BASF SE
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Stefanie Wettberg:]

Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our conference call on the Full Year 2020 results. Throughout today's recorded presentation all participants will be in a listen only mode. The presentation will be followed by a question-and-answer session. This 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. Such risk factors include those discussed in opportunities and risks of the BASF report 2020. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements.

[Martin Brudermuller:]

Good morning, ladies and gentlemen. Thank you for joining us. We hope that you and your families are doing well in this still challenging environment which continues to be dominated by the pandemic. Recent developments such as the mutations of the coronavirus, and the slower than expected vaccination progress in Europe show us that it will take more time before we will see a significant and lasting relief from this pandemic. Despite these challenges, we had a strong finish to the year. EBIT before special items exceeded our October forecast for the full year and was considerably above analyst consensus. Today, we will provide you with further details. Let me begin with some highlights of the strong fourth quarter of 2020. In Q4, we increased volumes across all regions. In Greater China we continued to record double digit volume growth. Volumes increased in almost all segments. In some commodity product lines such as isocyanates, we considerably expanded our margins. Lower fixed cost also contributed to BASF's strong performance in the fourth quarter of 2020. Since the pandemic is still not behind us, we are doing everything we can to ensure safe operations for our employees that have to be on site. All employees that can work from home are strongly encouraged to do so. We continue to put strong focus on cash generation, cost control and reduction of capital expenditures for our ongoing business. We also maintained a higher liquidity level than usual. Our strong balance sheet and good credit ratings ensure BASF's unrestricted access to debt markets. Let us now turn to the macroeconomic data to put BASF's performance into perspective. The indicators for Q4 are estimates as most of the countries have not yet published their figures for the quarter. In Q4 2020, global chemical production increased by 4.9% mainly on account of the growth in China. China continued with its strong recovery, which already started in Q2 2020.pe and North America also experienced a strong and continued recovery on chemical production in the second half of 2020. On this slide, you can see our volume growth by region over the last four quarters compared with the respective quarters of 2019. During the last three quarters of the year, we recorded double digit volume growth in Greater China across almost all segments. We continue to benefit from our strong position in China. The planned Verbund site in Guangdong Province will further increase our presence in customer proximity in the dynamically growing Chinese market.

[Hans-Ulrich Engel:]

Thank you, Martin and Good morning ladies and gentlemen also from my side. I will start by giving you a short update on our major portfolio measures. On January 31, 2020 BASF, closed the acquisition of Solvay's polyamide business. In the meantime, the businesses have been successfully integrated into BASF performance materials and monomers division. We closed the sale of the Construction Chemicals business to an affiliate of Lone Star on September 30, 2020. The Construction Chemicals business is now part of the newly founded MBCC group.

[Martin Brudermuller:]

Ladies and gentlemen, we expect the global economy to recover in 2021 after the sharp downturn resulting from the corona pandemic. However, uncertainty about future developments remains exceptionally high. Our forecast is therefore includes wide ranges to account for the possibility of significant disruptions to the global supply chain and negative effects on the entire economy. At the same time, let me say this very clearly, we are confident that without such negative impacts, we will be able to achieve earnings at the upper end of the forecast range. Our forecast assumes growth in our customer industries. For the automotive industry in particular we are forecasting significant production growth compared with 2020. The global economy should see significant growth of 4.3% compared with minus 3.7% in 2020. Global chemical production is expected to expand by 4.4% well above the prior year's level of minus 0.4%. We anticipate an average oil price of $50 for a barrel of Brent crude and expect an exchange rate of $1.18 per Euro. Based on these assumptions we aim to increase our sales to between EUR61 billion and EUR64 billion up from EUR59.1 billion in 2020. The BASF Group's EBIT before special items is expected to be between EUR4.1 billion and EUR5.0 billion up from EUR3.6 billion in 2020. As I mentioned, the upper end of the forecast range should be achievable given the strong business development during the first weeks of this year. The return on capital employed ROCE is expected to be between 8.0% and 9.2%. To support faster, profitable growth of BASF in the future, we will continue - sorry, let me also touch on the Accelerator sales and CO2 emissions forecast for the BASF Group. We expect Accelerator sales to increase to between EUR18 billion and EUR19 billion in 2021, up from EUR16.7 billion in line with the global economic recovery and growing demand for chemical products. Despite the global economic recovery and growing demand for chemical products, CO2 emissions are expected to stabilize at between 20.5 million metric tons and 21.5 metric tons in million metric tons in 2021. With targeted measures we will keep emissions roughly at the prior year's level of 20.8 million metric tons. On this slide, we give you a few more explanations regarding our CapEx budget. Between 2021 and 2025, we are planning capital expenditures of EUR22.9 billion. The capital expenditures in the next five years will thus be lower than in the prior planning period from 2020 to 2024. We will allocate 41% of our investments to Asia Pacific and 39% Europe. A focus area is our investment project in Guangdong province in China, to expand our business in Asia. For 2021, we are planning capital expenditures of EUR3.6 billion in total. Ladies and gentlemen, let me conclude with our priorities for 2021. We will further implement strategic measures and push the transformation of BASF into a more agile and customer focused company. To support faster profitable growth of BASF in the future, we will continue to pursue our investment project in Guangdong Province, and our investments in the production of battery materials. We will energetically try sustainability and innovation with our carbon management and circular economy programs. During our Capital Markets Day on March 26, we will share further information on our explorations in this field. We are executing the announced portfolio measures. The major upcoming portfolio changes will be the closing of the sale of our pigment business and the IPO Wintershall Dea which is subject to market conditions. We will successfully conclude our excellence program and maintain a strict focus on capital and cost discipline. And with this we are now glad to take your questions.

