With this, I would like to take a look with you on the agenda. Up, that is for the wrong direction, sorry. Here we go. First, we will hear from Albert Heuser on BASF in China: A Continuing Growth Story. This will set the frame for today. Mr. Kothrade will take over, and Stephan will basically talk about BASF Specialty Chemicals. I would like to introduce to you Mr. Mingwei Qin. Mingwei Qin, he is our general manager of the BASF Specialty Chemicals site, which is here in the chemical park, and he will also present his operation as well.
As another highlight, we have organized a special tour of the Verbund site here, and we are also allowed to view the specialty chemical site, and here Mingwei Qin will tour us there. After we have completed this, we will have a lunch where all three gentlemen will still be available to take your questions. Unfortunately, we have to go home already. Still, I think it will be a very exciting day for you today. Also it will be a hands-on day because we will be out there, also seeing our Verbund site and then specialty chemical site as I can already tell you now it will be highly exciting. Finally, I have to alert you again to our forward-looking statement.
Please, pay a quick attention. With this, I would already like to hand over the presentation to Albert Heuser.
Yeah. Thank you, Maggie. Again, a warm welcome this time here in Nanjing, and I hope everybody is very well energized looking here into this classroom kind of seating, which reminds perhaps all of us to different times and days. Nonetheless, I guess you all are very much excited to get to know even more compared to what you got to know already yesterday. You saw when we left the railway station, Nanjing South, that we somehow circumvented this huge city, which is really one of the very big tier one cities here in China. Used to be several times in the past, in history, even the capital of China, and really it is worth a visit. It's a beautiful city, I have to say. Then we passed the River Yangtze.
A few of you perhaps got a flavor of the river, but you were wrong because it was only half, because then actually we passed an island, which was a huge distance, and then we came to pass the second part of the River Yangtze. You might have realized that you even saw bigger vessels. Up to 40,000 tons vessels are able to approach Nanjing and our site. From that, it's really a deep sea harbor, at least partially for chemical purposes. You could describe it as deep sea approachable. As such, it is in the same situation and condition to being approachable like the SCIP site in Shanghai. Most of the people do not believe this, but it's a matter of fact.
Also, we are here 400km or 350 km inland. Nonetheless, still the sea vessels are able to approach the site, for instance, with naphtha and some other stuff. This was perhaps only an introduction, and as headline says, today, not anymore talking about the entire region. It's more talking about BASF in China and in specific here in Nanjing activities. As you for sure know, meanwhile, China is after Germany and United States the third most important and largest market for BASF. From that, for sure, it's your interest to know more about what's going on here in China. The forward-looking statement we have read already because Maggie helped us.
Therefore, let me introduce what I have prepared for my session, trends in the Chinese chemical market as we see it. Secondly, the BASF performance in China, and I got already yesterday a lot of questions regarding that one, in the bus and, then at dinner. Let's see whether we come closer, to answer in even more detail what you have, as questions in your mind. Then we talk about the strategy implementation in China. Everything what you have already, realized and, heard yesterday regarding the strategy, how we wanted to go forward, to implement those for China. Let's start, to have a little deeper look into how we see, China and, looking forward to 2020 again like we yesterday did, starting with, GDP development.
You see here in comparison of the entire region that we believe strongly that the GDP growth takes over proportionally place in China. Coming from 33% of the piece of the cake, if you will, here in Asia Pacific, being then in 2020 more than 40%. If you ask on that journey, where Verbund or where were the numbers in 2012, then please realize 35% was achieved in 2012. It looks like that we are really with the Chinese economy on that journey to achieve these numbers. It's just not a growth matter, but it's what we see and expect in China that it will be looking forward a much more growth, which is accompanied with sustainability.
We emphasized this already yesterday, but this is very important for us. It's very important, and we took it into consideration to derive our strategy. Next to the topic of sustainability, it is the topic of turning the growth in China, and that is going into the direction to foster the internal consumption. It is to look for higher standards of living and more local value creation. As such, for sure, important topics we need to take into consideration for how we act and behave here in China. Looking then to a second point, this was elaborated yesterday at the dinner tables as well, what is with China's growth? Where does it take place? I always told you it is not evenly distributed.
There is a change, there is a move that growth not anymore takes place only in the coastal areas, in the meanwhile mature Chinese provincial economies. It grows more into the western direction. This slide shows you again to give you some reminder of what normally is described as coastal areas. In the 12th Five-Year Plan, the development for the western provinces is clearly described. There is a lot of emphasis from Chinese government to develop the western part of China. What is western part of China in that essence? You see it now with the blue colors and the provinces which normally are described as the next step to be developed, and these are 12 emerging provinces.
These 12 emerging provinces, you should take into consideration, represent more or less 50% of the population of China. It's huge and enormous potential in these 12 emerging provinces. Talking about going west , just today, I read in the newspaper that Chinese government installed a consultative group to the government, to the highest level. If I'm not misled, then 12 Western CEOs are member of this consultative group, and they should give more input to the Chinese government what to do and how to do, to achieve what is described in the 12th Five-Year Plan to develop the western provinces. From my point of view, it's underlining how important the development of these 12 emerging provinces is valued by Chinese government.
If you look to BASF, then you always hear, yesterday it was already a topic, that, Chongqing is our, let's say, participation in the Go West. Later, I come to this in a little bit more detail. You see Chongqing here nicely on this map as one of the provinces directly controlled by Beijing. In fact, it's a kind of city. We come later to it in a bit more detail. What I would like to emphasize on this map, from Chongqing, that is a starting point for a railway Silk Road going to Ürümqi in Xinjiang province, and from here to the west to Duisburg and Rotterdam. Railway connection. Don't underestimate what's going on there. It's really working meanwhile.
For instance, Ford established a manufacturing site here in Chongqing, and parts are meanwhile distributed between Ford in Europe and Chongqing side. Hewlett-Packard manufactures a lot of printers in Chongqing. If I'm not misled, it's a huge number of several-digit billions of printers, and they use this kind of Silk Road train, Silk Road rail, to bring their products to Europe. You see, it's somehow remarkable what's going on. If you take, for instance, Fujian as another to-be-developed province, 20% of world's shoe production meanwhile in Fujian province. Fujian province, in addition, is very well reputed here in China for fiber and textile industry, so a lot of polyester and polyamide fiber is produced in that province.
A lot of things are already installed in these provinces. If you take Anhui Province, for instance, very well-established meanwhile for refrigerators, air conditioners, and other stuff. I think this is very remarkable, and we should take this into consideration. Greater China, you saw this nice cake with a split for GDP. Looking here to the chemical production. You remember GDP, I had a number saying it will be more than 40%, 42% participation in the overall GDP of Asia-Pacific. Now talking about chemical production, you see it's even more. It's even more important, the importance of China visible here. 64% in 2020 chemical production in Greater China.
From that, this means the importance of China will even increase compared to how we see today, the importance of China for the chemical production in this entire region. For sure it gives enormous potential, not only for us, but for sure for those who have a similar image for the future or into the future, to go to China as well. About competition yesterday, but it's not only we seeing opportunities. It's clear to others as well, and therefore, multinational companies, like local entrepreneurial companies, look for their future success in China, and they are for sure meanwhile a heavy competition in different fields. Looking into this for us as BASF strategic relevant markets in Greater China, we had a similar picture yesterday for the entire region.
You see here that there is a growth to be expected of 7% as in compounded annual growth rate from 2010 to 2020 in key industries which are key customer industries to BASF, like chemicals and plastics, consumer goods, construction, health and nutrition, transportation. We are well-placed because these industries over proportionally grow and 7%, that is our expectation. From that, it will reach a total size of EUR 155 billion as a potential for our strategic relevant markets. Looking into how we are positioned as BASF here in China, this is a picture of chemical producers in mainland China.
We have Sinopec, PetroChina, two oil majors, and for sure in the sales numbers, of those there is the one or the other sales counted which is very close to refinery products. Nonetheless, they have chemical arms, and you see they are strong players. We are number four in that ranking, in front of Formosa Plastics, Dow, Bayer, and others who are engaged heavily here in China. This leads me to the second point of the agenda, and that is BASF business performance in China. The hot topic of a lot of discussions yesterday and you might have even more questions later, when we come to the Q&A. We as BASF, we have a network in China. You saw yesterday Shanghai. What you saw was only one site in Shanghai.
In fact, we have six sites in Shanghai. There was one question regarding Caojing, how important Caojing in the Shanghai Chemical Industry Park, SCIP, is for us, and I mentioned it is very important and it gets more importance to the future. We have a coatings production site. We have a catalyst production and technical development center for catalysts in Shanghai. We have construction chemicals. We have in total six sites in Shanghai. You saw the major one. Today, we are here in Nanjing, and you know the regional headquarters we have in Hong Kong. Now let's have a look what else we have here in China.
As you see out of that map, we have a fair distribution over the entire country, not only in coastal areas. It is far beyond, meanwhile, specifically into these western emerging provinces. In total, we have 32 sales offices and 32 production sites, and we have 21 major wholly owned companies. What you see here on the map are only the major sites because otherwise it would not be a readable map. We have more than 1,000 people in sales distributed over the country. As a takeaway message, we are not a company only being settled in Nanjing and Shanghai, we are much more distributed closer to our customers within China. Looking forward, talking about customers, and we did yesterday, so let's do today as well.
