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Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our Conference Call on the Second Quarter 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.

[Operator Instructions] 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 in pages 139 to 147 of the BASF report 2019.

BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. On the call with me today are Martin Brudermüller, Chairman of the Board of Executive Directors; and Hans Engel, Chief Financial Officer.

Please be aware that we have already posted the speech on our website at basf.com/q22020. And with this, I would like to hand things over to Martin.

Good morning, ladies and gentlemen, and thank you for joining us. On July 10, BASF released preliminary figures for the second quarter.

And today, we will provide you with further details. I hope you and your families are doing well.

COVID-19 is still a huge challenge for all of us. It is, however, also a catalyst for change and an opportunity to do things differently in future.

At BASF, we have quickly adapted to new digital processes and virtual communication. Decision making becomes faster and customer relationships intensify.

Most importantly, the BASF team works together closely. And this has always been our strength, and this is how we have overcome crises in the past.

And it is how we will do this now, with an even stronger focus on our customers. We are actively managing this crisis.

Our diversified portfolio and our solid financials are strong assets in these times. Let’s turn to the macroeconomic environment first.

The indicators for Q2 2020 are estimates as most of the countries have not yet published their figures for the quarter. The future macroeconomic development is still uncertain and not yet transparent.

Forecasts are constantly changing. The slide illustrates how global chemical production growth deteriorated during the past few months.

During the second quarter, the impact of the pandemic was more pronounced in Europe and North America than in Q1 due to the timing of the spread of the virus and the related lockdowns. According to the preliminary data, global chemical production decreased by 4% compared to Q2 2019.

The resilience of chemical demand in some important customer industries is one reason why the decline in global chemical production is not substantially steeper. Another reason is China: The country has embarked on a V-shaped recovery.

The coming months will show whether retail sales and consumer spending will still rise with production levels. Going forward, it is crucial that global demand returns to a reliable solid level.

This is not yet visible. Global GDP and global industrial production both decreased by 10% compared to the prior-year quarter.

The automotive industry has hit - was hit hardest by the demand collapse, production stoppages and supply chain disruptions. In Q2 2020, global automotive production dropped by 45% compared to Q2 2019.

Excluding China, the drop in automotive production in Q2 amounted to around 60%. For the full year 2020, we now expect global automotive production to decline by 27%.

To create as much transparency as possible for you today, we will provide you with more detailed information than usual. I will show you BASF’s sales volumes by region on a monthly basis.

While BASF’s total volumes dropped by 11% in Q2, the development of regional demand is clearly reflected in our books. In May 2020, the COVID-19 effect was especially pronounced in Europe and North America.

Compared to May 2019, BASF’s sales volumes in Europe and in North America declined by 27%, while we already saw a volume increase of 13% in Greater China. In June 2020, BASF Group’s sales volumes grew globally by 1% due to considerably higher volumes in Greater China and slightly higher volumes in North America, the latter due to the cracker turnaround in here Q2 2019.

This increase was partly offset by a volume decline of 7% in Europe. Let’s now have a look at how the pandemic affected growth in BASF’s key customer industries.

This external data is preliminary as well. The impact of COVID-19 and the corresponding lockdowns differ greatly by customer industry.

In Q2 2020, global automotive growth decreased by 45% following the lockdowns especially in Europe and North America. Industries such as energy and resources, consumer goods and construction were also considerably impacted, but significantly less than automotive.

In contrast, the nutrition and health and pharma industries were resilient or even benefited partially from the pandemic. Semiconductors, which form part of the electronics industry, have grown in Q2 as well.

This chart also exemplifies that it is still almost impossible to make reliable forecasts regarding the future growth of our key customer industries at this time. A look into July reveals that daily orders are still below last year’s level.

The graph also shows that the gap between average daily order entries in April to July compared to the prior year months is slowly narrowing. With a seasonally rather weak August ahead of us, it remains to be seen by when the gap can be closed.

Customers remain very cautious and are ordering lower volumes more frequently. About 50% of orders on hand across BASF are booked during the next month.

Another 30% of all orders have a delivery date in the month after that. Thus, 80% of all our orders on hand will be booked within the next two months.

And we have no clear view beyond that. Compared to the prior year quarter, BASF Group’s sales volumes declined by 11% in Q2 2020.

Not surprisingly, the decline was most pronounced in the segments supplying the automotive industry. Surface Technologies, Materials and Industrial Solutions recorded a sharp decline in demand, following the temporary closure of practically all major automotive production sites in Europe and North America.

In contrast, we increased sales volumes in Nutrition & Care and Agricultural Solutions. Volumes in the Chemicals segment also went up.

This was mainly due to scheduled cracker turnarounds in the prior year quarter, which had led to lower volumes. And now Hans will give you more details regarding our business development in Q2 2020.

Thank you, Martin. And good morning also from my side.

Let’s look at our sales and earnings development in Q2 2020 compared to the prior year quarter. I will start with our sales development.

Sales decreased by 12% to €12.7 billion. Lower volumes of minus 11% were the main driver for this.

Martin explained the reasons for the volume decline already. Prices decreased by 1%, mainly due to lower prices for upstream chemicals.

Considerably higher prices in Surface Technologies and slightly higher prices in Agricultural Solutions could only partially offset this. Prices in Surface Technologies were supported by higher prices for precious metals in our Catalysts division.

Portfolio effects contributed plus 1% and were mainly related to the acquisition of Solvay’s polyamide business. Currency effects amounted to minus 1%.

The devaluation of the Brazilian real and the Argentinian peso were the main reasons here. Moving on to the earnings development.

EBIT before special items came in at €226 million, 77% below Q2 2019. With the exception of Nutrition & Care and Other, which increased earnings, and Agricultural Solutions with earnings at the level of the prior year quarter, all other segments posted lower earnings.

This was the result of the pronounced drop in demand from most of BASF’s customer industries. The Chemicals and the Materials segments announced for – accounted, sorry, for 70% of the earnings decline.