[A - Stefanie Wettberg:]

Ladies and gentlemen, I would now like to open the call for your questions. The first question is from Andrew Stott, UBS. He will then be followed by Christian Faitz and Thomas Wrigglesworth, but now first Andrew Stott, UBS. Please go ahead.

[Andrew Stott:]

Yeah. Good morning Stefanie. Thank you. Good morning to Martin and Hans. Two questions please. The first one was around the guidance for ag. So considering how important Q1 is in the context of the whole year, is the message that you've had a reasonably lackluster start when you also consider the FX imprint or is there a degree of conservatism so that's the first question. The second question is a longer ranging question around the announcement two weeks ago with Siemens. Is that hydrogen alliance, I think as you called it is that purely to help decarbonize your sites, in particular Ludwigshafen? Or is there a commercial side to that agreement in for example, areas like catalysis?

[Martin Brudermuller:]

Andrew, I'll start with the second one. I mean, the announcement with Siemens Energy is one of the partnerships and they'll have us follow over time, where they help us in actually do the first steps on the decarbonization or carbon management agenda. It is basically that they help us with their technologies to establish certain pilot plants in first steps at the Ludwigshafen site. We agreed also that we will look into the catalysis of water electrolysis together, which is a kind of development part together, which is however, not exclusive. So that is mainly a partnership actually to establish the first steps in the decarbonization program here at the site in Ludwigshafen. And the second question is, Hans?

[Hans-Ulrich Engel:]

Yeah. Good morning Andrew. On your guidance for ag question. We had a good start to the year. We had a strong January, so no complaints there at all, the degree of conservatism maybe, but certainly also an effect that will come due to FX. If you think about the first half of 2020, the US dollar Euro exchange rate was almost set at $1.10. We're currently at $1.21, $1.22. This is first half northern hemisphere business. The US dollar can have a significant impact here. And this is something that we're factoring into our guidance, but operationally good, strong start into the season.

[Stefanie Wettberg:]

The next question is - sorry, Andrew was that fine?

[Andrew Stott:]

Yeah, I was just saying thank you.

[Stefanie Wettberg:]

Okay, so fine. Thank you and now Christian Faitz from Kepler Cheuvreux. Please go ahead.

[Christian Faitz:]

Good morning Hans. I also take the two-question option, please. So first, can you please update us on current capacity outages, namely, how your operations in Texas were affected by the freeze and how your isocyanate units globally are presently running? Second question on ag. I mean, what can happen until the summer yet if my math is right, taking the current Brazilian real rate and comparing that to the average in the second half of last year, there's not much of a currency impact. Hence, the big FOREX from 2020 at least an H2 you should not repeat itself. So why again, are you so cautious in significantly more robust agricultural markets that we currently see. Thanks.