Here you see only a few of our important customers here in China. There are not only the typical suspects of Western customers whose growth we accompanied over the years. There are a lot of Chinese and Asian customers if you go around here whose growth we accompany already since long. Take for instance, Haier. Haier was formed starting with a joint venture with Liebherr, and that is part still of the name Haier because it was for the Chinese Liebherr, so they made Haier. Today, it's a 100% Chinese company, not anymore in a joint venture. It's the world largest white goods producer.
Everything what is related to dishwashers, refrigerators, everything like that, air conditioners, that is Haier, a company with sales roundabout of EUR 18 billion, meanwhile busy globally, not anymore only China. We do business with Haier already since more than 20 years, 25 years or so, and it all started very small. It started with EPS, so a polystyrene foam, selling to them as a packaging material. Meanwhile, it is a customer of a size of close to EUR 100 million for us, and we do meanwhile joint development, having in their laboratories researchers working. We understand very well what are the challenges and what are the targets of Haier because we have people very close working together with them. Take another example.
Take Delta because you might not know Delta so much. This is a Taiwanese company where we started 15 years ago to sell a bit of metal powder because they started a production to produce switches. Those switches made them a big company. Meanwhile, they are busy in visual displays, industrial automation, network productions, and they generate sales of EUR 4.5 billion. From that, it's a company where we do a lot of development meanwhile, where we sell not only such metal powder, we sell a lot of engineering plastics, and we start joint development with them as well. I could go through that circle and tell you much more stories.
Let's come to another important information, and that is, how developed our Chinese business in sales and profitability. You see it on that slide that sales went up starting 2004 here on that slide with less than EUR 2 billion. Meanwhile in 2012, achieving a number which was close to EUR 7 billion. We had yesterday already the topic that we have to restate our sales numbers, and you see that with IFRS regulations our reporting is now for 2012, starting with a little bit above EUR 5 billion in sales. I think it's a very fascinating development. Somehow we tripled sales over the last 8 years, and at the same time, EBITDA rose 8 times.
I think this is very remarkable, and there were a lot of questions yesterday, how profitable is our growth? I think this is part of an answer. Looking to BASF in China, it's not only looking to steel, iron business, it is looking to what is our contribution to people, what is our contribution to the society. We are a well-recognized corporate citizen in China. We got and get a lot of awards like for instance, China Top 100 Green Companies. We are Top Employer not only in 2013, but we got this award in several years. You see and can read by yourself, there are interesting awards under these. From that, truly, we feel in China at home, and we are seen for sure as a multinational company.
Nonetheless, everybody has an idea that BASF is a good citizen and well-behaving here in China. That's important for our attractiveness, looking forward to get the right people on board. Let me come to the next topic on the agenda, the strategy implementation in China. Here again, we have two figures. Where are we today? You saw the restated sales number, EUR 5.1 billion, the restated sales in 2012. As mentioned already yesterday for the entire region, as China is half of the region, we want to grow, we want to grow faster than the chemical market as such, and we want to be coming from EUR 5.1 billion to EUR 12 billion in sales in 2020. That means we need to capture all the market opportunities.
We will accompany the growth of our customers. I told you the story of Haier. I could tell you stories of, for instance, OEMs in the automotive industry who meanwhile Chinese OEMs going to South America, and we accompany them because we are in South America, obviously. We are good suppliers to them because we can sell the same stuff, we sell to them here, for instance, in coatings or in automotive catalyst or in engineering plastics, not only here in China, but accompany them in their new assembly lines, in Brazil, which are just under construction from several of the Chinese OEMs. We will develop our business in emerging provinces. I showed how important that is. For sure, we will increase the operational efficiency that will be elaborated in more detail by Stephan and by Mingwei Qin.
From that, there are clearly a few homeworks to do to achieve this very ambitious target. Let me start looking into the business opportunities via industry teams. It was a topic yesterday for the entire region. Please take away, it's not only a topic for a few people sitting in Hong Kong, it is a hot topic for the entire organization here in China. These are the industry teams we have established here in China, where we look deeply into and where we, by this industry kind approach, learn as an overall company a lot about issues and needs and development of those industries, and then tackle these industries by providing good solutions to them.
Let me take out the automotive as one example, because it's a nice example, but I could tell the same story for the other industry teams as well, that we form teams where there is all the industry-specific know-how pooled, and that is very well established here in China, not only in other places of the region. Why is automotive so important here in China to be ahead of others to tackle this industry with a holistic approach? That is due to the fact that China is the hot place for the automotive industry. The very hot place. Already, in 2012 or in 2011, there was out of the global production of 77 million cars, 17 million cars coming out of China, produced in China. Look to the other regions, North America, smaller.
Europe, it's been bumped up a little bit because it's Europe, Middle East, and Africa production. In fact, if you take only EU, then China production was higher with the 17 million. Looking forward, it will nearly double in 2020. That is not only our expectation, it is expectation from others as well. Automotive industry, China. To give you one example, the use of plastic material in the cars, China and Europe. In Europe, it's double the use of plastic materials in cars compared to China, which means huge potential. It is not only the number of cars, it is the potential to replace metallic solutions, steel and other materials by engineering plastics. It's a huge potential for us looking forward. The same with auto catalyst.
The auto catalysts built in the Chinese cars are still not yet the same standard we have in North America and Europe. But we are prepared when government and authorities take the next step that it is necessary to come to higher standards like Euro 4 and Euro 5, and this not only for passenger cars but for the trucks. We have all the solutions at hand. Automotive industry in China, what does it really mean? You see here China has a lot of production facilities. You can cluster them in different regions. You see the number of plants and the production numbers of cars. From that, you see around Nanjing again there is a huge cluster already existing. It will be broadened, it will be increased.
Again, all this is nicely steered to help the 12th Five-Year Plan to fulfill, looking for the development of the emerging provinces. How do we tackle these clusters of the automotive industry? We always talk about we are close to our customers, and I think this is a nice example that we are really close to our customers. We have, for instance, for coating system supply in Changchun, which is meanwhile the biggest Volkswagen production facility on this globe, bigger than the Wolfsburg production facilities. There we have embedded in the production BASF people working. They have the blue collar with BASF, the chemical company, working in the assembly line. 40 people, I think in Changchun it's even a bit more, working to do the coating of the carrosserie.
the same we have for instance in Guangzhou as well close to Hong Kong. That is not Volkswagen. That is, for instance, in that case, Honda. We have it at other places as well in Nanjing. You see, you can go forth. For sure we are heavyweight in the automotive cluster in Shanghai with engineering plastics, with coolants, polyurethane, system house, automotive catalysts. I talked yesterday already that in the south we want to bring it to a strength we have in Shanghai meanwhile as well. not only have this kind of coating system supply, but polyurethane and catalyst as well. we use it to have much more partnerships in the sense of R&D working together with those automotive customers.
You know one information which is on the next slide. This information is somehow known to you out of an automotive day which was held last year. Nonetheless, I found it worthwhile to break it down to China and how we see our participation in the global growth targets of what we want to achieve with automotive industry. There you as a reminder, you remember that BASF strives to generate EUR 17 billion in sales with automotive industry in 2020. You can expect that we will outperform the underlying growth rate in China because it has to, otherwise we could not accompany this huge and enormous development of automotive industry overall because it will take place the growth of automotive only in China.
Don't expect too much of development in the next years to come in the automotive industry in Europe or North America. I have mentioned several times the growth in China. Yesterday at dinner, you asked me, "Is it still growing?" Yes, it is still growing, I can confirm. We grow as well, even just last month and the month before. We talked yesterday, did we fulfill that we grow just right now 2 percentage points above average, we said we are lagging a little bit behind. Nonetheless, a lot of growth opportunities. This picture shows you overall growth rate in the last years in Greater China was 10%. When we look to the emerging provinces, then you see the orange line, the compounded average growth rate even higher, a big double-digit number.
That is due to the fact that we really focus since a couple of years already on these emerging provinces. Let me therefore come again to Chongqing. Chongqing, as a kind of province, approximately 30 million people living, but it's surrounded by in total 300 million consumers. From that, it's a hotspot, and we feel rightfully placed because a lot of industries are developed there. Meanwhile, I talked about automotive, electronics, and computers, et cetera. Here again, two numbers. Over the last five years, Chongqing GDP developed from EUR 100 billion to EUR 185 billion in five years. So you see it's really a hotspot, and therefore we feel very well-placed with our investment. Talking about the investment, here you have an updated picture, how it looks like.
It's reality, and perhaps maybe once we have such kind of meeting in Chongqing and not in Nanjing, that would be beautiful because you would be surprised how Chongqing looks like. It's an enormous city. You saw the picture before. Everybody in China is very proud of Chongqing in that essence that it looks like Manhattan. Somehow when you are there, you understand what they talk about. It really looks like, and they do a lot of steps to make it a very livable city.
We thank you for the invitation. We're happy to come.
Good.
Thanks, Hans.
Chongqing, as a reminder, EUR 850 million BASF investment. Lots of investment of other suppliers surrounding us, and we talked about that yesterday. Another example of Go West into emerging provinces. This is province of Xinjiang, where we have a partner, Markor, where we use their stake in natural gas. Only as a reminder, this is the largest province, Chinese province. It's very much to the west. If you fly from Beijing to Ürümqi, it only takes you four hours to the west, so you are halfway more or less to Europe already, only as a reminder. You have huge deserts. Taklamakan Desert has the size of Germany. Close to that, we built together with our partner, Markor, an industrial complex.