In the Chemicals segment, both divisions recorded considerably lower earnings. The decline was most pronounced in Intermediates, but EBIT before special items in this division was positive overall.

The main reasons for the earnings drop were lower sales volumes, higher fixed costs, primarily as a result of the startup of the new acetylene plant in Ludwigshafen and a lower equity result. Higher margins as a result of lower raw material prices could only partially offset the decline.

The scheduled turnarounds at BASF’s Verbund site in Nanjing and lower margins were the main driver for the earnings decline in the Petrochemicals division. In addition, an unscheduled shutdown of the Port Arthur cracker in June negatively impacted earnings.

In the Materials segment, earnings decreased considerably in the Monomers and the Performance Materials divisions, mainly on account of the significantly lower demand from the automotive industry. In Monomers, primarily margins for isocyanates declined compared to Q2 2019 due to lower demand as a result of the pandemic.

In Performance Materials, volumes decreased significantly following the lockdowns in Europe and North America, especially in PU systems, engineering plastics and Cellasto. Despite higher specific margins because of lower raw material prices, the volume decrease led to a decline in EBIT before special items.

Earnings in the Industrial Solutions segment came in below prior year quarter. In Dispersions & Pigments, volumes decreased in all business areas but electronic materials.

In Performance Chemicals, volumes decreased in fuel and lubricants and oil field chemicals, while they were up in plastic additives. In both divisions, lower raw material prices resulted in slightly lower prices.

Lower fixed costs could partially offset the volume-driven earnings decline in the segment. As expected, EBIT before special items of Surface Technologies came in significantly below the prior year quarter.

In the Catalysts division, lower volumes across all businesses led to the earnings decrease. The same was true in Coatings.

The decline in volumes was due to weak demand from the automotive industry caused by the effects of the corona pandemic. In Nutrition & Care, EBIT before special items rose on account of significantly higher earnings in Nutrition & Health.

The increase was driven mainly by higher volumes and prices which resulted in higher margins. The significant volumes growth in the Nutrition & Health division was mainly attributable to the aroma ingredients, pharmaceutical and human nutrition businesses.

In Care Chemicals, higher volumes in home care, I&I and industrial formulators, as well as oleo surfactants and alcohols more than offset lower volumes in personal care specialties. Earnings in Care Chemicals decreased slightly due to higher fixed costs.

The prior year quarter had included a contractual one-time payment, which reduced fixed costs. In Agricultural Solutions, EBIT before special items was at the level of the prior year quarter.

While volumes and prices were up, earnings were negatively impacted by currency effects, especially driven by the Brazilian real and the Argentinian peso, as well as an unfavorable product mix. Drought conditions in many parts of Europe led to lower fungicide sales volumes in this region.

Lower fixed costs were almost able to compensate for these effects. In Other, EBIT before special items improved significantly compared to the second quarter of 2019 Let us turn to the measures we are implementing to mitigate the financial impact of COVID-19.

Overall, we are well on track to achieve the targeted €2 billion annual EBITDA contribution by the end of 2021. As announced, we accelerated the program and, for example, strive to reduce 6,000 positions already by the end of this year.

We are doing this thoughtfully, transparently and in a socially responsible way. By the end of 2020, we continue to expect an EBITDA contribution in the range of €1.3 billion to €1.5 billion.

This is a run-rate. The associated one-time costs in 2020 are estimated to be around €300 to €400 million.

Let me provide you with a short update on our portfolio measures. We are on schedule regarding the divestiture of our construction chemicals and pigments businesses.

We are in close contact with Lone Star and DIC, and both buyers are committed to completing the transactions as planned. The associated carve-outs are on track despite considerably more challenging framework conditions due to the coronavirus pandemic.

We expect to close the sale of the construction chemicals business in Q3 2020 and of the pigments business in Q4 2020. Both transactions are subject to the approval of the relevant merger control authorities.

With respect to Wintershall Dea, we are realizing the announced synergies. We have also been working on the IPO preparedness and are well advanced.

However, in the current market environment, we will not initiate the IPO of Wintershall Dea. We now assume a first placement in 2021, again subject to market conditions.

I will now focus on further details regarding the earnings and cash flow development of BASF Group in Q2 2020 compared to the prior-year quarter. EBITDA before special items decreased by 35% to €1.2 billion.

EBITDA amounted to €1.1 billion compared to €1.5 billion in Q2 2019. EBIT before special items came in at €226 million, 77% lower than in Q2 2019.

Special items in EBIT amounted to minus €167 million compared to minus €488 million in Q2 2019. Special charges were, for example, related to the carve-out of the pigments business and BASF’s Helping Hands aid campaign.

In the prior year quarter, special charges were mainly caused by one-time costs for the excellence program and the impairment of a natural gas-based investment on the U.S. Gulf Coast.

EBIT thus decreased by 88% to €59 million in Q2 2020. Net income amounted to minus €878 million compared to almost €6 billion in Q2 2019.

In Q2 2020, BASF incurred a non-cash-effective impairment of its shareholding in Wintershall Dea. Lower long-term oil and gas price scenarios and changed reserve estimates resulted in an impairment of €819 million.

In the prior year quarter, net income included a book gain of €5.7 billion on the deconsolidation of Wintershall. Therefore, reported earnings per share decreased from €6.48 to minus €0.95 in Q2 2020.

Adjusted EPS amounted to €0.25, this compares with €0.83 in the prior year quarter. Cash flows from operating activities increased from €1.9 billion to €2.2 billion in Q2 2020.

The increase was primarily due to cash released from net working capital, which rose by €336 million. Payments made for property, plant and equipment and intangible assets decreased by 26% or €255 million to €726 million.

Free cash flow increased by more than €500 million to €1.5 billion. Turning to our balance sheet.

At the end of June 2020 compared to year-end 2019, total assets increased by €3.4 billion to €90.4 billion on account of higher current assets. Compared to the end of Q4 2019, noncurrent assets decreased by €804 million, mainly driven by the non-cash-effective impairment of BASF’s shareholding in Wintershall Dea.