[Hans-Ulrich Engel:]

Good morning Christian. This is Hans. I'll take both of your questions. First of all on the outages, as everyone else, we were hit by the freeze in the US Gulf Coast, a number of plants that are down, number of sites that are down, some of them back up some of them in the process of coming back. And this is based on the experience with the freeze in 2018, where it came four weeks earlier, middle of January and then 2012 where it was in the first week of February. It will take based on that experience about two to three weeks that the situation there shakes out that supply chains are stabilized. You know how closely interlinked and intertwined the production network is in the US Gulf Coast. And that's what we're currently expecting. Other than that, no major outages in January or in February, but you asked specifically with respect to isocyanates. And yes, the isocyanates plants in Geismar were affected, but based on what I heard yesterday, are back up and running smoothly. So that's the current situation there. Your second question on FX impacts on the ag business. I go back to what I just said. The predominant impact that we're expecting is resulting from the decline of the US dollar. As I said, 1.10 first half of last year, we're now sitting 1.21, 1.22. So that will have a significant impact. South America, you're absolutely right, so that went through the system in Q4, with a significant impact there due to the Brazilian real, but also the US dollar. Let's hope that that doesn't repeat itself. And with that - all of that we came to the conclusion to guide for a slight increase. If it comes in better than that, I will be perfectly happy.

[Christian Faitz:]

Thank you very much Hans.

[Stefanie Wettberg:]

Yeah. Next question is from Thomas Wrigglesworth, Citi. Please go ahead.

[Thomas Wrigglesworth:]

Thanks Stefanie and Martin and Hans. My two questions, Martin, I think at the third quarter results call you talked about the fact that you thought in China that there might be some restocking element taking place. I wonder if your views have expanded on that now. How has the Chinese order books developed into Chinese New Year and now the week after. I'd be very keen to hear your thoughts on how you think China is going to progress through the quarter and 2021? The second question, if I may, is on the kind of exit rate and the rate for the first quarter, obviously, noting your comments on ag solutions, but focusing on the kind of non-ag business. Can you give us a little bit of a color there as to how strong it is? Obviously, kind of peak levels BASF's been able to achieve 2 billion plus levels of EBIT as a group. It looks like the spreads are commensurate with that kind of level of performance. Is that how we should be thinking about the first quarter? Thank you,

[Martin Brudermuller:]

Thomas. Good morning. I'd take the two questions. I mean, first of China indeed when we talked the last time, I was not yet sure whether the consumer confidence, the retail sales do fit to the industrial production scale. I would say over the recent months, this has really become very solid. I mean, if you look on the terms customer, consumer confidence is really high and industrial production stabilized. So we saw that also in January again with a double-digit volume growth in China. And so it really holds on. If I talk to my team, if you go to people - our people over there they say basically the life has turned to normal and the shopping malls are full. So I would say I'm very confident now that this really stabilized out and will transport further that's why also the GDP data as well as the chemical market growth data for China were high and we think they have the ability that this is also going to come. So China is really stabilizing and one of the factors also evidently that they focus much more on their domestic market and their supply chains over there. So you asked a little bit about the guidance and where we stand with current rating. I mean, let me very clearly say the full momentum which we had in the fourth quarter, we have also seen so far this year. We had an exceptionally strong January, also in February, business holds on very, very strong. We can - and this is throughout the businesses and I would say it is also fairly good distributed between the regions. If you look on our orders at hand, they are actually a double digit increase both compared to Q4 last year as well as compared to Q1 2020. If we look to our customers and the outlook, we have I would say it is all positive. And with this, I clearly say we are very confident that we reach the consensus level for Q1 2021. And I think also if you look on Q2, which was a disastrous quarter last year, should be definitely higher. So I would say there should be full confidence for the first half of the year. I think where our broad range comes from is actually is it really fair to assume that everywhere in the world, we will not see any more wave of infection, any lockdown? In the current moment, no one can really say how it works on. What the new mutations of the virus do? What - the vaccination progress how that really is? So I think there is high uncertainty that something might happen and we just reflected that is the lower part of the range, and I really repeat that here. If that is not going to happen, that you see these interruptions somewhere in one of the major markets or more one more market, we are confident to be at the upper range of the of the corridor we gave you, which is actually also the consensus you have given us in the moment.

[Thomas Wrigglesworth:]

Thank you very much, very clear. Thank you.

[Stefanie Wettberg:]

The next question is from Jaideep Pandya. He will then be followed by Laurent Favre and Chetan Udeshi. So now, Jaideep Pandya. Please go ahead.

[Unidentified Analyst:]

Thanks. The first question is on the carbon targets you have. Could you just tell us, if you just look at Europe what sort of cut are you actually penciling in because obviously, you're growing capacity quite a lot in Asia? So I'm assuming that Europe will have to sort of make room for that. And then how much allowances do you have currently? Are you still positive on the allowances? Or are you going to have to buy carbon in the market in your sort of plan? And then the second question really is around upstream, if you can just give us some sense of how much capacity in your opinion currently is offline in cracker products regionally that will be very helpful. Thank you so much.

[Martin Brudermuller:]

Jaideep, we will give you a much more detailed overview about CO2 and where we're heading to and what the measures are at the Capitalist Market Day in March 26. While I take it a little bit up, I mean, if you look on this target to grow carbon neutrally in 2013, exactly reflecting two effects. The one is continuous efficiency improvements, and also switching purchased electrical energy to renewables and then also using increasingly renewables in our own setup where we clearly reduce our CO2 footprint in absolute numbers. But on the other hand, we have measures where we increase. I mean, you saw that also on last year's performance, basically, we made good progress. And then the Solvay acquisition actually added quite a few, a couple of 100 millions of CO2 to that balance. And also, you're right. The China development and the China side will also add something, but we will teach you also there, we will build a petrochemical site with a significantly lower CO2 footprint as of day one, but this is these two effects. So if you want to grow volumes, it is tough to actually in absolute numbers, reduce your CO2, but still, we have plans, even with the growth to reduce further down. But I would like to keep that maybe for the Capital Markets Day. You asked about the locations. I think certificates currently are trading around EUR30, EUR33, per ton. There are free allocations in the system. But also here we will see the Green Deal, several new designs of how the ETF develops, how they use that for housing and mobility, how that will be included. And I think we have also to expect that free allocations might go down quicker than we think today and this is why the carbon management and why the active action to really take the CO2 down are so important, but let's get a little bit excited on end of March.

[Unidentified Analyst:]

All right, looking forward.

[Hans-Ulrich Engel:]

Jaideep this is Hans. Thanks for your question on the outages in the upstream area. No, I don't have the complete overview. What I can give you is the following. C2 capacity in North America depending on where you look and which market intelligence you trust looks like currently 60% to 70% of total capacity in North America affected LGs cracker after the fire in Korea is back on stream. Eneos which had - Eneos starting with an E not an I, in Japan had a cracker outage over quite some time. They are back into the system, so predominantly at this point in time, an issue with C2 capacity there in North America. Isocyanates which we are tracking closely, I look at the MDI plant outages and the TDI plant outages there around the globe, so as to be expected after the freeze all sides and will that be capacities in North America being affected, but our understanding is that they're coming back on stream step by step. EMEA at this point in time both for MDI and for TDI looks okay, a number of scheduled turnarounds during Q2. And in Asia Pacific, if I see that correctly, that also looks more or less okay. I am aware of the situation with ammonia were 10 of the big global plants are at this point in time affected by either turnarounds or unplanned outages again, also due to the freeze in North America. Hope that picture helps a little bit in that description and explanation helps a little bit to put things in perspective.

[Unidentified Analyst:]

Thank you so much.

[Stefanie Wettberg:]

And now we move on to Laurent Favre, Exane BNP. Please go ahead.

[Laurent Favre:]

Thank you, Stefie. Good morning all. Two questions, please as well. The first one is around the dividend framework. It sounds like you're structuring the framework around exceptional CapEx and base CapEx. So when we look at CapEx of 2.9 billion last year, 3.6 this year, and I guess something around five for the following years, can you give us a sense of what that exceptional CapEx was last year and is going to be in that 3.6 billion budget for this year? Thank you. And then second question, I guess on ag sorry. But regarding LATAM, two of your peers have talked about high inventory levels to finish the season, given the shortened season. I was wondering, I guess if you're taking proactive measures of destocking to have a better chance of getting pricing for the beginning of next season or are you not seeing those issues on inventories as your peers? Thank you.

[Martin Brudermuller:]

Laurent let me start with this dividend framework. I think, actually that we proposed a dividend of EUR3.30 per share. I think given the difficult year of 2020, I think it radiates confidence for the future. And this is also why they gave you this explanation where actually this confidence comes from and I think we have to look operationally on the BASF Group with its core businesses. You know that we have cost discipline and we go for more agility with customers. And I think we progress very well on that. If you look on that and our projection going forward, we really see that this operational cash flow should be strong enough to really pay for the CapEx, the restricted CapEx for the ongoing business, as well as for the dividend. We wanted to really make clear that if you have an extra ordinary investment, like we have now in China, I mean, if you finance that from the normal cash flow, in that order of magnitude, I mean, I think you have to look differently into this. And that's why we have to really outline again, that this is part of the portfolio management, I mean, we do divest businesses we don't want to be in anymore that do not fit to BASF. And instead of getting proceeds from divestitures and acquiring new companies, we go for a different way, which is actually organic investment. And I told you many times that I think organic investment done very well and executed well is more profitable than an acquisition. So for that reason, we have also to consider that we have to spread out the capital over several years. And it will come as a cap, basically on top of what we spend for our ongoing businesses. And this is I think, why we have to separate this a little bit and wanted to give you that outline. If we look on 2020 there was not so much money in there still because what we do is actually ramping up the team that is cost. But there is not big expenditure yet and it starts actually now this year, the part that was last year in the CapEx, but it's in the ongoing part is actually the two first plants which we have built - started to build in China and they are actually on the side, but they are anyway in the normal program we have. So it starts, it will ramp up with first cost this year and then certainly it will go up and I think the order of magnitude you pointed out that we will be in the peak in the order of magnitude which you have outlined is right. And then we'll then most probably peak in '23 and '24 because '25 we will already going towards completion. So I leave it with that. I think that should give you an idea again, how we connected on one hand the growth aspirations and the capital we need for that and on the other hand our confidence also which we radiate about the dividend. I hope that explains your question.

[Laurent Favre:]

Sure. And Martin on that basis, you would expect the startup of the main cracker when during 2025 or earlier than that?

[Martin Brudermuller:]

The startup you mean?

[Laurent Favre:]

Of the cracker, yes, in Guangdong.

[Martin Brudermuller:]

Yeah, in '25

[Laurent Favre:]

'25, thank you.

[Hans-Ulrich Engel:]

Laurent this is Hans. I'm taking your question on the season ending inventories in South America for ag. Talking to Vincent Gros yesterday who runs our ag division, I did not walk away from that discussion with the impression that there are elevated levels of inventories at the end of the season. What he described to me is normal inventory levels for season ending, so expectation is to go there into the 2020, 2021 season with a normal inventory level for BASF products.

[Laurent Favre:]

Thank you. That's perfect, thank you.

[Stefanie Wettberg:]

Looking at the time and also the list of analysts that still want to ask a question, please limit your questions, ideally, to only one. We will now move on to Chetan Udeshi, JP Morgan. Then it will be Tony Jones and then Markus Mayer. So now it's Chetan Udeshi. Please go ahead.

[Chetan Udeshi:]

Yeah. Hi. My question is actually one, just on CapEx, maybe, two subset questions there. But the first one was just looking at the 2020 to 2024 CapEx bucket, it still seems to be the same as was communicated previously, despite the fact that you guys have decided to not invest in the acrylic acid plant in India. So can you maybe help us understand why that number hasn't gone down? And the second question is related, the CapEx guidance of 3.6 billion in 2021, just reading the Annual Report, it says it doesn't include CapEx on intangibles and right of use lease expenses. So can you maybe help us understand what are those additional CapEx or what is the additional CapEx on right of use lease expenses and intangibles? Thank you.

[Martin Brudermuller:]

Chetan, I make this very short on the CapEx. I mean, if we look on the five years outlook '21 to '25, this is actually lower than we had outlined for 2020 to 2024. And part of that is the Indian project that is not going to come, at least at the current point of time. And some other - certainly some other decisions that this is always a sum up of many, many line items. So you see it actually in a lower number of outlined for 2021 to 2025.

[Hans-Ulrich Engel:]

Chetan, on your second question, with respect to CapEx for property, plant and equipment and what's not included in the EUR3.6 billion figure that's predominantly IT projects, of which part will be capitalized. That's not included in there. And that depends obviously on the year. To give you a rough figure there, I'd say, if you calculate with an order of magnitude of EUR150 million to EUR200 million of CapEx projects to be capitalized, that should be a good figure.

