
There will be new partners, and we will do it in a very smart way. That is how I would elaborate on this piece so far, and this is actually to.
Yeah. The second part was regarding the manufacturing setup in the region, and you said the impression from outside is somehow it is a little bit scattered, compared to other regions. Part of the answer was already given by Martin, but perhaps to add on that, for sure, the region is different from other regions. It's a very complex region with a lot of countries, different markets, so there is a need to be close to our customers in these different markets. For instance, if you take our investment just right now under execution in India, in Dahej, this is a clear manufacturing cluster, for India, and we are happy that we are able to cluster in the northwest of India a lot of our downstream chemistry.
Talking about northwest, this indicates that we have somehow, in specific, for the automotive industry, then in the southeast, for instance, a second kind of cluster for India, where we then consequently will build on. If you go through the entire region, you mentioned by yourself our BPC joint venture in Malaysia with Petronas. We just announced that we look to further expand activities there. So we have certain clusters. If you go to China, we have Chongqing mentioned very early on in one of the first questions, where we look to have there much more of our activities.
We look into, for instance, a hub for serving the automotive industry in the south of China, by establishing an automotive kind of hub where we bring activities together to have more than a clear place to serve the automotive industry. We have a lot of efforts under the excellence topic at the end to look into our structure, which sometimes is a structure where we have to live with for a certain period of time because we acquired some companies and we own a lot of additional sites. From that point of view, an answer to you is be aware that we look under the umbrella of excellence very much so into the site setup, that we have clear ideas how to structure for the future.
Secondly, that we look to decrease clearly complexity of this setup. One measure I could give you is that we underwent a program of consolidation of our legal entities all over the region. A lot of efforts we do here, and by this, excellence is clearly increasing.
Just one thing to add here. I mean, first of all, if the asset base is young, you have more potential in the learning curve to reduce your cost and catch potential with OPEX, which we will do increasingly, because when you start the big sites, you first of all look that they are stable, they are reliable, that the teams are fine, and then you basically work on them to get more and squeeze more out of it. This is now where we still have potential here, which we lift. The other part is still to what I said and Albert elaborated. It is the challenge of us on the one hand to be flexible, but on the other hand, to keep as much as we can in the footprint.
This is somehow a bit diverging, but that's why that dogmatic position doesn't help.
Tomorrow, you will see a good example. Next to our joint venture, BASF-YPC site, we have 100% BASF operations you will see tomorrow. It's remarkable how we make use of streams coming out of the joint venture operations, BASF-YPC. You'll see tomorrow we elaborate this in more detail.
We are now moving on to Thomas Gilbert, 16 B.
Thank you very much. UBS, two questions. Following on from Jean-Philippe on feedstock. If I understand it right, on the whole coal versus gas versus oil feedstock, would you consider an on-purpose butadiene investment in Asia? What is your view on butadiene globally and in the region, long, short, or balanced out to 2020? The second question, I hope I make myself clear, you've announced EUR 10 billion of CapEx in the region. If I look at the waterfall chart, EUR 10 billion of organic growth contribution to sales, and the CapEx probably includes the share in joint ventures, which basically mean. The sales doesn't. The incremental CapEx to sales looks incredibly stunning. I mean, it looks like the incremental return, you spend less CapEx than sales.
What is your IRR for a downstream investment in Asia? Does the organic sales contribution include some cyclical recovery in the base business where the CapEx is already done? Can you break down the growth, organic growth between payback on investments and component of base business cyclical recovery in the region?
Let me start with the second one. I can answer certainly, because, I mean, we talk about a three-digit number of projects that come up to the EUR 1 billion to the EUR 10 billion. You can imagine. I mean, there are some bigger chunks, and there are some smaller. If you remember maybe the picture out of the We create chemistry strategy, we said we go away from the classical chemicals more to the functional materials part, which is end of value chain. This is true for BASF Group-wide. It's not totally Group-wide or true for Asia Pacific. We still do have, under these EUR 10 billion investments, a significant part on the more capital-intensive basic chemicals, MDI plants and so on. There are acrylic acid plants that are heavily capital-intensive, but which are the basis to start and to load these value chains.
That is much more capital investment than you have in a vessel for maybe dispersion. It is a very mixed bag. For that reason, I think, first of all, we have not calculated all them because it's a plan until 2020, you can imagine. It's then also a mixed aggregated number. I can only say if you look on the single SBUs, how they have planned their sales and what they want to invest, it makes a lot of sense. But the aggregated number maybe looks to you it is strange. You should also not forget that some of the investments are back integration. You don't see the sales. If you start an acrylic, build an Acrylic Acid, and you consume 80% in SAP, you don't see the sales double. It still improves your margin, your cost situation.
Please understand for that reason, the aggregated number I think doesn't give you too much.
Right.
As you start then in new markets to build up these value chains with all this back integration and capital intensive, it's still the best competitive position which allows you to survive and to make good money. It is not that you just build something which is always one-to-one giving also sales to the market.
Right.
For that reason, I think more I basically cannot say in terms of IRR. I mean, at the very end, it is a plan until 2020. Not everything will come one-to-one, you know that. One comes later, the other one might change over the way over there. Each and every project has to fulfill single project.
Profitability.
The, the hurdles,
Yeah.
or the rates for any project. We have also at BASF more projects than money, which is good. It's competition internally. Every project has made its way through this bottleneck to be approved to the boardroom. Your first question was about butadiene. I mean, also, I try to circle that from a more general point of view. First of all, with the on-purpose technologies which I mentioned, that you do propane dehydrogenation, that you do coal to olefins, that always means that C4 is short, because oil, they basically have a very low, if not at all, any C4. In the same moment, you see shale gas impact in the U.S., which goes from heavy to light feedstocks, which has the same effect. C4 is short.