Current assets rose by €4.2 billion to €35.2 billion, mainly due to higher cash and cash equivalents, as well as higher other receivables. Net debt increased by €5 billion to €20.5 billion, mainly due to the dividend payment in Q2 2020 and the purchase price payment for Solvay’s polyamide business in Q1 2020.

At the end of June 2020, the equity ratio amounted to 42.5%. And with that, back to you Martin.

Ladies and gentlemen, due to the continuing high uncertainty of the further economic development and the low visibility, we still refrain from making any concrete statements on the development of sales and earnings for the full year 2020 today. For the third quarter of 2020, we currently do not expect EBIT before special items to improve significantly compared with the second quarter of 2020, in part due to the generally lower demand in August and the seasonality of the Agricultural Solutions business.

Our own recovery path from the corona pandemic is still as unclear as the medium and long-term macroeconomic development globally and by region. The risk of further infection waves with the corresponding impact from further lockdowns, as well as subdued customer demand in the midterm are the main reasons for that.

Without a swift and solid recovery and a positive midterm outlook, there is other risk, a certain risk of have to impair some of our assets. Today, we do not yet have sufficient transparency to assess the long-term economic impacts of the corona crisis and we are carefully analyzing various scenarios.

Before we open the Q&A, I would like to conclude by making you aware of BASF’s next step in implementing its sustainability strategy. Sustainability has long been an important strategic lever and an integral part of our corporate purpose, we create chemistry for a sustainable future.

When we launched our new corporate strategy in 2018, sustainability was highlighted again and further strengthened. I would like to emphasize that post-corona we will not change our commitment or ambition to achieve our CO2 targets.

The topic continuously grows in importance in our external dialogue with stakeholders across society and politics. Particularly, the EU Green Deal pushes an extremely ambitious agenda.

When it comes to CO2, it sets the goal of achieving CO2 neutrality in the European Union by 2050. We subscribe to the importance of the reduction of CO2 emissions by committing to a climate-neutral growth until 2030.

Our customers and partners have ambitious CO2 reduction targets as well. To reach our ambitious goals in 2030 and beyond, we pursue a comprehensive Carbon Management Program leveraging new production technologies, as well as electrification of chemical processes based on renewable energy.

However, to actively address CO2 intensity in our customer dialogues it is paramount to create transparency of the carbon footprint on product level. Carbon footprints for our products will guide us and our customers in our joint sustainability progress and enable us to support our customers’ transformation efforts.

The cradle-to-gate Product Carbon Footprint comprises all emissions that occur until the BASF product leaves the factory gate for the customer. This shows them the CO2 units per ton of product, from the purchased raw material to the use of energy and our own production processes covering scope 1, 2 and 3 emissions.

With our own digital solution, we can now calculate the value for each of the approximately 45,000 sales products based on extensive data, including emission data from our production network on a global basis. Our sophisticated Verbund steering systems build a suitable platform for this.

With many of our customers, we are continuously working on sustainable solutions. The carbon footprints provide our customers with valuable information on where the levers for avoiding greenhouse gas emissions are.

Already today, we offer with our mass balance approach, the use of alternative raw materials and renewable energies. In the future, chemcycled materials will also be available.

Thus, in a customized way we can define tailormade strategies with our customers to stepwise reduce product carbon footprints, and within their scope 3 emissions, reduce the carbon footprint of their products. Going forward, our joint innovations will become even more targeted and impactful and now allow for both further differentiation and closer customer collaboration.

With our straightforward tangible approach, we are again a front-runner when it comes to sustainability and additional customer benefits. We will participate in the development of industry standards for the calculation method.

The implementation of the Product Carbon Footprints in our marketing concepts will take place step by step. We are currently starting to offer the Product Carbon Footprint to selected product and customer segments and plan to make these data available for the entire portfolio by the end of 2021.

So and with this, we are happy to take your questions.

[Operator Instructions] And we have quite some analysts in the line already. The first three questions or the first three analysts to ask questions are Christian Faitz and Andrew Stott and then Thomas Wrigglesworth.

We will start with Christian Faitz, Kepler Cheuvreux. Please go ahead.

Thank you, Steffi. Hello, Martin and Hans.

Good morning. Two questions from side, please, for now.

First of all, can you please elucidate your comments on page 10 in your half report bits about potential upcoming impairments on the back of the corona pandemic? And then second question, can you also explain the plus 28% sales volume number for Greater China in June, with or without Corona?

This is an exceptionally good number. Were there any major outages in June ‘19, and hence the base was so low?

Thank you.

Hi, Christian. I’ll start with your question on the impairments.

Situation is quite obvious, market prices have come down significantly, demand has come down significantly. That simply forces us to address the risk of potential impairments in our outlook and in the risk reporting part of the outlook.

You've seen us impairing at a range of about or at a value of about €800 million. The Wintershall Dea assets as the result of the lower long-term price scenarios, primarily and then there's also a small impairment there, as a result of slightly lower reserves in - or not slightly lower reserves in one field.

For the remainder of the portfolio, we haven't done any impairments in Q2 simply due to the fact that wasn’t there, and this goes hand-in-hand with not being able to give you an outlook for the full year 2020. We don't have the visibility that it needs.

We don't have the transparency that it needs to run impairment tests for the rest of the portfolio at this point in time. We are at the height of the corona crisis, visibility is almost inexistent.

Martin alluded to the fact that more than 50% of our current orders are for month two - month one, sorry, 30% about then for month two to that gives you an idea how short term our view only is. So this is a long and winded explanation to tell you that we don't have more at this point in time, than the fact that there is a risk.

We will see over the coming months, to what extent we may have to book impairments. But first and foremost, we need to get an understanding of how the world will look post-Corona, what the new normal will be.

And once we have that understanding, we will run our impairment tests and come to the necessary conclusion. I hope this helps to put things in perspective.

Thank you.

Christian, with your question to Greater China, it is indeed a good performance over there. It only shows how forceful and great the recovery in China was so far.

