Good afternoon, ladies and gentlemen. It's a pleasure to host you here at BASF in Ludwigshafen. We are glad that so many of you accepted our invitation today. Let me remind you that today's keynote presentation, as well as the subsequent Q&A session, will be live-streamed on the Internet. A replay will later be available at basf.com. Before we get started, I would like to make you aware with the emergency procedures for this specific venue. In the unlikely case of an alarm, please listen to the security instructions via the loudspeaker. When instructed accordingly, we will either stay in this auditorium or leave it via the emergency exits on the left-hand side.
When we are asked to leave the building, we move in front of the lawn of the casino, and we get there via the pedestrian underpass, because we have to cross the street. One final organizational remark from my side. Please be aware that today's presentation contains forward-looking statements that may not prove to be accurate. We do not assume any obligation to update these forward-looking statements above and beyond the legal requirements. Now, it's my pleasure to introduce our keynote speakers, Dr. Martin Brudermüller, Chairman of the Board of Executive Directors and Chief Technology Officer, and Dr. Hans-Ulrich Engel, Vice Chairman of the Board of Executive Directors and Chief Financial Officer. Without further ado, let's move straight to the keynote and to the BASF corporate strategy. With that, Martin, Hans, I hand things over to you.
Okay. Thanks, Steffi. Good afternoon to all of you. A very warm welcome to Ludwigshafen. Thank you very much for spending your time and being so high in number here at our BASF Capital Market Day. Hans and I would looking forward to walk you down through the key essentials of the strategy, and I think we have then a lot of time to answer your questions. During our Q3 call, I think we mentioned very clearly that we are everything else than happy with the current performance and also the share price development. That means that somehow we have to change a few things and do them differently.
That is why I start here right at the beginning, with a chart, what we have figured out over the last six, seven months when we worked on the strategy and highlight really the points to you where we clearly say we want to do differently in the future. They have all one common goal, and I think this is the main issue. They should bring BASF back on track, growth track. This is, I think, what a major part of the strategy is about. What will we do differently in the future? First of all, we will intensify our customer focus to accelerate growth. We cannot achieve higher growth if we do not really focus more, and be more intimate with our customers. We will clearly sharpen our portfolio and also strengthen our Verbund.
We will transform our organization to be more agile and consumer-focused. We talk about that a bit more in detail because that might for you sound like a trivial thing, but I think this is a major thing for the BASF organization going forward. We will focus on capital allocation, which we want to allocate much more on our growth business and to achieve organic growth. We will drive our growth, particularly in China, which is the largest chemical market worldwide, and where we have an exceptional position. We will do all what we do in a much more sustainable way by setting the tone with our CO2 neutral growth target.
Later in our presentation, you will see these circles with the numbers on the top of the charts, and they give you a reference to this very important first chart so that you get a little bit of background information, where we come from and how these are connected.
Is that to me?
Yes.
Also good afternoon from my side. Thank you, Martin. Thanks for joining us. What I'll do is I'll quickly walk you through the agenda. You see we've got that covered by seven parts. We start with talking about how to be leading the leading chemical company for our customers. We will dive into sustainably growing industry in an attractive environment. Talk about transforming BASF into an agile and customer-focused organization. Verbund obviously has to be covered. We will, and you talked about this Martin already, talk a bit more in detail about what CO2 neutral growth actually means for us. Last but not least, get to disciplined capital allocation and focus on value creation. Finally, a conclusion.
I may say at the beginning, maybe the way Martin and I have distributed the presentation between each other may surprise you here and there, and I hope that this will be overall a positive from your point of view. We'll get into being the leading chemical company for our customers. What I'll do is, I'll start with a view back to our We Create Chemistry strategy, which many of you will recall. We launched that in Q4 of the year 2011. I'll take a quick look at what has happened since then with BASF's portfolio, with BASF's performance.
We picked the year 2012 as the starting year because that followed the launch of our We Create Chemistry strategy. Looking at the first slide, which shows you sales growth, fixed cost growth, and then EBITDA growth. You'll see that on the sales side, I would say not much to write home about. You see there a sales growth of 1% per year over this period of time. Keep in mind that we had a number of portfolio changes, among them selling the gas or swapping out the gas trading business. We have fixed costs growing at a rate of 3%, and we have an EBITDA growth along with a CAGR of 8%.
Actually, what I would describe as a pretty good picture that we show there. But you also see the uptick that we have towards the end there in 2017. This is all driven by the very high margin environment that we enjoyed in 2017 with our isocyanates. What we've done is we looked at this with a normalized isocyanate margin, and then also for the year 2017. And when you look at this picture, you'll see there's still 5% year-over-year EBITDA growth in a global chemical industry that has production growth of 3.7%. In other words, we are growing our EBITDA at a rate that is higher than the global chemical production growth.
With that, we were able to generate, and you know BASF as a strong free cash flow generator. We did exactly that over that period of time, even in the years where, such as, for example, 2015, where we were at the peak of our CapEx spending program. You remember us spending that year more than EUR 5 billion on CapEx. There is more than EUR 3 billion in free cash flow. Last year, we were at EUR 4 billion. First three quarters of this year at EUR 3.1 billion cash flow generation. Also something that I would say, Martin, a pretty good picture there. We had promised that we want to earn a premium on our cost of capital.
I show this here in a slightly different way than what you're used to because in the meantime we moved from EBIT after cost of capital to ROSI as a KPI. This is based, among other things, on the request of some or even many of you who said your EBIT after cost of capital concept is somewhat awkward, not really customary. ROSI is what we would like to see. I see one or the other of you smiling a little bit. I'm showing this here on a ROSI basis. You see that our ROSI consistently over the years is above the cost of capital. We've done a lot with our portfolio over that period of time. We have divested sales.
This is now starting in the year 2010 and going till end of Q3 2018. We've divested sales in the order of magnitude of, let's say, EUR 21 billion. We acquired businesses with sales of round about EUR 8 billion. Significant change there, ongoing work in our portfolio. With that-
I showed you some of our financial strengths. I think there is one other. There's one other important strengths which we really need to mention. This is our positioning, and I think a unique positioning in Asia-Pacific. You see here, basically our numbers. It is a very broad and very solid position we have here. We have an extensive network of plant sales office and R&D center across the region. We have some major anchor points like Shanghai, which is not only the Greater China headquarters, it is also where our in the meantime, nicely grown R&D and patent R&D center is. It is also where the Caojing production site is. You all know Nanjing with our JV with Sinopec, but also a very strong wholly-owned site.
Kuantan, we recently expanded, which is our Verbund site serving more the ASEAN and the Indian market, and a lot of smaller, very close to customer sites. I think this is a pretty unique positioning, more than 80,000 people employed in Asia-Pacific, and it's a very profitable business. I ask myself, how can you be a global company and grow if you are not having a clear China strategy? That is something we are very proud of to build on, and particularly in China, I mean, we are by far the largest Western chemical company in this market.
We have talked now about strengths with very transparency. I think we put the same transparency also on our challenge, and that is indeed that over the recent years, we have not really met our growth ambitions. Very much, I think it is not the right parameter to look at sales growth. I think it is much more that we have to look at volume because with all the fluctuation in price and FX and what we have, I think the real indicator is how much we contribute to the market growth, and I think that volume basically is the right parameter. You see that basically in the last years, we have been falling behind the global chemical production growth, which is roughly an average and was actually quite steady with 3.7 percentage points.
You have to see also that we with 2.3% we are somehow disadvantaged because if you look on the regional split of growth then actually the show is really Asia. But we have only a we have our sales with 40% in Europe which is a slow-growing base whereas the large growth numbers actually come from Asia where we only have a 10% base in China and 20% in overall the regions. That makes it not easier with the regional split we have to really grow with the market on chemical market number or even above. I think we have also to be very clear one other reason behind that lower growth is that very obviously our focus on customer is not good enough.
Because if customers have to choose you, and at the very end, it's ultimately who judges whether we are the leading chemical company, I think it's not you, but it is the customers, whether they want to work with us and really buy from us. With this, we have to admit, we have obviously in the current environment some disadvantage in the customer focus and also on our organizational structures, and that is what we want to address. We have been listening very well to you. I would like to say also a big thank you to all of you who have participated in the Investors and Analyst Perception Study, which we have done. It's a very long, actually quite interesting, booklet to read. We have put it out here now some of the things you have basically addressed.
There's many, many more, but we have taken some out here, and both the positives and the negative. I think very clearly you have attributed to us some very clear key strengths. Some of them to mention is really that we have this advantage from the Verbund story. I think it is a unique story. We come back to this later. You talked about the quality of management, which is above average. The experience is in our organization, the strong cash generation Hans was talking about, and clearly the global footprint. I think this is clear pluses which you attribute to us. On the other hand, you also expressed very openly doubts. That is not only our share price development, it is also from your side that you sometimes question is really our organization and very much attributed also to the downstream business.
Is it really agile enough and nimble enough in today's market to act adequately? I think this pays back to what I said about the customer focus and working with customers. It is, as I think a kind of a thing you address for a long time, where you really question, are we able to grow our specialty chemical business, downstream? These are a lot of observations we have. We share many of them, not all of them, I have to say. We have taken them also and factored them in our new strategy. I think some of these really underline that we have a need for change. I think actually, if you think about that change, it all starts with the customers.
Our idea forward is really going in that way where, that we say our customers should experience a new BASF. They should feel all the strengths we actually have, and we may be sometimes not really fully exploit. This is why this is really also for our own team in BASF, really the core of the strategy. A stronger focus, and with this will also come a higher and a more sustainable growth. That goes hand in hand. We have defined basically six major action areas. This is not new bullets in the revolver because I think they do not exist. These are levers where we can do even more than we did. It's clearly about innovation. Do we have the right innovation targets? Do we have the right pipeline, really having innovations that impacted our customers? It is about sustainability.
It's easy to claim something, but then consequently really to live it, which sometimes also hurts and is sometimes painful. We talk about that one. It's about operations, to be really the leader here. I think you have also heard and addressed this to us that you sometimes had the question, is our operations still benchmark in the industry? I think we have to do something over there because that is really DNA of BASF, that we are the leading chemical operator. It's very much about digitalization. We have started that early, but it is really consequently leveraging this across the company. It is about our portfolio, where we think we should be in businesses that have customer relevance. Yes, we will keep a broader portfolio, but we will still sharpen and focus it.
There is very much about people, and this is the most important assets we have. We have still great people, but do we put these people in a, in an environment where they really can flourish? We will very much focus to bring these people in a different organizational environment. We talk about a so-called high performance organization. This all basically comes together to really make this impact at the customer. Everything we do in the future will be looked at through the lens of a customer, and this is also why this whole thing looks like this new key visual, which you see here. This is not a new logo of BASF. We are not changing this. You see it also over there.
If you do this right, it is basically symbolizing a lens. That means everything we do, we look through the lens at the customer. I think this helps us very much to bring that in the organization and to drive our organization in this direction. We'll talk later about that, because that is maybe for you not so thrilling. This is a very thrilling part of us, and it is actually a very important success factor. By becoming more customer-centric and focusing on our strengths, that will also come then this profitable growth. Looking into what you told us and we've analyzed and looked in different angles on our targets so far. We have given ourselves quite challenging targets. We have for this time also some financial but also non-financial targets.
Let me walk you through, a little bit through those. First of all, our ambition as a leading chemical company can only be that we grow the sales volume faster than the global chemical production. I think otherwise it's not ambitious enough. It's everything else than easy with the broad portfolio we have. I mentioned also the regional split, which doesn't make it more easy. That has to be an ambition that we beat the overall volume growth globally in this market. When it comes to our profitability, and I think Hans quickly alluded on this. We want to continuously increase our EBITDA by 3%-5% per year, and I think I was asked already outside what is the basis for this.
I think you translate this as something between EUR 300 million and EUR 500 million EBITDA increase, which I think is an ambitious target if you want to do this every year. We have moved in this time to the EBIT before special items as an indicator, because we think this is less affected by portfolio and by CapEx measures. With this, I think it is a better metric to also compare us in terms of long-term performance. We have changed our return target, as Hans already mentioned, from our EBIT after capital cost to return on capital employed, ROCE. We have talked about how we can measure ourselves here.
We very clearly indicated, you could say we have to beat the average in the industry, but I think it's not so easy to get these ROCE targets and benchmarks comparably from other competitors. You have also a delay over here, and that we do our own benchmark, I think is also not right. I think to really clearly make clear that it has to be above the average cost of capital every year, I think is clearly what we have to strive for. I would also make very clear that we have now a very consistent pattern because the ROCE, which is the newer measure for our return, is actually the same which defines the bonus for the board of directors as well as for our whole team.
We have one performance target here in terms of return that is consistent from you as a shareholder point of view, investor's point of view, as well as us from the manager point of view. We are very, very committed to our dividend policy, but we have also stepped up a little bit the heat here. We clearly say we want to increase every year the dividend, and that means we take away the disclaimer that at least we keep it. We are from now on committed to really every year increase the dividend, and this has to go certainly with a very strong cash flow, which is, I think, a key indicator which Hans already mentioned. We have also some non-financial targets. I will only quickly go through them.