That is why I generally would say structurally, C4 is getting shorter in the world going forward, because it's not the standard cracker which has a certain share in terms of C4. More of the C2 and C3 is coming from other sources, and there is no share in C4. For that reason, having access to C4, if you build C4 value chains like we do, it's critical. It's challenging with how you have to do it. For that reason, I can also say in R&D, we work on on-purpose butadiene. That's a project which we have. You make on-purpose butenes, and you make also on-purpose butadiene, that you have the same opportunity. When you need butadiene, you can not only look for cracker output, but you can do it on your own if you have butane feedstock, for example.
I have to say butadiene is not a top critical, raw material for us here in Asia Pacific. We have it in the XSB dispersions, which is paper chemicals, which is challenging anyway. The whole industry is challenging, and you have also here some new developments, I have to say, that you go to different raw materials, which we also do. You dilute the XSB with starch, natural materials. With this, I don't see a dramatic need for this here. ABS is no longer part of BASF's portfolio because it is in solution.
Yeah.
For that reason, butadiene, we need some, but it's not a critical C4. The volumes we would get, we would always get here. For BASF in total, I would say the same is true. If we have the on-purpose technology, we get access on our own. Globally, I would say butadiene is more difficult to get than butenes.
Thank you for this very good answer. Now we come to Lutz Grueten.
Lutz Grueten, Commerzbank. Thanks for taking my two questions. The first question regarding an earlier slide you showed us on the EBITDA, which is shrinking since 2010. I'm not talking about the accounting effect here. The explanation you gave in your presentation was talking about an increased competition. Well, BASF, now for centuries, is used to work in a competitive environment, and I want to get a better understanding for the situation here in China or in Asia Pacific. What's different, how you describe the competitive situation here and how you want to overcome that situation? 'Cause one other slide showed that local competitors are gaining market share, so I guess you are losing market share or have lost market share in the past. That's my first question. The second question regarding R&D.
You got the plan to dedicate 25% of your R&D budget here in Asia. How do you describe the current situation of intellectual property and the protection of that here in China and in Asia Pacific? Thank you.
Yeah. I take the first one. One of you, the second. I mean, with the EBITDA, yes, you saw we had in 2010 record EBITDA of EUR 1.7.
Take that.
Billion, and then the next two years it was going downwards. I mean, first of all, you cannot change your portfolio so quickly. That is actually what we will do with the investments, that we will go further into areas that differentiate us down the value chain, that you also are in areas where innovation plays in. We have also to build up these capabilities. I think we have to say you had a lot of these thousands of companies which were in this pie chart, which are actually our competitors. We are always asked, "How you do against Dow?" We care about Dow. I care about the hundreds of local competitors which are competing with existing products. There, I have to say, there was more the attitude in the past of them that they produce something this month.
They have 10 containers. They go to the customer. They sell it at most at some price. The next three months, they are out of business until they have the next product. I have to say in that respect, these fellows have become better. They have sales forces now. They start to invest in customer relationship, that you also nurture your relationship if you don't sell for two months. You invest more in the market intelligence, that you know better how where are the customers who pay a higher price and for more margin. In that respect, I think we have to say they stepped up in their capabilities. That is also what you see very differently in the different areas. In some areas, very fast. In others, less. That is something which we just had to realize.
We knew that this comes. That's why we had this strategy. I have to admit, it came much faster than we thought. In that respect, yes, we grew. On the other hand, let's very frankly talk about it, 9% growth rate for the business on average 2020. In the moment, we don't live up to this. The current development, we talked about this and you know the numbers. It was 4%-5% in 2012, and the Q1 was not better. We elaborated on this. In the moment, we are far away from the 9%. We have half of it. On the other hand, we also clearly have to say, I mean, we talk about a strategy for the next eight years, and we also know there are good and bad years.
I mean, 2010 was so exorbitant, better than any strategic assumption, as 2012 was worse. I have to say, I think some of these competitive strengthening will not go away anymore. The consequence is that we have to invest smartly in those products where we can differentiate. On the other hand, we have to really step up with the innovation and change also a bit the customer portfolio, and that is good. We have more and more Chinese customers that are more demanding. They don't buy just the commodity products, but they engage with you into development.
Whether you have a higher end in appliances where you do joint projects or whether you have local OEMs in the automotive who want to learn to replace metal with plastic, then you have these pockets where you still run ahead of your competitors. This is why we simply have to accelerate, and this is why we say the 3,500 R&D staff until 2020. You cannot do it overnight, but you'll see from Ricarda and the team how fast we have been here, and it's really impressive. You will see next to it the houses we have torn down, which will be phase two of the R&D center. Next block is coming.
That is why we have to acknowledge growing has become more difficult, and it will not go away anymore, and it is on us. I don't complain about this. I say we have to do our homework. For that reason, the fundamentals which we have shown you, I think, are still valid. If you take the growth rate and the GDP and the chemical market growth of our projection going forward, it is pretty much in line what you had the last 10, 15 years. I think these fundamentals are still true. They shift a bit. There's maybe less in China, but ASEAN is very strong. That is what we have corrected. We have to catch up now that we turn this current situation, which is not what we want in terms of growth.
We turn this to come up to the 9% again. Yes.
Regaining market shares, and that's the aim, growing 2% faster than the market means regaining market share. I guess you're among the cost leaders here in the region. Is price a function to regain market share?
I think also here we cannot generally say this is a portfolio. I think I would say we are price-wise very well positioned with many products, but we are also not positioned perfectly in each product. I mean, as Albert said, I mean, automotive, we strongly grow double-digit at the moment. It's really great. You have other sectors where you are obviously stagnant because you have not so much space anymore to compete. I have to admit also, and you know this from BASF, we are more a value before volume-driven company. In this sense, where if it's then really going for five, we rather say we safeguard the margins and look at the margins and do not buy every ton on the market for every price.
within these whole things, you have to decide business by business what is the right thing. On the overall of BASF, we have to come up with the 9%. Very clear.