[Chetan Udeshi:]

Thank you.

[Stefanie Wettberg:]

So now, it's Tony Jones, Redburn.

[Tony Jones:]

Yes, good morning Stefie, Hans and Martin, I had a question about cracker products. So propylene looks like it's going to be very short in the first half even before the problems in the US, maybe also Europe and Asia. Could you talk about what you think that might mean for the BASF supply chain, whether that could cause any problems? And what do you think that might mean for margins across the division? And if I could maybe just sneak in

[Hans-Ulrich Engel:]

Tony, this is Hans. Thanks for your question. On C3, what do we see currently? I could go back to what I described already with respect to ethylene. It's a North America situation because PDHs are down, in particular the enterprise PDH. Also, due to the run rates of the refineries, there is less propylene output there. And remains to be seen how this will develop as the PDH plants come back. Other than that, I am not aware of any major issues with respect to propylene outside of the US Propylene prices obviously have increased sharply since the middle of last year, to be expected in the kind of environment that we're finding ourselves in. You asked a question with respect what does that mean for your downstream divisions. Here is the general answer that I can give you, which is they have to cope with higher input prices, but at the same point in time, they are enjoying a significant increase in demand, which allows them to pass on these kind of raw material price increases. Sometimes with a bit of a time delay, but overall it's an environment where they can pass-on the price increases that they get on the raw material side. And on the - sorry, I didn't want to skip your question on Wintershall Dea. If you think about the lead time that you have for an IPO, we're talking here second half of the year. And second half means beginning in September.

[Tony Jones:]

Perfect. Thank you, Hans.

[Stefanie Wettberg:]

So now, Markus Mayer, Baader-Helvea. Please go ahead.

[Markus Mayer:]

Good morning, Martin, Hans and Stefie, one question on the guidance which splits into two. This buffer you've baked in for the significant supply chain disruption, is it correct to read as that's basically from the midpoint of the guidance to the upper end of the guidance, i.e., the 500 million, is this the kind of security buffer you've baked in? And then the second part on the guidance would be this considerable higher earnings at other divisions. Could you give us the moving parts in order of magnitude of the effects there?

[Martin Brudermuller:]

Markus I'll start with this and Hans can come in. I mean, the guidance, let me clearly say that does not necessarily mean that it's always about the midpoint because that is - you know that market risks and market chances or upsides and downsides are not equally distributed, yes. I mean, as I said earlier, what is behind that is from the lower end. I mean, first of all, I said no one can, I think, say from today's point of view whether there will not be further lockdowns. Just imagine that - the corona mutations. I mean they maybe create more severe and more infections overall than I think the governments will react. You can also not see, anywhere in the world, from any government any, let's say, creativity in their - them locking down. So it's the current question, should it be four weeks more lockdowns? I mean no one really knows this. Then you have also to keep in mind, if you look on the GDP, what are people doing now in the first half when they are locked down. They order stuff. So if they might come in the period after the lockdown that could be also that there is a reshuffling of some spending from investment to also more services. People will travel. They will go to restaurants. They will have leisure. They will travel, and that means also that it could have an impact also on our business. I think no one is able to predict all of that at the same time. On the other hand, I said, for example, automotive, where you have now the semiconductor issue in the first half. We expect rather that the second half will be stronger in automotive than the first half. So there are many effects of this. We just wanted to radiate, if it comes worse to worst then we will have other waves where simply the governments react on harsh lockdowns, it will have impact on our business. And it can just not be that it continues so strong as it is now in January all over the year. And I think this is what we wanted to expect, that if everything goes bad, we can be at the lower part of that. But I think I made very clear in the speech and also in the comments afterwards we are confident that we are at the upper part of that. And we will not face that severe lockdowns anymore going forward. I hope that explains. And on others, Hans?

[Hans-Ulrich Engel:]

Yeah, thanks for your question Markus. So why do we guide for an improvement there? As you know, others is a hodgepodge of activities. Among other things, you have in there our raw material trading business. Now the raw material trading business, as you can also see in the significant sales decline that we have of more than EUR0.5 billion, didn't generate too much profit in 2020. We are expecting that this will change in the year 2021, so there is a big driver there. You are aware of the various cost-reduction measures that we have in the BASF Group. So we will see a contribution coming out of that, yes. Among other things, we have corporate center costs in other, which is a factor we have the corporate research in there. So there will be the expectation to see some improvement in that. And we also had - in other we also have our captive insurance activities, where the returns weren't as high in 2020 as they were in 2019, for obvious reasons. And we are expecting some improvement there and all of that leads then to the guidance that we gave.

[Markus Mayer:]

Okay, very clear, thank you.

[Stefanie Wettberg:]

Okay, the next question is from Matthew Yates. We will then have Chris Counihan and then Charlie Webb, but please make sure only one question now. Matthew Yates.

[Matthew Yates:]

Thank you. I'd just like to come back to the dividend point. I apologize. I haven't followed the company for that long, but has the group ever distinguished in the past between maintenance CapEx and growth CapEx when looking at dividend affordability? Maybe China is just a truly outsized investment. Or is this telling us something about how dependent the credit rating has become on extracting capital from Wintershall? And if those market conditions don't allow an IPO in September, how would you be thinking about a plan B?

[Hans-Ulrich Engel:]

Matthew, I'm trying to take that one because Martin had the pleasure to talk about the dividend already multiple times, and I think everything is said. We have a dividend policy in place. And if you think about what we are doing for a year like 2020, which is a crisis year, we're paying out a dividend at the level of the year or for the year 2019. And I think that is an important thing to keep in mind. As BASF, we made a commitment. We strive to and stick to that commitment, yes. And looking at what we expect the business to deliver, I think we are in a good position to put our money where our mouth is. And I guess that's all that I can say and I hope this helps.

[Matthew Yates:]

Understood, thank you.

[Stefanie Wettberg:]

Now it's Chris Counihan, Credit Suisse. Please go ahead.

[Chris Counihan:]

Good morning all. I was looking into my model this morning. And the 2020 EBITDA on the Excel had a note next to it saying from the November 2011 Capital Markets Day, which you both spoke at. It mentioned a 2020 EBITDA target of 23 billion, which I think was subsequently revised down to 22, with sales in the range above 100 billion. Now I know there's lots of swings and roundabouts for long-term estimates like this, including an oil price that's come in half the expected level back in the day. And I know you've revised those targets back in 2015 and 2018 again, but I suppose, if I even exclude the 2020 sort of COVID-related demand reasons, I don't think there's any year throughout the 2010s you came within 10 billion or 50% of this EBITDA target. So my question sort of surrounds the past and the future. Firstly, reflecting back upon these targets, what's been the greatest areas of variance relative to your expectations? But then looking forward, how can you future-proof BASF and the business against these issues? And do you ever foresee the targets detailed in 2012 as achievable for BASF?

[Hans-Ulrich Engel:]

Chris, I'll give it a - this is Hans. I'll give it a try. So yes, you're absolutely right. We had much higher expectations, but then there was a point in time, and thanks for referring to that, which was in 2015, when reality kicked in. And I think what we're - yes, what we're doing now, yes - and you've followed us closely over - yes, over the years. You've followed in particular what we said in 2018 what we wanted to achieve strategically. And I think that is the key point. You see us delivering. You see us exactly executing along the lines of what we said in 2018. Did we foresee a pandemic in the year 2020? No, we did not, absolutely not, but I think what's important to see is BASF put a strategy in place in 2018. And we deliver on that strategy step by step, be it the portfolio changes that we addressed, be it the cost-reduction measures that we put in place with the Excellence Program, be it the change in the regional footprint with the new Verbund site in China, be it the growth projects for battery materials. We're delivering on that step by step, yes. And I hope, when you and I talk 10 years down the road, the two of us - I will most probably be in a different position then, yes. The two of us will then come to the conclusion that in fact we did deliver.

[Chris Counihan:]

I'm looking forward to that conversation. Thanks Hans.

[Stefanie Wettberg:]

Okay, we'll try to - we tried to answer the questions of Charlie, Sebastian and Andreas. And I apologize that we cannot take the other questions. We would refer them please - or ask the analysts to refer to the IR team. So now Charlie Webb with a short question please.