We have some more charts later where we explain more in detail. We spend a lot of money in innovation. We measure that so far with sales of products and solutions that are not older than 5 years. I think there's also another good indicator, which is our so-called accelerator products. You know this from the Sustainable Solution Steering. We have basically categorized all our products, and these are those products which have a significant overperformance in terms of sustainability at our customers. If you think about where these products come from, they come from innovation, from nothing else. With this, I think we have a very nice indicator in future to show you our innovation strength by measuring this, we come from EUR 15 billion sales today.
We want to achieve that in 2025 with EUR 22 billion, so it's quite a significant increase. With this, we have also a very nice link on one hand, innovating also in the areas of sustainability with relevance to our customers, and we have a good measure here. Then we have a very ambitious target, which is CO2-neutral growth until 2030. We give you a little bit of background on that one. That is really an ambitious target. We have done almost everything you can do in the Verbund in terms of CO2 reduction in the past. That means to keep that by heavily growing the volumes is not a walk in the park. That means it will be sometimes painful. We do the one or the other decision not anymore if it's connected with high CO2.
It has very clearly to ask from our people creativity. But we believe in our people that they will come up with different solutions. It also goes a little bit hand in hand with the portfolio development which we have in the future. Overall, I think it's a holistic framework of targets in a nutshell here. We will do the utmost to really achieve everything it takes to do that. With this coming quickly a little bit to just three thoughts about our environment. We can spend a lot of this. We have collected a lot of materials, but I keep this brief. What is the environment we are in in the future in terms of growth and expectation?
A quick look on the macroeconomic environment, but also some trends, as I said, just three slides. Let's start with one. We think these are six major drivers to impact BASF in our markets over the next years to come. I think all they provide a positive opportunity for growth. If you start in the upper corner, it's about demographics. It's on one hand by 2025 to 2050 that people are getting older. We have the 60-year-old fraction moving from 10% of population to 20% of population. This is a large group which is potent, which has money, which has differentiated needs. That I think gives a lot of opportunity for chemical industry. It is also about overall population growth.
By 2050, there is still 32% more people on the planet. They need food, they need water, they need housing infrastructure. I think particularly in the emerging market, that is still a driver for growth. Everything of that in life is still connected with chemistry. However, there are limited resources, and that means also we have to become more efficient by using them. We have to limit the impact on the environment. We have really factored in this in our strategy. I think climate change is a pressing issue. We maybe later talk about the Rhine levels. This, I think, is all some indicators connected with this. Politics has set very clear targets.
If you want to achieve the 2% target, then we have to be down by 70% on today's level with CO2. That means you cannot just operate, continue to operate as we do today. We have to prepare ourselves in terms of technology development. I think this is at the same moment, not only a threat. It is very clearly also an opportunity by innovation, new processes, new product solutions to prepare for that and benefit from that. Yes, it is very much here about electromobility. This will be a major change, I think, to mankind. We think it will come. That is also very much about opportunities in innovation, particularly with the batteries and the cathode material, which we see as a huge opportunity for BASF. I talked quickly about China.
You see on this stunning picture about the importance of China as the major market in the future. That is where the show is. That is where about two-thirds of the future growth, absolute growth in volumes will come from. We have to cater that, and we have to look into this. Then very much it's about digitalization, which I think impacts ourselves everywhere. Yes, our products are not digital. We don't sell any machines. A drum of butanediol is not digital. But that still means that there is a lot of opportunities in a process industry like ours, which we really want to elaborate. We see a lot of chances here, distinct growth drivers here.
On one hand, in the advanced markets, where we will drive very much the addressed quantitative growth. It is very much about differentiated consumer needs, aging population, focus on sustainability. This is on the other hand, in the emerging markets where we talk about population growth, rising incomes, but also an expanding middle class that can afford more and which still at a lower expense, but still we assume over the decade looking forward that chemical markets slightly grow above GDP. Not that big anymore, but still slightly above the GDP. This caters into industries, where actually this customer relevance is there, which is industries where we are in. I don't read them all down, nutrition, beauty and care, and so on. This is where we want to play.
Then the last slide, which again shows this impact on the chemical market for China, it is that mind-boggling. In 2030, we will have about 50% of the global market be in China. If you look on China, this is actually bigger than really Europe, South America, North America, and the rest of Asia together. That is simply a fact. We will grow globally with about 3.1%, but significantly faster with 4% in China. That has already come down certainly, which is a kind of mathematics. I think you cannot be a leading chemical company, a global chemical company, if you don't have a clear China strategy. We have to address this. With this, Hans, you go to part three.
Part three, transforming into an agile, customer-focused BASF. What I do is I start with portfolio. To a certain extent, we've talked about that already on the one summary slide that I've shown you. What is portfolio management for BASF actually about, and what kind of principles do we follow? I think the best way to look at it is what we've done over on the right-hand side, and so we follow simply a best owner approach. We look at our portfolio not on the basis of the segments, not on the basis of the operating divisions. We look at our portfolio on the basis of our strategic business units. We have around about 80 strategic business units. We review them on an ongoing basis.
We come to the conclusion which of these business units do fulfill and which of these strategic business units do not fulfill what we expect them to do. Portfolio pruning, as I said, an ongoing activity in the past. It will also be an ongoing activity going forward. What we're looking at is also very clear. Most of you are familiar with our acquisition criteria, also familiar with what we've divested over the years. Acquisitions also going forward will play a role. There's no question about that. When we get to capital allocation, we'll talk, Martin, a bit more about priorities. Recently announced portfolio pruning measures, oil and gas.
We've signed the joint venture agreements with LetterOne for the combination of Wintershall and DEA end of September. We're currently in the regulatory processes. This is not just as you usually see that a merger control process or many merger control processes around the globe. There's actually four different regulatory processes that we have to go through. Expectation is that we'll close sometime in the first half. You're also aware of the fact that what we target then for the year 2020 is an IPO. We signed the joint venture agreement with Solenis for our water and paper chemicals business. Also making good progress there in the regulatory process. About a month ago, I think, we announced that we're looking into strategic options for our construction chemicals business.
When you add this all up, and compare to the target divestiture of EUR 8 billion sales, there's order of magnitude a billion in sales missing. There are other things that we are currently looking at. When it comes to recent acquisitions, the Agricultural Solutions business was strengthened with the acquisition of the Bayer assets closed in August. We're in the midst of the integration process here. Chemetall, in the meantime, acquisition done end of 2016. In the meantime, fully integrated, and the signed contracts for the Solvay polyimide business are currently not only contracts, entire transaction under review by the European Commission. I think in total 8 merger control authorities have already approved.
The EU does an in-depth review, and we are expecting there a decision in Q1 2019. Much for the acquisitions. With that, I'll turn to our segments. One or the other of you over the years has complained about this not being transparent enough, different businesses that we have in the segments, not really comparable. We're moving definitely a major step in the direction of creating more transparency and also more comparability. Is that an English word? Sounds at least like comparability. More comparability as of January 1. What do we do? We currently have six segments, as you know, without oil and gas, five segments. These five segments in the future will go to six.
Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition and Care, and Agricultural Solutions. Five of these segments, in other words, all but ag, will have two operating divisions. Agricultural Solutions will consist of the one operating division, which is Agricultural Solutions. Now, how does this look then? I said already two for each segment, but for ag, you see in chemicals, combined petrochemicals and intermediates. In Materials, we will have Performance Materials and Monomers. In Industrial Solutions, Dispersions and Pigments and Performance Chemicals. Then there is Surface Technologies with Catalysts and Coatings. Nutrition and Care with Care Chemicals, Nutrition and Health. Then there is Agricultural Solutions. You see other.
Oil and gas is already discontinued at this point in time as a result of signing the agreements with LetterOne. Construction chemicals at this point in time will still be reported under Surface Technologies until we sign an agreement here, and then it will also move into the other segment. We think this should provide going forward much more transparency. We are fully aware of the fact that this transparency will also increase, let me put it this way, increase the heat, because our businesses will sit there, and the comps, which I also provide on one of the following slides, will be a much better yardstick than they may be today for our respective segments.
Now we've shown this in the way of a radar screen here. You see in the middle of this radar screen the Verbund because all these businesses to at least a certain extent rest on the foundation or sit on the foundation or use the foundation of the Verbund. We've then in this. What is this? A light gray, I think it was on the original slides. These shaded areas we show what links these various parts of the portfolio together. They all as they have the foundation of the Verbund they all benefit from the process work that is done in our research centers. That is a common denominator there. 90% of our products are produced using catalysis.
You see that as a link between the elements of the portfolio and our segments. We have the strongest formulation platform that links from industrial solutions to and including agricultural solutions, and I could go on and on. The outer ring is digitalization and artificial intelligence. That is something that's a different topic that we will cover in more detail in a few minutes. What we've done is, for each and every segment, we've developed a roadmap. This roadmap follows pretty much what you see in this, what we call it, a matrix. It follows certain core themes. What is the core theme for a segment? Chemicals, pretty obvious, it is the Verbund.
Nutrition and Care, to give you an example there, it is consumer ingredients, Agricultural Solutions, it's integrated offering of seeds, crop protection, and digital. It goes from there to innovation focus, where the innovation focus is on. Surface Technologies, as an example, on battery materials, on surface effects, Agricultural Solutions, on crop protection, seeds, and digital farming. You see then also CapEx relevance and M&A relevance. Typically, where the CapEx relevance, and I wanna say, and/or the R&D relevance, because that's the case for Agricultural Solutions, is very high. You see less impact there, on acquisitions, so M&A relevance. Example of chemicals, upstream, heavy investments. We mentioned already what is planned in China, and we'll also go into a bit more detail there. Very high there.
M&A relevance in chemicals on the other hand, rather low. Sustainability, we screened the entire portfolio for sustainability themes, which may not be a good English word here. What the specific relevance of sustainability is for a segment. In chemicals, as an example, it is ChemCycling and materials. It's more about bio-based materials. In Surface Technologies, low-emission mobility. In Nutrition & Care as an example, bio-based and natural, as well as traceability. Now let me take that as a basis in order to walk you through in a bit more detail the segments starting with chemicals here. Already mentioned petrochemicals and intermediates combined in the segment strategy. Very clearly enable organic growth of key value chains by providing flexible supply of raw materials.
It is the basis for our entire Verbund, for our integrated model, so not a surprise here. A clear and strong focus on operational excellence. Growth drivers, emerging markets, value chain integration, as well as geographical reach. Also I think goes without further explanation. On the innovation side, the focus is clearly on best-in-class process technologies. CapEx, I mentioned already, the expansion plan for Nanjing in China, where we announced 2 weeks ago? 3 weeks ago? The investment together with Sinopec in a new cracker at the existing Verbund site in Nanjing, but also, and more importantly, the new Verbund site in the south of China in Guangdong.
Sustainability, I think we simply have to admit 70% of what we use as raws, as raw material in our portfolio is hydrocarbon-based. When you use hydrocarbons, there will be CO2 emissions. There's no question about it. A focus here on developing CO2 technologies, a focus on reduction technologies, a clear focus on carbon management and/or on ChemCycling as the what I would call primary traits under the topic of sustainability for our chemical segment. We move on to materials.
The one or the other of you may look at this and say, "Hmm, somewhere in the past I may have seen something that looked not so dissimilar from what you call today then or will call going forward materials." That's the combination of performance materials and monomers. What it is, it is the entire isocyanate value chain, and it is the polyamide value chain that we combine in the materials segment. We do not only combine it that way, we also will run it out of one joint headquarters in Belgium. Strategy drive organic growth by offering advanced materials for new applications and systems.
What we obviously wanna do, and I alluded already to, the value chains, we wanna generate maximum value in isocyanates and polyamide value chains. Hopefully with that then also avoid the discussions that we had in the recent past about how comes that you are making so much money in chemicals, but downstream in functional materials and solutions you don't make enough money. Here we combine these businesses now. We'll show you the entire value chains and what they are able to deliver. Martin tells me I need to move forward quickly. I'll jump straight away to industrial solutions, combining the dispersions and pigments as well as then the performance chemicals. You're now familiar with the drill, strategy, growth drivers, innovation, CapEx, and sustainability. Looking at the clock, Martin, I think with that, I hand it over to you.
That you are not tiring, I do the other three roadmaps quickly. I mean, very much protection, modification, and creation of services. This is basically the common denominator of this segment. This is very much what we have in catalyst, in coatings, battery materials, as well as in the surface treatment. It is very much something where we can drive organic growth in these areas, and having also the right technologies on this. The growth driver is very much automotive in Asia, the whole topic of low emission mobility, electro-mobility. Innovation here that is still a quite innovative area, particularly on the battery materials, but also surface effects, quite nice things going on in this area.
When we talk about CapEx, and this was also what this was in the summary chart, it will be capital intensive because the battery materials are on capital intensive piece. If you want to step in this and being a major player, we should be aware that this is a heavy capital intensive piece. I think on the sustainability, it's clear it's all about basically low emission mobility. When we go for nutrition and care, I think this is this whole area of a better life, a more cautious life about having more health-enhancing ingredients, very much in the consumer area. We talked about aging. I think there's a whole lot of innovation in that direction. The growth drivers are health, wellbeing, aging population.
There is also, I think, a significant space in terms of digitalization, personalization of health topics. That is also where strongly digitalization will come in. From the innovation side, there is on one hand process technology to keep really everything alive here, but it is very much also on fermentation, enzymes, biotechnology, where we can really leverage this technology platform much better in the future. On the CapEx part, we will have to expand our capacities. There's strong focus on operational excellence and sustainability. I think we touched already quickly here on the bio-based part and the traceability. We come to agricultural solutions. That is actually, I think, also a very clear area here.
Now, after the acquisition of Bayer, we have a totally new playing field here in terms of innovation, seeds and traits coming together. The growth drivers are clear, population growth and increasing demand also for higher quality food. It's very much about the resource limitations, land, water, air. On the innovation side, it's not only that we wanna keep our strong focus and success on active ingredients, but really bring this together with seeds and traits and leveraging this as a new business. That's also why we changed the name from Crop Protection to Agricultural Solutions here. Very clearly on CapEx, we have to then build the plans for bringing these new active ingredients on.
It's also very clear from an M&A point, if there are other opportunities in seed, I think we will look into this. I think the sustainability part you touched already. I think so far we have provided you with an idea of what is behind the portfolio part. Let's talk a bit about what is about making the organization fit and to be adequately positioned to really get this customer intimacy. I call that always when I talk internally, we go down in the machine room of BASF, because this is very much what it is about. I think 153 years old, there was always a change. Everyone always thinks that the organization part like this was forever. It actually changed all the time.
I think it is now a new time again to adapt for a totally different, market environment and more dynamics over there. We have thought about this in many dimensions. It's a complex part, what we wanna do this, and I try to structure this a little bit. In a way that we said we have three guiding principles, what we want to do here. The first one is empowering, and then we talk very much about businesses, that our businesses are empowered to also take care about all the services and the customer-facing units, that they can shape that to the needs of customer and become more entrepreneur. It is about differentiation, which goes hand in hand with this. By putting services and functions into the divisions, we allow them to differentiate.
A supply chain has to look totally different for health and nutrition and for ag, like it has to be for petrochemicals. Then it is very much about simplification. I think you agree with me that is not a topic only of BASF. I can talk to other CEOs in other industries. Big organizations have not only complexity, they have become then complicated. The complexity part is value, because if you can manage this is great, but to being complicated is not good. That comes all the time, kind of automatically growing organically also complicated. This is why we wanna address this. We really want to reduce this complexity. This is not going from alone by telling the people.
That is why we have also some really distinct activities here, like a process task force, which will go into detail to really restructure and making this simple. We imply these three principles on more or less five major action fields. The one is touched it already, that we really embed functional services into operating divisions when they are relevant to the customer approach. They are then integrated in distinct processes within certain businesses, and they have the decision power. That means, however, also if you take them out of the current functional setup, there's something left, and there is stuff left which we still centralize and do, but that has to be restructured. We will think about how in our inter-interface to optimize our back-end organization.
That means a little bit of different approach about governance and headquarters, also structural changes, and we will also have more automation in this kind of part. We talk about the regions. We want to sharpen their roles, very much focus them more on the customer. They have to be the guys who really go for the customers much more intensively out there, certainly in a way delegated from the divisions. We will also go here a bit an approach that we will have so-called integrated markets, where the divisions go in these countries and directly take care about their business.
We will have also more mandated markets where we give the country team basically certain amounts of a product and say, "You drive the business yourself." There's also empowerment and entrepreneurship in certain markets, and we will see, we think this can really accelerate. It is about process landscape. I quickly address this. We need more speed in execution and also more competitiveness in corp processes. I always say we have to crawl through the pipes, basically see how the processes end to end are, redesign them to make them more efficient, shorter, less interfaces, and with this gain speed.
Then it is very much about people, because at the very end, it's people who have to do this, and we really want to empower them in a way that we bring the decision power down in the organization to the point where the action is. Not always escalating everything up and making this long, but giving them the decision powers, and that means also long-term and the short-term incentivization, the right one. It's about leadership excellence, and it is also about an open feedback culture. So to make this a little bit more tangible, I think it's shown on these pictures. You know us, we are very much functional service-oriented, so we have these global functions that drove the business. We have optimized them, I would say, very successfully in the past.
They really drove out cost, but we are now at the point where it's a little bit bare bone. Not always in these silos, actually, all the decision-making was the right one in terms of having really the right process over there. What we do now is that we put this part in an embedment in the divisions, and then there remains a kind of a standard service, and there remains a smaller and even smaller governance part. That this is not only a gimmick shows you that 20,000 people will be involved in these changes. It is a shakeup of the company, and it will happen very fast. A big part of that will already move on the first of January. It is very well thought through, and with this will advance also quickly.
To make this a little bit more tangible, I have here one example of a supply chain. You see here as it is today, that we very much have these silos, and this is these functional orientations, whereas the process goes horizontally. You can imagine then at a certain point, you have really exploited the functional excellence and optimization. You have gained all these efficiency potentials, but the customer orientation is really sometimes hampered. What we want to do with this embedment, you see that this is basically then in the divisions, there is also the responsibility, the flexibility, and also the more reliability, and it is more business-driven in terms of making the services part of it.
I think it is very important for the people working in the services that they feel the pulse of the customer, which they do not do in a functional silo. I think this should give us very clearly the speed. Talking about supply chain is very much the Amazon experience. It's no longer differentiator. You really have to have a supply chain that really functions specialized under certain businesses. When it comes to automation, here one example in the purchase-to-pay process. We have in the past, first of all, by building the shared service centers, basically used the labor arbitrage by going simply into countries where you have cheaper labor force. That then to a certain part is then exploited.
We have then further basically reduced by taking FTEs out, by bundling and doing a lot of process harmonization. That basically happened over the last 10 years. If you look forward, there's actually, in our eyes, a quite similar potential based on this by really driving automation. That is very much about machine learning. It is about chatbot technology, but it's also about robotics, where we, I think, can bring further down these costs. I think this is a very important potential where really digitalization is really making a difference. Hans?
With that, we get to part four, the Verbund strengthening our portfolio. Verbund stays at the heart and soul of BASF. I start over on the left-hand side. That's what all of you are familiar with, and actually what we have outside here in Ludwigshafen is probably the best example of the production Verbund that generates significant synergies for us. I don't go into the details there. It is also the basis for our value chains, because what this production Verbund does is ensures competitive supply of key products to all segments. That is by far not all when we talk about Verbund. We talk about Verbund when we think about our markets and customers.
We think about it in the terms of how to create customer relevance through size and broad portfolio, and I will show you an example for that in a second. We think about Verbund, and you may recall the gray shaded area that went around our segments, so-called the outer half circle that we had there, which is digitalization. When I look at BASF, and I think about the industries that we touch, the industries we buy from, we sell to, BASF is pretty much what I would call a data goldmine that we should use going forward in a better way that we do this today. There is Verbund between the technologies, and I've shown you that also earlier already on the segment slide.
We want to leverage technological advantages and innovation across all segments. There are also something. When I said Verbund will remain at the core of BASF, it will be its heart and soul. There are some other fundamental principles. While we touch many things with the new corporate strategy, we will not touch. Each and every business must create value for BASF. We will keep our market-priced transfer prices, so there will be no, also going forward, no cross subsidies between any of our businesses. It goes without saying that we will continue to manage our value chains very, very actively.
Gives you a slightly different view on the Verbund, and you see how in these six segments on the right-hand side, what kind of value chains we have in them. Even on what I would call the most downstream in agricultural solutions, you see how it's based on precursors coming out of the Verbund. Those of you who have very sharp eyes or are just very sharp have noticed something up there in the right-hand corner, which is SAP, which we will move as of January first into the acrylics value chain, and with that into the chemicals segment. Physical Verbund, we focus our activities and resources to achieve best-in-class operations. We talked about operational excellence already.
We'll talk about it a bit more during this presentation. There's a strong focus on environmental protection, health, and safety. What we have done in part, and are doing for the entire portfolio, is to develop asset pictures. You can imagine that like a roadmap for our assets, be it sites or be it plants. Each and every one will have an asset target picture. Site logistics, obviously, that's something that's at the heart of Verbund, and those of you who have the chance to attend tomorrow will see what this means in particular for our site in Ludwigshafen. All I give you now is the acronym which consists of an A, a G, and a V, and you will find out more about that tomorrow.
Last but not least, key element in the Verbund is digitalization. Digital will create value for BASF. It does today. It will create even more value in our operations going forward. I just highlight a few things on here. What we do for all major plants, we will have digital twins, which will help us to optimize planning and minimize investment costs. Augmented Reality is a reality at BASF already today and helps us when we build plants. I'll move over to the area of maintenance. Data analytics, constant data as an example on pumps or reactors that show you any type of deviation and allow you to do preventive maintenance, is another key. As I said, BASF overall, I think it's fair to describe it as a data goldmine.
Yeah. Some, let's say, more information about the technological Verbund. I'll try to make this rather quick in four dimensions, but I would really like to mention this because it's important for us. I think in our industry, there are not many potent innovation platforms left anymore. I think the last big one was DuPont, which is now cut in pieces. It's also not there anymore. Don't underestimate to run a broader competence technology base, which you can only do if you have a broad portfolio to benefit from it. Otherwise, you cannot afford. I give you one example here, which is really the catalyst part. You might not know that 90% of BASF portfolio is really dependent in the process on a catalyst.
Basically, most of this, if it's not something you license in, this is all own BASF catalysts. If you do not have this expertise, you also do not have the lever to improve this. In this case, it's not only we are one of the largest consumers ourselves of catalysts in our own processes. We have also the automotive catalyst part. We have the chemical catalyst part, and we have also catalyst recycling, and we have also the refinery part. There's a lot of aspects about how to handle certain catalytic effects, how to know about distribution of metals, active metals. You learn something on the automotive catalyst, which is later also in the environmental area for air cleanup and emissions thing in chemical plants.
There is so much which you can transport between these different businesses also from learning, and you cannot afford to run such a platform if you don't have the distinct business behind that. Give you one other example, which is fermentation. Fermentation is actually one of the oldest technologies of mankind, not only baking a bread, but brewing a beer or making wine is actually a fermentation process. That is something which is also to a certain extent becoming more important for chemical companies. There is more and more where a chemical process and a fermentation process goes hand in hand. We have, for example, the new active ingredient in the agricultural area, where the first step is fermentation, and it is basically completed by chemicals arena.
You know that we have products like our feed additives and in future also enzymes for detergents that are connected to this. There is also more, for example, now with the biologicals, the active biologicals. This is actually living organisms which you use in ag chem. All that comes together to run such a platform, which you can widely spread out in different businesses. I think this is really something where it is very important. I give you also one very interesting thing we just recently tried out. We actually have, working together with a company where you can convert CO and CO₂ in off gases into ethanol by bacteria.
That is, for example, one hint how you can reduce CO2 by collecting the streams, and you make ethanol out of it, and you have a chemical product. There is really things you can only explore if you have a certain depth here. One more example, biodegradability. We mentioned that bio-based material getting more important. We have actually spent quite some time not only developing these, and you know we have these ecovio and ecoflex products in our PM division. It is actually that we also invested in why it is biodegradable. We increasingly understand on the molecular level why this is the case. If you understand that, you can design the new materials. It's not only that we have the materials for the plastic sector.
We are also now looking into biodegradable materials and formulations for care chemicals and also for ECEM. I think this is some good hints why you should not underestimate this dimension of the Verbund if you have a portfolio that spans over technologies. There's one other point where also the Verbund in terms of technology comes together. This is the whole area of ChemCycling. I think we will talk more in the future about that. With all the plastic waste issues which very much is in the center of societies and people and worries, we have actually looking into this also by the regulation and by laws coming in that they force us into recycling. That is actually not only a threat, but it can also be an opportunity.
We have just recently done here our first big steps. We have actually converted plastic waste by a thermochemical process and more or less a pyrolysis into an oil. We have now just a few weeks ago fed this oil into the cracker and basically made them out of the plastics more or less new products. This is like we have this mass balance approach. Also a very nice thing to connect sustainability also with recycling and sustainability topics here. That is just one few more dimensions, and that's not all what we have for Verbund. There's more, Hans.
No, we mentioned customers and markets already. Customer Verbund, what is that? That is about what we have is customer networks. I've picked one example here for you, which is automotive, and there our customer network is called Global Automotive Steering Committee. You see what you can do, one, with the size that BASF has, somewhere between EUR 11 billion and EUR 12 billion in sales to the automotive industry, with that being the number one supplier. We have a broad portfolio there. We have a deep portfolio. We are working with our customers on solutions. We are working with them on innovations, and you can see how the global vehicle production has developed, a CAGR of 3% during the time 2012 to 2017.
BASF is growing with the automotive industry at twice that rate, which I think is an excellent example of what you can do with our customer Verbund. We have talked already here and there about the digital Verbund. Rather than going through this slide, I wanna jump to one that I really like because it makes things tangible.
Yeah.
That is our supercomputer, Quriosity. Now imagine 50,000 laptops being put together, the computing power of 50,000 laptops. That gets you to something that's called 1.75 petaflops. That helps us making calculations at a speed that we were not able to do before. It is the biggest computer in the chemical industry. I picked this example of development of a formulation. You start out with the unimaginable figure of 100 million formulation combinations. I don't know how you chemists come up with something like that, but apparently.
It's mathematics.
That's what you have in mind in the beginning. Then you boil this down. I like when you look at the lower part of the slide, traditional way, somewhere the chemist is then inspired and will get to 200 likely combinations and then starts lab trials. Quriosity works in a slightly different way and gets things done much, much faster. Gets instead of 200 likely combinations relatively quickly to only 20. With that, I think
Highly likely combinations.
Highly likely combinations, and the time saving, Martin, order of magnitude?
Well, that goes over a day or half a day.
Good. So much for that example. With that, we come to something else that we've already addressed, which is setting the tone for CO2-neutral growth. As you know, our purpose is creating chemistry for a sustainable future, and this is what I think you will see at work here. When you think about the 17 UN Sustainable Development Goals that are there, what we do on an ongoing basis, we do a materiality survey. We ask ourselves the question, what is important? What plays into these type of sustainable development goals? CO2 is certainly one topic.
When you look at what BASF has done, and I only focus on the lower part of this slide, the 40 million tons that we emitted in 1990, while production grew significantly over that period of time, we cut that in half. Admittedly, there were a number of low-hanging fruits there. Back then, we had coal-fired power plants still in the portfolio, all shut down. That gave us a major improvement, obviously, with respect to CO₂ emissions. We're currently standing at 22 million tons of CO₂ emissions globally. Put this in perspective, a normal-sized 2.5 coal-fired plant emits somewhere in the order of magnitude of 10-30, depending on which technology it uses. On average, it emits what BASF emits globally.
Now, what we are setting ourselves as a target is despite what we target as organic growth, and you heard we want to grow at a rate that is higher than the chemicals chemical production growth. And despite the fact that we will build a Verbund site, a new, completely new Verbund site, in China, our commitment is that during the time period 2018 to 2030, in 2030, the CO₂ emissions will not be higher than in the year 2018. Now, when you look at this, somebody like me asks in the first moment the question, how is this all going to happen?
There are measures which are in place and clearly defined, such as, for example, shifting to CO2 neutral power. There are operational excellence measures which are clearly defined. I got a little nervous when I heard that new technologies are in play. Martin and a number of other people at BASF are deeply convinced that we get going here and get this done. There is, at this point in time, still a little bit of uncertainty. I am, in the meantime, also absolutely convinced that we can achieve this target. Here are the measures. As I mentioned already on the sourcing side, moving to CO2 neutral power. Asset improvements, investments and acquisitions will help us, but also business models will help us to create this CO2 neutral growth.
I get to the other sustainability topic that Martin you already mentioned in your target slide. We want to significantly increase the sales that we have with the so-called Accelerator products. You know that we have looked at our entire portfolio. We've classified the products that we have in the portfolio from challenge to accelerators. Accelerators are those that have very specific sustainability traits, make a significant contribution there. Today, we have sales of EUR 15 billion. We want to move that up to EUR 22 billion by the year 2025. In other words, by 50%, which is a significant increase, and through that then also pay into the sustainable development goals of the United Nations.
Okay, getting to part six, I think a very important part about how we want to allocate and be even more disciplined in terms of capital allocation and focus on value creation. I think it's a very important chart here. I mean, first of all, that gives you a little bit an idea about the composition of the period here between 2005, is it? 2011, and then how the mix basically changed here and the use of our cash in the period of 2012 to 2018. You see on one hand, we have significantly more paid dividend here. You see on the other hand also that R&D was growing. I mentioned that already. Then very clearly that we have reduced M&A already in this period compared to the previous period. We have also stepped up our CapEx.
I think this gives you already an indication about where the journey goes to. When it comes now to look forward, we have basically these four parameters, and I think they are always in the right order as we have them. I mean, the first of all, we want to invest our cash in organic growth. Let me really clearly say this, there is nothing more profitable. You have an own process from innovation. It's patented. You buy your plant, you depreciate it in 10 years, and you run it 50 years. This is the best thing you can do as a chemical industry. That is why you have to have this innovation in the processes and do this investment. Organic growth is healthy, so we want to do that.
The second part, we mentioned that is very clearly our strong commitment to increase the dividend. That means, we have to earn more, but a bigger share also going to dividends, clearly. You see from the picture in the past, we have been more prudent and always been prudent about M&A. I think in a lot of talks with you acknowledge that we do not fall in love with projects and whatever that it takes, it just has to be executed because they are on the plate. We have stepped down from a lot. We have not followed up a lot already in the past. Very disciplined about capital spending here for acquisitions. You saw the roadmap. We will be even more harsh on that in the future.
If it's overpriced like now, I think it doesn't make sense to do something here. We will be very prudent on cash here. We have also said in some of the areas, particularly downstream in these very two segments, which we have indicated here, we will also go if there is a chance for a reasonable selective acquisition, which has also for this segment a transformative character, we will go for that. I mentioned this here as a fourth part, which might also surprise you. We clearly say that share buybacks are something which we strongly consider in the right moment. There's no decision about this, but in the situation, in the particular situation when we are then there, this is an instrument for us also to return cash to the shareholders very clearly.
We take then the right moments when we have also proceeds from divest or whatever, when this makes sense, we look into this. Let me just say this is part of the instruments we use. If you look on capital expenditures for growth, you see here basically how we developed and you see also a little bit a few going forward. There is a significant part that was always attributed to oil and gas. That is certainly away now, when we go for the new co. They have to finance themselves. You still see that we will go for capital in the future, and that will be not only the dark blue part that the current business for growth. If we step up growth, we need also the capacities.
I mean, if you need more than 3.1% more capacity every year, it costs, and this is simply how chemical industry is. You have to build plants. We need that, and we need also some cash then also to support the recent acquisitions in terms of growth. We will have over the next years this CapEx, which is in light blue, which will be this South China Verbund. You know the number EUR 10 billion. That is however EUR 10 billion until then 2030. We talk about maybe EUR 4 billion, roughly 4 and a little bit, maybe more between 2019 and 2023. It will be very much backloaded in this period because it needs some preparations first until we spend.
Very clearly that for each and every investment project, we will have harsh criteria. They have to be, this will remain unchanged, that we have clear criteria here and that we have also, the need that each and every project has to be profitable and provide the right returns on the capital employed, and it has to be, on the basis of our WACC. Very clearly, we stay here disciplined, but I clearly state again, we rather go for organic growth than being, bold here on the acquisition part. Let me quickly talk about China also, because I think this is also a very important slide here, just that you get a little bit the dimensions. Let me start first with the left part of this chart.
We can only say our China investments have been profitable. What you see also in the last two years is that there is a part of this isocyanate spike in these numbers, but it was also from the beginning, also in the different periods in 2014, 15, and when China was a little bit more stagnant and on less growth, you still have reasonably earned money in China. It is an attractive to do business over there. If you look on BASF in China between 2000 and 2018, you might not be aware that we have actually built plants on 7 square kilometers in China. That shows you also our massive investment over there. We have spent about EUR 11 billion over this period of time. It is nothing totally unusual from the dimensions.
If you compare that Ludwigshafen is 10 sq km, Antwerp is 6 sq km, and the new area in Zhanjiang is 9 sq km. We target for something that has about the size of Ludwigshafen. That is a huge endeavor, but it is EUR 10 billion. You see, if you compare that to what we have done in the past, this is neither crazy because it really refers to what we have done. There's also some legislation a little bit different, that in future you need a bit more land for doing your investment. I think it's an absolutely reasonable thing to fill this also in a certain period of time. I really would like to reiterate here, there's no other company from the Western Hemisphere that can do such something like this.
First of all, being capable to do this with own resources, having the experience and having also the support from the Chinese government to do this. Guangdong, 110 million people, over proportional GDP growth. Guangdong province has passed the GDP of South Korea last year. That is where all the downstream, companies and customers of us are invested. Guangdong province imports 20 million tons of chemicals every year. That is why the government over there wants to close the value chains locally. I think it makes a lot of sense. If you remember the ROCE we had in the area of materials and chemicals, very high ROCE, organic growth, own investments. This is the major area we do here. It's profitable, it's the right market, and we are capable to do this.
would like to take this time to spend here because that is really, I think, a major differentiator. Quickly about R&D. We have stepped up our R&D spend here significantly with the acquisition of Bayer. We now are EUR 2.3 billion. This is really a massive commitment. Let me also very clearly say over the portfolio of BASF, the EBITDA margin from innovations is two percentage points higher than the average of the portfolio of BASF. It clearly shows you this is the only way to work against the commoditization in certain areas which you always address. We need new stuff. You put that on top, and it goes its way down to commoditization. That is why this has to be reiterated, and that's why it has to be even more.
We run, I think, the most potent R&D machine with EUR 9 billion output in products that are not older than five years. I ask the team, we can do more, and I think we should do more. It helps us also on the organic growth part. You see here on one hand that, very clearly, about EUR 1 billion is now ag. It's a massive bet also on R&D and innovation. Basically the rest is on one end on the other segments, which are much, much smaller. I also would like to say we continue with our corporate research that has paid out very much because that is basically the incubation chamber for new technologies which we prepare and get capable over there and later then launch into the different segments and businesses.
Very clear here, our commitment again to our progressive dividend policy. We have lived up to this very much in the past. I think the commitment is even clearer. Just staying where we are is not good enough. We want to increase. I think you will agree with us that we have a very attractive dividend yield here, and we are actually the number one in that respect also here in the chemical sector. Coming almost more closer to the end, we have sharpened also very clearly the strategic acquisition criteria, also the financial criteria here. You can read through it. If we acquire something, it clearly has to create value as part of this portfolio and the BASF Verbund, as we have shown.
It has to help to achieve relevant market positions. It has to drive innovation or the technical differentiation, and it has also to enable, and this is also a new part where we look in, that it really helps us in our sustainability approach that we have business models that can walk us in this direction. On the financial part, very clearly it has to provide a return on capital employed above the WACC. After the full integration, the old target is still valid at EPS accretive in year three at the latest, and it has to contribute to the growth of the EBITDA before special items which we have mentioned as a major target. Let me quickly talk about also this excellence program we launched. You know we have had several of these programs in the past.
We step up our effort here, because we want to target now until end of 2021 a run rate of EUR 2 billion, which we bring in here. That will be a much more broad program this time than in the past. It is about operational excellence, but it is also very much about, savings and doing things better in digitalization and automation. It also comes to savings out of the organizational development with the functional service and the simplification of the process landscape. That comes not for free. Very clearly, it has a one-time cost of about EUR 0.8 billion, and it has also capital expenditures which mainly come from the OpEx part in the framework of about EUR 1 billion.
With this, I come also to the summary and the conclusion part. Would like to bring up that slide again, which roughly shows, and I think we gave you evidence and background for that. The six major changes we want to do, the customer focus, which I think is absolutely necessary to grow above market. I think we talked about a clear sharpening of our portfolio, more transparency. We can put us more on the grill in terms of delivering on that one. I think we elaborate heavily on the Verbund, which has much more dimensions than we have maybe only talked in the past about only the value chains and the physical part. There is more in it. The transformation of the organization, I can only tell you that is a major effort for us internally to take all the people along.
I can tell you the feedback we got so far is really positive. People in BASF feel where the problems are, and they are waiting for this change. That's why we are also convinced very much that we take the people along in that and have a much more agile workforce. Capital allocation, I said this very clearly. We go for growth businesses much more than in the past because we think this is also the most profitable part in going forward. We drive the growth in China, elaborated on that, and we clearly set I think a new tone in our industry with the CO2 neutral growth. I don't go through the targets again. You saw that picture already. I think it is ambitious. You will have questions to that, I'm sure.
It's not a walk in the park to deliver this each and every year through also certain not always easy times. There are some more numbers maybe for you to take home, which we elaborated. Clearly, the EUR 2 billion annual EBITDA contribution from 2021 onwards from the new excellence program. Don't underestimate that we have to move 20,000 people with these changes. It is EUR 8 billion of sales which we divest as part of our active portfolio management, and it's zero CO2 we want to add on this growth part. There's one thing that will not change.
That is our purpose, because I think this is still so rightfully placed, and that's what we are for, and that's what we stand for. We create chemistry for a sustainable future. With this, we close one and a half hours, long breath. You are loaded. You have a lot of questions. Thank you very much for your attention, and go for your questions.
Yeah, dear ladies and gentlemen, this brings us to the Q&A session. You have a microphone system in front of you. If you would like to ask a question, please press the button on the right-hand side before you should be connected with the system, and you do this via moving your card in front of the left button. You see I have a first question that comes from Christian Faitz. I'll move the microphone to you.
Sure. I was fast pressing the button. Thank you. Christian Weiß from Kepler. Two questions, if I may. First of all, I guess a good part of your CapEx plans 2019 and beyond is also, as you said, on the new acquisitions, including Bayer Crop Science remedies. So what nature are those CapEx plans? Is there anything out of the ordinary what Bayer hasn't done in the past few years, what you will do now? Can you elucidate this a bit? Second, China, in your view, will be making up pretty much half of the global chemical market by, what is it, 2030, I believe.
Yeah.
Can you walk us through your way of thinking how China will grow so much even from the base more than 40%? Thank you.
I mean, I think to the first one, I can only mainly say there is nothing unconventional here than from the acquired business, that there are some misses where we have now to catch up. It's just normal thing that come with it, I would say. About China, I mean, we can talk many hours, and maybe we can also talk over dinner for that. I have to say, I think we have to look long term. When we last time did Nanjing, there was also the big concern, what is about China that was in the Asian crisis when we took the decision.
I have to say it was a good decision to do that because if you look at the operation, they are really great, and they work well, and they are very nicely contributing to this. I personally believe that the current bumpy road which we might have in the next one or two years will come from these frictions with the U.S. To my knowledge and to the people I talk, they tell me that is not going away fast. The trade issue is on the surface. The real discussion is what is the place of the superpowers in the future in the global arena. China will not walk away from being blackmailed by the U.S., so that will be a longer struggle.
That will be why I think the China business over the next time will most probably be a little bit more challenged than we have seen this in the past. Still, I think the fundamentals are right. You can only say it's so impressive what they have in terms of long-term strategies for key industries. They have 10, 20, 30 years plans. From my experience living there 10 years in the past, they don't mitigate this. For that reason, I have not strong doubts that with the growth rate of 4%, China will come to these numbers. It will be just striking because a lot of the production involving chemicals will be in China. We could talk now a lot about innovation.
We have extremely innovative customers in the meantime that are Chinese, have become big customers also in the automotive industry. There's a lot of the business in China is not the OEMs anymore from the western part, it's also the regional, guys. I think there are so many things from the potential, from the devotion, from also the orchestration from the government, that I think it will be sometimes bumpy, yes, as in the Western world, by the way, too. I think I don't have any doubts in that this long-term the right thing to do.
We stay at this table, and now the second question comes from Oliver Schwarz, Warburg Research.
Thank you for taking my question. It's more or less about your ROCE target. Is there a number attached to that, or is that just ROCE above the cost of capital like it was for the last five years, where it seems like you easily achieve that number? Tied up to that, when I'm looking at your guidance volume growth in or above the chemical industry, EBITDA to grow on an annual basis by 3%-5%, that seems to imply that there is no real margin progression tied to those targets, despite the fact that the ROCE in Surface Technologies as well as Nutrition & Care is way below the levels that you want to have. Is that likely to remain the way it currently is, or are you envisioning changes in that regard? Thank you.
Okay. Oliver, thanks for the questions. I'll start with ROCE. We follow there a similar concept as we've done in the past. We've not attached a specific target figure to that. We want to earn consistently a nice premium on the cost of capital. Not so sure that what you said is correct, that it was easily done over the past years. Please keep in mind that when you look at the capital base there is the investment now in the ag assets. There is CapEx coming in part, as already mentioned, for the Chinese projects.
While Martin explained nicely how this works in the chemical industry, you invest, you depreciate over 10 years, and then you enjoy for the following years. There's CapEx coming there. I think what we have there as a ROCE target is an ambitious target. The 3%-5% EBITDA, let's look at this in a way where 2018 still benefits significantly from high isocyanate margins that go into Q3 of the year 2018. While what we've done on one of the slides, I showed the normalized EBITDA growth that we had over the time period 2012-2017. We'll start with the full target that we have there, or the full EBITDA for the year 2017.
What we want to achieve is on that basis then an increase of 3%-5% year by year. There's one thing absolutely clear, all businesses need to contribute to that, which then would also address the functional materials and solutions or the performance products business that saw some criticism, in particular in the year 2018.
Thank you.
Welcome.
The next question, we go to the left part of the room. It's from Tim Jones, Deutsche Bank. Wait a minute. Now the microphone.
Yeah. Yeah. Thank you. Two questions if I may. You've talked about 20,000 employees being affected and changing the part of their job. How quickly will it take you to implement those changes for those 20,000 employees? And how quickly do you think those benefits will be seen in the actual P&L for BASF? And then secondly, on the segment head remuneration, when you look at their variable compensation, are you changing at all the way you remunerate your segment heads? And also maybe as a third question, what will their variable remuneration targets be? Do they differ by segment or is it all the same? Thank you.
Tim, about the 20,000 people, they will move fast. There will be a high number already moving basically beginning of January, and there will be a few months later, the rest, moving. That basically is all done in the first half of 2019. That means that shakes up the company. It needs also a little bit to settle because the intention is they move into the operating divisions, and they have to settle themselves and redefine a bit their processes and cannot exactly tell you how long that takes in each of the divisions, but it has to be rather fast. It's very clear. This is also why we do a lot of the measures, and we have now somehow scratched on the surface of a corporate strategy.
I can only tell you in the last 6, 7 months on all these levers which we have just quickly touched on, there's a huge amount of these well-defined measures behind. This is happening a lot of this at the same time in 2019. We do that because we need also the returns very quickly from this. This is why I think the EUR 2 billion until end of 2021 is also not a walk in the park. We can only achieve this certainly if we do that quickly. Don't expect too much in 2019 certainly, because we have to initiate first. It will then come more in 2021. That's clear. We try to certainly get also something home in 2019 already, very clearly. About the segment heads, we don't have a segment head.
We have the segments, but we still have the divisional presidents. We will not have a segment head because basically the segment head is one in the Board who takes care of a certain segment. We have also talked about the remuneration of that, and we will change also the bonus system in the way that we have two pieces now. We have one that is very, very clearly only the number part. That's the number part of the achievement, what this business has to contribute in the respective years. Either you miss it, or you hit it, or you overdo it. That is how your bonus is defined. There is a second part. It's not half, it's less than half. There's a second part which clearly defines also what does the person do to make the strategy happen.
Because if we only go for the number part, they all don't do the investments in really making the change. We have this part where we say it's more a midterm arrangement, where you go for digitalization targets, where you go for innovation targets, sustainability, and so on. We separate these two targets. On one end, we incentivize to do the right thing for the future, but on the other hand, much harsher and clearer in terms of delivering the numbers. We have also not touched on this because this would be just too much for you, but I quickly elaborate on this. We very much steer the company later on the SBU level, even more than we have done this in the past.
There will be a very clear strategy on the SBU, where we clearly say it's not only a strategy, it's nice on the paper. What is written there, you have to deliver. That will directly go in the target agreements very harshly. On the other hand, there is also a mandate for empowerment. Once we have defined the strategy, they are in charge to do that, and they get also the decision power to do this. On one hand, it's more autonomy, but it is also much more discipline. It's very much then segment head, the board or the resource heads, who have to be sure that this is balanced in the right way, that is the right target, and that it's moving fast. I think we have to move much faster with a lot of things in future in terms of delivery.
We move on. The next to announce the question was Paul Walsh on the left-hand side as well.
Yeah. Thanks a lot, guys. My first question is just when I look at the returns by the divisions, the sort of notable standouts are Surface Technologies and Nutrition and Care when you look at the peers in terms of relatively low returns versus the peer group there. I wondered if that was something that you guys recognized and what you can do to close the gap with the peers, given, you know, the growth prospects in those two divisions in particular. Then my second question was, have you guys given any thought to what's going on with the whole push from oil to chemicals, and the way that might change the dynamics in the chemical industry longer term? Has that played any role in shaping your strategy, Martin, as you've laid out today? Thank you.
Now, I'll start, Paul, with your question on the returns in the surface technology. Always depends on which peer you're looking at, because the range there on a ROCE basis starts as low, if I recall correctly from the work that we did, of 3%-4%.
Mm-hmm.
It goes then when you go to the pure coatings players as high as 18%. Admittedly, there are two different businesses sitting in there. I think with combining them in one segment, and we need to think about what type of data we provide you with, you should be able then also to even dissect the peer group a little bit more. Not sure that I completely understood your question from oil to chemicals. You mean with our divestment from oil?
No, I'm talking about the industry dynamics.
Ah.
If you look at the Middle Eastern producers trying to increase the
Okay.
chemicals in every barrel of oil, how does that reshape the thinking of a large organization like yours that's got a global presence and where you're seeing competitive threats emerging from players that haven't frankly been as interested in chemicals for 30 years?
I think it's fair to say that you see a lot of the national oil companies, after oil business is getting more tough and from the oil price, but also from the demand dynamics in the future with electro mobility. I think there's a lot of change coming. If that really takes direction, you will see refineries dying. I think there's quite an impact on them. That's why I think you see a kind of a renaissance that they look on chemicals again. There I think are considerations and people talk about this, what they can do over here. I however make this very clear, and you see this also with the China investment. We have looked into this all the time, again, Middle East or not.
I think with all of the trade frictions we have seen, I think it is more than ever right to be where the market is. I can also not imagine that the Chinese government will allow this, that the millions and tens of millions of tons are imported without any impact. We have done this in the past, I think already very intensively for other reasons, because we wanted to have revenues, costs, and income in the same currency to have a low risk. Now I think to this currency risk there comes in addition also the trade risk with all the duties and the restrictions to do business.
In that respect, I think yes, we might compete with the one or the other investment in oil countries which try to participate over there. I think on the very front end of the let's say basic chemicals, there is most probably more competition coming up. It's not coming up tomorrow, but over the time going forward. This is why, again, I think our Verbund is right, because we don't want to compete on these basic chemicals. We want to convert these basic chemicals along the value chain to higher value products. That's why I think our Verbund concept is still the right one and very differently. Last thing, maybe also to the China part here.
It has become incredibly difficult in China to open a new chemical site because they get closer and closer to also what is the Western world, with all the environmental impact and closeness to residential areas. It has become tough. I think by having a container of such a huge size where you now can bundle all the investments you do in there, build up the right-sized infrastructure and everything, it is actually also the right way to operate chemical plants. It's a little bit differentiated answer to yours, I think this moves the whole thing. The last part is, I think, there will be also an impact coming from sustainability, coal and that stuff. It will, I think, be more and more scrutinized.
I think we will have also as much as possible on bio considerations, bio-based and so on. This is I think why you find this also all in our strategy and associated with the portfolio decision we have.
Thank you.
Now we move on to Gunther Zechmann, Bernstein. Please go ahead.
Hi. Thank you for taking my questions. The first one, just to clarify on your EBITDA target, the 3%-5% per year. Is it this for every year, the way you define it, or is that a CAGR over certain periods? i.e., should we expect 3%-5% underlying EBITDA growth next year as well? Is that more a run rate? The second one around buybacks. You mentioned that you'd be open to doing buybacks if the conditions are right. How do you define the right conditions for doing a buyback?
Take the first one, I take the second one.
Okay. The 3%-5% is not a CAGR. The idea is to increase EBITDA before special items year-over-year by 3%-5%. I tried to argue in an earlier phase of the strategy work that it would be nice to maybe swing a little bit, but we came in the end to the conclusion that we said, "Nope." We want to have a rock-solid, very clear target for the entire organization, and this is to grow the EBITDA before special items year-over-year by 3%-5%.
Hans, I think if you refer to the basis, we talk about roughly EUR 300 million-EUR 500 million EBITDA more every year. I know there's maybe a little bit in the room that's really ambitious, but I mean, I think this is EUR 1 billion adding in every two, three years. I think it's not a walk in the park. I think it is ambitious given all this environment. Share buybacks, I clearly said this is a. I wanted to indicate it's an active part of the toolbox, but we have to decide this at the moment when this could be appropriate. There are several, I think, ingredients which you have to look at. First of all, I mean, I think it is our financial structure.
It is our financial needs in terms of also the investment. It's the market environment which I think play into here. I think you might associate it myself a little bit with the context we had over the last months that I think some of you had the feeling this is a no-go for me or for the new board. I just wanted to indicate that this is a part of the instruments we have, and we then will look into in the appropriate moment of time.
The next question, we go to this part of the room, is from Markus Mayer, Baader Helvea. Please go ahead.
One question on your R&D. You elaborated that meanwhile it's EUR 2.3 billion, and this becomes a more important part for you. Does it also mean that your R&D not only grows absolutely, but also in relative terms to yourself? My first question. Two housekeeping question. One is on your CapEx guidance. Have I understood it rightly that the number for this next five years is around about EUR 20 billion, and there are EUR 4 billion coming from this South China Verbund? Maybe also you could elaborate on the phasing of the CapEx. The second housekeeping question is on the savings, not only of the cost savings, I think that is more back-end loaded, as you elaborated, but also on the costs for this program, on the phasing of those costs.
In the R&D budget, I mean, the EUR 2.3 billion is no automatism. It is also neither clear whether it stays exactly on this level or it goes up or it goes even slightly down. That is simply what is the outcome out of our planning of legacy business we have, plus what we acquired with Bayer. I mean, very clearly, the Bayer acquisition was also an investment in R&D. It is a super R&D platform.
Mm-hmm.
There are also 2,500 people in R&D coming to us. We are not blindly stepping in this. That is exactly also what we wanted to have. Business is differentiated by innovation. I think it is also clear and fair to say I have stopped over the recent years the automatic R&D budget increase. You saw that this was somehow automatically 5% almost in the past. We have kept this rather flat, even go down a little bit over the recent years, because I think it sets a huge number. There's also efficiency in R&D. I think I mentioned that to you that the supercomputer, and Hans showed you a nice example, that has to have an impact also on the financials.
Yes.
Because what basically that means, if we make the processes faster with this impact of the supercomputer, we should do more at the same money. This is also what we expect. There will be clearly also efficiency gains on the R&D budget. I would not exclude, once we are through the discovery phase, that also our own R&D program in ag, as well as this with Bayer has overlaps, and this finds some corrections. I think that can also be that it is over the next years even slightly going down because of this efficiency thing. It's, I think, as a ballpark number, it is right. For the CapEx guidance, this was also a rough indication going forward.
I mean, we will provide you when we come in February 2019 with the new operational planning, we come for the exact number for the next 5 years. I think roughly you have been right. It's the EUR 4 billion I mentioned for the China part, very much back-end loaded towards 2022, 2023, because we are now in the conceptual phase. There's not so much spending yet. We have also to look into the certain businesses. Because it's also very clear, 3.1% chemical growth, and we want to be above that.
Mm-hmm.
It is something 3.5 or even higher, so you need the capacities for that across the board. That also needs CapEx. We will provide you with a better number for the next five years in 2019. The last one was Christian.
On the-
Yes, Cesar.
On the one-times, your question was, ramp-up of the one-times. Think about it as majority in 2019 and 2020. I can't give you an exact split there.
Thank you.
Welcome.
We stay on this side, and it's now Patrick Lambert from Raymond James.
Hi.
Thanks for taking just one question. It's regarding your assumptions about automotive industry, which on pro forma I think accounts for what, 18-20% of sales. How do you see the next three years in terms of underlying demand and your outperformance on production, which is about 400 basis points? How can you sustain that? How much, like, battery do you need to get to that 400 or surpass it? Your view on the automotive over the next three years.
I mean, 2 points. First of all, we do not only grow with the number of cars. We also grow with the content of chemicals in the cars. It's two pieces. Particularly in the Chinese cars, there is still in average much less chemistry than in the western part. We have an opportunity here also to catch up with the growth, even the numbers or unit numbers not going up so much. I think there are some indication that 2019 is not getting a super year for automotive. If you look on the forecast, this is a rather low growth. I think we see also, and this is I think the forecast for China, it's almost a stagnation in China for cars, I think.
On the other hand, we have also to make very clear, if we move towards e-mobility, that will hamper our environmental catalyst business, but it will open up the opportunities for battery materials as well, much more lightweight. Because there will be even more plastic materials in the car to reduce the weight. Overall, one should not estimate that the chemical content in e-mobility is higher than the combustion engine car over there, but it will be a transformation. The most important part in terms of that value creation is the business with the battery materials. You know that we have now announced this investment here in Finland, which is then also the first CAM material in Europe. I think very important and appreciated also by politics, because they want to build up this European value chain.
I think we bring a major contribution in here. I think I mentioned that earlier, you might not be aware that this is a damn capital-intensive chemical part. It is something where we have to look now after the first step on the returns. We have also to clearly say we need capital to grow this business. This is also why the surface technology portfolio will need a lot of CapEx in this distinct part. It is on the other hand also the by far largest growth area in anything we see in the chemical arena in the moment, driven by innovation and by the materials and also by the speed of growth. With that, I think automotive is a lot in transition.
It is challenged in some parts we have, but it's also opening up new opportunities. However, somehow, automotive always was. It was always a, for us, an important but also a very exhausting industry, because these guys are very demanding in everything.
For the next 3 years on BASF view and contribution to the EBITDA 3-5, it's almost like the past 3-4 years. You'll outperform.
We clearly want to dramatically outperform the automotive industry. I mean, if this 3% go down to zero, you can say now doubling zero is still zero. We still wanna grow.
So the next to signal that he want us, is Sebastian Bray from Berenberg Bank is on a listen mode.
Hello, and thank you for taking my questions. I would have two, please. The main goal of the new segmental structure seems to be promoting transparency and making benchmarking and profitability compared to peers easier. I just want to ask, why hasn't the agricultural segment been split into seeds and crop protection, given those business models often operate differently? Am I correct in saying that you will still disclose the sales for those separately, if not for profitability? That's my first question. The second is on the underperformance of BASF volumes over the last five years identified in the slides. Dr. Brudermüller, what do you think was the key cause of this? Was it that you didn't have enough CapEx to service the demand growth when it came?
Was it that the, how to put this, the sales network, either in terms of how flexible it was with price or able to bring volumes to market, was not quite quick enough? Thank you.
I mean, the first one, I think you are right. A major part of that is to provide more transparency to you. I mean, this was brought up in a lot of, let's say, roadshows, what you brought to us, that we cannot compare you with anyone. We've taken this up, this challenge, much more uncomfortable in new segment structure as the last one, because it is really more transparent. We are going for that. On the other hand, we also clearly use this with the roadmaps to really sharpen what is going to happen in the certain segments. It's also kind of an education process. You cannot acquire to repair a business which is not okay. We rather allocate this to growth business.
I think this is even a step further in terms of being consequent with capital allocation. I think if you look in Ag to separate these two businesses, this is not the reason why we bought it for. We did not buy the seed business because we think now the seed business separately is a business we have to be in there. I think we have to admit that this industry moves into a more integrated approach with seed and the chemical part. I think there will be many more challenges in the way that digital farming, precision farming, you mention all these words, I think, and also regulation coming in. There will be most probably less chemistry on the field. You have to organize this differently and to create the value differently with different offerings.
For that reason, I think it is very important that the seed and the traditional crop protection part comes really together. This is also how we have established the organization. We have as much as possible integrated certain things in the structure we have, but we have also created a new structure with a global business unit, seeds and traits, but this is also very closely linked to the R&D part and to the traditional part. I think the chance is really in innovation here in every dimension, digitalization, business model, and so on. This is, I think, we will look on the numbers separately very clearly, but I think that has to be an integrated part. Underperformance.
First of all, I think, yes, we have now shared that with you that, and I think, in all openness, this is the major thing, and this is what the strategy should be to bring us back on the growth track. I think there are several issues to this. I mean, I mentioned clearly the split. If you have 40% of your business in Europe that growing with 1%-2% and China grew with 6.5%, then it's already you have to do so much more in Europe to outperform basically the market to catch up with the global growth number. I think it's just a starting disadvantage. This is one. I think we have also lost, maybe a little bit competitiveness in the one or the other areas because there are Asian guys stepping up.
You feel the heat. I have also to very clearly say this. When you then preserve margins, you're maybe also more defensive on the volume part in the one or the other business, also maybe an ingredient. I think very much what we talked about, the structure. I mean, we are in some areas too complicated, and with the complicatedness also too slow. I mean, I can give you one example. It's in the automotive part. A company that just started three years ago to build electric cars, and they started now to sell cars, basically 5,000 units per month now, and they have a target of 50,000 cars next year. It's a Chinese company. If we look on the approval, when they approached us about coatings, that was from the demand to the approval, weeks.
When we talk to some classical established automotive companies, that takes two years. I think to have this responsiveness particularly to the Asian companies that are on a totally different speed, our functional organizational setup is not adequate anymore. I think that was also what partly delivered on that. They walked away that you are so slow. You have good stuff, but not the cheapest one, which we always like, because if we would be called the cheapest one, what would be good? They say you have good stuff, but you're slow. I think this is a few ingredients that come together here. I think it's not one reason that boils down. That even varies by business throughout the portfolio, this is very complicated.
I think it's some of the major attributes why we have not grown fast enough. One thing is very clear, the cost part I think is important, that's why we address it. You cannot save yourself on cost into a profitable future. I think it's very clear that is a kind of a hygiene. You also know that it partly goes away again by inflation. We have also to step up our capital base because we grow. It also will eat up some of that. It is nature in the main part, it is an enablement to grow. I think that the important part for delivering on also on our EBITDA part is we have to bring in contribution part from new business. Contribution margin from new business. This is why we do all that.
I think that gave you some reasons in the composition why I think we have not been good enough and why we are transitioning on the strategy.
Thank you.
Now we move to the middle here in the room, Andrew Stott, UBS. Please go ahead.
Yeah, thanks. It's just to come back to this whole concept of decentralization. There's sort of two aspects in my head. 17% of your workforce are gonna be sent out into the regions, which is a huge number. What is it that they will be able to do differently from mid-next year that they can't do from the center? I guess there are some things you won't want to tell us, but from the point of view of what you can tell us, I'd appreciate the practical changes. The second side of this is almost an admission, therefore, that the center has failed in some way. What does the center bring now beyond raw materials?
Mm-hmm.
I'll give it a try, and I try to make it more tangible in the beginning. We're not sending people out in the regions. What we do is we move people who may be in centralized service functions at this point in time into or closer to the business. A very specific example, we have centralized customer service organizations. We take the centralized customer service organization, and we move the customer service person or the group of customer service people right into the business. Very easy change. May not even have to change the building. What changes is the code from a centralized code to the code of the operating division or the business unit. We may have maintenance people who sit on a platform.
We take the maintenance people, move them into the plant, into the business. There is a lot of these, what I would call smaller changes happening, which in BASF took us quite a while to get there. We're not putting everything upside down, and we're not moving people 5,000 kilometers or 5,000 miles. Does that help to put things in perspective?
I mean, to the tech, quickly add on this engineering part. I mean, it's a difference when you have a project in a plant, and every time, and a different engineer comes. Or whether you have an engineer embedded, which is part of the operations team, and this guy is there for years and knows the plant up and down. Then there, I think, comes a totally different dynamics in terms of what kind of solutions, how well you know everything. It is this guy, immediately, the maintenance guy feels the pulse. If the production has a problem, he's in the middle of it. If he's a service guy, he might move to another plant and says, "Okay, this is not my business.
I'm not part of that team." I think we will generate a totally different spirit to look in the overall processes where they feel an ownership culture, actually. With this also, it's an empowerment. These people are sitting there, and they have to decide. Our operational excellence budget is now a very simple administrative process. There's a database where you assign what you wanna do, and there is a check whether this is profitable and makes sense. But then you can execute very quickly and also get the funding for it. Because a lot of this stuff has actually a very, very short return. You have to do it, and a few months later, you have already basically the money in again. This is why we need also a different authorization process.
Cannot take endless approvals through many pieces because then it's getting slower and there is no personal identification. I think this looks simple to change the code, but the feeling of the people, I'm part of it, I have ownership of this whole thing, I think it can move mountains.
Sorry, can I follow up? What will the customer see that's different?
The customer will see, first of all, in the service offering and in the response time, in the flexibility, and to offer something that is tailor-made. Sometimes our people come to a customer and say, "Well, that's not the way BASF does it. It's we do it that and that way." They will be much more responsive by saying, "Okay, if that is the way you need to do it, that's we admit, and we do." I think we will become much more interesting for the customer, and they will experience that we are fast, quick response, the right answer, good offering, tailor-made. That makes us, I think, a much more interesting supplier to them. Because we never had a problem with the products and the quality and everything.
That is always what BASF is associated with, but not necessarily the service part.
Agility and speed, that will be key differences. That should be noted immediately.
Just one last note, because you said the center has obviously done everything wrong. I think this is also not right. I think what we simply have done, we just have squeezed out the potential such a functional organization has. I mean, this has for years delivered a lot of contributions. This was also part of your former excellence programs. I mean, they have all delivered. They have actually over-delivered. Now we come also to a point where you say, in this organization structure, you cannot do much more. This is why we have to move this.
Now it's Chetan Udeshi, J.P. Morgan. Please go ahead.
Yeah. Hi. Thanks. Maybe first just clarification, 3%-5% organic EBITDA growth, is that on 2017 base? Is that right?
Yeah.
Okay.
Sorry, that is on 2018 basis.
Okay, 2018 BASF, okay.
It's roughly can translate into EUR 300 million-EUR 500 million roughly, yeah.
In terms of motivation for these additional cost savings, because it's not like first time you're doing it, you know, like you said, you overachieved with the previous plan. Was the underperformance of the share just the key motivation or do you see some incremental challenges over the coming years which prompted you guys to maybe do more than what you've done in the past?
No, I can only repeat. I mean, it is also the customer feedback. As we have taken your feedback into also the factor in the strategy which you have done in the study we have done, we have also certainly asked the customers, what is good with BASF and what is not good with BASF? I think it was simply this, we had to realize we can do better. Because what they all say, you have so great guys, you have all this knowledge, you have all these expertises. Why your horsepower powers are not on the road? For that reason, and combining this with really the fact that we are not growing fast, I think this was the main driver. I think we are convinced that with this change, we will also deliver.
2019 will be a difficult year. I clearly say this. This is a transition year where this has to work. We might also see, and we will give you then more guidance when we see more about that. 2019 might also be from the environment a little bit more different than is in the past. I think you read this also everywhere in the newspaper. We have to analyze this, but it can be that this is a little bit more bumpy from the environment. I mean, we have to get our clear opinion about that, and we will then factor this into the guidance. There's a few components that come together that makes it 2019 certainly very difficult.
Now it's Andreas Heine, MainFirst.
Yes. Three questions on main. The first on the operational excellence program. Basically, BASF over the last decade had always an operational excellence program in place, and that was mostly dedicated to work against the cost inflation to keep the fixed costs and operational costs flat. This one is now double the size of the last two one, and they were double the size of the two predecessors, so EUR 500 million, EUR 1 billion, EUR 2 billion. Would that also mean that now the inflation costs are just higher, or do you expect a higher percentage to fall to the bottom line? That would be my first question. The second on Nutrition & Care.
Quite a few peers are very proud about their innovation, and it was always said at BASF they have a different business model because you're a one-stop shop and you need to have more standard chemicals. Also, explain why the margin was lower. Will you be able to share with us how much of this portfolio, which you now have separate in your reporting line, is more driven by these chemicals like vitamins, carotenoids, surfactants, and how much is driven by service and innovation? The last question is more on the trading situation. It seems that quite rapidly, with the U.S. being closed for a number of products from China to the U.S., that the trade flow changes very rapidly from China to Europe. Do you see this, that some commodities come more from China to Europe and affecting the price situation here? Thanks.
I'll start maybe quickly with the OpEx part. I mean, what I simply said is that we have this central database where we collect all the ideas from the plants, and we can only say we basically ask for more inspiration to go for even more. The good thing is the creativity it really steps up. We have many, many ideas over there. What we also ask them is to combine smartly safety topics, debottlenecking, and savings. I think we turn up also more that the one or the other thing is really combined. That means you fix some nice thing here, and you have also a 2% creep in the capacity.
That is also, I think, the reason why we step it up, because we have such a huge, nice funnel of good ideas so that we said we give more money to this to contribute more. It has nothing to do with the underlying cost inflation, but we still have to work against the cost inflation. I mean, if you just take in Germany the last Tarifvertrag, that was actually 3 + 5% more salary plus doubling the money for Christmas, which is just a cost increase. You have to work against this at the very end.
Major part is that we really step it up because we have even more ideas and we see even more need because capacity creeps, which are part of OpEx, if they contribute one or two percentage points of stuff you can sell without building new plants, that's a great profitability. That is one major source. It is also bigger because the scope is bigger. I mean, we mentioned this is not only the areas where we have been active in the last excellence programs, it's also about this organizational part. It's about automation. It's about first, let's say, returns coming from digital projects. That is the reason why this is also higher and why we think we can bring in faster because there are more ingredients than in the old one.
Then there was one on the Nutrition and Care part. I mean, you know our business from the structure. If you talk about the nutrition part, there is a strong part with our value chain in vitamins and carotenoids and fragrance and flavor products and so on. We want to widen this portfolio if we can. This is on one hand, innovation coming from more the biotech area, but that's why we also indicated this is still a reasonable area also to add something on acquisition if it makes sense. This is why we said very selective, and you saw this also in the relevance of M&A in this area. I think both has to come together.
We have also some quite nice things on our own innovation, but we have also to say this is a rather slow thing to develop. That's, I think, why you need both components here. From the trade point of view, very hard to detect because that's the primary thing which is going on our own flows, and we certainly have very much localized our production. Still, as we are a big company, we have some flows between the regions. There we will have most probably a slight impact from higher duties and so on. The major part, and this is hard to predict, is we don't know actually where our customers sell their goods.
If you have a customer in China who buys your stuff, we don't know, and it doesn't make transparent how much of that stuff they sell in the U.S., for example, goes to Walmart or whatever. That is, I think, what we have to see over time, how that works and what the real impact is. I think this is the bigger threat than our own stuff flowing. That is not very transparent. We learn that over time. Because our customers also have mitigation measures. They partly change their customer base and whatever. That may be also what we have to do.
If some of these fellows are hampered by these things, we have maybe also to do active customer management or customer portfolio management, that you move over to others where you are then in this new situation, the better supplier.
I think, Andreas, if I got your last question correctly, you asked more in the direction of, do you see specific changes in trade flow already now as a result of the tariffs? Hard to say. I mean, I looked at the export statistics this morning for China. Interestingly enough, the exports from China to the U.S. in September and October are going up. Now, what this most probably has to do with is the fact that at this point in time, for the $50 billion-plus package, up to $200 billion, you have a 10% tariff. And then from January first, you have 25%. There may be a lot of pre-buying going on at this point in time, in the U.S.
Specific examples for products showing up, so chemical products showing up in Europe over and beyond what we are actually used to, no specific indications at this point in time, but that may change.
The next question is from Peter Clark, Société Générale.
Thank you. I hear what you say on the 3%-5% EBITDA and the normalization you're baking for the upstream business. Obviously, you've got the converse with the recovery downstream. Just taking a business like Surface Technologies, I'm engaging the margin here, ex precious metals, it's a single-digit number. How internally are you challenging management to drive that margin up? How much benchmarking goes on? Are there targets, et cetera? On the auto slide, which you gave us again in 2015, I think, with the growth against the industry, how does that translate into bottom line growth? I presume it's pretty good actually, with the plastics that goes into the catalyst. How does it translate from the sales line to the bottom line with that 7% compound growth rate, if you want to answer that? Thank you.
Start with your question on Surface Technologies. Is there benchmarking going on? Absolutely. On a constant basis. Do we set our businesses targets? Yes, absolutely. There is one thing, and you excluded already the precious metals. There is one thing that you please consider when you do your benchmarking in Surface Technologies and there in catalyst. We have our battery materials business, which is a business in which we invest heavily. We have clear targets for that business. But at this point in time, it's more a burden for the division and for the segment than it benefits the segment. That's something that you please need to keep in mind. Your second question was on automotive.
How does that flow through to the bottom line? That is, I mean, overall from a margin perspective, attractive business that BASF has. That's also then fully reflected in the margin.
Now we have Mr. Panja from Schroders on the left-hand side of the room.
2 questions. First of all, now that you're getting rid of oil and gas, can you share what oil price assumptions are you making in your forecast? And i.e. what I'm trying to ask is, you know, barring one cracker, all your crackers are Naphtha crackers. So if oil goes to $100, what impact does it have on BASF? And the second question is, I think in the Q3 call, you were sort of giving some flavor on the portfolio and sort of saying construction chemicals getting out is 'cause it's maybe not a fit and there could be more to come. But obviously, we haven't heard much on this today. So should we think now that this portfolio is something you're very happy with and, you know, BASF is sort of not gonna do major divestments going forward?
May I start with this last one? I'm a bit frustrated on this because I think this is a quite active thing. I mean, oil and gas goes out, construction chemical goes out, the water and the water chemicals go out, and we indicated EUR 1 billion. I mean, it's a quite significant part. We showed also the slide where we had just EUR 21 billion over the last 10 years or 12 years, roughly. If you add that up, I mean, this is.
EUR 30 billion out of EUR 65 billion, which we have today. I mean, I would say this is a major turnover in the portfolio. I think also, doing all these steps, we have now also a portfolio where we think we are pretty much done. I mean, this EUR 1 billion which we talk about some businesses, smaller ones, still following. I think we are also set, and I think the rest is very much now tuned to be on the growth side. The oil price?
Oil price assumptions always an interesting one. We've given a clear indication for what we expect in the year 2018, which is on average $70, and we are relatively close to that. Longer term, our expectation as a result of the under-investment in oil and gas over the last now 4 years is that we should see increase in oil price. We haven't communicated anywhere what this means in firm numbers, but trend-wise an increase in the oil price.
Okay. Thanks.
Okay, we move to Martin Evans, HSBC. Please go ahead.
Thanks. It's just following up actually on Andrew's earlier question about the customer, 'cause you do mention them a lot in terms of intensifying customer focus, you say, to accelerate growth. That's your first bullet point. I understand all the sort of new internal strategy and moving people around and so on, but from the customer perspective, what will they get apart from a sort of newly motivated sales force or R&D department that they haven't got now, such that could, as you say, accelerate growth? Or in other words, what are you not doing now which will be improved from January the first? Thanks.
I mean, it should not sound that we discovered a customer and we were not sure that we had some in the past. The question is always what you can do better. I mean, listening to this, and I think mentioned this, is one, on one hand, they say we are not agile and flexible enough. In certain areas, we have also to say with outages we had, we have maybe not been reliable enough. I think what the point is here, we have these very, very successful customer stories where we do things right.
We have these cases because we have some, let's say, key customers where we engage the team, which is not only the marketing and the sales guys, but it is also the functional guys, where we have actually created teams with all these competencies approaching. We have great examples there where we accelerate dramatically above their chemical demands so by simply gaining market share. I think knowing that we want to replicate this simply on more customers. I think the perception on the customer side is quite good, and I think they will test us out on what the value from them is. This is actually what the art is.
The question is how much we can respond on what they need, be it service level, be it new products, be it innovation, be it linking their data with digitalization, and so on. I mean, we have also some projects where some customers say, "I to optimize my inventory, I give you my production data, so you know always how much I consume, and you basically deliver more or less right in time and keep the inventory low," which is also an engagement. You cannot choose or change your supplier every month if you are linked via data.
This is all kind of this bunch of things where we really have to find out and we give them what they need, and which they say, "Hey, BASF is my company to be delivered from." I think it's about this experience, which we drive, and that has to start from the very top. It has to go through the organization, because if you are in an organization, there are some people who very much like to spend their whole time with internal alignment. I want to see these people aligning as less as possible, but freeing up their time to take care about the customer.
I think at the very end it is we will see this after some time, first in our growth rate and second then also on new customers which we hopefully win with this approach. Because they at the very end decide whether we grow faster. They pay our salaries, and they pay the dividend at the very end. I think we have to make this offering very much customer tailor-made for the distinct customer.
Five more questions to go, most of them in this area. Now it's Arne Rautenberg, Union Investment. Please go ahead.
Yeah, hi there. The first one is a mere clarification one on these EUR 2 billion cost savings. As it is a step up into the former cost savings, how much will be additionally to EBITDA? Keeping all else equal, will it be then EUR 1 billion more in EBITDA in three years' time, or how you think about this? The second one is on the operational leverage. I got the point that you have some extra profits in isocyanates and this will then be more negative going forward. But you have a couple of other sectors which are not at peak, like ag or whatsoever. There are offsetting factors.
In the end, I got it right that you expect the EBITDA to grow in line with chemical production over the foreseeable future then, or where am I missing here?
Yeah, I'll start with your last one. We see chemical production growing at a rate of slightly above 3%, and our EBITDA target is 3%-5%. Take the average, and you're already above what chemical production growth is.
I think on the EUR 2 billion, not everything will arrive at the bottom line. This is also very clear. This is also what you saw in the old excellence programs. There will be a part eaten up by inflation. As I mentioned, we also need to grow the base actually to be a bigger company. If you grow above 3%, I mean, take it after three years, you have 10% more capacity, which you need to serve that somehow. That will work against it. We try to minimize this. I don't give you now a number because you nail me down on the net number and not on the gross number. Certainly at the very end, you will not see everything in the bottom line very clearly.
Thank you.
Now it's Thomas Wrigglesworth from Citi.
Thank you very much. A couple of questions, one for clarification. The target for EBITDA growth for 2019 is 3%-5%. Second point for clarification, capital employed includes goodwill.
Yes.
The third point is you seem to be vertically integrating in China. You note that Guangdong's importing 20 million tons. Looks like the, you know, those tons would have got to go somewhere. The competitive landscape is intensifying. Yet you want to take share in chemicals and hold price. I'm kind of struggling, you know, how you secure price in a market in which competitive intensity is picking up, noting that you've got a volume growth ambition to grow faster than the market. Can you help me understand that?
I'll start quickly with the last one. It's not about replacing anything from the 20 million tons. Guangdong has a GDP growth of 8%, so they need additional chemicals. The point is that the local government also says, "I don't want to increase the 20 billion import to 30 million." This is why I think there's a very strong support, and they actually don't look for polyethylene and polypropylene. This is not sexy for them. They really look for the advanced chemicals, and this is exactly what our BASF portfolio is, that we can serve the distinct industry. It is not about replacing anything. It is basically against further additional imports they want to have out of local production. This is why I think there is no risk from this side.
I mean, 8% GDP growth is, for Guangdong, it's far above the average of China. If you look on the investments that are currently executed, and they are announced from our customer industries in this area, I think there is not so high risk that this will not be needed. By the way, we can sell the stuff also in the rest of China. We are not basically limited to Guangdong, but the good thing is that it is close. If you look on our operations in Nanjing, actually by far the biggest part of the production we have produced in our JV has never left the province. 80%-90% is consumed in Jiangsu province.
For that reason, I think with this diverse customer base, this will also be the case over there, and we will cater additional demand. Do you take the other one?
On the ROSI question, we don't do what I call VOIDL reporting. VOIDL stands for without anything I don't like. In other words, it's fully included in the ROSI calculation.
Do you mean EBITDA? Sorry.
How about the EBITDA target?
Target for every year.
Understood. Thank you.
Next question is from Laurent Favre, Exane BNP Paribas.
Thank you. Two questions, if I may. The first one is regarding this focus on organic growth and the, I suppose, the fact that you're de-emphasizing M&A. When you go back through the past 15 years and you look at the M&A that has been done and where perhaps you didn't get your cost of capital back, I guess when you did that post-mortem, what was the reasons of that? Was the issue price? Was it your ability of being the best owner of the asset? Was it environment? Basically, what was it? The slightly related question to that, you've talked about buybacks as being an option in the case of adjusting capital structure.
With the probably EUR 10 billion-plus of proceeds over the next 3 years from the various assets you've talked about, should we be thinking that there's an option where there's part of that EUR 10 billion that we see in terms of buybacks and that the alternative is basically big M&A in Nutrition & Care, and that's the trade-off we should all have in mind? Thank you.
We start with the last one? I already said something.
I'll start with the last one. Happy to do so. Proceeds from the divestiture could certainly be what Martin described earlier as one of the triggering points to start a share buyback program. What we do, how we do it, I mean, as you know, depends on the situation that we will be in, but that is certainly one of the areas where there is potential.
I think your second question about the acquisitions. To be very honest, I think it's a mixed bag. I mean, we have acquisitions I think have done, doing great. We have some acquisitions that maybe in the hindsight did not fulfill everything. The reasons for that were always, also a mixed bag. I mean, a very, very important one, I mean, we talked so much about Performance Products and Ciba and all that stuff. I mean, one major part there is we always knew that this is a part of restructuring and active participation we have there. What, for example, was not estimated that is such a rapid commoditization in these products. I mean, we have restructured so successfully and also very consequently, but all that stuff was eaten up by commoditization of these products. We have not estimated that part to be so strong.
I mean, also to be very honest and frank, we talked about the ROSI margins in some of the downstream businesses. I mean, one reason for that is also partly goodwill. I think, we have to be also very clear that this is why we say actually organic growth, as much as we can do that by innovation and by being attractive to our customer, is a very interesting option. It is actually, I would say, the most attractive path for a company. If you have your own innovation, you can protect that. You make that accessible with your own investments to the customer, then you leverage this for a long time. This is attractive. Does this mean this is all and you never acquire? No.
I think I'm also very clear, and I think that was also something you have always acknowledged, that we don't do crazy things. We have been always very, very cautious on this and very rational also. We had a lot of ideas. We check and analyze a lot, and we walk away. In the past years also, we walked away. We have narrowed even down now where we want to have acquisitions to happen. I think they should not be repair work for a business. This is why we stepped out of certain businesses. It should be rather on areas where it's really growth and it fits nicely. We are even more consequent and disciplined and focused in the future than in the past.
The next question is from Chris Parkinson, Credit Suisse.
Great, thank you. You've talked a lot about CapEx, a lot about restructuring costs. Maybe excluding those, could you talk about free cash flow generation and conversion into 2019 and beyond, and how that fits with the targets? My second question is, I remember recently your Performance Products slide deck had the three gray bubbles of opportunistic or requiring portfolio action sub-segments within Performance Products. I know one was paper and water chemicals, but where will the other two of those now sit under the new structure? Maybe the final question is about board structure as well. Previously, segments have their own board member. Should we be expecting any change at the board level under the new structure?
Start with free cash flow?
Yeah, sure do I do that. You've seen what we said with respect to dividend. On that, we said we simply want to increase dividend year over year. We took out the proviso, keep it stable at a minimum, and that requires us generating strong free cash flow going forward, and we're fully committed to that. I guess, Chris, that's all that I can say at this point in time.
Chris, the gray bubbles in this portfolio chart in the fact book, this is stuff that is in this divestiture list. I think a very consistent answer on this. Then on the board level, there will be no change now. I mean, we have reduced from 8 to 7. I think it's also adequate in this situation. We will also do, and we will announce this then very shortly. There will be not so much changes on the allocation now who is doing what, because I think we need also some consistency, to have the knowledge about these businesses and drive them. There will be one or two major minor changes, but we will basically stick with the board members who also follow up on the distinct businesses today.
Now we have a question from Roland Bosch, Berenberg on the right-hand side.
Thank you very much. 3 quick questions related to sustainability, people aspect, and digitalization. On sustainability, you mentioned the Accelerator products. Can you maybe elaborate a bit about those part of the portfolio where you have identified significant sustainability concerns? What are the plans there? On the people, human capital, you mentioned you want to create entrepreneurial performance culture. How would that, will that work in terms of incentivization? The last part, digitalization across the firm. With increased digitalization, there's also the risk of cyber risks. Are you concerned on that aspect?
You start with digitalization?
Yeah. I mean, cybersecurity is something that we clearly have addressed over the years. We put together already 5 years ago a team, a global team that deals with cybersecurity 24/7. We stepped up our investment in technology. We stepped up the resources. I think this may be something that you experience in your respective own companies also in the same way. I guess I would like to leave it with that.
I think it's clear. I mean, digitalization also is outside parties, it means more doors.
Sure.
There's also an increasing risk. When it comes to sustainability products, what we have done is, looking also in the Sustainable Development Goals and other trends, we have basically done a kind of a materiality analysis on distinct businesses. We have then looked into what is the opportunity part coming from regulation and what is the risk part. That looks very individual by business. I think the good thing is overall to say there's more opportunities actually than risk. This is basically also the source where this new sales should come from. There is a need by regulation. We need to do things differently. It's associated with new chemical solutions. We have to develop this, and it's innovation, and it's then later sales and business opportunity.
On the other hand, we have not talked so much about it. We have also in the sustainability steering also challenge products. This is these products that to a certain extent, you say you cannot go on with this for a long time. It's fortunately enough a very small number of products, but we also very forcefully say we have to be consequent on those. That means we have to have a mitigation plan. Either you solve this issue in a certain application or this product has to go.
Very clearly. Then we have to give this up or we don't. We maybe use it only internally, but do not sell it anymore. That is the other part which comes with this, which is by the way, also an interesting part to do business. There is one product, I won't mention the name here, which is in question whether you can bring this in public in the future anymore. Even you can discuss with your customer who buys this, "Why don't you give me the following chemical step? I don't sell you the product and transport, but just give me this chemical conversion. I do it for you, and I sell you the advanced product in this value chain." With this, we have another business opportunities.
This is all things where you, I think, you have then to go in detail, but that is what I mean with tailor-made things. I mean, all our customers have all their issues with sustainability. They all feel the pressure from their end consumers. They are affected by regulation, by laws, and so on. I think this is a huge opportunity when we can help them with new chemical products to solve these issues. This is why I think with this indicator of EUR 22 billion, it comes very nicely together with addressing the sustainability. We can prove we do something good to the society here. On the other hand, it is a proof point for our innovation capability.
Okay, two more questions, then I'll close the Q&A. The next one is from Louis Pecchiot, Millennium.
Hi. I've got one question. What are your EBITDA growth assumptions by region in your target?
I give that to you. If you allow, we'll leave it with a general target for the BASF Group. We have not broken this down for this presentation to regional targets.
Yeah, I mean, just looking at, you know, investment you're making.
Yeah.
In China, in Asia right now, I mean, you plan to invest another EUR 10 billion CapEx-
That team needs to deliver. I mean
Assuming like
No question about it.
Assuming that the ROCE, I mean, in line with the group, it feels a bit like you could achieve in Asia on a standalone basis, 8%-9% EBITDA growth per year, which means that actually the rest of the business is not really growing.
Well, keep in.
I mean, taking the low end of the range.
Keep in mind, with these type of investments, it will take a certain time until they actually produce. It's not that you make a decision, and boom, you've got the capacity. I mean, it's also, you have to look at that a little bit more differentiated. I mean, we still have a, not an OMP in Asia of 100%, so we have something like 60, 65, I think is the number now.
That means still 35% of the business is imported from Europe. You see some contribution margin here in Europe, which is actually coming from selling the stuff to a Chinese customer. When you then want to drive your business in China, you invest in building new plants, so all the burdens on the regional business. You liberate the capacities in Europe of a depreciated plant, and you grow in Europe without investing. I think with this, I think very clear sometimes this is not a very pure figure from one region to the other.
That's why I think you have to somehow see it very a little bit more holistically. Be sure our guys who evaluate the investments, they have a very rigorous scheme of rules they apply to make this comparable. There is no burden on any regional part that we say, "Okay, we go for a lower profitability expectation in a region or in a country as somewhere else." That is rigorously done by investment decision.
I mean, just looking at a bit at numbers and what you invested also in Asia last 10 years. Looking at the free cash flow, I know you don't disclose the EBIT by region, and looking at the EBIT that you disclose by region, CapEx invested. It doesn't look like you generate much cash in Asia. Is that fair to say? Is it a fair statement to say that actually the cash generation is really coming from developed markets? I mean, mainly Europe, i.e., Ludwigshafen, Antwerp, and the growth is actually coming from outside developed markets with poor cash generation.
I mean, again, building on what I just said, if you have older plants here that are depreciated, where you liberate the capacity because you build something new in the other region, it's more easy to deliver cash here than somewhere else.
Just a last question.
Maybe one more topic that you need to keep in mind when you look at Asia is with the accounting changes from 2013 on.
Oh, that's all.
There are significant activities where all you see in the EBIT is the net profit. That's the big joint ventures that we have, which typically in China tend to be 50/50 joint ventures.
It's true.
Maybe a last question on Asia and the new Kuantan site in Malaysia. When should we expect this site to be at full capacity? Also, what has been the contribution in 2018 from this specific site on your top line?
I don't know that number. 2018 contribution from Malaysia as a result of investment and ramp-up phase is slightly negative.
Top line?
I think. Oh, top line?
Yeah, with sales. Yeah.
You know what? Top line is something that most of the time I actually don't care too much about. I don't know it by heart. I mean, the plants are now running. I mean, the technical topics are solved. The menthol plant started up. This is now ramping up.
Here is the deal. I look it up tonight, and if I find out at the same point in time that in Malaysia, we have to file with the authorities, and as a result of that it gets published, you have the number tomorrow morning. The truth is actually not. Hans is looking up at this stuff.
It's a follow-up question from Markus Mayer, Baader Helvea.
Yeah, I've got a question on your fermentation.
Pardon me?
Over here.
Sorry.
Sorry.
No worries. On fermentation, it seems that was already one of the key growth areas for BASF for a while, but now becomes more prominent. Previously, I always thought that you in particular focused on enzymes and not so much bacteria and fungus, but now I also see in the presentation that this is also the case. Are you happy with your technology platform there, or are you going for more cooperation as you just elaborated with the CO2 into ethanol cooperation you just had? Is this also an example for bringing down the R&D budget and going into cooperations, R&D?
I mean, Markus, this is certainly a much smaller basis than some of our major competitors have. I mean, there are two big ones.
Yeah.
They have a much stronger platform, and they have an established business. In that respect, we have to catch up with this with a much smaller team. That is very clearly that this takes some time. We had also in the fermentation a setback. You remember once we had a huge production for fermentation with lysine, which we sold again. This was also a major step back. We have now with the enzyme and the Diversa platform in San Diego, this is our core. We have clear targets now for enzyme business, but also in other areas. We have also enzymes as catalysts for reactions.
I mean, for example, acrylamide is a good example where this was formerly a very dirty copper-based catalyzed project which now is an enzyme-based. The thing is that I said earlier, it is not huge yet, but it spreads out. It become more broadly, which is nice because that fuels actually such a platform. We are still compared to Novozymes or the Danisco and Genencor, DuPont, we are small. We have a very clear innovation targets where we wanna go, and we are very distinct in the targets we have.
We have come to the end of the streamlined live stream program today, and thank you very much for joining us online and goodbye. For those here in the room, we would like to thank you for this lively, constructive exchange, and most certainly, you will also have a chance to discuss further during the dinner. Further board members will join us. To be precise, all board members that have their or are located in Ludwigshafen will join us. There are buses that will bring you there as of 6:00 P.M., so you can take your time if you want to ride a little bit more here, and then bye.