The second one was.
Second part was regarding IP.
IP.
IP protection. As innovation is so important looking forward for us, for sure we have an idea about IP protection. When we talk about the innovation campus here in Shanghai, then we talk about IP protection in China, which for a long period of time was always under discussion and somehow was seen very critical. I have to say, we prepared ourselves very much so before establishing all these assets for the innovation campus. I can assure you that we take measures. The second to see is that there is a clear development of Chinese authorities to protect much more IP because they want to have and create much more intellectual property in this country.
Meanwhile, they have more patents than all other countries. They know for their industry in the shift from the old economy being very much export-driven to a new economy, which should be much more scientific-driven, that intellectual property has to be protected. This plays into our cards. Third, we for sure look that we keep our people because this is key. We talked about attrition rate, and, as such, this is another important part, talking about how to protect IP. I think all these measures, together, we feel comfortable to have placed our innovation campus here in Shanghai, being close to our customers.
By the way, as Martin elaborated, we do a lot of research development together with customers, even having a few of our researchers embedded at the customer site in their laboratories, and they have the same interest like us to keep what comes out at the end protected. From that, I think it is a question more or less, perhaps of history.
We see it much more differentiated today.
Let me add one thing here because, I mean, this IPR stuff comes always from a general industry view.
Yep.
As I'm the China speaker for German industry, as part of the Asia-Pacific affairs, I address this on the political level all the times in the interest of the German and the European industry. It's indeed right that 500,000 applications last year from China, so it's a world record leader in applications. It's very clear it's part of the Five-Year Plan. The government says, "The Western world told us all the time, 'You have to be innovative.' So now we are innovative, now you complain again because it's too many patents." There is a KPI, 1.3 patents to 100,000 people. The government, the provincial government, the companies, they go for what the government asks, writing patents. What I complained for at the highest level, I did even in front of Wen Jiabao was saying, "We appreciate what you do.
It's great that you start to count and being the driver of your industry to be innovative, but please take a little care about the quality of the patent. Because many of those patents are just written with a very low invention. If you continue to do that, you bring the whole global system to a collapse, because if you have to handle 10 million patents, no one can move anymore because just one starts a case against the other one, and it's not really helping, it's preventing innovation. That's why we said you have to look on that one, and there is another important part which is not so much on our side, which is in German [Foreign language]. I think it's utility application.
It basically says if someone invents a bottle, and you can go in China and say, "I have one for the, for the red bottle, for the blue bottle, for the yellow bottle, and for the green bottle." Then each of these utility patents basically safeguards anyone to go with the green bottle. This is not helping innovation. That is something which, on the other hand, is always connected with the physical piece, not with the chemical. The German and this utility stuff is nothing important for us.
More for our downstream customers.
Got you.
Last remark I make that interesting, one-third of all patent applications in China is chemical industry. It shows you that this innovation, this is really an innovative industry, and for that reason, we will see many technology applications over there. Last word, one pressure I made, and this is my major threat for European and Western industries is, these patents are written in Chinese, and you cannot read them. Then you do your own patents, you study what the landscape is, you forget to write in your state-of-the-art what the Chinese invention is. Then you launch your patent, you try to get your protection, and then they attack you by saying, "This is no longer an innovation because it was known already." For that reason, we have squeezed them a lot to make all Chinese patents accessible in English.
English.
Which was what planned for 2014, and we reached. That is a political success, I would say. There is now from EPO, from the European Patent Office, a Google translator where you get an English version of the abstract and everything so that you can at least assess what's out there. It tells you something. It's coming heavily. They will have innovation. They will have their own technology. That is also why you have to step up here locally to compete. I have to say, we draw this always as something exceptional with China. I mean, we have it with the U.S., with the Japanese, with the French, with everyone.
Koreans.
It's now China just doing the same. We as company have to prepare ourselves and not only complain.
We're now moving on to Paul Walsh, 18A, and then I have Andreas Heine and Andrew Benson.
Thank you very much. My two questions focus on, firstly, can you talk a little bit about the agriculture segment? It's still a small portion of what BASF is doing in Asia Pacific. If you could talk around the growth opportunities here, and how that fits into the strategy as well. Secondly, on polyurethanes, you guys are expanding capacity, others are also expanding capacity, specifically in Asia. There are mixed views on the capacity increases and the landscape for utilization rates. Can you share your view on that front as well, please?
I'll give you that one.
Okay. Agriculture. Yes. I think you saw in the last meeting we had that agriculture was said a little bit about this. I think if you go in the past, we have to admit we slept a little bit too long before we discovered the Asian market. Some of the competitors have just been much faster and earlier in positioning here. One reason for that indeed was the IPR issue. There was in the past in BASF some people who said, "You rather don't go in this market because of IPR," which I think was a wrong assessment. Today we say, we clearly see that these markets are huge, of huge potential, that we have to assess them. That's why we have to speed up. That's why we try to catch up. I think this is also working quite well.
We grow nicely, and we have a huge capacity build up. You also saw that in Rudong, in Jiangsu Province, we built a new formulation and packaging plant for agriculture, which will help us then to penetrate and to package in the right way to penetrate those markets in China. You know a bit about India with the Samruddhi project, where we have this project to penetrate really 100,000 farmers and really teach them how to use agrochemicals and increase basically their yield and their income. There is a lot going on. Very clear, yes, it's part of the global strategy that we have to catch up and wanna really take advantage out of these markets. I think we are doing well on this.
We are certainly for that reason, historical reasons, smaller than many of our competitors.
Just on the agricultural landscape, do you face a sort of different set of competitors here in China with the domestics producing on the crop protection side from a generic perspective or not really?