So there are basically three – and it goes across the portfolio, let me say this. But it is particularly pronounced in the Surface Technology, in the environmental catalysts, which goes with the car industry that recover.

But it is also in China on the chemicals and the materials part. As we are also there with the Nanjing turnaround, we are fully back.

And that is mainly the three pronounced parts of this China performance, and I think that is it.

Okay. Thank you very much.

The next questions come from Andrew Stott, UBS. Please go ahead.

Yeah. Morning, Stephanie and morning, Martin and Hans.

And two questions. Number one is on volumes.

So thank you for the information on the sequence of volumes. Just trying to understand the clarity of the slide six, so I wasn't quite sure of the concepts, in July minus 9 is what exactly, and how to use that for volumes versus June, for example?

So just trying to understand where we are in Q3 so far? Second question was on the dividend for next year, I see positive news on your disposal processes, both for pigments and construction chems.

I guess, around €4 billion. Will you tie that come February to your dividend paying ability?

Or will you be more looking at your underlying cash flow and underlying earnings? Thank you.

Hi, Andrew. I’ll take your first question on slide six and what that actually show.

So this is daily orders. In other words, this is value of customer orders coming in, it doesn't give you an indication what is volume, what is price in there.

We've taken that simply from our daily order dashboard. What it shows is that the big gap that we had in April at minus 27% in daily orders, so in other words in value coming in that month.

Now July year-to-date has decreased to currently minus 9%. My assumption is, but I don't have the data for that available.

My assumption for that is that a large part of that obviously is in volume, but I can't give you the PVX as we have it. So in other words, price volume, structure and currency as we have it, when we report our sales figures.

But assumption is majority of that being volume.

Andrew, on the dividend policy. I mean, let me start, sorry.

Sorry, I’ll just come back on that. So its showing the four month number.

So each of the blocks is showing a four month order book, if you like, is that right?

So what it shows you is, I’ll start with April. So this is orders coming in, in April, compared to in April 2020 compared to April of the year 2019.

And what it gives you is that during the month of April, the orders that we received were 27% lower than in April 2019 or in July, the orders that we received to month to date, 9% lower than what we received in July 2019. And again, this is value.

Got it. Thank you.

So Andrew, to answer your question about the dividend, I mean, let me start with our targets, with our financial targets which we published with our new corporate strategy, which was a assessment of BASFs situation in earnings power going forward midterm in an environment which had certain growth rates and expectation opportunities. Because you know that, that we are very much committed to this dividend policy.

This was also against a lot of headwind we had this year. We have actually stick to our announcement in February and have paid the dividend this year for a performance in 2019.

So, we also said we have then to decide about the dividend policy for 2020, when first of all we have a clear outlook, we have the performance of this year, and we have to see whether we have to correct anything from the environment, let’s say, the assumptions for the macro economic environment going forward. What we also said all the time already before corona came, with the proceeds we get from the divestitures and with the needs of capital for the investment in growth project, like battery materials and China, that this is not a year-to-year, one-to-one, but we said we have a certain amount of money coming in, and we have a certain amount of money we want to spend.

So - and I think we have to make the same assessment now when we go forward under the new framework, and then decide in the beginning of 2021, about how we pay the dividend for 2020. And whether we have to do any corrections for our assumptions we have taken in 2018.

So I think that's what I can say to you today, but that we have a real fighting spirit in order to commit to what we said is also clear. But – so we can also not do that in an unrealistic framework.

Okay. Thank you very much, Martin.

The next question is from Thomas Wrigglesworth, Citi. We will then continue with Tony Jones, Matthew Yates and Laurent Favre.

So now it's Thomas Wrigglesworth, Citi. Please go ahead.

Thanks, Stephanie. Thanks for the opportunity to ask questions.

Two questions if I may. Firstly, on the carbon footprint policy, which you state will be coming through in 2021.

How will we see this change in the P&L? Does this enable BASF to have higher pricing to expect to take more volume?

You know, are there associated costs with this? If you can help, you know, transpose that to the financials, that'd be very helpful.

And my second question, kind of following on the, you know, on this - on the third quarter comments you've made. Obviously, we've got a step down in Ag Solutions.

But the offset, could you help us understand where the offset is coming from? Is it a particular division, where you're expecting to see a more material benefit come through or volumes recover faster?

And any color around where that Ag Solutions offset will be picked up elsewhere in the group would be very helpful.

Thomas, I’ll take the first one. I mean, the carbon footprint, we are very proud that we can manage this vast information to structure it and to really attribute it and associated with each and every product.

What it actually opens, and this is I think the important aspect, it really - it opens a discussion now with your customer. Because we are in our product, they're Scope.

3, if you just took yesterday, I don't mention the name, but there was an important carmaker in Germany who has announced very ambitious targets to reduce the footprint of their costs over the next 10 years. So if they want to do that, they have to talk with their suppliers, what kind of CO2 package they bring in.

And this is exactly our chance, that we can talk about it and we can talk more about them specification in price. And when it comes to the impact, I would say, a product that has less CO2 should have a higher value than a competitor's product with a high association of CO2.

And we have then also opportunities, for examples, with the mass balance, I used, just imagine we take pyrolysis oil in the cracker, which comes from recycled plastics, that we allocate this to this product, which reduces then the CO2 footprint, that we have the opportunity to talk with the customers, and say, yes, you can pay $0.10 more per kilo, and you get a certain amount of CO2 in the bag left. So, I would say, if that works, and if we really come to the point that the whole industry is forced and they will be forced by their customers to make transparent or greater transparency about CO2, we should have the opportunity to increase margin in value of certain products as a kind of a differentiation in a competitive advantage.

So it should be a lever which anyway has to come because of the environment and the demand of customers and society. But it is also a huge opportunity by having the Verbund and all these measures to really offer products differentiation and differentiation is normally margin.

So that's a clear intention that you have to see that over time, also in our earnings.

Hi, Thomas. I'll take your question on Q3, and how does it compare to Q2.