They have already production here, and this production is, from my point of view, what they have built and established world-class. That we have to admit they understand how to build and how to run a chemical plant as well, which tells you there are competitors coming up where we really have to move ourselves, because like always, competition has two sides, and we take the side that we feel the heat and that we will improve ourselves. We team up with this partner for cooperation to produce then in a couple of years THF and PTHF and BDO, so a whole value chain for products going into the textile industry known as spandex fiber, for instance.
From that, we are very happy that we found an agreement with this partner, which is a private entrepreneur, not a state-owned company, a private entrepreneur, where I can tell perhaps later a little bit more about. We talked about EUR 10 billion being invested until 2020 in the entire region. Here you have the breakdown to China. We will not break down further for each and every other country, but our idea is to more or less invest half of the entire investment in the region. In China, we have a lot of ongoing projects where we do just right now investments, and I showed you two examples, and you see it's distributed all over the place where we do investment, and it is distributed all over the activities of BASF.
Looking again to the slide I showed before, how to move from EUR 5 billion to EUR 12 billion in sales in China, for sure there is a lot of growth from these upcoming and announced projects. This is kind of business as usual and accompanying the growth. The growth from projects under consideration, those where we can't talk about today because it's still under consideration and we do not know whether everything might be materialized, that is indicated here as well. We have new business, what we discussed yesterday, and this will lead us to the 12 billion, and we feel comfortable to achieve that. This brings me to my summary slide and perhaps to the key messages and your takeaways. We have a lot of production for the local Chinese market.
We see this market very encouraging, evolving in specific in the western part of China, in the emerging provinces. We will and have already our answers to accompany all these opportunities by being close to our customers, and we have a strong local organization in sales and marketing here in China. I talked about 1,000 people only in sales, and not only sitting in Shanghai, they are distributed over the country. We have powerful assets in place we will hear more about, and we have good partnerships in both on customer side and in production. From that, accompanied with the development to more sustainability in all the needs for this society in China, we are very well prepared. We feel well established to be the right company to be successful in this market because we have a competitive edge.
Therefore, it's a challenging target to achieve the EUR 12 billion. We see this as an opportunity we can really take. From that's what I had as a message to China, and now I'm very happy to take your questions.
Thank you very much, Albert. We're now moving into Q&A. We have about 15 minutes, so I hope you bear with me that we do one question per person. I saw Andreas Heine here first. Then I saw Tim Jones, and then I saw James Knight, and then I saw Bill Cross. We take those four first. Andreas?
One question regarding the last slide on the sales and earnings. Looking on the growth you project for Asia and China, both from 2010 to 2020. If I take the 2012 number and calculate from 2012 to 2020, then the-
Can you speak up, please.
Sorry. If I calculate the numbers from 2012 to 2020 from the market, then the Asian growth is 5% and the Chinese growth is 6%. If I compare this with the growth target of BASF in the region, then it is substantially higher than the 2% above market growth, so 9% and 11%. Looking at what you said for this year, where you have difficulties to keep up with the growth, what makes you confident that you can change this, what we have seen this and last year on the growth? And could you elaborate a little bit what you call a consistent increase in profits compared to the sales increase? Thank you.
If we come back to these numbers, only to set perhaps one number in a different light. 7% we see as the growth of our strategic relevant markets. For sure, we expect first looking to GDP growth and then looking to the chemical markets, and then we'll have a look to the strategic relevant markets. Those for us being of interest. We do not look really into growth of polyethylene, polypropylene or whatever. 7%, that is our starting point. Then we say we want to outperform this growth opportunity by 2%. That is somehow then perhaps nine, you would say. It's still not the 11. As I mentioned, we see a lot of potential in specific automotive industry.
Take that as an example that we are able to outperform. We see the potential with our industry team approach to come to new businesses on top. That was indicated in that slide where you saw the three breakdowns, so to say, the organic part with all the investment, which is already under execution and being announced, then the ones which is under consideration, and then the final part is that we need for sure to define additional business opportunities. We come to the 11. Second part of your question was that we told you yesterday already that we are behind looking to the current numbers, looking to 2011 second half and now the first month of 2012. You saw how volatile the development used to be over the last years.
Looking into different products, then, we have a shortage in the one or the other product. From that, we are very confident with new capacities being on stream soon that we will demonstrate that we come back to the planned growth path.
Knight, table number 10. 13
The growth targets have been described as challenging and ambitious. Could you give us an idea of how you and your senior management are remunerated? Not details, but whether organic growth is an integral part of that and whether the targets match short-term, medium, long-term versus those externally communicated targets.
It's a good question. Yes, we have such kind of remuneration aspects in place, so there. When it comes to, for instance, the bonus estimation, then it is part to look to fulfill our growth aspiration. Therefore, we told you yesterday that we have made a very detailed kind of strategy in a bottom-up process, which means we have good numbers for each and every business. We have it for the local operating managers of the business units acting here in China on a very detailed level, what we expect in the forthcoming years, what sales and earnings they should achieve. From that, the incentives are clearly in place that it is focused on growth and profitability. It's not only one KPI, it is for sure the profitability which is associated.
The next question is from Tim Jones. Same row at the end.
Yeah. Thanks. Yeah. Forgive me for my pronunciation, but is it Xinjiang, the investment inland that you're doing with Markor?
Xinjiang.
Close. All right.
Yeah. This is the province.
You talked-
The place is smaller. The city is smaller.
You talked. That's probably easier to say.
Yeah.
You talked yesterday a lot about you look for preferential raw materials, and you trade that against your technology. I can sort of understand that with Chongqing and MDI, but I'm a bit more confused about what you're offering in technology for BDO, PolyTHF, and things like that. You yourself said they've already got an established chemical platform. Long-winded question, but what is BASF bringing to that platform vis-à-vis technology?
We bring-
Mm-hmm.
We bring the technology for PolyTHF that is not known to Markor. They already have a running BDO, acetylene, and THF complex. What we build is, in the first part, we build new capacities jointly, and then the final stage is where we bring PolyTHF as our technology to them, and that is perhaps the trigger.
You're not the only producer of PolyTHF.
No
...that can offer technology. I mean, I understand Verbund and engineering and things like that, but I'm still struggling with what do you offer that another company doesn't offer? Is it the view longer term that there are further downstream, dare I say, specialty chains you can further develop, or is it just a cost issue?
It is. First of all, you are right, there are other PolyTHF producers. They do not license their technology like we don't do. We do not license this technology. Therefore, Marco had either to develop themselves or find a partner. We partner now up with them. That is number one step. Number second step, if you go there, then you understand much more is feasible. It could be a starting point even for doing more. Not talking about then BDO downstream value chains, but other value chains as well. Therefore, I mentioned it's a very well-established production already. They have built in a phase one and in a phase two. Now, together with us, they come into a phase III, and they have already ideas for a phase IV.
Honestly, for sure we will look into potential to team up even more deeply in that phase IV.
Okay. Thank you.
Next question from Phil Clarke. Table number seven.
If you'll forgive me, this is really 1.5 questions. The first is perhaps a correction of a typo on slide 22, which if we look at it would suggest that your expectations for automotive chemical sales in China are both well under your 11% targets, more generally for the country and also less than your global-
Mm-hmm
Automotive chemical sales. The picture suggests this is not correct, but the numbers suggests that there's a. Is it a typo?
No, no.
If it's not a typo, why would you, in this important local growth market, be growing slower in automotive chemical sales in China than you would in your automotive chemical sales globally and in your sales?
This is the global picture.
This is the global picture. It's not the China picture. Therefore, I mentioned you know this already because it was used in June for the Investor Day. Not in June. It was when? In-
In September.
September. The Investor Day dedicated to our automotive business. This is a well-known picture.
Okay.
I said we will contribute to this target of EUR 17 billion because the overall growth takes place in China. Therefore, over proportionally, we in China contribute to fill that jump from 9.5 to 17.
You're not saying that.
That is the global picture.
Okay. You're not saying that the Chinese growth in automotive chemical sales is at 6.7% compounded?
No.
No.
It indicates the yellow color indication BASF automotive chemical sales in China. It is somehow a smaller amount today, and it will be a much bigger proportion.
You're not telling us that rate.
Yes.
Okay. Thank you. Then also another slide related question, slide 12. You observe that the profit growth has been more rapid than the sales growth for the nine-year or eight-year period. Looking over the last couple of years, it would appear that the profits have plateaued. Can you give us a sense of the margin outlook? You've talked a lot about the sales outlook, but what is the margin outlook? And to the extent that you expect margins to expand, how do you intend to do that?
Yeah. As I think this goes along a point which was already discussed yesterday. Yes, we feel more competition, therefore, there is a certain pressure. Nonetheless, with our development going more downstream, going more to establish ourselves as a solution provider, we see that overall, the margin looking forward, we can at least keep or improve. For that, we need the one or the other investment. Therefore, investment in specific for downstreams are important, but all the downstream development we do here in China needs somehow the well-established raw material supply from the upstreams. Therefore, here in China, what you see and what we do is to invest not only in the downstreams but doing in the upstreams as well. Later, we have a good example.
Mingwei Qin will talk about one plant which we will inaugurate today, which is then using raw materials from BASF-YPC. Without these raw materials, it would have been hard to come to a project and to an investment under 100% BASF for downstreams. That is how it is working and how it is connected.
The next question is coming from Paul Walsh. Please stick to one question because otherwise we won't get through. Paul?
Yeah, sure. No problem. Paul from Morgan Stanley. Mine was something of an observation as well relating to that chart. I understand that, you know, the competition is increasing, the Chinese EBITDA has been somewhat stable. The charts you showed yesterday showed Asia-Pacific suffering a EUR 300 million decline in EBITDA. It doesn't look like it's China that's responsible for the absolute decline. Can you just talk a bit about which markets have actually faced the bigger drops in profitability? 'Cause actually within Asia, this looks like a relatively good news story.
That means you are positively surprised to see this because yesterday your takeaway. Okay. Clear. Obviously, what we discussed yesterday, in other markets in Asia-Pacific, where we do not have, to the full extent, our own manufacturing within the market, there we suffer a bit, that we do good business, but the earnings and the profitability is shown elsewhere. As we have, meanwhile, with more or less EUR 6 billion in investments done over the last 20 years, we have already an established footprint of own production, own manufacturing here in China. We do not suffer the same, like perhaps other parts of the entire region.
Would that be like Japan?
Sure. It is Japan. Then you have this extra burden of currency effects. It is partially India, where we import a lot of materials, where, by the way, the growth rates are not terrific just right now. Sure, it's in those markets.
Going on. The next question comes from Jeremy Redenius.
Hi. Looking back at that chart that Bill pointed on page 22, I'm just doing some rough eyeballing, very sophisticated analysis. I get to about 20% growth rate for that yellow area. Of that-
Honestly, this was really only a guess from me.
But-
I said it's yellow.
Fine.
That was me.
It's a big number. The fundamental question is where does that growth come from? Is it? Maybe you can dimensionalize it. Does it come from multinationals producing in China or more from Chinese producers? What does that mix look like? How much are you assuming about auto production growth versus material substitution, where there's more chemical usage in auto?
I indicated that we expect a lot of new chemical solutions in the Chinese automotive market. I made this comparison, 6%-8% of the cars is plastic materials in China. For European car, it's double. It tells you what enormous potential exists in this market only by replacing in the existing volumes of automotive production. Then on top, you have this dramatic increase in car production, more or less coming from 17 to 30 million cars. This is the second part of your question, what is our expectation? Will it be a different kind of split between Western brands and perhaps here the local brands? We expect that the Chinese automotive market, the Chinese OEMs that we see much less in future, but much bigger ones.
Because today you have more than 80 Chinese local OEM brands. There is a clear tendency, supported by government, to have less, much less, to create perhaps the one or the other global brand over time. We for sure try to identify the future winners of the Chinese OEMs and work closely together with them.
Can you give us a sense of where you're starting from now? Are you 90/10 multinational versus Chinese producers, or is it closer to 50/50 or?
Hard to say. This is too much of a gut feeling, I would say. That's a question perhaps more to an automotive expert from Volkswagen or whomever or a consultant group. Basically, it will be a clear tendency that the cake of the Chinese OEMs will be much broader in 2020 than it is today.
All right. Thank you very much.
The next question comes from Lutz Grüten.
Lutz Grüten, Commerzbank. A follow-up on page 12 again. The EBITDA margin, or not margin, the growth rate, which was indexed there, it is based on the EBITDA number as you see them here in your local reporting, or are they adjusted for imports and the lower trading margin, which is related to that? First part of the question, and then, page 15, you give the growth rate for sales, and now you're saying EBITDA margin should be stable, at least.
Yes.
Saying that the CAGR for that EBITDA then should be at least 11%. Yeah.
Coming to the first part, it's a local company, EBITDA plus the margin which is coming then elsewhere on top.
Adjusted for that margin improvement.
It's in that sense, if you will, adjusted, right? Yeah.
That's important.
Second part of your question.
You're saying the margin should be at least stable. It means that the CAGR you're looking for 2012, 2020 EBITDA should be then at least 11% as well as top line forecast.
You ask for what year?
EBITDA CAGR.
For what year?
Twenty.
2012 to 2020 .
Okay. For sure, as mentioned yesterday, we want to and have to contribute to the overall group's target, and that is what we have announced. As we do anyhow, our investment decisions based on what is the profitability, and you learned yesterday, we have more project ideas on global scale than money, then it's very clear that we have to deliver profitability and earnings in sense of EBIT and EBITDA, which is competing to other regions. In other words, it has to be on more or less the same level.
We have three more questions. Shai G. here.
I think Anu was all the time.
We don't have the time anymore.
Okay.
I'm very sorry. Shai G.
Yes. Can you give us a feeling in your current setup, excluding the CapEx projects, what is the potential for you to grow the EUR 5 billion sales to? If you exclude all the investments that you're talking about, in your current setup, what can that EUR 5 billion be in the next five years until 2020?
What's your assumption? By importing more material or by sweating the assets and in-
I just wanna know what is your current utilization. How utilized are you in your current setup?
For sure, this is not that I do not have one single number. You have to look into every, each and every detail. As I said yesterday, you will hear more about by Stephan. Petrochemical industry just right now in China looks different than, for instance, everything what goes into automotive industry. Automotive industry, for us, a bigger double-digit number. Therefore, somebody derived the number. It is more. It is not the 10%, it is more how we grow with that industry. When we look in petrochemical, for sure, it is different picture. Sinopec, PetroChina not earning money in the first quarter with their petrochemicals. That is a proxy for the market. When you look in BASF's Nutrition & Health business, we are on a very good track just right now in China.
You have really to go business by business. If you look to Construction Chemicals, it looks a bit different as well as we decided to switch over to more high sophisticated products, and that has a few consequences that we give up the one or the other product and by this reduce perhaps even sales for a certain period of time. Therefore, I can't give you one single number.
I'm really sorry to do this, but we are so late in time that we have to stop the Q&A now. We will be able to do more maybe on the bus later. I would like to thank Albert and now ask Stephan to continue with BASF-YPC. Thank you.
Ladies and gentlemen, let's have now a closer look at our Nanjing Verbund site and BASF-YPC. I'm really proud of what we are doing here. I believe that this Verbund site truly is a jewel in the crown of BASF in Asia Pacific. Now, I'm sure that Maggie tells you very often that Verbund is in our DNA, and I hope that today you can get a feel when we have a look later at our site that does mean to us. Now in the next 20 minutes, I would like to show you how we create competitive advantages with our Verbund. That's what it's all about. Now, first, I want to start out by showing you how we established this world-scale Verbund site at the right place and with the right partner.
The second part will be elaborating on the business performance. What differentiates BASF-YPC from all the others? What is our success formula? That's what I'm going to tell you. In the third section, and last but not least, we would also like to share some of our expansion plans with you. Let's get started with a question. Why is this Verbund site located here in Nanjing, the capital city of Jiangsu Province, and not elsewhere? Why is this here the right place for a Verbund site? Marked in blue on this slide, you see Jiangsu Province right in the heart of the big Yangtze River Delta industry cluster. Jiangsu is an ideal location for a Verbund site. It's an industrial powerhouse with a population equaling Germany.
With a highly developed infrastructure and manufacturing accounting for more than 50% of GDP, Jiangsu Province economy ranks among the top three in China. When it comes to foreign direct investment and per capita income, it's number one in the country. Now, to put these figures into perspective, the GDP of Jiangsu equals that of the Netherlands or Indonesia. If Jiangsu were a country in the European Union, it would rank number six. Let's zoom in on Nanjing. Nanjing has 8 million residents, and it's one of the most important production bases in China, and that's important to us, close to our customers. Albert mentioned already that Nanjing has a harbor for seagoing vessels. Actually, it's the number one harbor in inland China.
Nanjing also hosts the second-largest chemical cluster in China with 400 companies equaling in size the entire Belgian chemical industry. I think that's really amazing. The most important players, BASF-YPC, BASF, Celanese, Air Products, WACKER, and of course, Sinopec, are located to the north of the city here in the Nanjing Chemical Industry Park. Here in this chemical park, we enjoy substantial cost advantages through direct access to pipelines for naphtha and natural gas, our main raw materials, a close integration with our customers and partners, water-borne transportation with logistics cost advantages. Last but not least, on top of that, we enjoy lower labor costs than in cities like Shanghai or Nanjing. Well, certainly, there are also other good locations for chemical production in China. If you ask me, you cannot find a better place than Nanjing.
That's the reason why we are very happy to be here and to have this fantastic site with our partner, Sinopec. Just to give you a feel for the dimensions. The Nanjing site, as you will see today, is already the third-largest Verbund site BASF has worldwide, covering 340 soccer fields. This is roughly half of our Antwerp size and a quarter of Ludwigshafen. This shows our commitment to China. We built this in less than 10 years. In Ludwigshafen, it took 2 decades, in Antwerp as well. BASF-YPC is a 50-50 joint venture employing 2,000 people, and up to now, we jointly invested $4.5 billion, equaling EUR 3.5 billion.