Well, I think, I mean, it is a very differentiated market, and it's a huge country, and for that reason, to get really access everywhere is you have to think about how you do that by the sales channel. I think there is one development which I think is in favor of us, because if you look at the five key industries in the last Five-Year Plan, one of those industry mentioned is agriculture, where they clearly want to step up, let's say, the productivity in this sector. They also heavily work on the hundreds of generic companies. It's too much. They try to consolidate. They partly steer that in a way that those generic companies do not get approved anymore for their products, to really force them into consolidation, partly force them even to give up the business.
I think that is a positive environment for us to position here with our products, and we are still on the innovative end because, you know, I mean, we bring in new entities and not generics. For that reason, it's however also important that you focus on the right market, and I think the ag people told you a bit about the areas we wanna focus on. We have less rice products, but we are stronger in wheat. We are stronger in fruit and produce. I think you have to do it also in that respect, that you cannot do everything. I think it is working well, and it is a favorable environment, I think, to do that.
For sure, there is a change in the agro industry as such. There are so-called mega farm projects under development in parts of China, and all this will lead to a different kind of how to do agriculture.
Absolutely.
They're not only talking about, let's say, our key agricultural products like fungicides, herbicides and insecticides. It's talking about some other solutions like packaging, which becomes important. We try to tackle those developments at the right spot as well.
Also you could sort of turn it around because if you look at it, the mature markets are basically Australia and Japan. If you look at the upside potential, and this is where we also have the media day two weeks ago in Singapore. I think if you look at the upside potential we have in the ag business is really because we are really concentrated in these two mature markets. I think as Martin and Albert alluded to, there's a lot more potential in this market here.
Going now to your second question for polyurethanes. Here in China, I mean, we have a very well-respected competitor, Yantai Wanhua. I think it is one of these examples when we talked about competitors. I talked about small and medium-sized. There are also some bigger ones who do very well. I mean, there's no room for arrogance to compete with them. We have to say from a, from a perspective looking at them, the short time period they needed to catch up with Western producers is absolutely impressive. If you look on the capacities, and depends on how you count it, but it takes a few years, then Wanhua is market leader in MDI globally with their capacity, so number one. There's no question. They're coming out of the shadow and being number one globally in MDI.
They build huge capacities here in basically two sites, Ningbo and in Yantai. They get certainly all the backing from the government. It's one of the beloved companies of the government, I have to say. It's one of the global champions. It's about 45% owned by the Yantai government, the shares. In this region, you can imagine this is a beloved entrepreneur. It's a great guy, Mr. Ding, who built this company. They have good technology. They copy BASF Verbund, big and integrated. With this, I think they are a good competitor. On the other hand, I tell you, I have no reason to complain about anything. I mean, this is the market. It's somewhat good.
This is then the one we have to measure ourselves, and we have to find our own setups to compete. I still think that the Chongqing move is a very smart one because it is 1,000 kilometers away from other MDI plants. This is 300 million people living in this region. Our plan is that, over time, all the volume of the 400,000 tons in MDI will be consumed in that region. Transporting 100,000 tons of MDI across China is maybe also not the most sustainable pattern for the future. For that reason, I think we have a regional differentiation there. We have a good setup. We have economies of scale. We have a market over there. That's our answer in this more competitive market in the future. Yes, it became more competitive.
On MDI definitely, and most probably also in the future for TDI.
I guess part of your question was, at least I sensed it out to ask about the capacity in the polyurethanes. Coming to that perhaps in a little bit more detail, why is polyurethane such a kind of interesting product? Because it helps to give a lot of solutions to tackle energy saving, for instance, bring it on a higher headline, help to have better sustainability. As such, it is when you look into the Twelfth Five-Year Plan, then it is clearly one of the products mentioned indirectly that those products should be fostered under the Twelfth Five-Year Plan which help to create a better sustainable industry and better sustainable solutions to be introduced.
It's not a surprise that a lot of capacities come on stream and are under construction like ours because it's a market segment in the chemical industry which has high growth rates.
In the very end, it depends a little bit how the projects are staggered. Sometimes they are a little bit delayed or not all come at the same moment, and so on. But the supply-demand will be a little bit more stressed than it was in the past, that's for sure.
Now, ladies and gentlemen, given the fact that we still have about 30 minutes and I still have 10 questions, I would like to implement an operational excellence program.
Maybe we go to one question per person. I promise you can come back in the queue.
We have also.
Good. Okay, so we are now coming to Andreas Heine, table 6B, then Andrew Benson, then Chris Willis.
He still gets two questions.
I'm beginning on Chongqing. Sorry, a short one on Chongqing, where you have already started to give some information on. Is that plant in the MDI plant still on schedule for 2014? Because there were some statement that it might be a little bit later. Is that site only for this MDI plant or will you build this site, grow out to more products in that area? A more general question on 2020, will the Asian market be different in chemicals to the U.S. and European market, in those days? What does that mean for the product range, BASF is offering here and for the margins?
Taking out agro and taking out oil and gas, how will be the business in Asia in 2020 for BASF compared to Europe and the U.S.?
I'll try to answer quickly and disciplined. I mean, first of all, yes, it's still on schedule for 2014. We are very much on the plan. Our Chinese partners are a bit behind their plan. It's a huge project for the partner who builds the other 15 plants around to serve us with the intermediates and the materials. We help them very much to take this challenge because it is the largest investment they ever had, and we have to help them a bit. The question is: How do we manage this now in the months going forward? It is certainly a challenge, but we still stick with the 2014 target. Your question about the Asian market structure in 2020.
I mentioned already that today it is still more on the base chemical side. I would say it's getting closer to European markets in 2020, but still will be different. I think still too many people who just come to the stage that they can afford to buy some goods which they could not. There is still a very much a basic need to get all the materials to just feed the basic needs, whether this is polyolefins or whether this is polyurethane or other materials. There will be a more sophisticated, innovative driven part, will grow fastly and will basically become more alike Europe and NAFTA. Still, the share in the big basic chemicals will be higher in 2020 in the overall market than in the other regions.
Also to add to that, I mean, right now there is no homogeneous Asian market. I mean, this is the other point. It's hard to compare Asia-Pacific to Europe or NAFTA. I think it's
And so.
It's certainly, if you look at Japan compared to maybe us, and there's some similarities, but I think more downstream innovation will become important, so you have to be closer to customers.
Okay. We come to Andrew Benson.
Yeah. Thanks very much. The sales growth you've got still seems, I don't know, high, relative to the sort of environment that I think our economists in sort of city expect in terms of a great proportion of service, lower level of GDP growth, a lower level of volume pull through. Now, you achieved, I guess, about 9% growth in the historic data you've provided. But of that, probably, I don't know, a third to 40-50% is raw material costs. Somehow the oil price was going very high over that period. So the actual unit volume growth has. And you've said you've lost a bit of market share.
There does seem to be a gap between what you're targeting and the market environment. And also I think, I don't know what Thomas Gilbert's talked about, the amount of money you're planning on investing to achieve that sales growth. Either I'm missing something or there are other factors. Perhaps there is a greater focus on M&A that you're not telling us about, or there's a greater level of inflation, or perhaps you're expecting a, you know, collapse in the value of the euro in order to achieve that sort of growth. I wanna sort of be critical and quiz you on the delivery of that growth relative to the metrics you've talked about.
The second point, which is part of the first question, in order to get in there, is the profitability, because you've talked, again, you know, about the development of new technologies and generally new technologies have high start-up costs. You've talked about a four-fold increase in R&D, and presumably is that, you know, you're not talking about cheap people here. You're talking about a 10% general wage inflation, and yet you're talking about margin expansion as well. There again, there seems to be a mismatch between what you're hoping to achieve and what you're putting in place at this point in time. If I can quiz you on that sales and margin expectation.
Andrew, I mean, on the growth part, I mean, we mentioned that more than once. It's an ambitious growth in 9%. This is very clear. It only works on the assumption that the macroeconomic picture is right. That's why we showed this in very much detail. I mean, coming from the 4.8% of GDP growth in the range until 2020 on one hand, and then the 6.2% on the chemical market. If that would go down, then certainly also our 9% have to go down. The 9% we sell you on the basis that this is the macroeconomic assumptions. If they change, we have to correct them. It's still more than 2% than we normally ask in average in BASF.
I ask you also, I mean, the 2% which results for the company, you can imagine that 2% does not make sense for each and every business. There are businesses where you defend, and there are business where you're very innovative, where you can grow even more with 2%. I think in a dynamic market, where you have a market growth of 6.2%, it's more easy to outgrow the market because you can lead to every of your competitor. It's still a scenario where they also can grow.
If you grow 2% above market in a European market that grows only with 1.5%, and you want to grow with 3.5%, I think it is more difficult than in Asia, where the total market grows maybe with 6 or 7, and you manage with 9%, and some of your competitors might come down to 3 or 4. That is happening now. We say we have 4% and we're growing slower, but we still have a growth scenario. With this very clear answer, Andrew, it's challenging, yes, and it will only fly if all these levers will go in. If in areas like battery, we need to get it and we catch it.
If the innovation kicks in fast enough that our current portfolio can renew their product portfolio, that you can link in more in one-to-one strategic developments with our customers. I mean, you know that Procter & Gamble is a strategic customer of us on a global level, and we have a global target what we want to achieve to them. We just met the management team of them by saying, "Okay, a major part of that has to happen now in Asia." It is also that you partly within your global corporations, you have the same problem as your customers. Some of your customers say, "I have to accelerate my growth in Asia.
I can only do that if you work with me in Asia, and you give me the same stuff I get from you in the U.S. and in Europe." They tell me automatically in terms of innovation, I don't get it here. I have to step it up. Question is also, how fast can we step up? On the other hand, Andrew, I have to say this increase in innovation and getting additional people.
We would have to do anyway as BASF on a global level. For that reason, we say rather than doing it in Europe, we really do it here. It's no cost savings that we do it in Asia. We don't hire the people here because we think the average researcher in Shanghai costs less than in Germany. This is not the point. The point.
It's okay. It's okay.
Is to have different thinking and to be close to the customer. I can only say, yes, it's damn challenging, but we still think the fundamentals are that we can do it. I ask myself, "Why should we give our team a low challenge and say, 'Well, six is fine enough'?" I think, yeah, we drive the screws a bit. They have to run instead. Yes. I assure you, there will be years until 2020 that we'll not get the 9%, but I hope we will also have years where we are above of it. I think we showed also the past.
Yes.
In 2009, 2010, then was much harder than assumed. 2011 to 2012 was worse. Somehow, I think if we talk about a period in the strategy, we have to assume that not every year is the same quality and we can live up to it. With respect to your investment piece, I mean, I cannot say much more than I said here. There is significant part also on the backward integration, that you really get a good raw material source and then build up the value chain. It is very difficult, if you see the aggregated number, to make this understandable. I think EUR 1 investment roughly for a little bit more than EUR 1 sales is not a bad number.
If you think about that, you have to build up new positions in some areas. I mean, I cannot elaborate on this, but if you watched carefully enough, you saw a big bubble in India. If I want a position BASF in India, I have to start from scratch. I don't have a manufacturing over there. I don't know whether we would build one, but we have certain plans over there where we really have to build up this value chain. That needs money. It's not one to one, as I said, in the sales, but I think I can only say we spend days, hours with each and every business, and we grill them and challenge them on their plans. We have looked into the investment plans business by business throughout all the SBUs.
It makes sense what they propose, and the aggregated numbers can do it. I cannot say really much more, but it's well thought through.
With this, we are coming to Chris Willis at 24 B, and then I have Tony Jones, 5 B.
Chris, thank you. I realize that forecasting can be perilous and that you prefer not to put out a 2020 EBITDA margin forecast. If we shift to the present, if, let's say, we were to take your OMP ratio up to, you know, the 75% that you're hoping to hit, could you give us an idea of how much of a margin lift you might have today if you were producing a lot more in the region versus shipping in currently? Just give us an idea of that differential in sort of current terms. Thank you.
Difficult to say more than I already said. I mean, maybe referring also to something that was said earlier on and what Andreas asked, how the business is. I mean, if you look on the business composition here in Asia Pacific today, it does not reflect among the segments what we have globally. Agro is much smaller. The seed sector, the chemicals is much bigger. In that respect, you will see also the thrust. When Agro Chemical runs well and increases the share, we will have more of very profitable agricultural business also generated here. That's certainly clear. On the other hand, we have to say the active ingredient is still mostly produced in the U.S. and Europe, and we do, let's say, formulation here, which expands a bit the margin, but okay, it's still not the margin which we have in the other regions.
There will be also in 2020 still a different portfolio composition than we have in the group, but we get closer to it. I mentioned earlier there will be more seed investments, and for that reason, this will be more exposed because this is where these markets are. In that respect, you have then to add up all these apples, and if you have MDI plants and you build them here, you have polyurethanes margins contributing here more strongly than they would have in Europe. If you take the polyurethanes business and you look in this growth, then most probably the Asian business in 2020 or 2025 is bigger than what we have globally today.
I mean, there is major shifts in all this composition, and I really think I cannot say much more. By taking EUR 1 billion out of the costs, you would be with EUR 2.2 billion EBITDA, that has to come in and then on the other hand you create this shift in the portfolio. You create more innovation, which allows you also higher margins. I think looking into this bottom-up, we came up to this conclusion to say, "Yes, we get closer to what the group on average does." I don't know how I should give this more with quantitative numbers.
Perhaps to add on that because you mentioned the shipping cost alone, and I elaborate on that one perhaps. Typical shipping cost, my answer would be EUR 50-EUR 150 per ton, depending on the chemical you really ship. Is it, for instance, a liquefied gas? Then it is more the 150. If it is, let's say some polymers, which is in a parcel, then it is more the 50. This gives you already an indication, but it's not only the shipping cost as such. It's a whole logistic chain which you for sure have to take into consideration and the lead time.
From that, only in that, out of this, indications, you get an idea that we carefully look in all of our products when and where it makes sense to do the investment closer within the markets.
Let me put one other piece in here. I mean, if you look on the OMP today, we import almost EUR 6 billion value. If we stay with the OMP, we would import EUR 12 billion value in 2020. First of all, can you tell me how we should handle EUR 12 billion imports into this country? Second one, I ask you. Where should the material come from? Then you have to do all the investments I have on the list here for Asia. We have to do it in Europe and not that import. I mean, we don't have the capacities there to organize and to manage the growth. We have to build the capacity. For that reason, it is how much opportunities in terms of raw materials, location costs we get for those capacities. We need to sell this stuff.
How much of that we can really build in Asia? How much we can handle to really execute with engineers and everything? How many good raw material access we get to really do that? At the very end, we need these capacities anyway to grow with EUR 10 billion-EUR 12.5 billion. I think if you look into average spendings of BASF Group and how much we get out of it, and we factor in the effects that we have to build some of the value chain still continuously or totally newly here from scratch, then I think we are with the investment in roughly in line with what we need to fuel the growth at all.
We're now moving on to the next question from Tony Jones.
I just wanted to ask a question about the strategy to get closer to the customer. Now it sounds like a very good thing to do, so it helps you capture more of the future growth, helps you sort of leverage that position. One thing, how are you gonna prevent as you're collaborating and spending more time with your customers, what's the danger that as that customer knows more about your process and the products and the costs, what's the danger that actually you lose part of the value opportunity in the future, rather than transacting at more sort of an arm's length? What will cause that?
Of course. Do you want to?
Yeah. I think it depends on the portfolios. Look at a concrete example, our investment in Dahej, India . We're investing roughly EUR 150 million in three product lines. Let's look at dispersions, this sort of business, and if you buy coatings, for example, there's no paint. The quality of paints are very low. We can produce, for example, dispersions with no odor.
We have to collaborate with people who know the market, and then it's a joint win. I think in terms of the margins we have for these products, I think this is protected because what we are bringing is not only the products, but actually the formulation know-how. It's a full package. Even in some of these businesses, we are actually going and extending our R&D resources in formulation know-how. With this sort of joint development agreement we have with key accounts, we're securing this. I think also in terms of the customer side, it's in their long-term interest to collaborate with us because they also want to be ahead of the innovation curve. This is a key enabler for us moving forward for our downstream businesses.
I think the biggest risk is attrition. When you educate your people, they learn from BASF, they work in all this, and then they move to the competition because they get a salary offer which is 50% higher. I think most of the knowledge still travels in the brain of people. For that reason, one thing is clear, we have to invest in them, we upgrade them. That's why we have also the learning institution. We try, and I always say to my people when they join BASF, "You have three years to do a brainwash that they stay." Because many come to want to have the BASF tag in their CV, and they can sell themselves.
Maybe many even come with the intention to say, "Well, I stay some time at BASF, and then I move on." If we manage to tell them that there is a career opportunity, there is good pay, there is culture, and so on, and they go away less, then first of all, the investment in the person comes back much better, and you have less risk that your know-how is leveraged in the industry, which certainly happens because some of our competitors, they try to hire our guys to get access fast on the learning curve, to not do it from scratch, but jump in the middle and to shorten the way.
Sure.
This is part of what I said earlier, is the competitive win. They certainly, they hire partly the guys. This is shorten the time. I think it is as Gops has said, I mean, why should the customers in Asia be less reliable than in Europe? They are more and more, and if you generate this win-win, they work with you and keep it confidential, and reducing attrition rate is keeping the mind to generate. I think these are the two measures.
We're now moving on to Pandya, 12B.
Yeah. Thanks. Can you talk a little bit in context, what are your expectations for capacity increase over the next, sort of eight years? You're talking about a production or demand increase of 6.2%. In relation to that, what do you expect with regards to imports? My specific target here is the Dow Sadara project in Saudi Arabia. I mean, when that project comes on, will that change the rules of the game in terms of pricing? Because it is a low-cost or low-feedstock project.
I mean, first of all, when you did the market assessment, we certainly have tried by the single businesses, and I think this doesn't make sense from top down. We have to really each and every business. They have certainly tried to factor in the global picture of the capacity development. Sadara is one example, other Middle East projects. I have to say also the U.S. plans for shale gas. I mean, if you think about it, add up all that, you. If it would come, 30% of today's U.S. capacity would come in addition from the announced shale gas projects. I think we all agree no one in the U.S. needs it.
They all dream to sell it in China and India, as well as the Saudis think they can sell it over there, and the Chinese build the capacities on their own and also think they sell it. To a certain extent, it comes to a showdown. I mean, we have done this very often, and we get always the question, "Why are you not in the Middle East?" We have certainly looked always into the Middle East. If you do the calculation backwards, and you see what you need over there is that investment is usually more expensive. Utilities are partly requiring different solutions. To cool something at 50 degrees is also challenging, and so on. If you take all these, investments are more expensive.
You have greenfield and so on. For that reason, sometimes the 20% or 25% rebate in raw materials just translates to be at par with cost of customer. If you calculate all the logistics and everything to land at a customer in India and China, you need these kind of rebates. With that, I don't want to say they are not competitive, but it is also not that they change the world totally. They have to also come to these countries to land, and they have risk of antidumping and whatever. There's a lot of factors also in that respect. We have to look this line by line. Certainly, those materials, we will meet them in the market. Very clear. We have done benchmark, and some they are certainly competitive.
With some others, we don't understand why people do certain things. I think, for example, the U.S. fellows, they will fail to sell all this competitively in China. I don't think that this works. We have to find the answer business by business. Some of the chains might get long for some time if all that stuff is coming that is announced.
It will work to export out of the Middle East, like you made your example, the more you are upstream. The more it is, the polyethylene, polypropylene, MEG, all that works. Go more downstream, it will not work. We can elaborate a little bit more on that, but for sure we expect that such commodity kind of products, they will still be imported in Asia in 2020. Today we have, for instance, in polyethylene, polypropylene, millions of tons being imported.
Polyethylene, it's somehow about 6-7 million tons. Huge volumes. Expectation is in 2020, it will still be an import in Asian markets from Middle East in such commodities. MEG, another example, yeah, very clearly.
That's why you have to counteract with good and favorable raw material access. If that's not the case, then we would have a problem with this.
Now we come to the next question from Herr Köhler. He has only two questions, Mr. Köhler.
Yes, thank you. It's Ronald Köhler from MainFirst. The question on M&A, you already started a bit to elaborate. Actually, two parts of that. The first part is when I understood your EUR 10 billion targets, bottom-up target, you said your segments or your operations also planning with M&A in that, just to clarify that. There is an M&A part into that, and it's not only organic growth, if I rightly understand. The second question, a bit more general on your M&A. You said, obviously, large targets are rarely available. You seem more on board on acquisitions. Can you a bit elaborate on that? And is there anything kind of, let's say, more realistic short-term, or is it a very broad-based strategic thinking?
There are some smaller things in the plans of the ODs, not so much. That's why we say it's organic growth. It's some roundings, let's say, smaller things in certain markets, but it's not big pieces anymore. I think if you look back when you saw the chart, which Albert showed with this EUR 3 billion which we gained, this was the major part from the global acquisitions. I think we have maybe one of the best databases about the companies here. We have screened thousands of companies. Thousands in China, thousands in India, several hundred in ASEAN and several hundred in Japan. I don't know how many we have looked into. If you do that, you come from a long list very easily to a very short list. Why?
Because first of all, very often they say that the portfolio does only fit to a small extent, where you say, "I have to swallow something which I absolutely don't want to." Then you have huge governance problems. There's a huge bunch of companies where you say, "I don't even touch them." The governance, how they do business is not fitting to how BASF does its business. A third element is that a lot of EHS issues, it's horrible plants with environmental problems, which we also say we would have to invest so much to upgrade them. You can basically build it newly. That also not make sense. The fourth element is that some of the more interesting pieces, which are the smaller ones, are family-owned.
If you go to the owner and say, "I want to buy your business," they say. Just shows you, particularly in India, shows you a picture with the five children. He says, "Well, this company is the future of my children. Why should I sell it to you? Unless you pay, you pay me 30 times EBITDA," for instance, by buyers. That doesn't match. At the very end, if you select by these criteria, accessibility, strategic match, EHS governance, the list becomes very, very short. We have looked into some of those. We have also some in the pipeline. This is not bigger things, but let's say, projects that are more, let's say, business-focused, where you have in one business, in one country, something which brings forward something.
This is sometimes very cumbersome because very often this is private-owned, so long discussion, and they go forward, and then they decide not to sell it at all. I think the experience, and we did not make this alone, acquiring in the bigger style in Asia is not so easy. This is one thing, and I think, Kurt also alluded to that in the one or the other meeting with you, that we have maybe not on the agenda now to continue with one big acquisition after the other. You saw also what we have done in the recent, let's say, 18 months, that it's more these focused acquisitions like Pronova, like, Becker Underwood, but also like the Novolyte and the other, smaller acquisitions which we have done in the battery sphere.
We try more to feed to business with distinct positions and also a technology part into it. Actually, looking into this, there is some chance in Asia because you have some startups, you have some of these very specialized businesses, family-owned, which I just talked. There we have a list which we would like to access, and they are part of this EUR 2 billion. I have to say, I have to have a bit of hope that you can do now the one or the other bigger acquisition here because it's simply not so easy there and not so accessible. I forgot that also here in China, a lot of targets are state-owned, or you have at least a provincial government owning 30%, which they never would get out. You cannot integrate this in BASF.
You have to run this as a separate business. There are a lot of things where you say it's not ideal as anything. We will not give up in that, and we will look into this. I just would say we're realistic view. We will do these smaller, first-rate things that make a lot of sense and are business-related, and that's it.
Now we are coming to Jeremy Redenius.
Great. Hi. Jeremy Redenius from Sanford C. Bernstein. I almost hate to ask this question about shale gas since I spend so much of my time talking to investors about why it's not such a major problem for BASF. What is BASF doing, if anything, in China to encourage the development of shale gas so that you could take advantage of it over the next decade or more? Thanks.
I mean, I think we have to be also very realistic here. This is both with coal and also with gas. These are natural resources which you don't get at the moment. You can share it with a partner. If you can do the deal, as I said, they provide the raw material, you have the technology, and that makes sense. That would be another joint venture. There are several provinces that came to us, especially the coal rich, but also then with the gas rich, to offer such a partnership where they say you get a good feedstock price and you do that investment. We have to study these very selectively, very critically. That we could do something alone here or would get access to those national resources, I don't think.
Coal, I talked already about, but shale gas, it's still uncertain how much shale gas is here. There are some people who say it's more than in the U.S. There are some geological formations where it's very well-known how much is there. There are huge areas in China where there was not done enough seismic to really see how much it is, so it is very rough assumptions. We have also to be very clear, I think, for the assessment of the shale gas reserves in the U.S., we have a very particular situation by also technology and landscape and infrastructure to do that. China is far away from copying the U.S. They don't have it.
I mean, if I heard that the U.S., they drilled 10,000 holes for shale gas last year, that is the industry number I heard, China could not do it. They don't have the facilities, they don't have the people. They are in remote areas. The shale gas will take much longer here, that's for sure. It will be always a small portion compared to the needs of the country. You will have a mixed bag between LNG imports, synthetic gas out of coal bed, conventional, and shale gas. For that reason, I don't think that you get too much of that excess, and there is also a pricing scheme coming from NDRC. With this you are a little bit more in a rigid frame.
I think you cannot copy and access what you have with shale in the U.S. here in China. I think what we have with Markor is a good one, which is such an arrangement, partnership against technology to go into that.
Now we've come to the end of our first Q&A round. There are two follow-up questions, but only real quick ones. Norbert? Okay, then, Gilbert, and then after him, Faitz. Then we finish.
Thank you very much. Maybe we can talk about China as well. Two companies have China.
Specific sites.
China, Ethiopia.
Yeah.
Is your customer base in Asia rather the international companies going into China, or do you have a lot of Chinese customers, and if that continues, does they have then to follow with the capital into Africa now on their Asia-Pacific strategy?
Well, let me ask this quickly. I mean, the way how we came to Asia was to follow our European traditional customers on their way to Asia. That was the first steps, and that was how we grew with them. Then now, and I elaborated this, I think today, more and more, and thanks to that development, we have Asian and Chinese customers, and with this being less dependent on the MNC and its strategy. I think there is an opportunity, if you have good customer relationships, to do exactly the same with them again-
Yeah.
to move. I mean, if that is coming to a point that there is a significant demand in chemicals in Africa, which is basically the last white spot somehow in the world, yes, it could be the next wave that you do exactly the same to grow with your customers over there. Why not? I think it is a very smart move. Let's see how that works, but it's definitely worth going on this direction.
Also if you look at the shoes they produce in clocks, for example, in this article, I mean, a lot of raw materials come from us. We have the African strategy that's also dialing into this. I think.
Talk about it. When we did so.
Exactly.
We have the article.
I think it's, you know, it's. I have a vested interest because I'm South African, so maybe.
Okay. Christian Faitz?
All right. Last question. Can you talk about the paper market and the paper chemicals market in general? Because my understanding is that the largest part of the paper market is run out of China. Would it make sense for you to consolidate all your global paper chemical activities in China? You know, what is the strategy there? Thanks.
Well, it's no secret that paper chemicals, part of our Performance Products segment, is one of the low performers, and it's a tough market. It's also an industry, I have to say, I worked for this when I was earlier president. It's one of those industries that is hard to understand. It's not very dedicated to innovation. They somehow have the tendency, whatever they find, they share among each other and leverage their advantage. I don't know why they do this. Possibly the European fin companies do that. It's a tough market. If there is market growth at all in paper, it is in Asia, and it is in China. If you look on the per capita consumption, this is still ridiculously low here in China compared to the Western part.
For that reason, even if you assume the most positive scenarios for electronic media and everything, there should be significant paper growth. Particularly also, I have to say board because of packaging will also increase here as well. For that reason, a major focus has to be and is also a CLS business here. Most or a significant part of the growth of paper chemicals is coming from Asia and particularly from China. It will also depend on how we develop this business and how successful it will be somehow, how we, and it will not only grow within Asia, how we manage to organize our growth here.
What that would mean then in terms of how to organize this business, I don't want to say something here, but you can imagine that this is all part of what we do in Performance Products to step up our performance there compared to what we have once promised and what we would like to see over there. Also here, I have to say this is a very tough market. It's a very competitive market. I mentioned earlier that the binders also are on the move here, and trying to bring the cost down of binders, which will be exactly partly that starch-based and a lot of devel.pment in this. It's if there is growth.