BASF SE - Analyst/Investor Day

| About: BASF SE (BASFY)

BASF (OTCQX:BASFY)

June 05, 2013 9:30 pm ET

Executives

Magdalena Moll - Senior Vice President of Investor Relations

Albert Heuser - President of Greater China and Functions Unit of Asia-Pacific Operations

Stephan Kothrade

Mingwei Qin

Kurt W. Bock - Chairman of the Board of Executive Directors

Analysts

Andreas Heine - Barclays Capital, Research Division

James Knight - Exane BNP Paribas, Research Division

Timothy Jones - Deutsche Bank AG, Research Division

William Cross

Paul Richard Walsh - Morgan Stanley, Research Division

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

Lutz Grueten - Commerzbank AG, Research Division

Jaideep Pandya - Berenberg, Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

Andrew Benson - Citigroup Inc, Research Division

Laurent Favre - BofA Merrill Lynch, Research Division

Magdalena Moll

So with this, I would like to take a moment or two on the agenda. I've got the wrong direction, sorry. Here we go. So, first, you will hear from Albert Heuser, BASF in China, a continuing growth story. So this will set the frame for today. And then Mr. Kothrade will take over, and Stephan will basically talk about BASF Specialty Chemicals. And then I would like to introduce to you Mr. Mingwei Qin. Mingwei Qin, he is our General Manager of the BASF Specialty Chemicals site, which is here in the chemical part, and he will also present his operations as well.

So, in another -- I like, then, we have organized a special tour of the [indiscernible] site here and then we are also allowed to view the Specialty Chemicals site, and here meanwhile. We'll tour there and then after we have continued this, we will have lunch where all 3 gentlemen will still be available to take your questions. And then, unfortunately, we have to go home already. So -- but still, I think it will be a very exciting day for you today, and also will be a hands-on day because we will be out there also seeing our [indiscernible] site and then the Specialty Chemicals side and I can already kind of know this will be slightly exciting.

So, and then we -- finally, I have to then alert you, again, to our forward-looking statement. Please take a quick attention, and with this, I would already like to hand over the presentation over to Albert.

Albert Heuser

Yes. Thank you, Maggie. And again, a warm welcome, this time here in Nanjing, and I hope everybody is very well energized, looking here into this classroom kind of seating, which reminds, perhaps, all of us to different times and days. Nonetheless, I guess you all are very much excited to get to know even more compared to what you got to know already yesterday. And you saw, when we left the railway station, