Earnings call transcript: BASF sees Q2 2025 EBITDA dip, plans cost savings

BASF SE (Market cap: $45.9 billion) reported a decline in EBITDA before special items for Q2 2025, reaching 1.8 billion euros, down from 2 billion euros in the previous year. Despite nearly stable sales, the company faced challenges such as declining prices in several segments and currency effects due to U.S. Dollar depreciation. With trailing twelve-month revenue of $70.4 billion and an EBITDA of $6.6 billion, BASF is focusing on cost savings and strategic initiatives to navigate the current market environment. InvestingPro analysis indicates the company maintains a GOOD financial health score of 2.52, suggesting resilient fundamentals despite market headwinds.

Key Takeaways

• BASF’s Q2 2025 EBITDA before special items dropped to 1.8 billion euros.
• The company is implementing a cost savings program, targeting 2.1 billion euros by 2026.
• Sales were nearly at the prior year’s level, driven by volume growth.
• BASF announced a battery material supply agreement with CATL.
• Global chemical production growth is expected to be driven by China.

Company Performance

BASF’s performance in Q2 2025 was marked by a decrease in EBITDA before special items, primarily due to price declines in four of its six segments. The company managed to maintain sales levels close to the previous year, thanks to volume growth. While currency effects from a depreciating U.S. Dollar impacted overall sales performance, the company maintains an attractive dividend yield of 5.11%. BASF’s net income for the first half of the year was 887 million euros. For deeper insights into BASF’s financial metrics and exclusive ProTips, check out the comprehensive Pro Research Report available on InvestingPro.

Financial Highlights

• EBITDA before special items: 1.8 billion euros (down from 2 billion euros YoY)
• Half-year net income: 887 million euros
• Cash flow from operating activities: 3 billion euros (up from 1.4 billion euros YoY)
• Free cash flow: -1.3 billion euros

Outlook & Guidance

BASF maintains its full-year 2025 EBITDA guidance at 7.3 to 7.7 billion euros. Trading at a P/E ratio of 53.76 and currently rated 2.38 by analysts (where 1 is Strong Buy and 5 is Strong Sell), the company expects a flat demand environment for the remainder of 2025 but anticipates growth from its new South China Verbund site in 2026-2027. BASF is focusing on portfolio management, cost reduction, and operational excellence to strengthen its position. InvestingPro subscribers can access detailed analysis of BASF’s growth prospects and over 30 additional financial metrics not available to regular users.

Executive Commentary

Markus Kamid, CEO, stated, "We are now providing ranges for our assumptions regarding GDP, global industrial production, and global chemical production in 2025." He emphasized the company’s goal to "unlock the value of our stand-alone businesses." CFO Dirk Elbermann added, "We want to strengthen the balance sheet and do more for shareholders."

Risks and Challenges

• Price declines in key segments could continue to pressure margins.
• Currency fluctuations, particularly the U.S. Dollar, may impact financial results.
• The challenging upstream business environment could affect profitability.
• High product availability may lead to further margin pressure.
• Negative chemical market growth outside China poses a risk.

Q&A

During the earnings call, analysts inquired about BASF’s natural gas supply agreements with Equinor and Genya, the company’s portfolio transformation strategy, and challenges in the upstream chemical businesses. Executives also provided insights into Chinese market dynamics and potential supply-side reforms.

Full transcript - BASF (BAS) Q2 2025:

Conference Moderator, BASF: Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our conference call on the Second Quarter twenty twenty five Results. Today’s presentation is being recorded. All participants will be in listen only mode throughout. The presentation will be followed by a question and answer session.

Today’s presentation contains forward looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate.

BASF does not assume any obligation to update the forward looking statements contained in this presentation above and beyond the legal requirements. With me on the call today are CEO, Markus Kamid and CFO, Dirk Elbermann. Please be aware that we have already posted the speech on our website at brzf.com/q22025. Now I would like to hand over to Markus.

Markus Kamid, CEO, BASF: Yes. Good morning, everyone. Welcome to our conference call here on Q2 and H1 results 2025. As you are aware, we pre released already on July 11 due to the necessary adjustment of our full year guidance. Today, we will provide you with more details on our performance and the rationale for the revised outlook.

BASF generated EBITDA before special items of around 1,800,000,000 in the 2025. The Agricultural Solutions segment considerably increased earnings, while the Surface Technologies and Nutrition and Care segments achieved slightly higher earnings. In the Upstream businesses, margin continued to remain under pressure due to the high product availability in the market. Let’s start with a closer look at the sales performance of BASF Group. Overall, sales were almost at the prior year quarter level, thanks to volume growth.

Volumes grew particularly strong in Agricultural Solutions and in Surface Technologies. Prices declined in four out of our six segments, particularly in the Chemicals segment. The exceptions that managed to achieve price increases were Surface Technologies and Nutrition and Care. Contrary to the 2025, currency effects in the second quarter dampened sales in all segments and were mainly caused by the significant depreciation of the U. S.

Dollar. Reflecting this underlying sales development, EBITDA before special items came in at €1,800,000,000 compared with EUR 2,000,000,000 in the prior year quarter. Here is a snapshot of how the markets and our segments volumes and specific margins have developed in Q2. In general, the business environment in our Upstream businesses was very challenging. Compared with the second quarter of previous years, we generated significantly lower EBITDA before special items in the Upstream divisions in Q2 twenty twenty five.

This can be attributed to the high level of uncertainty and cautiousness of our customers in most markets globally. Let me highlight some segment specific aspects. As mentioned, the market environment for base chemicals remained difficult. Nonetheless, volumes in our Chemicals segment were almost stable. Specific margins declined in both divisions, particularly in Petrochemicals.