[Charlie Webb:]

Thank you, Stefie. Good morning Martin. Good morning Hans. Just one on MDI and TDI, the isocyanates, clearly, current spreads look pretty tight. And I guess the disruptions in Texas will keep things that way for now. I'm just wondering how you see those markets kind of moving into the latter half of the year. A peer of yours was fairly conservative in the potential normalization that we might see. So just wondering whether you share that view or whether you have a slightly different view. I'm just interested in how you're thinking about those markets.

[Hans-Ulrich Engel:]

Yeah. Charlie, this is Hans again. So on the isocyanates, frankly, we were positively surprised by what we saw happening in Q4 and also going into Q1, very strong business in January, very strong business in February. Our expectation is that during the course of the year we'll see a normalization there - in the business. So I guess that's all that I can say with respect to isocyanates where, frankly, we were surprised by the strong improvement in a very short period of time.

[Charlie Webb:]

Okay. Thank you very much.

[Stefanie Wettberg:]

Now it's Sebastian Bray, Berenberg. Please go ahead.

[Sebastian Bray:]

Hello, good morning. And thank you for taking my questions. They are on oil and gas. I can't find the book value at which Wintershall is held in the BASF accounts. How much of the EUR10.8 billion of at equity investments is Wintershall? And could you give us an idea of the income contribution from this business that would be expected at the guidance price of $50 a barrel or any type of sensitivity around that? Thank you.

[Hans-Ulrich Engel:]

Sebastian, Hans again, so out of the 10.8 more than 90% is Wintershall Dea. I can give you the exact figure, which is 10.2 billion. On the guidance and what's factored in, I can tell you that since we show Wintershall Dea below the EBIT, there is no contribution of Wintershall Dea factored into our EBIT guidance and with that, obviously also not into our sales guidance.

[Sebastian Bray:]

Understood, thank you.

[Stefanie Wettberg:]

Okay, so now the final question from Andreas Heine, Stifel. Please go ahead.

[Andreas Heine:]

Yeah, I basically have a question on all the prices we can see in Chemicals and also in Materials and this looks to be very transparent, then you would clearly exceed what the consensus has on its mind in Q1, but I'm not sure how real these prices are. Maybe you can elaborate what you see from Q4 to Q1 in your upstream portfolio as margin improvement and how you have - what you have in your books. And what do you see in prices compared to what these agencies report every week on price increases? Thanks.

[Hans-Ulrich Engel:]

Andreas, this is Hans again, yes. I'll try to answer this one, yes. So the prices, I think it's fair to say, in chemical upstreams have gone up across the board, have gone up across the board in all regions. They are following, to a large extent, oil price development because oil and its derivatives are part of the raw material portfolio there. We've seen that. We've seen that as a result also of the strong demand improvement that we have experienced. Key question that you're asking is obviously the right one for upstreams, which is what does that all mean for margins. And I can say also as a general comment, so far, we are able to pass on the raw material price increases and maybe for - in certain product lines do also a little bit more than that, but that is also required if you think about the price development that we've experienced from, let's say, the second half of 2019 on, the steep drops that we have experienced there. So we need to come back, bring prices further up because that then will also have obviously the required impact on profitability. So a lot to be done, but overall, and I think that's the key point, demand has given us there the support to actually implement the price increases.

[Andreas Heine:]

Thanks.

[Stefanie Wettberg:]

Being mindful of the time, we are at the end of our conference call today. Let me take this opportunity to draw your attention on our virtual Capital Markets Day on March 26. In the keynote section of our Capital Markets Day, Martin Brudermuller will illustrate BASF's aspiration to lead the chemical industry in terms of CO2 reductions by developing and investing in new technologies and electrification based on renewable energy. During the subsequent Q&A, he will be joined by Hans Engel. In the following sections, two BASF segments, Industrial Solutions and Nutrition & Care, will be presented in more details. Markus Kamieth will give a presentation on the Industrial Solutions segment. During the Q&A following his presentation, he will be joined by the Presidents of the Dispersions & Pigments and Performance Chemicals divisions. In the third section, Saori Dubourg will give a presentation on our Nutrition & Care segment. During the Q&A following her presentation, she will be joined by the Presidents of the Care Chemicals and the Nutrition & Health divisions. Beginning of next week, you will receive an e-mail with further information, including registration instructions. To conclude, I would like to wish you all the best. Stay healthy and take care. Thank you for joining us today and goodbye for now.