Seasonally, and you look at the history of BASF over the years, you see the downturn in Q2 compared to Q3, which, among other things has to do with the summer lull in particular, in Europe. The Ag business traditionally in Q2 is weaker than in - sorry in Q3 is weaker than in Q2, you alluded to that already.

The season in the northern hemisphere has ended and the season in the southern hemisphere has not yet really started. We had there a special development that we need to keep in mind in Q3 of last year, with the orders coming in very, very early.

In South America, for our Ag product, we don't expect to see this. This year, we expect orders coming closer to the actual application point in time, and we see the currency headwinds that we have already alluded to Brazilian real and the Argentinian peso.

So that's the second piece of explanation. What else do we expect in the upstream businesses, so chemicals and materials, we do not expect to see a meaningful improvement compared to Q2 2020, neither on the margin, nor on the demand side.

And please keep in mind, that we have the unfortunate shutdown of the Port Arthur cracker and we need to see what kind of an impact that has, for sure not a positive impact on the results in chemicals, in all evidence, significant negative impact. Then in the businesses, depending on the automotive industry, we expect to see some improvement.

Actually, we talked about China already, the V-shape development that we have there, in particular in automotive. But I can say that, in particular in North America, demand has picked up significantly and it's actually stronger than what we had forecasted several weeks ago.

So we expecting these businesses depending on automotive to see some improvement. And nutrition and care then to be more or less on the level of Q2.

And that should help to put Q3 versus Q2 in perspective, hopefully.

That's great. Thank you both very much.

Okay, so we move on to Tony Jones, Redburn. Your turn.

Good morning, Martin, Hans and Steffi, I've got two, both on the cash flows actually. So firstly, in Q2, there was this €880 million cash inflow.

Could you please tell us what the main parts of that are and if anything might recur in the second half? And then also sort of thinking about free cash flow for the year, year-to-date it's just below zero.

And based on your guidance for Q3, and maybe a more normalized results in the final quarter of the year, I bridge to free cash flow somewhere between €2 billion and €2.5 billion. Is that something - is there anything I'm missing?

Or is that sort of scenario how we should be thinking? Thank you.

So I'll start with the - with the bigger picture. Q1, lots of you were concerned about the cash flow that we generated, we explained what this is.

Q1 due to the fact that we have a very strong Ag business in Q1, is cash consuming, that situation has even seen more impact as a result of than the acquisition of the Bayer assets in 2018. So from 2019 on stronger cash consumption in Q1 than what we had historically.

Exactly the same development in Q1 of this year, we then had guided for strong cash flow for the following quarters and this is exactly what we are expecting. And I think Q2 there is already proof of that.

What will be the key drivers for cash flow in the remaining two quarters? It will be our strict and very focused working capital management.

It will be our strict cost management and it will be lower CapEx, as you've already seen that in Q2. I think the €880 that you were referring to is in the miscellaneous items line.

And what that is in the end is the non-cash flow, non-operating cash flow affecting items that we have in net income. And in this case, in particular, the €820 million impairment that we have in the Wintershall Dea participation, which is non-cash effective.

So that's the big chunk in the €880 million and the remainder, pardon my English of onesies and twosies than adding up to the €880 million.

That's great. Thank you very much, Hans.

Now we have Matthew Yates, Bank of America. Please go ahead.

Hi, good morning. One couple of questions, if I may.

Firstly, can I just reiterate Andrews comment and thank you for the extra disclosure on the monthly order book. That's very helpful.

So you seem to be having a kind of U-shaped recovery in your sales trajectory, but per guidance, more of an L-shaped recovery in profit. Now I understand the answer you gave to Thomas in terms of the seasonality in Ag.

So maybe we can just talk a little bit more about the upstream divisions and your comment that you don't see much meaningful improvement there. Can you talk about the role, the higher feedstock costs play in the margin evolution?

And whether you're seeing any impact in the broader market from competitors ramping up capacity or the way they are behaving? The second question comes back to your remarks around impairments.

I'm not sure if you are thinking about reviewing recent acquisitions or whether this relates to organic CapEx projects. So if you can give any indication on assets that you may be thinking about.

But as a broader question, if you are impairing assets, should we be rethinking the way management compensation is being tied to growing volumes, rather than so much the returns of the business? Thank you.

So Matthew, maybe I’ll start with this outlook thing. Again, U-shaped and L-shaped?

I mean, let me say that BASF is always a little bit more than just looking on our numbers. It is also a proxy somehow for industrial production worldwide because our materials go into so many of the customer industries.

And I think what is happening now, if I look also in our share price reaction today is that maybe is what we say, we destroy a little bit of the illusion that the recovery will be fast. And I think we just have a little bit more realistic view here and you saw this monthly development going forward.

You clearly see that improvement, and the improvement is just slower than most probably some of the people think and they think you can overshoot with your second half last year in positive numbers, and then you basically shrink the overall delta between 2019 and 2020. And I - we just don't see this indication.

I mean, what we clearly indicated, also our high dependence on automotive, that is the most crucial one. You see mixed pictures over there.

You see, on the one hand, that short work schemes are reduced, that a lot of the production lines run, but you see also some cautious statements about their orders and very much orders are driven by more premium costs, because company costs are replaced, but it is less on the private side to build cost. So this is one of the large uncertainties.

I mean, you said a little bit more guidance on the downstream industries, I mean, and I think you referred to nutrition and care chemicals, already they are really resilient and stable. But we also saw there that, in the first half of the year when this whole pandemic started, we saw really huge volume increase because they took in their materials, it relaxes a little bit because also the stocks are filled and people have their own storage of hygiene materials.

So it turns more to normal again. So that is what you see there.

That means its still a good business, but the huge hype is maybe also out a little bit. On the nutrition part, I have to say this is a rather stable thing because pharma and nutrition that is something you need continuously, independent what the framework out of there is, I think we talked also about Ag.

And I think with the upstream part, that is a lot more long term picture, where we just don't see anything now contributing this year in terms of supply and demand and we are very low with the margins. That is also the main driver of the low performance.

Now in Q2 that is not improving, Q3 and most probably also not in Q4. So I think what we really do here is that we give a, maybe a more realistic picture then some other people who still think and believe and hope for a quick recovery and this why, this is maybe something between a U and L.

You can now say NL [ph] with a small ramp, you can discuss about this loop. We clearly admit here that we see on a monthly basis an improvement, but it is not so fast, that it really changes the game in the second half.

So a little bit longer explanation, but I think necessary to understand why we clearly said this is the maximum we can say today. So your last question in terms of tying or renumeration into, that is actually exactly what is happening.

The LTI is – of BASF is tied to three parameters. The one is growth above market, which is clearly the volume part.

And that's our ambition to grow faster than the market. It is about the EBITDA, which is the earnings and this is the 3% to 5% in average, and the third one is the sustainability part, which is the CO2 emission.

So I think we have a good mixture here and a good balance in terms of where we want to go to. And I don't see now that we have to overexpose one.

I think the team has very clearly got the message where they have to go and I think these three parameters have to somehow balance out and be the basis for the renumeration also.

Thank you, Martin.

Matthew, I'll take your questions on the impairments, there's actually not much more then I can say, in answering the prior question that came from Christian. Well, maybe one more thing, when you look at the guidance that the - that ESMA gave, so the European SEC, with respect to their expectations on what's going to happen as a result of the COVID-19 pandemic, they made a very clear statement there that they expect companies to review their mid and long-term scenarios.

And that's exactly what we will do in Q3 and in Q4, hoping that by then we have the visibility and we have enough understanding of how these mid and long-term scenarios actually look. And this will be something that applies to all kinds of assets.

There will not be a differentiation between acquired assets and assets that resulted from CapEx. We simply will have to look and test these assets for their respective values.

Okay. So we continue with Laurent Favre.

And since we still have eight more analysts on the line, I would like to ask you to restrict yourself to one, maximum two questions. So now it's Laurent Favre, Exane BNP Paribas.

Please go ahead.

Yes. Good morning, Hans.

So my question is on the upstream. I was wondering if you could talk a bit about your utilization rates, and perhaps give us a sense of where you think industry utilization rates are.

And as we doesn't seem that we're seeing capacity cuts, are you thinking of delaying your key upstream projects in India in China? Again, as Martin, you just talked about how recovery in the upstream could take years.

Thank you.

Laurent, maybe on the last one, too early to say that, I mean, we have a huge team working on that detailing it down and preparing it for decision-making, looking into market development. I cannot foresee now that what the timeframe that this change is.

I think the most important part is the market assessment that we really confirm that this is still valid. So I don't see major, major delays from today's point of view with regard to the big China project.

So Hans, could you take the first one?

Yeah. Happy to take the first one, even though Laurent you and I know how difficult it is to handle that.

What have we done in Q2 and how have we run our upstream assets, obviously according to market demand to see this also reflected in the development of our working capital. Among other things, we've shut in temporarily our isocyanate plants.

Most of them are back up and running. On the cracker correct side, we had relatively good and high capacity utilization in Q2, at least in China and also to large extent in North America, also the Antwerp cracker and the Ludwigshafen crackers ran at, I want to say okay, capacity utilization rate.

What's happening in the industry is at this point in time, extremely difficult to say. We do not yet have the data, the reports on industry utilization rates.

But if you look at demand overall, I would expect that everyone run their plans in line with the market demand, which would indicate in Q2, a rather low capacity utilization across the industry with respect to upstream plants.

Would you…

We’ll now move…

Other side in shut down in the second half? Especially weaker players, given your outlook, and I'm talking permanent shutdown, not temporary?

Well, you see, when you see this happening here and here and there. There is a rather recent announcement, I think that came out last week on BDO plant in the US Gulf Coast by one of the competitors, but that is - actually that's the only one that I saw so far.

Thank you, Hans. Thank you.

Okay, we will move on to Markus Mayer, Baader-Helvea and then have Laurence Alexander and Andreas Heine following him. Markus Mayer, please go ahead.

Thank you. Good afternoon.

Two question for my side as well. Firstly, maybe on the cost savings, could you help us on the phasing for this year?

That would be very helpful. And then secondly, only a last - a small question.

You announced this week a force majeure for your TDI Geismar plant in the U.S. Could you help us how long should we pencil in the lengths of this plant?

And yes, that would be helpful. Thank you.

Yeah, to the second one, it will most probably be about two weeks. And first one you take, Hans.

Markus, I didn't fully get that question. Was that on the cost savings as a result of the Excellence Program?

Okay, so we gave you a run rate there of €1.3 billion to €1.5 billion. I'm a bit hesitant to give you a P&L impact at this point in time.

Let's come back to that in the next quarterly calls. But we are - I can guarantee you, we are very well on track to achieve that.

But should we assume that this is more back-end loaded this year, this effect? Well, should it be equally split at over the year?

No, no. With these programs, you have this ramp up during the entire program time and then also during the respective years.

I feel a bit more, more coming in the second half of the year.

Okay, thank you.

Okay, we move on to Laurence Alexander, Jeffries. Please go ahead.

Hello. As part of your review of your medium and longer term scenarios, are there any other broader kind of philosophical tenets of BASF's strategy that you would be reviewing.

So, for example, you know, the way you balance cyclicality and commitments to different cyclical industries within the portfolio or how you think about the mix of end markets you have exposure to? Just are there any other assumptions that you are also putting under review?

Lawrence, I mean, I think when we are now looking on the current situation, we are actually happy that we launched the corporate strategy because the topics we have been working on there have been exactly right for the situation we are in. And I think this is also one of the reasons why the BASF team performed so greatly because we did not have to put them on a new path.

They actually have been working there. We intensified.

We made things - accelerated things. So, I think the strategy is still very, very valid, also post-corona and also there is no alternative to be more customer-focused.

We need the digitalization innovation, I think as we said it, this carbon footprint is even more pronounced efficiency, leaner structure. I mean, that all pays in.

When it comes to portfolio you know, that we have done quite rigorous steps this year. We are now working towards really executing them, you should not underestimate that it's huge teams working on that because it's highly complex, particularly the construction chemicals part and this all in the environment of the pandemic not having physical meetings.

We continuously look into the portfolio and we will continue to do that. We have done this in the past.

You know, in our equity story, this chart, what we have actually sold and also acquired over the recent 10 years, which is basically more than one third of the sales of BASF that turned over somehow portfolio-wise. And we have to go on with that.

And that has to do also with the long term assessment of the chances of our business where we have then to decide by this business whether BASF is still the best owner going forward. And you can expect that business, we will have a very critical view on the remainder of the portfolio as in the past.

Okay, now it's Andreas Heine, MainFirst, and we will then have Sebastian Bray. Andreas Heine now first, please.

I keep it to one question. It is an automotive.

So the recovery we see right now, I think is different than informalities, because it's happening at the time of department [ph] shift going into more e-mobility with the Green Deal and all the sustainability efforts that might happen faster. And do you see this already in this recovery, that there is a different mix and what does it mean for your catalyst business and how fast is your battery material business growing by this, and does it mean more investments in battery materials than you originally thought?

Andrea, as I think there is no change now, because of the situation the automotive industry is that they abandon their plans about e-mobility, I cannot see that. It is on the other hand to quick now to see from a order pattern from the market that now more e-cars are actually sold.

We have to look into this a little bit for a longer timeframe. What we, however, see with the automotive over the battery materials business of BASF is growing nicely this year.

We are also qualifying our materials now in a broad customer circles, which refer to our current investment. But we also told you that after this initial step, which is a quite significant one, we will also look on how much money we really earn with that and that is then also the justification and the speed for further investments into further capacity.

But I have no doubt that the Green Deal will make the environment at least in Europe, even tougher for the automotive industry and everything you can read is going to support electric cars and to make life and cost for combustion engine-driven cars more difficult. So I think this trend is clearly proceeding even after the corona.

It will depend on the overall number of cars, but I guess the share of e-driven cars will proportionally even increase.

Thanks.

Now we have Sebastian Bray, Berenberg.

Thanks for taking my questions. I would have two please.

The first is on capital allocation, as far as CapEx is concerned for the year 2021, assuming that the Chinese Guangdong project goes ahead as planned, what is the lowest level plausible provided the macro is not a disaster? My second question is on the strategic role of China within the BAFS Group.

It has performed very strongly over Q2. Could you give any indication of how much of BAFS Group EBIT came from China in Q2?

Thank you.

So I mean, and the role of China, let me start. This is I think the V-shaped recovery now shows even one more time how important this Chinese market is, and also how robust the market is.

I mean, having all these trade frictions, and on the other hand, having this recovery shows you that this is mainly a domestic market driven recovery. And I think if you look on a lot of the KPIs, it's still such a huge difference between per capita consumption with the average of Western world that this market has huge opportunities for the next decade.

And I think this will be maybe even more pronounced after post-corona because they will go on this path in China, whereas we might have slower market development in the Western world. So I think the strategic value of the China business is even more pronounced than it has been in the past, and I don't expect that any of the numbers in the midterm will change on that.

With respect to the capital allocation. I mean, let me only say here that, you saw that in our numbers this year, we are much more restrictive and we drive down overall capital expenditure.

This will also proceed in the next years, I can assure you about that. But on the other hand, we also clearly said that we don't give up our growth project, which is battery materials and the China project.

So you don't have to expect that there is huge spending already in 2021. The team is ramping up and certainly, first stuff is booked.

But the main part for, we have to allocate for the China project is beyond 2021. So you have any information Hans about the…

Okay, Sebastian. Your question on EBIT coming from China in Q2.

Under normal circumstances, we don't disclose EBIT coming from specific countries. But here's what I can do for you.

You look at Asia Pacific with the EBIT of 180 million for the region. And I can tell you that the vast majority of that comes out of China, it shouldn't be a surprise.

We talked about the recovery that we've seen in China. That started towards the second half of March, while other countries went into lockdown.

When you look at these numbers coming from China, please always keep in mind that there is a big an equity participation that we have there. In fact, the BYC joint venture is a 50-50 joint venture and as a result of that, only reported as its net profit in our EBIT.

Thank you for taking my questions.

Okay, we will now have Georgina Iwamoto; then Chetan Udeshi, and then Lucy Hancock. So now Georgina Iwamoto, Goldman Sachs.

Please go ahead.

Hi, there. Hi, Martin.

Hi, Hans. So two questions from me.

And I was hoping that you might be able to give us a more detailed update of how your cathode active materials business is trending. You said that it was going nicely this year, it be great if you could put some numbers to that?

And maybe an idea of, you know, the kind of current capacity levels that you have? And then my second question is, just going back to this guidance on the third quarter, apologies for that.

I wanted to understand how you see the sequential trends versus normal seasonality. It makes kind of high level sense that the end of July and August would be weak due to school holidays.

And that September is really the key month. So why have we got a more cautious message?

Do you have lower visibility of September than usual, or is that month already looking weaker than expected? And maybe you can talk about the year-on-year trends, as well as the sequential?

Well, I think Hans already alluded a lot to Q3 already. And I mentioned the visibility of the orders.

And if you take that indeed, then you don't have so much insight into full September. And this September is every year after at least in Europe where the summer lull is always a little bit stronger than it is in other regions is the September kind of a key month.

So is it really picking up or is it not picking up? So that will be also very crucial this year.

And as we said, I mean, we don't expect that this will be a super pronounced, let's say recovery over there and that's the reason why we are cautious. And beyond that, normally you have then October, November, which is also strong months for production and Christmas days and all that, which we don't see anything yet for the order pattern of our customers.

And this is why - I think we can - we have to exhaust here with information and don't have really more and have to go forward now and see how it develops and how it really picks up. In the fourth quarter, we clearly said that, yes.

We also expected the Q4 will be gradually better than Q3. That is the logic of our numbers.

And we believe in that, how strong that pick up in Q4 is? I simply cannot say.

So, Hans, you have…

Yes. Hi, Georgina.

Your question on battery materials, you want some more color there, you want some more data. What I can give you is that sales in Q2 for battery materials are up by 10%.

This compares to significantly higher increases that we've seen in 2019, and also in Q1. But the good message is, it's one of the businesses that generates higher sales in this very difficult environment in Q2, hope that answers your question.

Okay, thank you, both.

Now, Chetan Udeshi, JPMorgan. Your turn.

Yeah. Thank you.

I just have one question and slightly different. You know, I just wanted to get an update on your activity around methane pyrolysis for hydrogen generation, what is the progress there?

Have you had any, you know, major success in terms of development of the process or for that part of your R&D activity? Thank you.

Chetan, you made my day. That's I think the first time in such a call that I get a question about R&D and you know, that's close to my heart.

Chetan, this is indeed one of the key programs we have in the carbon management program, because this is really the enablement to have hydrogen CO2 more or less CO2 free, that has a much better electric - energy balance than the water electrolysis, which is very expensive because you have to cleave the water molecule and there is a lot of renewable energy and with this, nevertheless, we have the German and the European hydrogen strategy, which we very much appreciate, but it will be huge costs for the CO2 free hydrogen. And the only way to get hydrogen or the CO2 free, but not with electrolysis is methane pyrolysis.

This is why this is a key project. We have a heavy, heavy R&D program here.

We building pilot facilities quite big, quite impressive. And we are marching on very nicely here.

It's still a lot to do and to make this process, which you can run then in large scale. But I'm very, very happy actually with the progress they made in terms of stability, how to run it, to run it under pressure and then so there's a lot of parameters you have to check.

And I would say we are, at least, on where we want to be with the progress. So very, very happy about that.

Thank you.

So now Lucy Hancock, Bernstein. Please go ahead.

Can you hear me?

We cannot hear you very well. No, unmute.

Sorry and use your headset. Please try again.

Okay, then we only have one follow up question and that would be the final question from Christian Faitz, Kepler Cheuvreux. Please go ahead.

Yeah. Thank you.

Just on Ag question maybe. In my - if my numbers are right, your reported growth in herbicides again outperformed the other product areas in Agro.

Is that mainly glufosinate and staying with herbicides, can you comment on the payment that Bayer expects from you for the dicamba settlement? Thank you.

Hey, Christian. This was more than one question, if I see that correctly.

I'm sorry.

On your second question, I think that refers to the dicamba settlement or the – yeah, dicamba settlement that Bayer entered into - in the US. All I can say is that there is discussion going on between Bayer and BASF and that is it.

Your first question was on herbicides development. And on that, you have to think back to Q1 and Q2 and the disastrous weather conditions that we had in North America.

And that's the explanation here for what we have there. And yes, glufosinate is an important part in our herbicide portfolio.

Okay, Lucy Hancock is back in the queue. So we give it another try, whether the technical issues could be solved, Lucy, please go ahead.

Hello, this fine now?

Yeah, it's okay, now.

Okay. Thank you.

And apologies for the technical problems. And I had two questions and on the CO2 product footprint calculation and well done on doing that, its very impressive and good initiative.

And the first question is on the ability to differentiate from customers. And what makes you confident that your products actually will be more CO2 efficient to customers?

Is there anything in the product you’re [Technical Difficulty] positive results or is there any surprises? The second question was on the targets for your CO2 per pound produced.

In your CMD last year, you had said that by 2030 your target is 0.4 tonnes of CO2 per tonne produced, but that is based on CO2 neutrality and versus 2018 from 0.6. Is that then implying that all the reduction on a per tonne basis is due to volume or is there CO2 reductions that are happening there?

Thank you.

Lucy, thanks for the question on CO2. Let me start with the last one, which basically was a target in absolute emissions, you know this 22 million tonnes, we did not break it down to single products at that point.

And that means also certainly that in 2019, we had lower production and volume decline. And with this, also you have on certain product, certainly less emissions.

It strongly depends on the portfolio because you have some with high and some with low. And this is why this assembly then adds to the mathematics.

But this is basically taking major decisions about sites and how you produce energy and so on to mitigate and to manage the absolute number of CO2. So with carbon footprint, you basically break that down on a product level, on a kilogram level.

And you can imagine we have products with a very high one, with very low one. I like that prior - that transparency and I think we are in good shape and to differentiate here because you know that the Verbund is a very, very efficient way to produce, as we use, for example, excess heat to preheat something and which automatically translates also in the CO2.

That's why we are relatively confident that for most of our products, we have a favourable footprint. But let me also be very clear, there might be a few products where we will see from competitors, that they may be have a better footprint, and then it's exactly what I want my team to do, they have to run to get better.

And I think I may - I explained already the toolbox that you can buy in renewable energy, you can apply bio-based materials instead of fossil ones. You can take the pyrolysis oil from the chem cycling and I think there is no other company that has such a great offer and opportunities in terms of leavers to reduce CO2.

And this is why I say, we simply leverage the Verbund to the full scale here. And with this I expect that we have more to offer than other companies have to offer.

So I know from a lot of customers, they waited for that, they engage in that and they really embark on journeys by saying okay, I might get a product I buy today in five or 10 years really CO2 free. So this is why we will get some competitiveness and feeling from competitors, but I am quite sure that most of our competitors feel BASF in their neck by having products with better carbon footprint.

Ladies and gentlemen, this brings us to the end of our conference calls. Thanks for staying on our extended call.

To conclude, I would like to mention that we are planning a virtual Capital Markets Day on November 5. Therefore please save the date in your diary.

We will provide further information closer to the event. On October 28, we will present our third quarter results.

Should you have any further questions on our second quarter results, please do not hesitate to contact a member of the BASF IR team. Thank you for joining us today and goodbye for now.