In an overall tough market environment, the Materials segment showed robust volumes and earnings performance. I will touch on the stand alone businesses only briefly as we have more detailed slides to follow. According to the latest data, global light vehicle production increased by 2.6% in the second quarter compared with the prior year quarter, mainly on account of production growth in China. In this environment, the Surface Technologies segment recorded robust volume growth and outperformed the automotive market. Specific margins in these segments were almost flat.

In Agricultural Solutions, we achieved strong volume growth and were able to considerably increase specific margins. Now let’s look at the EBITDA before special items by segment. Considerable earnings growth in Agricultural Solutions and slight growth in Surface Technologies and Nutrition and Care partially offset lower earnings in the remaining segments. Earnings in Agricultural Solutions increased across all regions, particularly in North America, followed by South America and Europe. In the Surface Technologies segment, the main earnings driver was contribution from the Environmental Catalyst and Metal Solutions division, which added to a continued strong performance by Coatings.

In the Nutrition and Care segment, EBITDA before special items increased, thanks to the improved earnings in the Nutrition and Health division. Here, earnings were supported by low double digit million euro insurance payment related to the fire at the isophytol plant at the Ludwigshafen site. In the meantime, our production plants for vitamin A and E as well as for aroma ingredients in Ludwigshafen have restarted and are ramping up as expected. Force Majeure for most products has been lifted. This will support volume growth in the Nutrition and Health division as of the 2025.

By contrast, earnings declined particularly in the Chemicals segment because of the still unfavorable supply and demand situation for base chemicals. In addition, start up costs related to our new Fabun site in South China burdened earnings by around €70,000,000 in the 2025. These start up costs will ramp up considerably during the next quarters to total around €400,000,000 in the full year 2025. Lower earnings in the Industrial Solutions and Materials segments contributed to the overall decline in earnings at group level. Compared with the second quarter twenty twenty four, EBITDA before special items considerably weaker and turned negative, mainly because of the reversal of bonus provisions in proportion to earnings in the prior year quarter.

In BASF’s new remuneration system, the influence of group ROCE has been reduced, while EBITDA before special items, cash flows and non financial targets are gaining in importance. In the following, I will provide some additional color on the strong performance of the Agricultural Solutions and Surface Technologies segments. Compared with the prior year quarter, Agricultural Solutions achieved remarkable volume growth of 21%. Volumes rose in all indications and sectors, except for seed treatment. The absolute volume increase was most pronounced in herbicides.

Compared with Q2 twenty twenty four, segment earnings improved by €282,000,000 to €417,000,000 On a half year basis, earnings rose by a remarkable 8% to €1,600,000,000 resulting in a strong EBITDA margin before special items of 30%. As forecasted in February, we continue to expect a slight increase in earnings for the Agricultural Solutions segment for the full year 2025. Now let’s move on to the strong performance in Surface Technologies compared to the prior year quarter. In this segment, we achieved volume growth across all three divisions. Overall, volumes increased by 6.5, even when excluding volumes from pressors and base metals, as shown on this slide.

Compared with the second quarter twenty twenty four, EBITDA before special items in Surface Technologies rose by around 10% to €350,000,000 All divisions contributed to this increase. The highest contribution came from Environmental Catalyst and Metal Solutions. Next, I will provide you a short update on our portfolio management. As announced at our Capital Markets Day September twenty twenty four, our goal is to unlock the value of our stand alone businesses. In February 2025, we agreed to sell our Decorative Paints business to Scherven Williams.

The purchase price amounts to USD 1,150,000,000.00 on a cash and debt free basis. We are well on track to close the divestiture in the 2025, pending approval from the relevant competition authority. As planned and previously communicated, we approached the market in Q2 twenty twenty five to explore strategic options for our Coatings activities excluding the Decorative Paints business. These activities, which comprise automotive OEM coatings, refinish coatings and surface treatment, generated sales of €3,800,000,000 in 2024. We have received a considerable number of bids from private equity and strategic buyers.

The process is well on track. In Agricultural Solutions, we are advancing as announced and are currently focusing on executing the legal separation and the implementation of a dedicated industry specific ERP system. In parallel, we are preparing a potential listing of a minority share to start unlocking the value

Dirk Elbermann, CFO, BASF: of agricultural solutions. This business has global scale, strong growth potential and attractive cash flow characteristics. We remain committed to completing all internal preparations for a successful IPO by 2027. In summary, we are executing our portfolio management strategy as announced. And with that, I

Markus Kamid, CEO, BASF: will hand over to Dirk.

Dirk Elbermann, CFO, BASF: Thanks, Markus. Good morning, everybody. Let’s now take a closer look at the financial details of BASF Group for the 2025. At EUR 4,400,000,000.0, EBITDA before special items was slightly below the level of the 2024. The adjusted EBITDA margin before special items remains almost stable at around 15%.

EBIT before special items reached €2,500,000,000 compared with €2,700,000,000 in the 2024. Special charges were largely incurred for restructuring measures as well as for the sale of BASF’s equity share in the Nordlicht 1 and two wind farms back to Wattenschein, which took place already in Q1 twenty twenty five. Net income decreased to €887,000,000 Compared with the 2024, net income from shareholdings declined significantly, mainly due to negative contributions from Harbour Energy, which was burdened by negative tax effects in The United Kingdom and from Wintershall Dea. Cash flows from operating activities amounted to $6.00 €3,000,000 compared with €1,400,000,000 in the 2024. The decline was particularly driven by the lower net income and higher cash outflows from changes in net working capital.

Payments made for property, plant and equipment and intangible assets decreased by five fifty four million euros compared with the prior year first half of €1,900,000,000 The decline shows that we have passed the peak investment phase for our South China Fabun site. Free cash flow was minus €1,300,000,000 in the 2025. I will provide more details on the next slide. In the 2025, cash flows from operating activities decreased by €365,000,000 Changes in net working capital led to a cash inflow of €38,000,000 compared with a cash inflow of €710,000,000 in the prior year quarter. The main reason was the change in trade accounts payable.

Payments made for property, plant and equipment and intangible assets decreased by €428,000,000 compared with the 2024 to 1,100,000,000 Free cash flow increased and came in at €533,000,000 compared with €471,000,000 in Q2 twenty twenty four. Now let’s focus on the measures we are taking to protect our balance sheet. The top priority in our capital allocation framework is to maintain BASF’s financial strength. We are fully committed to our financial policy. We aim for a single A credit rating, which is best in class in the chemical industry.

S and P recently confirmed our single A credit rating, which we also enjoy at Moody’s and Fitch. Over the last three years, our financial debt and leverage ratio have increased. This was driven by lower earnings in a cyclical downturn and also by our considerable investments mainly in South China. This mega project is on time and below budget. We have already entered the commissioning phase and will start up most of the plants as of the 2025.

Our CapEx peaked in 2024, and we will bring it down below the level of depreciation as of 2026. At €5,000,000,000 payments made for property, plant and equipment and intangible assets in 2025 are expected to be €200,000,000 lower than forecasted in February. Furthermore, we will partially use proceeds from divestitures to reduce our financial debt and to deleverage our balance sheet. We have also accelerated our cost saving programs. We now expect to generate annual cost savings of 1 point €600,000,000 by year end 2025, euros 100,000,000 more than originally anticipated.

Overall, we are well on track to achieve a targeted €2,100,000,000 in annual cost savings by the 2026. Finally, we have a strict focus on further reducing inventories while remaining a reliable and trusted partner for our customers also in challenging times. Now I would like to touch on a topic that we address less frequently. To safeguard BASF’s long term competitiveness and operational resilience in Europe, we have established a very robust and flexible setup for procuring natural gas by concluding two cornerstone gas supply agreements. The first agreement with Equinor will start in October 2025.

Equinor will supply us with up to 23 terawatt hours of Norwegian natural gas annually for the next ten years. This contract ensures long term supply security, competitive terms and a lower product carbon footprint due to Norway’s efficient production and transport infrastructure. It covers a substantial share of the BASF’s European gas needs, particularly for our major sites in Germany and Belgium, and supports our transition strategy by securing cleaner fossil energy in the current transformation phase. The second agreement with Genya will start in mid-twenty twenty six and comprises several steps. BASF will receive up to circa 12 terawatt hours of liquefied natural gas short LNG per year under a long term contract through 02/1943.

This agreement introduces strategic price diversification via Henry Hub indexing and gives us full control over an end to end LNG supply chain. It offers a critical hedge against European gas price volatility and complements our pipeline gas portfolio. These two agreements ensure long term energy and feedstock security, high volume flexibility for demand driven operations, diversification across geographies, pricing models and delivery models and a lower product carbon footprint for our products. Together, they form the backbone of our gas supply strategy, balancing reliability, cost efficiency and sustainability. This results in clear competitive advantages for BASF in Europe.

And with that, back to you, Markus. Yes. Will now comment on

Markus Kamid, CEO, BASF: the outlook of BASF Group that we pre released already on July 11. To account for the elevated macroeconomic and geopolitical uncertainties, we are now providing ranges for our assumptions regarding GDP, global industrial production and global chemical production in 2025, as shown on this slide. Most relevant for us is the continued high product availability in the chemical market, which is resulting in ongoing margin pressure, especially in the upstream businesses. Consequently, BASF expects earnings development to be weaker than previously forecasted and has adjusted its outlook for the full year 2025. We now anticipate EBITDA before special items to reach between €7,300,000,000 and €7,700,000,000 For free cash flow, we continue and €800,000,000 in 2025.

We stick to our forecast due to lower expected payments for property, plant and equipment and intangible assets, amongst other reasons. The forecast for CO2 emissions also remains unchanged. The content of this slide is familiar to you from our conference call in February. I would like to emphasize today that we are focusing what we are focusing on in 2025. The execution of our value enhancing portfolio measures, the successful startup of our new Verbund site in China, structural cost reduction and the rollout of our winning culture.

These are the things that are within our control, and we want to get them right, especially in view of the unsupportive economic environment. To conclude, I would like to briefly outline the decisions we recently took regarding the publication of our annual report and the format of our annual shareholders’ meeting. The audited BASF Report 2025 will again be published at the February, as you were accustomed to in the past. After successfully tackling the extended sustainability reporting requirements this year, the team is confident in its ability to accelerate the process. Furthermore, on the basis of the positive experience with this year’s virtual Annual Shareholders’ Meeting, the Board of Executive Directors of BASF SE has decided to annually alternate the format over the next four years.

This decision was made to meet the expectations of our broad and diversified investor base. In 2026, we will therefore again organize an in person meeting. And with this, Dirk and I are glad to answer your questions.

Conference Moderator, BASF: Ladies and gentlemen, we are now at the sorry. Ladies and gentlemen, we are now entering our Q and A session. We We will start with Alex Bijou from Santander, then have Christian Faitz and then Tom Wrigglesworth. But now Alex Bijou, Santander. Please go ahead.

Alex Bijou, Analyst, Santander: Yes. Thank you. Thank you, Markus, Dirk, for taking my questions. One question about the outlook of 2025. You have significantly reduced the EBITDA guidance, but the free cash flow is unchanged.

So if you can bridge this gap between the lower EBITDA and maintaining the free cash flow unchanged. That’s the first question. And the second is, in general, about the European regulation. We have seen the German government and also the European Union with some proposals to support the chemical industry in Europe. If you can elaborate on that, what is the potential impact on your company?

Laurent Favre, Analyst, BNP Paribas Exane: Thank you.

Dirk Elbermann, CFO, BASF: Good morning, Alex. It’s Dick speaking. I’ll start with your first question. Indeed, we are very confident to keep our free cash flow guidance in line. First, we will and this came in the speech already, we will lower the CapEx again.

We will save another €200,000,000 I would say, at least in CapEx for the year 2025. And we have an ongoing focus on working capital management. And these two components together make us confident that we will reach our free cash flow guidance.

Markus Kamid, CEO, BASF: Alex, Markus here. Your question on EU regulation and, let’s say, how much support the intentions of the European Commission and maybe also the German government is giving the chemical industry is really difficult to answer in short terms because, overall, we’re getting a lot of positive intentions and signals, both through recent announcements on the European level, for example, the Chemicals Industry Action Plan that was announced, but also certainly from the new coalition agreement in Germany. So I would say overall, the narrative is positive. It has some very positive intentions, and it’s clear that both on European and German level, politicians have understood that the chemical industry will be key to securing industrial competitiveness of Europe. And I would say the events over the weekend have shown how important it is to remain competitive and strong as a European Union with regards to industry.

However, I will also say that, as always, in these times of strong narrative changes and communications, actions will have to prove itself, and we are still waiting for implementation of many of these announcements. So too early to call it a tailwind yet, but two of the signs are turning much more positive than they were twelve or eighteen months ago. That’s how I would summarize it.

Unidentified Speaker: Okay.

Conference Moderator, BASF: The next questions are from Christian Faitz, Kepler Cheuvreux. We will then have Tom Wrigglesworth and then Georgina Faiza. But now Christian Faitz, please go ahead.

Christian Faitz, Analyst, Kepler Cheuvreux: Morning, Markus, Dirk, Stefanie and team. Two questions, please. One observation. It’s pleasing to see the two segments performing, which are on their way out. Congrats on the solid performance in Ag Solutions.

With weather having been rather dry during a good chunk of Q2 in Europe, would you see some channel buildup in this region, I. E, you and your peers having to buy back some of the Q2 volumes sold over the next couple of quarters? And my second question would be, again, a very solid performance in Surface Technology. Can you elucidate a bit the improved volumes? Is this automotive OEM driven?

And how much would you attribute to OEMs in Q2 having tried to produce ship as much as possible in order to circumvent upcoming tariffs? And what would this mean for Q3 volumes, particularly in Automotive? Christian,

Dirk Elbermann, CFO, BASF: good morning. Dev speaking. I’ll take your first question. Indeed, an excellent performance of the ag team in the second quarter. I think we indicated it already a little bit during the road shows prior to the quiet period that this is going well and that we have a good momentum.

Channel buildup and buying back, we do not see. I did not get from the teams any indication in this direction, but the demand that we are fulfilling appears to be real. And this is not only volume, but this is also quality of earnings. And I would really like to highlight one thing that we have improved significantly. Last year, we talked about the calamity of the glufosinate ammonium, where we had to take a restructuring measure.

The team did a forceful turnaround, came in with an innovation called Glufosinate P Ammonium on an acid light approach now, which is significantly contributing to this great result in the second quarter. So higher quality of the business compared to last year due to forceful action, and I do not see a big risk of significant channel inventory.

Markus Kamid, CEO, BASF: Yes, thanks. Christian, I’ll take the second question with regards to Surface Technologies. I mean, overall, as I said in the speech, the automotive market actually grew quite a bit over the last two quarters. I think year to date, we are up 1,000,000 cars globally versus last year. It doesn’t feel like this when you’re in the Western world because solely this growth is coming from Asia and particularly China.

And overall, Asia is up 2,000,000, the rest of the world is down 1,000,000 cars. That’s roughly the picture year to date. So there is growth in automotive. And of course, both in our or in all of our automotive related divisions, we are over proportionately present in China. And when you are in China, you also have volume growth in automotive.

And here, we are benefiting from our strong partnerships of with OEMs that are also in China increasing market share. And even in our environmental catalysts and metal solutions business, we are benefiting from the strong drive towards hybrid models at this point in time. So overall, I would say the market is not so unfavorable, but we are still, in this environment, outperforming on a volume basis this market, especially due to our strong presence of all businesses in China. And we do not see any pronounced, let’s say, tactical supply chain actions by tiers or by OEMs with regards to the tariff situation. So we do not see any pre buying or offshoring or something like this.

So this, for us, are just small and anecdotal stories, but not in the meat of the business.

Christian Faitz, Analyst, Kepler Cheuvreux: Very good and pleasing, Janelle. Thanks, Markus and Dirk.

Conference Moderator, BASF: Okay. Now it’s Tom Whittlesworth, Morgan Stanley. Please go ahead.

Tom Wrigglesworth, Analyst, Morgan Stanley: Thanks very much. Thanks for the opportunity to ask questions. First question, if I may. The I just wanted to unpack the assumptions that you’ve made around the upstream Chemicals business for the second half of the year in your new guidance. Just you cite chemical growth and production at 2% to half to 3% and yet your own upstream business is probably running at negative 0.5% to negative 0.7.

So have you just assumed that conditions from June continue through the second half in this new guidance? And the second question, if I may. Markus, obviously, you spent time capacity in China through the new Verbund. And at the same time, we’ve started to see the Chinese make statements around what they call anti involution. I was intrigued to understand whether you’d received any any insight on this policy and what they’re trying to get at in terms of oversupply in the chemicals industry.

Thank you.

Markus Kamid, CEO, BASF: Yes. Thanks, Tom. First of all, let me come to the assumptions for chemical growth and also our growth. I mean, I we’re not now going to specific growth expectations per segment. But overall, we do not expect, let’s say, a demand increase from what we have seen in the second quarter for our full year outlook.

So we basically, from here on out, expect a rather flattish demand environment. So if there is any revival of markets of our customer industries, positive surprises on volumes, this certainly would be an upside. When you look at the overall world figure, this is, of course, is always quite an intriguing figure, 2.5% to 3% global chemical growth this year. But if you look into the composition, regional composition, this is solely China. If you take China out, the rest of the world is negative.

So our assumptions is that there will be slightly negative chemical market growth outside of China. And you know that from our regional distribution, and that’s true for most Western chemical companies, our market share in China is, of course, always significantly underrepresented. So this overall global headline figure shows always seems a bit too positive. So overall, I would say we’re looking at a flat market environment. Next year then, of course, we will see significant boost of growth also in China for us coming from our new capacities that we put in there.

So overall, I would say we should not be too optimistic about significant growth outside of China for the rest of the year. We are not. We are planning for a flat environment. And we continue to show also in our figures a strong volume growth in China as well. Now your second question is quite interesting because for a long period of time, the sense was that the Chinese government and authorities are sort of dodging the discussion around overcapacities and buildup of, let’s say, unhealthy capacities in many of the industries.

I think if you now see in the run up of the new the fifteenth five year plan, which will be put in effect in March, you see now first signs of intentions to work on supply side reforms. And as you said also, this address this, what they call involution or rat race or however you want to call it. And I personally think that this will also have an effect on the chemical industry, because I was in China a few weeks ago, and I think I got some good we had some good conversations around bringing two of the big intentions together. On the one hand side, the supply chain the supply side reforms, addressing overcapacities and the low profitability of many chemical companies in China, especially small and medium ones. But also on the other hand, the green transformation and achieving carbon peak in 02/1930.

And our intention is to pitch for addressing both things at the same time, and I think this will happen now over the next years. You will see capacity adaptations also in the chemical industry, also addressing assets with high energy efficiency, subscale and high emissions in China. So I think supply side reforms are becoming more popular. You will probably not hear the word overcapacities a lot, but this will be communicated differently. But we have positive expectations, and that will lead to this a picture that we always say, a rebalancing of chemical value chains, chemical markets by the end of the decade in China.

So the last weeks have been rather positive in this aspect.

Tom Wrigglesworth, Analyst, Morgan Stanley: Very clear. Thank you very much.

Conference Moderator, BASF: We will now have Georgina Fraser, Goldman Sachs and then James Huber and then Chetan. But now it’s Georgina.

Georgina Fraser, Analyst, Goldman Sachs: Thanks, Stephanie. And good morning, Marks and Dirk. I’ve actually got a question that follows on quite nicely from the previous discussion from Thomas. We’re seeing that even U. S.

Chemical companies are under enormous pressure with global oversupply at the moment. Your competitor Daiwa has recently cut its dividend. And I think a lot of investors felt that U. S. Companies would be better off than European ones because they have a favorable cost position.

Can you say a bit more about the structural dynamics that you see at play outside of China and whether BASF can act as a consolidator to strengthen its core asset base and come out of this downturn in a better competitive position? And then second question, if you could please give us a little bit more detail around the CATL battery material supply agreement that you recently announced. Thank you.

Markus Kamid, CEO, BASF: Georgina, thank you. I’ll try to do my best in the first one because this is this, of course, also is a multidimensional question. I’ll try to be simple. I think we always have to be very cautious if we make statements like, US players have a favorable cost positions if we project this out to an entire chemical industry. There’s enormously many sub segments in the chemical industry.

And if you look at the BASF portfolio, we produce about 50,000 different chemicals. And the statement to say there is clear raw material or there’s clear advantages, cost advantages for people that are close to, let’s say, cheap feedstock regions like US or Middle East. It’s only true for a small portion of this. It’s true for large scale commodities. And if you have a portfolio that is, for example, heavy on polyolefins polyethylene, polypropylene, then you are, of course, much more exposed to these raw material feedstock cycles, but also to the advantages that compared to a company like BASF, where we have a variety of different midstream, downstream businesses and typically long value chains, and we make very different things out of our olefins than polyethylene and polypropylene.

So that just as a disclaimer. On the competitiveness side, I would say we have certainly looked at our asset setup globally and where we are potentially where we have risks with regards to competitiveness also as it relates to trade flows from low feedstock regions. And we’ve been very vocal about our analysis here in Europe, in Ludwigshafen in particular, that most of the assets we have here are actually going to be long term competitive also against imports from low feedstock regions. And the same holds true for our portfolio also in The U. S.

Since we are not a company that is comparable to some of these upstream only very cyclical commodity heavy companies, I think we are much less a proxy for this kind of discussion. So you asked also whether we are potentially a consolidator in this industry. I think here we’ve also been very clear, and I said this very consciously at the Capital Markets Day, that this is, of course, something we are taking a look at. Because in an industry that in low growth regions like North America and also Europe for the next ten years will go through a phase of consolidation and restructuring, as one of the market leaders in almost all businesses that we’re in, we certainly will see and look whether there are opportunities for BASF in this consolidation phase. However, this does not mean that we are now on a shopping spree when it comes to buying noncompetitive assets from other companies.

So we feel that we have competitive assets, and we are rather opportunistic, but we believe there are opportunities and benefits for BASF in the phase of consolidation and restructuring because we fundamentally feel our asset base is robust and our market positions are grouped good. Your question to CATL, this was announced, I think, a few days ago. CATL is by far the biggest producer of battery cells in the world. I think their market share, if you look at public figures, is about onethree when you look at EV type batteries. So by far the largest player.

We’ve had a long collaboration history also with A few years ago, we’ve also announced plans to look at value chain collaboration with them. And now we have just agreed on looking at very concrete opportunities to supply CATL with our cathode active materials over the next years with high performing materials for their new investments, both in China and in Europe. So yes, that’s just a confirmation of our joint intent to increase the business between BASF and CITI, and not much else more to say about this.

Chetan Udeshi, Analyst, JPMorgan: Great. Thank you.

Conference Moderator, BASF: So now we have James Hooper, Bernstein and then Chetan and then Laurent. But now James Hooper, please go ahead.

Markus Kamid, CEO, BASF0: Good morning, everyone, and thank you very much for taking my questions. I have two, please. The first is that you’ve said on this call that your outlook is predicated on flattish demand. In the case that demand does deteriorate, what actions can you take to protect cash flow and EBITDA guidance? Are there more CapEx savings that can be taken or further management or acceleration of cost savings?

And then my second question is also about cost savings. You’ve clearly done a good job of executing the plan so far for 2025 and accelerated those. But the current plan ends in 2026. What are what are the plans for beyond 2026? Are there more structural savings you can you can make in the in the Bourbon business in particular that’s core?

Thank you very much.

Dirk Elbermann, CFO, BASF: Okay. So this is Dick speaking. I take your first question. Of course, we are always standing on the tiptoes in these times. So in the case that demand was further decreasing, we, of course, will have a sharp look again into our cash and cost.

These are the self help measures that you typically can command. In terms of cash, I think I already gave an indication saying we are in CapEx down by €200,000,000 Could we even go lower? Certainly, we could. In terms of cost savings, we are accelerating already by €100,000,000 Is there always a little bit more that you can do? Certainly, there is.

In terms of the outlook overall, I would say we have now taken a reasonable look, and it is half a year a little bit less than half a year to go. So I’m hopeful that we found the right corridor and that we have the right measures in place.

Markus Kamid, CEO, BASF: Yes, James, Markus here. I can only confirm. I think we’re all on the same page. But we’re also not expecting any further significant deterioration. I think there’s already significant, let’s say, I would call it a wait and see attribute in almost all industries that we see.

And apart from certain sub segments of the global economy, everything that has to do with AI, with digitalization, data centers, everything that the data center needs, everything else is rather already, I would say, at a very conservative path. So we don’t expect any further deterioration. But of course, as Dirk said, you’re always looking at also additional measures that you can take. But right now, we are I like that picture, we are on our toes almost every day. Second thing to cost savings.

I said this also in the past. I think we have announced now this €2,100,000,000 until 2026. My ideal scenario would be that this is the last ever real big program that we would announce. Because from my perspective, a company is running excellent if you are constantly improving on productivity and costs, let’s say, leadership position. So I don’t really like this ongoing announcement and then tracking of individual restructuring programs, because in this day and age, the world is turning so fast that then individual programs overlap, and you are not really managing a company responsibly.

From my perspective, we right now, we have to get the company into a constant productivity increase mode. I think our current restructuring efforts help to get us started, but we do not expect any cost savings initiative, productivity programs or, let’s say, striving for benchmark cost positions initiatives to end in 2026, rather the opposite. And we accept that real cost leadership and being best in class cost in almost everything we do is part of being competitive as a chemical company, and I don’t need to announce an ongoing wave of restructuring programs for this.

Markus Kamid, CEO, BASF0: Thank you.

Conference Moderator, BASF: We move on to Chetan Udeshi, JPMorgan. Please go ahead.

Chetan Udeshi, Analyst, JPMorgan: Yes. Hi, thanks for taking my questions. I had two. One is, you Marcus, you mentioned previously that you will see strong growth in China next year, which makes sense from the start up of your woven plant. I’m just curious, at some point, few years back, you guys talked about $1,200,000,000 EBITDA from the Chinese woven.

I mean if you were to mark to market to today’s reality, which is the pricing and margins are probably much lower, do you have a number what the mark to market EBITDA will look like? Will it be half, usually less than half? The second question was, just going to this whole discussion around cost savings, and appreciate you mentioned you guys are accelerating the cost savings this year. But then when I look at your personnel expenses, they are up 10% year on year in second quarter twenty twenty five. I mean, first half is up 5%.

I’m just trying to tie those two things together of cost savings being accelerated while personnel expenses are rising so substantially? Maybe you can help us there. Yes.

Markus Kamid, CEO, BASF: Okay. So I’ll take the first question. You are right. I mean, next year will be, of course, a year of first year of operation for our new South China Fabun site. And the plan is still to ramp up utilization of this plant relatively quickly for most of the operations, so volumes would actually come in rather quickly.

The reason is because almost all assets have favorable positions in the cost curves in China, in South China. So if you want, they all have a right to have a high utilization. I talked about this repeatedly that we feel with comparing this, for example, with our Nanjing situation, we’re relatively sure about that. So volumes will come. As you rightfully say and expect that currently, margins in most of the upstream Chemicals in China are at very low levels, some of them at all time lows.

So 2026 will be, from a margin perspective, a very tough year to start up new capacities in China, for sure. But we also expect that towards year end, there will be a rebalancing of most value chains with regards to supply and demand. So if you want, the simple picture is that compared to our original expectations, we will still get to the level of profitability that we have also communicated, but we will have a slower ramp up. So the years 2026 and 2027 will certainly be more challenging years in the commodity space in China than what we originally thought when we decided to build this plant. But that is nothing unusual in commodities, that commodities are cyclical business, and it always depends on what timing of the cycle you are starting your plants in.

The only new element is that China now also has a pronounced cycle, which was never the past for the last twenty years, at least not so much. So we are starting now in a bottom end of the cycle, but we still expect that our profitability expectations are realistic and plausible, but they might come a bit later rate than what we originally expected. That’s maybe the picture I can give you today. And then more to come once we have actually started up the plant, we know what the margins will actually look like in ’twenty six and ’twenty seven in China. On the personnel expense, I give it a simplistic answer, and then I look and see Dirk whether he can give color on this.

You’re right. The personnel expenses, as reported, are going up. First of all, when you look at our restructuring programs, a lot of that has to do, of course, with reduction of headcount. And that, of course, always takes a while until the paycheck is actually out of the company. It always takes some time.

We still are, of course, seeing increases or inflation coming from wage, salary increases in most especially European countries. But you also have to see that in times of restructuring and especially personnel restructuring, your personnel costs typically also go up because you’re paying severances, and that also is part of the personnel expense. So whenever you do a high restructuring, you see personnel expenses first go up before they go down. In the P and L, you see it as special items. But of course, if you only look at personnel expenses, you see it all in.

You have to take this But a bit the intention is, of course, that as a result of our restructuring measures, eventually, our personnel expenses will go down significantly. I’m looking at Dirk.

Dirk Elbermann, CFO, BASF: I can just confirm that and put one more number into context. The €2,100,000,000 savings that we won’t achieve until ’6, this is a fixed cost reduction for the group of 10%. So it is an enormous effort that is currently going on in the company, and this comes with the severance payments that we have to pay now. But from my perspective, this is rather than investment into the efficiency of the future. So yes, the number is high, but it is good money to be spent, I have to say, in order to achieve the restructuring target.

Chetan Udeshi, Analyst, JPMorgan: Thank you.

Conference Moderator, BASF: We will now move on to Laurent Favre and then have three more analysts in the queue: Sebastien Rey, Matthew Yates and finally, Geoff Haire. But now it’s Laurent Fava, BNP Paribas Exane. Please go ahead.

Laurent Favre, Analyst, BNP Paribas Exane: Laurent? Yes. Good morning. Sorry. Two questions, please.

The first one around M and A. In the presentation, you mentioned that proceeds would be partially used to reduce leverage. And I was wondering if you could talk about the time frame of that comment. I understand that this year free cash flow is not going to cover dividend, but I would have thought that for next year with CapEx below D and A, you I mean, I guess deleveraging wouldn’t be top of mind and you would also think about, I guess, other things with the cash flow. The second question is around the start up costs, the CHF400 million.

I understand that the ramp up, I guess, there’s more of those costs in Q2 than Q1 and in H2 than in H1. But can you be a little bit more specific on that split? And what should we be assuming for next year as well?

Dirk Elbermann, CFO, BASF: Laurent Dirk speaking. I start with your first question with the use of funds from M and A proceeds, etcetera. I do not have a concrete timing for you, but direction of travel, I think, should be very clear. So this year, we are surpassing the investment peak that we had last year, but it’s still high on CapEx. We have spent quite a lot in investments in the last couple of years.

We’d say after completion of Sanjang and then also MDI Geismar, we are what we call fully invested. So we have now funds available that are coming in from operating cash flow but also from the proceeds from the projects that we can use in order to strengthen our balance sheet, but then also think about our shareholders and do more on shareholder distribution. So what we really want to say is we want to strengthen the balance sheet. We want to do more for the shareholders. The latter, you only can do balance sheet.

So this is really the emphasis that we are now taking as a board. And the concrete timing, do not have for you, but you shouldn’t need to wait too long.

Laurent Favre, Analyst, BNP Paribas Exane: Okay. D. C, just a comment for

Markus Kamid, CEO, BASF: Quick maybe quick guidance on not maybe guidance is a strong word. But if you have the picture in mind that these are, of course, start up costs, I think you have a good gut feel that this becomes more the closer you get to actual start up. So if you look at the total figure that we have communicated and try to give you something to model with, I would say if you split that number into roughly one third first half, two thirds the second half, you will not be totally out of out of out of proportion.

Laurent Favre, Analyst, BNP Paribas Exane: And nothing for next year then?

Markus Kamid, CEO, BASF: Well, next year, we still have, of course, let’s say, extraordinary costs because just imagine, I mean, we’re starting up the steam cracker in, let’s say, very late in 2025. So there will definitely be a spillover of start up costs. I don’t have now a number in my head that I could give you to kind of guide or model this. But just remember that we also next year, still have a pretty significant share of CapEx also to finish up the plant. So I think we still have roughly €1,000,000,000 for 2026 in the books for CapEx to finish off this plant.

Because it’s so big, it will have a tail. And that also holds true for operational start up costs. So overall, I don’t have a picture now, but it will tail off. How quickly and how fast in 2026, I cannot tell you off the top of my head. Okay.

Thank you.

Conference Moderator, BASF: So now we move on to Sebastian Bray, Berenberg. Your turn.

Markus Kamid, CEO, BASF0: Hello. Good morning and thank you for taking my questions. I have two, please. One is on the natural gas supply agreement signed with Equinor, which I think covers quite a large portion, if not the majority of BASF’s European demand. Is this a fixed price or floating rate contract or a mixture of both?

Does it have any impact on the sensitivity of BASF’s earnings to a future decline in gas prices? And my second question is on the Coatings divestment. Is there any sense from your side on willingness to use bridge financing to once an acquisition is announced to finance things like a buyback or would this be a case of literally waiting on the proceeds? It’s quite a large asset and I imagine regulatory hurdles are pretty significant. And do you have any sense of the amount of tax leakage that might be associated with this transaction?

Thank you.

Dirk Elbermann, CFO, BASF: Sebastian, good morning. Starting with the natural gas. So we are not disclosing the exact commercial terms that we have. What I can give you, it is an agreement that gives us a very high reliability on the pricing conditions. It is, from our perspective, an excellent agreement also giving us high planning security and also a competitive edge, which is certainly also due to the high volumes that we are procuring, the 23 terawatts.

This is, I think, the biggest volume by one supplier that we have ever secured. In terms of share buybacks, the idea is not to finance share buybacks via debt. So we rather would wait for the proceeds in order to have the money at hand before we think about distribution to the shareholders. So it’s rather about accelerating and confirming and wrapping up the deals that we have in the pipeline and then only do share buybacks once the money is on the bank account. In terms of tax leakage, there is no exact number that I can give you here.

But be and rest assured that the tax departments are on it to make the deal as effective also post tax as possible.

Markus Kamid, CEO, BASF0: That’s helpful. Thank you for taking my questions.

Conference Moderator, BASF: Thank you. So now Matthew Yates, Bank of America. Please go ahead.

Laurent Favre, Analyst, BNP Paribas Exane: Hey, good morning everyone. Thanks for

Unidentified Speaker: fitting me in. I had a question about the strategy and the portfolio. I’m trying to imagine what BASF’s cash flow would have been this year without the contribution and resilience from its coatings and agriculture business. It strikes me that if you execute on your divestments over the next couple of years, BASF is going to be a more volatile and fundamentally less cash generative company unless we see a significant improvement in upstream spreads. So my question is whether a less diversified profile is actually consistent with your financial framework for leverage, which is getting up to three times, and a fixed dividend commitment rather than something that’s more flexible in terms of a payout that would allow you to take advantage of counter cyclical actions in the way that I think your peer Dow has just admitted that they sort of regret it.

So so I guess that’s my question is is of of whether you’re rethinking the amount of debt that BASF can carry and dividends it can pay in light of losing the cash flow streams that you have in agriculture and coatings? Thank you.

Dirk Elbermann, CFO, BASF: Matthew, I think I’d give it a start, and maybe Markus wrapping that and also up for the broader perspective. I can just say so first of all, not all the stand alone businesses we are losing. Let’s just take the example of Agricultural Solutions, where we have announced a partial IPO, which would, even after an initial floating, leave us with a consolidated business in the BASF. So that is one. So it will all take its time.

Secondly, we are fully aware management team is fully aware that with a business profile change, we also have to take decisive actions then with the capital base that we have, with the leveraging profile that we have, with the approach to shareholders, etcetera. So we have given, I think, a consistent framework until 2028. Also, in terms of dividends and share buybacks, we have emphasized that a single A rating for us has a huge benefit, particularly in these times where resilience is so important. And you also heard me saying earlier that funds from proceeds that we are expecting, we will invest into the robustness and financial health So we are fully aware the wheel that we are spinning has to be adjusted if the cash flows that we can expect are a little bit lower.

On the other hand side, we have strong confidence in our core businesses to prosper over the next couple of years. And we have also said that in the longer term, we are not categorically excluding M and A. So at the end, this all relates on each other, but we will make sure that the leverage is not surpassing the three and going further north. And we will also make sure that we stay on a healthy equity ratio.

Markus Kamid, CEO, BASF: Yes. Not much to add. I would just say that, of course, Matthew, with the new look on our portfolio in the real world, not as much will change so quickly, as Dirk just alluded to. But also on a more conceptual world, of course, we are now looking also at the core a bit more as a hypothetical, how would the core perform, how it if it would be a company or something like this. And of course, the ambition in our plans is to make sure that the core in itself can be strengthened and grown profitably so that also the core in itself earns a premium on its cost of capital.

And I think with the size, the scale and the portfolio we have, we’re very confident that this is something we can achieve over the next years. And just to give you a data point, sometimes in this discussion, it sounds like the Core becomes somewhat small or undercritical. The Core only the core businesses of BASF are still the biggest chemical company in the world outside China. So we have ample opportunities to strengthen the portfolio, to work on operational excellence and to, at the end of the day, also achieve cost competitiveness to outperform our markets and use the size, the scale that we still have in the Core to be competitors. So we’re very confident, and we hope that we can give you more color on this when we do the Capital Market Update in October because we will be in Antwerp, and we will showcase a bit why we are so confident about the core.

Laurent Favre, Analyst, BNP Paribas Exane: Yes, sir. Thank you, both.

Conference Moderator, BASF: So to conclude this call, we now have Jeff Heer, UBS. Your turn.

Markus Kamid, CEO, BASF1: Yes. Good morning and thank you for allowing me to ask a question. Just wanted to really come back to the natural gas contracts. I was wondering if Dirk could help us by giving us some idea that if you’d had these contracts in place in 2022, what would have been the savings that you would have generated from having these in place?

Dirk Elbermann, CFO, BASF: Yes, Jeff. As I said, we cannot really comment on the commercial terms in detail. Would I have liked to have the deal in place already in 2022? I think when we met Equinor when I met the CEO of Equinor to sign the deal, we both were of the opinion that earlier would even have been better. But sometimes matters take their time.

So we are happy that we have it for ten years. I am particularly happy that we have it from Norway, which comes with the low PCF simply due to the very optimal Norwegian conditions in exploration and production. It is very stable, and I think it is let me just end with saying it is really just a good deal. Everybody acknowledges in the industry that this was the deal to be made between a big consumer and the biggest supplier from Norway in terms satisfying for both sides. I think that’s a key message.

Laurent Favre, Analyst, BNP Paribas Exane: Okay. Thank you.

Conference Moderator, BASF: Ladies and gentlemen, we are now at the end of today’s conference call. Let me draw your attention, Markus already mentioned it, to BASF’s upcoming capital market update, which will take place in Antwerp. The program will begin on October 1 with a dinner with management at the Royal Museum of Fine Arts. On October 2. The program comprises a keynote by the CEO and CFO and presentations on the polyurethanes and ethylene oxide value chains by the respective division presidents as well as a site tour.

We send out personal invitations at the June already, and we would be very pleased if you could register as soon as possible. If you are interested in attending the event but have not received an invitation, please contact me. On October 29, we will then present our third quarter results. Should you have any further questions regarding the second quarter results, please do not hesitate to contact a member of the BASF IR team. Thank you very much for joining us today, and goodbye for now.

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