The total production capacity is around 3 million metric tons that are coming out of our naphtha steam cracker in 16 plant clusters. Commercial startup was in 2005, and already six years later, the first downstream plants as a result of our first expansion wave came on stream. Important to mention is that the president's position, which is relevant for the operational decisions in the joint venture, is always held by BASF, whilst the chairman of the board is a Sinopec representative. How did we design our Verbund and what was the rationale behind? Of course, we had a strategy when we came here, and this value chain depiction shows you the stepwise development of our site. Firstly, we laid the petrochemical foundation, investing upstream into a naphtha-based steam cracker.
The main products, ethylene and propylene, you know all that, were the basis for a C2 and C3 value chain. In addition to that, we also had from the very beginning a C1 complex based on natural gas. This was the basis for further downstream expansion to cater then to the most effective growth markets. The second wave, here marked in blue, came along with an expansion of the steam cracker, and we also added a C4 value chain. Now let me here on this slide demonstrate to you how Verbund works. We have here one molecule, we call it DMA3. DMA3 is a specialty monomer that will play an important role in my presentation later. So please remember it. In order to have a complete backward integration into DMA3, you need three value chains.
You need building blocks from C1, C2, and C3, and you need that at one site. We have that. Nobody else in China and the region can have the benefit from the cost advantages of a complete backward integration. The same logic, of course, applies to other products we manufacture here. Now currently, we are continuing to go downstream. We are supporting the growth of our acrylics business, and I will tell you more about these projects at the end of my presentation. With all due modesty, I believe that with the establishment of such a huge integrated site on schedule, on budget, and with a successful startup of all the plants without major hiccups, we really differentiate from many other producers in China. Let me show the capital expenditures of both partners over time.
I mentioned already the EUR 3.5 billion, $4.5 billion. Here you can see the first investment wave, the petrochemical foundation, and then the second wave, the downstream investment and the related figures. Of course, this will continue. During the site tour, you will see a lot of construction going on, demonstrating what we are doing for growth here in Nanjing. Let's come to business performance. What comes out of these investments? This is a five-year view of sales and EBITDA at BASF-YPC. Two things may catch your attention with respect to our sales displayed here as bars. Firstly, the dip in 2008 and 2009 was probably less pronounced than some of you expected. This clearly demonstrates our competitiveness due to our Verbund.
We could sell our materials when others had to stop producing. Secondly, there was quite a jump in sales in 2011. This is of course due to the downstream expansion I mentioned. In 2012, our sales achieved almost EUR 3 billion. Now looking at EBITDA, the orange line, we can say that even in difficult times, in difficult years, we earned good money. I can say this because we can benchmark ourselves against Sinopec, for example. Albert mentioned it as well. Sinopec calls us very often their by far most profitable joint venture and a benchmark in terms of profitability. BASF-YPC is a pearl for its parent companies, and the excellent performance in 2010 and 2011 underlined this.
You may ask why the EBITDA dipped in 2012. Well, 2012 was, especially for petrochemicals, a very tough year. The growth in demand slowed down. At the same time, new capacities came on stream, so the prices were under pressure. While we certainly cannot influence the macroeconomic development, what we are doing here is our homework in terms of optimization. We are continuously improving our operations and our cost structure, and therefore, I would like to address now the topic of operational excellence. This slide here shows you how we in a positive way squeeze out as much as we can from our assets by continuously optimizing.
Now we have a local team, and we are driving performance in production, logistics, maintenance, all the other site services. It's especially the role of the BASF delegates to transfer the knowledge and methodologies we apply in long-established Verbund sites like Antwerp or Ludwigshafen also here in our local team. With a plethora of measures which I cannot mention now, just, let me give you two examples. We will achieve a sound double-digit bottom line, annual contribution annually from the mid of the decade, in EUR million, of course. The example is a reduction of energy consumption by 5% and reduction of raw material consumption by half a percent. All this adds up to such a significant contribution. That is very important. When we are done, we will restart again. This is not a one-time project, it's a continuous process.
I believe this is distinguishing BASF from others because we do this even at new sites and in joint ventures. Let's talk about success factors. What differentiates us from many others in a market that is attractive but getting more competitive? Firstly, the success of this joint venture is based on a grown partnership between BASF and Sinopec. For example, we can benefit from a broad range of local synergies. When we started up this site in 2005, we did not have to recruit from the labor market. We got experienced operators, engineers, technicians from Sinopec and could ensure a smooth start-up of the entire site. This was a priceless advantage. We share infrastructure wherever we can, like for example, a wastewater treatment plant.
We get naphtha from Sinopec at very competitive conditions, and we can rely on Sinopec experts' advice and support when it comes to increasingly complex permitting procedures in China. Now, what does BASF bring to the table? We have, of course, our technological expertise. We have our Verbund approach and the continuous optimization of operational excellence. We know how to do this. Even reaching beyond the joint venture, the grown partnership is helpful to establish BASF's wholly-owned specialty site. There are synergies between our joint venture and the wholly-owned BASF site. Let's have a closer look at our collaboration and the synergies. Just a stone's throw away from here, you will see it later. BASF Specialties Nanjing, BSNJ as we call it, produces specialty chemicals. My friend Mingwei Qin will give you later an introduction of his activities.
Now on slide seven, I mentioned this molecule DMA3, and I've shown to you how our Verbund with a C1, C2, and C3 value chain enables us to have a cost advantage in producing this key raw material. Now, this key raw material goes via pipeline to BSNJ Nanjing, and in a 2-step process, BASF produces organic flocculants. We also provide them with services and utilities. What you see is really a fully backward integrated value chain for organic flocculants, the first one in China and the region. Even a new BASF site can benefit as a standalone activity, so to speak, from the cost structure of a fully fledged Verbund site. Of course, we also have other customers than BASF. Now, customer proximity is one of the most important success factors of BASF-YPC.
80% of our customers' plants are within only 400 km of Nanjing, and many of them can be reached on the waterway. Proximity does not only translate into logistical advantages. We are also close to our customers and enjoy enhanced market access through the sales networks of BASF China and Sinopec. Now looking at our customer portfolio, you see the logos here on the slide. We have good business relations with local champions like Haier. Albert mentioned how important Haier is for BASF in China. We are also contributing to this successful cooperation. There are also other names, local companies you may not yet heard of like Gree, also a producer of white goods, and they are about to become the Haiers of tomorrow, and we are already having good business with them.
We also benefit from BASF global key accounts, who expect us to provide the same specifications, the same quality products here in Nanjing, the same quality they are used to get for the operations in the U.S. or in Europe. Of course, we need the right people to be successful. Actually, I can say that we are very successful in getting qualified people from the local talent pool and in retaining them. This is because we have an excellent reputation as a, maybe the top employer in Nanjing. This claim can be substantiated when looking at our attrition rate. It's only 2%. 2% in China. We cooperate with academia locally in Nanjing, but also together with BASF on a national level. Here it clearly helps to become a magnet for talents.
It also helped that BASF was an early entrant in China, building a reputation. The local talents we recruit here in Nanjing, they have also career options in BASF Group, not only in the joint venture. On average, every year, more than 10 executive candidates and talents join BASF. You could say that BASF-YPC is not only a successful joint venture, it's also a successful recruitment platform for BASF in China. One aspect that certainly contributes to our reputation and also contributes to the fact that we are a very attractive employer is our EHS track record. We are a benchmark in terms of process safety and occupational safety, and this is not what we tell you, this is what government tells us. We are also a role model for environmental protection in China.
We have, for example, a dedicated process safety expert of BASF here at our site. We participate at all occupational health campaigns of BASF Group, and we have an on-site clinic according to BASF standards. All this clearly goes beyond standards in China. You can see our statistics here, the lost time incident ratio. Well, just to give you a feel for the figures, we are talking about one or two events per year for 2,000 employees and roughly the same number of contractors. This is outstanding, and by the way, it's consistently better than the average of BASF Group. Therefore, we won as one out of only two companies across all sectors and all industries in Jiangsu Province, the National Safety Culture Model Enterprise Award. It's a difficult name, and it's also difficult to get this award.
When it comes to EHS, we are also looking beyond the fence of our site because we want to be a good corporate citizen. What does it mean? We are also, as we said, a front-runner in stakeholder engagement, not only in EHS. We take care of distribution safety. Just an example, we are a pioneer in pushing for double hull tankers for river transportation of chemicals, and implementing product stewardship, practices, concepts with our customers. Stakeholder dialogue, of course, goes beyond customers. We publish an annual EHS report. We have regular town hall meetings. We make donations to schools and hospitals, and we also invite students. Here you can see two pictures on this slide where we discuss with students of one of the local universities about our EHS philosophy.
I clearly believe that the excellent EHS track record in combination with the open dialogue helps us to create trust with all stakeholders, and the trust is what we need when it comes to getting permits and support for our further growth. You've seen our success factors. I believe we have a unique positioning in China, and therefore, we can be quite optimistic and enthusiastic about future growth. Now I would like to show you where this growth is expected to come from. Together with our partner, we are looking at the third wave of investment projects with a potential total investment of roughly $1 billion. All these projects, though, are based upon individual feasibility studies. Now, already in execution is an expansion of the acrylics value chain. This comprises a new 60,000 ton capacity of superabsorbent polymers.
If you turn your head now and look out of the window, the construction site, you see this is the new building. It's already quite advanced. It will come on stream beginning of next year. As a backward integration to this SAP plant, we need an acrylic acid plant. This we are building as well. World scale, the second world scale plant we have at the site, and also a new world scale facility for the manufacture of butyl acrylate. We also have a defined list with some projects under consideration, and these include, for example, HPPO, a new neopentyl glycol plant, and expansions for ethylene oxide, 2-propylheptanol, and non-ionic surfactants. Let's have now a look at the acrylics. The acrylics value chain is of high importance to BASF. We are the global market leader in this business.
Now here, this pie chart shows you that China, the Chinese demand for acrylics is growing at an annual demand of more than 8%, and this will result in China becoming the biggest market for acrylics by 2020. Our acrylics expansion is timely, and it will strengthen BASF's market leadership. Our success in acrylics is based on our own technology, where we have clear cost leadership in combination with Verbund integration here at the Nanjing Verbund site. SAP is the largest single application outlet for acrylics, with baby diapers being the most important segment, and especially the growth in China is based on baby diapers because the income level is increasing, more parents can afford to buy diapers.
Secondly, the new generation diapers have a higher average content of SAP, so both plays into our hands. Our new plant now is a very concrete example how we follow global BASF key accounts to establish manufacturing production here in China to supply them with the same consistent product quality they're used to get in other regions. This brings me now to the end of my presentation. Let me summarize. Five things I would like you to remember. Firstly, BASF-YPC in Nanjing is a benchmark. We managed to transfer our success formula to China, and the success formula is Verbund plus consistent improvement equals consistent profitability. Our customer portfolio will bode for further growth, and we create significant synergies with the local wholly-owned BASF site. Our growth story will continue based on stepwise downstream expansions.
We are a magnet for talent and enjoy extremely low attrition rate, and we are also frontrunner in EHS and open dialogue with the stakeholders, and this creates the trust we need for further expansion. In short, ladies and gentlemen, I see that BASF-YPC is a poster child for establishing Verbund strength in China, and I think we have now a fantastic platform for further growth. Thank you very much.
Yeah. Thank you, Stephan. Now I would like to ask Mingwei Qin to give his presentation, and then we move into the Q&A.
Good morning, everybody. I would also like to welcome you to Nanjing to our site again. First, a short introduction about myself. My name is Mingwei Qin. I'm the General Manager of BASF Specialty Chemicals (Nanjing) Co. Ltd. By education, I'm an engineer. Actually, I'm also a very good example about the local talent developed by BASF-YPC, which Stephan just mentioned. Roughly 10.5 years ago, I started my BASF career at BASF-YPC. Having stayed here for roughly 5.5 years, I had some opportunities of working in different functional areas in the region. Roughly 2.5 years ago, I had an assignment back to set up this new site in Nanjing. My introduction today consists of two parts. The first part is about the site and overview.
The second part is about how we serve our customers here today. In my presentation, to save some time, I would like to use an abbreviation, BSNJ, as our company name. A question: What is BSNJ? In a short sentence, BSNJ is a newly established BASF wholly-owned production site located in Nanjing, focusing on producing downstream chemicals for wastewater treatment industry, paper chemicals, high-performance paints and coatings. We are also part of Nanjing Chemical Industry Park. In the area, we have roughly 37 hectares, half of which is almost occupied by our six approved projects. The other half could be used for the future investment. We have two areas, one of which is called Sunrise, the other called Henghai, which is very close to our Verbund site here, BASF-YPC.
Actually, to share with some more details about these two areas, I would like to share with you or introduce you to these two areas one by one. First, Sunrise. In Sunrise area, you can see we already developed or built two pigment plants, which we just put into production at the end of last year. There is one more ongoing construction, a more ongoing plant or project called Additives. In addition to those plants, we also have some auxiliary facilities like an administration building and also some warehouses. Let's move to the other area called Henghai. Henghai is the home of another plants. This area was selected strategically close to BASF-YPC for some synergies. Last year, we just built some new plants. For example, DMSA quart and the flocculant plant , which were just put into production in June and October last year respectively.
Looking at this picture, this is also one of another new plants which we just pushed our button 20 days ago exactly. This is from this picture, which was taken roughly two and a half months ago. You can still see some scaffolding. Based on the agenda today, we will have a short stop over there for a group picture. At that moment, you can see a full plant in full production. We are not only very successful in plant startups, we're also very proud that we have very good project implementation at BSNJ. I would use this flocculant plant as a very good example for more details. We spent roughly 18 months from piling to execute this project. We've kept our project costs under budget. We have no issues at all in environmental protection, health, and safety.
How could it happen? This is mainly because we have a very good local engineering team. We bought a lot of, or most of the equipments from local vendors. We also have a very well-cooperative project team consisting of some local construction companies, local joint project teams, as well as a local site operational team. With all these reasons, we make us a very good benchmark for successful project implementation in BASF China. Stephan just mentioned the very good examples in some synergies between BASF-YPC and the BASF Nanjing regarding raw materials, utilities, and services. We not only have DMS-III from BASF-YPC to feed our DMS-III low-coke plant. In raw materials, we have some more. For example, ammonia and isobutene to feed our new plant. Isobutene is a very limited access for material in the market.
In utilities, we have something from BASF-YPC by pipeline as well, including then some water, compressed air or fuel gas and steams. This is a really win-win situation for both parties. On one hand, for BASF-YPC, they have a stable outlet, and they can make high utilization of their existing fixed asset. On the other hand, for BASF Nanjing, we have a very secure and stable supplier. We can also save some operational costs because of that. Additionally, we have also some good cooperation on services. A very good example is this 35 kV substation monitoring system. We, by working together with BASF-YPC, we did not hire six people for monitoring that system. Considering the total number of our employees, 165, this is a significant saving for BASF Nanjing.
As you may know, you may have learned a lot of information about high standard of BASF regarding safety, health and environmental protection, as well as quality management. As one of the production sites of BASF, we also follow that concept. We comply with all these regulations. We have no compromise in those regards with all the commitment from the people, from our employees. We think safety first. Let's move on to the second part about how we serve customers in the market here. In general, BASF Nanjing is a chem production site for downstream chemical production serving the market. We produce cationic flocculant Zetag for wastewater treatment and paper plants. We produce TBA for rubber and tire production. We also produce pigment and tire additives for paints and coatings industries so far.
To share with you more information, I would like to go through all these products one by one. First, flocculant. The demand for wastewater treatment industry in China is growing rapidly. On one hand, we are lack of water resources. On the other hand, people need more clean water. For Chinese government, they are facing some challenges right now, such as water stress, health protection, and sustainable energy growth. Our product, flocculant, is one of the answers to those challenges. Our product Zetag flocculant is added to the wastewater for separation of particles and solids. This is a very crucial step for clean wastewater quickly and with less energy consumption. We developed this local market with some imported flocculant in the last years.
However, by having local production in Nanjing with backward integrated system or process with BASF-YPC, we can improve our supply reliability and become more cost effective for our customers in the region. Let's move on to the next product, TBA. The car sales in China is also growing. I think Dr. Albert just mentioned, give you a lot of information about the business here. As you can also learn from this chart, the sales of automotives is very good and China is already the second-largest car fleet in the world, as you may know. I can also share with you my own experience. Three and a half years ago, I have no problem at all in finding a parking lot in my compound. Now it takes me some more minutes to find a place if I work overtime here, right?
I can assure you, this is my real sense or experience for this developing market. As a local person, this is my real sense or experience for this developing market. Of course, cars need tires. Based on this chart, the annual growth rate of this tire production in China or sales in China is roughly 7%. Based on the forecast, the tire production by the end of this year will be roughly 1,040 million. These tires are used for new cars and tire replacement. Additionally, China is also one of the tire exporters in the world. Our product TBA is very important what material to accelerate vulcanization process in tire production. TBA is used for producing accelerator called TBBS, which is very important material for tire production quickly and with less energy.
Again, we imported TBA to serve our markets here in the last years. However, after having production here in Nanjing, with backward integrated technology and process with BASF-YPC, once again, we can save some lead time, for example, by six weeks. We can also make us more cost efficient. Additionally, what make us differentiate from our main competitors is that our process contains or generates very little or no wastewater. We are more environmentally friendly. I'd like to move to the last product so far about pigment and coating additives. The market demand in China for paint and coating additives is also growing. Looking at this chart, the annual growth rate is 12%. It is even higher than GDP. Chinese government is still having a lot of investments on infrastructures, and people are expecting higher living standard.
Therefore, the market for paintings and coatings is increasing, particularly in architecture, industry and automotive. BASF also follow a concept or trend for production in a more environmentally friendly way. Meaning that all product or system contain very little or even less organic components. People like colorful life and a smooth skin. Pigment can add colors, while additives can make flow move easily. By having production here in Nanjing, we can serve our customers quickly, and we have a more secure supply to our customers. I think yesterday you already visited our new R&D center in Shanghai. This is also additional benefit to our site, frankly speaking.
In case of some special requests from our local customers, by working together with them and our colleagues in Shanghai, we can help them to work out a solution in the lab in Shanghai, and then we put them into production here in large quantities. We can have more flexibility. You see, this is how we are serving an interesting and also very attractive market here. Before we go to a site tour, I would like to leave key information in your pockets. Again, what is BSNJ? I would like to use this the same sentence. BSNJ is a newly established, a wholly owned by BASF production site located in Nanjing, focusing on producing chemicals for downstream markets, for paper chemical industry, wastewater treatment industry, paints and coatings. As part of BASF strategy, we grow smartly. Thank you.
Yeah. Thank you very much, Mingwei. Now, I would say that you remain right there, Mingwei.
Okay. Focus on the efficient, yeah.
Stephan will join you.
Yeah.
There are lots of questions. My proposal to you is if we can do it this way, we do 10- 15 minutes, both gentlemen, and then maybe we can finish up on the remaining questions that Albert had. Okay. I'm starting with Thomas Gilbert, and then I see Jeremy, and then who am I. Okay. We start with those two.
Thank you very much. Can I just explore what it means when chemical companies say an expansion is under consideration on the C2 chain, the ethylene glycol, ethylene oxide chain. Is it under consideration because now AkzoNobel has added in Ningbo capacity, there's overcapacity, so you're waiting for the market to balance? Is it opportunistic waiting or is it-
The joint venture partner disagreeing, or is it a bottleneck of engineering? Or why is it under consideration?
Okay. Obviously, there are various reasons and parameters you have to consider before you take the final decision for building a plant. You mentioned some. Now, unfortunately, please understand that I will not disclose now the current status and details of our internal decision-making process. Obviously, the partner is also involved into that. I can only tell you if we put on a slide that we are considering a certain project, we are considering it. It's not just a fancy idea that we created yesterday, so there is some serious thoughts behind and some strategy. We are not yet that far that we can wholeheartedly say, we will build this plant. This also can have to do with the approval and permitting procedures related to government authorities and so on.
Please understand, I cannot tell you more at this point in time. That's why we differentiated on the slide between the plants that are already under construction, and you will see that. They will come on stream next year. The other plants and projects that are, again, only under consideration so far.
Permitting still also plays a role. Although you have the setup, but each and every expansion needs a permit again from the local government or even from the NDRC on the national-
Well, you know, permitting in China, like in many countries, it's not just a one-step process. You need several permits to start a project. In China, we have a project application report. You need a construction permit, an Environmental Impact Report. You never get all the permits up front and then you start construction. This goes in parallel. You never have, at such an early stage, all government permits. This is impossible. It's a standard procedure. We know very well how to do this, so we are on track.
The next question comes from Jeremy Redenius, 15A, and then he switches over to Chris Willis, 16A.
Hi. Thanks for the presentation. For a couple of the expansions downstream, I'm just trying to understand the value creation model. Is this an example of like SAP or the flocculants? Is this an example of backing out exports? Or you're backing out your imports, sorry, so you're increasing your OMP. You know, or is there some other type of value creation you had in mind? Secondly, where is the propylene coming from? 'Cause it looks like you had a couple different very propylene-heavy products.
Right. Okay. Let's start with the first question. Indeed, when we invest, for example, into SAP, this is to have a local manufacturing base. We are following our global key accounts in this market with premium quality SAP. They expect us to be present here as well. We have the full backward integration here at the Verbund site, so it's the perfect fit to build an SAP plant. Another example. Of course, currently we are already present in the market. We are importing, then later we will have local manufacturing. Another example, neopentyl glycol, NPG. This is not only capacity we establish here in the Chinese market, it's also an addition to our Verbund because the key raw material to NPG, isobutyraldehyde, is a side product of our oxo alcohol plant.
We have the key raw material, we have the full integration, and again, a nice additional building block to bring our Verbund to the full potential and at the same time increasing the local manufacturing base for BASF.
The propylene.
The propylene, the second part. Sorry. Yes, you're right. Well, we have an own steam cracker, and we have some propylene we can use to manufacture these downstream products. You're right, some of these activities would need a huge quantity of propylene, and this is also part of the considerations we are making together with our partner. The raw material supply, the technical set up, timing, and so on.
Please, only one question.
If you could just elaborate a little bit on your naphtha purchases. Do you have a cost advantage given your relationship with Sinopec? I mean, are you buying at a discount to a local index? Just talk briefly about that. Thank you.
Well, the first big advantage is that because we get all the naphtha from Sinopec, 95% plus, we have a very stable and reliable supply. We have, as I said, a pipeline, direct pipeline connection to the YPC refinery south of the Yangtze River, so there is a very reliable supply. We have 6 other Sinopec refineries who can supply us by ship. This itself is a huge value. Then there is also some cost advantage in logistics related to this situation, which we benefit as well from. Yeah. Right. We have a cost and a reliability benefit because of our partnership.
Next question comes from Alexander Scurlock, 27 A.
You referred to the presentation to waste products. Could you specifically address CO2 and implications with regard to how much is produced? What happens if we start to see regulation of CO2, either provincial or state level? I mean, from that, actually implications in terms of relative competitive positioning.
Well, first of all, the CO2 topic is not only a topic for BASF-YPC here in Nanjing. It's a situation that is considered now across China. Some provinces and cities like Shanghai, Tianjin, Chongqing and so forth are pilots in this respect, and they are now trying to figure out how an emission trading system could look like. We are at a very, very early stage. Jiangsu Province is not part of these pilot provinces, so we are not yet directly confronted with the situation. Of course, we observe that, and we are part of a steering committee within BASF Group. Same, of course, within Sinopec Group. Here again, we benefit because we have two parent companies who are well connected.
If you would like to know now the current situation, because BASF China is now in the lead, I would pass on this question to Albert. I can say, yes, we know about that, first answer. Second answer, there is not yet a clear picture what the authorities will ultimately do, so thirdly, it's too premature to talk about consequences and measures. What I can say, generally speaking, is we have a huge Verbund site, and integration does also mean energetic integration. Per se, a Verbund site is very efficient in terms of energy consumption, and this will help.
Yeah. Perhaps to add a bit, what just right now happens is a kind of evaluation phase. Government and authorities want to learn what are really the CO2 volumes-
Right.
which are emitted. They try to rely then what kind of production is associated with the CO2 emissions and all that just right now happens. It's not yet established a clear scheme to have a price ticket on CO2. For sure we expect something to come. As Stephan mentioned, it is not yet an all-over China approach. It is dedicated to a few hotspots, very industrialized spots. We all expect it will be broadened. That comes later, perhaps in a couple of years. Back to the discussion we had yesterday, what could it mean potentially for all these coal-based chemical projects? No answer yet, but we realize there is work in progress being started by Beijing.
Mm-hmm.
Maybe additionally, as a local guy, I think you can also learn this information from some media. There were some discussions about the CO2 emission. You can also get this information from a newspaper or some news release.
Next question will come to Hank Kohler, UBS .
Just a financial question to YPC. Did you ever pay a dividend to the mother? How is your, let's say, strategy going forward with all your investments you're also planning?
For sure. We are paying dividends to our parent companies on a regular basis. Yeah, we do.
Despite your CapEx you're now planning, you will continue to pay out dividend?
Yeah.
Which means majority of CapEx then is debt financed or?
It's a mix of both. The order of magnitude of the dividend is adjusted to the financing needs of the project. It's quite balanced.
Next question, team yellow, team B.
Stephan, I apologize for this question, but your predecessor, Dr. Brudermüller, was a larger-than-life character. Obviously very large shoes that you have to fill. How has the transition from Sinopec's perspective gone? Have they accepted you very quickly? Have there been any cultural transition issues, or has it been incredibly smooth?
Yeah, you are right. I mean, my predecessor, he's a living legend in this part of the world. The transition was very smooth because what I benefited from is that Bernd is so well connected, that when you show up somewhere with him, all the doors are open. Basically, his network, not fully of course, because it's a personal thing, but it was from the very beginning open to me as well. It was a smooth transition. You can ask Sinopec how happy they are. I think they are very happy, especially with the performance we showed now in a difficult year, 2012.
Coming to Jaideep Pandya, 22. Table 22.
Yes. If we stick to the example you gave, DMA3, could you tell us the output that you have in the Verbund site? And the flocculant plant, is it connected?
Yes.
The batch size. Is it you're only buying from BASF Verbund site, or you're buying from external players as well?
For DMA3 we only get it from the BASF-YPC.
The scale of the investment was made to make sure that there is a fit. BASF-YPC is supposed to be the backward integration of the wholly owned BASF site. That's the strategic rationale behind the investment. It was not the idea to sell DMA3 to the outside market, at least not in large quantities.
The next question comes from Thomas Gilbert, five B.
Thank you very much. It's a modeling question. Obviously, BASF-YPC, we have to now look at, if any, at the net income progression. Now, you very kindly gave us sales and the EBITDA. Is it fair to assume that the net income trend will follow the EBITDA trends? No funny things in terms of restructuring charges, depreciation, tax, financing. Is it fair to say that if the operating performance of joint venture improves, what we will see in the consolidated results of the group, the net income contribution goes up, or where there are tax benefits on the CapEx that are running out, et cetera, et cetera.
Well, as you said, there will be no fancy, unexpected, strange things. What I can tell you is that we are working very hard on the efficiency. The bottom line will benefit from all these activities I mentioned around operational excellence for sure.
You are saying the net income growth will even be faster than sales.
That's what we aim at.
Yeah.
We move on to Tony Jones, 19A.
Could you talk a little bit about the rules of engagement with your partner from perspective of process technology? As you are moving downstream, and you showed the acrylics example, you know, you're introducing some of BASF's proprietary technology. What are the ownership rights, and what's protection for BASF's own technology?
Well, it's the same situation as in other joint ventures in other parts of the world. We get a license from BASF, and this license is respected by the joint venture. I tell you, if we would have the feeling that this is not the case, we would not keep on investing with our own technology at the site. So there is a lot of trust, and that is why I said it's not only a partnership, we have a grown partnership. You see, we are expanding this concept now also to other sites. You may have read about the MDI investment at Maoming, another huge, petrochemical and refinery site of Sinopec in southern China. It's really based on trust.
There was a question, Andrea, right behind Mr. Wu. Is this correct? No? Wasn't there another question? Sorry. This is Andrew all the way in the back.
Thanks very much. Andrew Benson, Citi. Two things, if possible. You restated your sales, and you're going from sort of 5 to 12 wholly owned sales, but you've taken out the EUR 1.6 billion of associates. I guess that's the substantial part of that associates is this one. So how significant will associates be in the growth through 2020, if you could kind of dimensionalize that? And the second point is, can you-
After you.
The second point. How do you determine whether a plant's gonna be a BASF plant or a joint venture plant?
Mm-hmm.
How are you gonna do that in the future to avoid disputes?
Not quite sure whether I got the question right. I understood that you wanted to know a little bit more about how the influence of this new IFRS reporting has consequences looking forward with respect to BYC. As mentioned yesterday, BYC is a 50/50 JV. Neither of the both mother companies has full operational responsibility. Therefore, we are not able to consolidate as Sinopec is not able to consolidate. Therefore, you will not find the sales of BYC booked anymore.
Right.
Therefore, we had to deduct in our BASF reporting, in the sales numbers. In the reporting of profitability, EBIT level, you can find it back. There, BASF overall, but I think that was explained when we made the change of IFRS reporting. BASF decided not to show the earnings return on the level of others, but show it one level up.
Line up.
From that earnings we report, but not the sales. That's looking forward, I do not see there-
No, that wasn't the.
a change.
The question is if the wholly owned sales are going from 5%- 12%. Is that right? Your wholly owned sales on a restated basis.
Yeah.
So, so if-
went down to 5.1%.
On the old accounting standard, how much will associates play in your growth even though we won't see it?
We had this question, I think, yesterday, that regarding all over Asia Pacific, we had to deduct from our targets 2020, the EUR 4 billion, because you know the announcement we wanted to achieve 29, now we say it's 25. Obviously, EUR 4 billion are gone. That's the overall effect for the entire region.
Right.
Our biggest and most important joint venture in that. We have then two joint ventures in automotive catalyst, one in Korea, one in Japan. They are very important and shown remarkable effect as well.
Mm-hmm.
We have here in China some other 50/50 JVs, for instance, another one with Sinopec. We call it SGDB. It's near the site we were yesterday. These are the ones who go out. In total, they come up with EUR 4 billion in 2020. That's the effect.
Just the same, but how do you decide whether it's a wholly-owned plant or a JV plant?
It depends on the level of control.
There are clear structures as to how to come to a decision, are we controlling the joint venture or not? When we do not control, then we can't consolidate. In this case, as our joint venture contract says, we are not in full control of this joint venture.
Okay, now we're moving on to Laurent Favre, 13 B.
Thank you. It's a question on superabsorbents and the global footprint. You've talked about how you get a lot of demand growth internally, and you want to reduce the OpEx, but you're not the only one adding capacity in the region. You also have the Middle East, Brazil yourself. I'm just wondering what's happening in your capacity in Western Europe or in the U.S. Are you thinking about shutting some of that down, or are you just hoping that there will be a lot of demand growth?
Please understand, I'm the president of BASF- YPC. I cannot speak now on behalf of BASF in Europe. I don't think that we are about to shut down any of our capacity. I mean, I also used to work in Antwerp. This is also a fantastic site. I mean, we have full Verbund integration for the most important superabsorbent capacities we have worldwide. Antwerp, Freeport, in future in Nanjing. We have an outstanding cost position. We are cost leader in acrylic acid, so we are in a growth mode. That would be my answer to that. If you need more details, I would ask Albert to comment.
I mean, when it comes to SAP, you heard it's under construction, so obviously we took a concise decision that there is a profitable project. I can add, it's not only the project under execution here in Nanjing. In parallel, we took the blueprint of the acrylic acid plant and the SAP plant and the butyl acrylate plant, which is here under construction. Took the blueprint in Beijing in the same engineering office and made it to build in parallel in Brazil. This tells you something about the capability to look for a lot of synergies in how to have cost savings in the project design, in all that kind of engineering, detailed engineering, and have project execution in two different regions and have a more or less a copy-paste situation.
From our point of view, there is an urgent need for these SAP capacities in China and in Brazil. For dedicated qualities, perhaps, this is a trigger and a point which could answer your question because with our technology, we are capable to produce a certain quality level, which is urgently asked by our key customers.
Now we are talking about fluffless diapers with a higher content of SAP, and you need a premium quality. Not everybody in the market is capable of supplying that to global key accounts who are leaders in their market for superabsorbents for diapers. This in combination with a backward integration, which I also do not see with other players in China, I think we have a very unique position.
Next question from Jean de Watteville, table number 20. The last question we have is from Paul Walsh.
Yes. Hi. My question is actually on the first presentation. It's on the CapEx budget that you presented. Just, if you can help me to understand and reconcile with what has been said yesterday. If I understand correctly, you're telling us that in China, you expect to grow sales by EUR 7 billion, which is more than half of the growth that the group expects in Asia Pacific. You also said in your presentation that CapEx in Asia are expected to be EUR 4 billion-EUR 5 billion with partners, so probably BASF share being lower than that.
That clearly seems that the capital intensity of the growth you expect in China is much lower and therefore, a lot of leverage from existing assets, which, you know, I think is, we can quite understand based on what you presented. It also means that the capital intensity outside China is incredibly high. I mean, is that something I'm missing? Can you help us to reconcile? Is there a huge Verbund site that you plan to build in Mongolia or somewhere around China to just supply China? You know, just help us to reconcile, please.
Good question and good observation. But for sure in China, as you have learned today, we have a lot of assets in place, so we are able to do investments by let the assets sweat with more money, achieve some more additional capacities with more money. Therefore, the per capacity needed money is less than building something grassroots. Second point in China, we look much more for downstream investments because we have this Verbund site. Then Chongqing, somehow important site, we get a lot of the raw materials for downstream activities as well from existing other potential suppliers. Such sites exist here in China. Therefore, the capital, the investment capital needed here in China is less, right observation, than we need, for instance, in ASEAN or India to build up a higher footprint in production there.
It comes to the effect yesterday already discussed, when we look, for instance, to India, take that as a proxy. If we would build an acrylic acid, butyl acrylate, SAP and all that, it somehow needs a step in front where the propylene is coming from. If we do the investment potentially by ourselves or with a partner or however, then you will not find back any sales from that kind of raw material supplier because it's within the company, it does not generating sales. Therefore, we have this typical thing very often in the company. We spend a lot of money, but you do not find back the sales immediately on that step. You only find it back then, downstream. Capital intensity, therefore, looking higher, for the other parts of the region. Does it make sense?
Paul Walsh, 26A.
Thanks very much. Mine's just a quick question, really. Has the profitability of the JV improved this year versus last year?
Sorry, I didn't understand your question.
Simple question. Has the profitability of the JV improved so far this year versus last year or not?
Okay, we are not yet through. What we saw is a margin squeeze during 2012, and still, basically the situation is the same. There's not much of an improvement. I'm speaking now for BASF-YPC and petrochemicals.
It was the same as last year.
Comparable.
Well, since we're pushing out, one last question that Norbert still has. Is that still on, Norbert, part? A question you had before.
It was these joint ventures in the West with Markor.
Yeah.
Is the plan to also be 50/50? That was one question. The second one, you mentioned this railway connection.
Mm-hmm.
Can you give us a little bit of indication what that means, from the cost side, compared to shipping it and also from the time you need so that we can a little bit have the feeling about that?
Yeah. First part, we will establish two joint ventures. The one joint venture where we have majority, clear majority to be able to consolidate, will be the 51% owned by BASF for the PTHF. That was, I think, from Tim, one question, what do we bring to that relationship and to that partnership? That is what we really want to own because it's our technology. The other joint venture we will form, there we are in minority. There we have only 49%, and that will be for THF.
The railway?
The railway connection. What is of interest is to bring material from Chongqing to, for instance, Rotterdam, takes less than 2 weeks. Around about they target 10-15 days. That is remarkably faster than any shipping route. For sure, if you think about shipping route, normally to Shanghai, for instance, or to Hong Kong, that would take you only to the coast and then bringing it in and out of the text area, it takes you 4 or 5 weeks, then bring it inland to Chongqing. From that, you see the big advantage when it comes to a lead time. Cost, I'm not pretty sure to give you a good number. I gave you the examples.
Other companies start using it. It will be established, and let's see how this develops over time. We watch very carefully out because we think it could be at a certain point in time of interest for us as well.
Thank you very much. We are now not using the railroads, but going to use the bus. First of all, I would like to thank all three gentlemen for their presentations and the interesting.
Thank you.
discussion with you. I would like to tell you that this brings us to the end of the morning session.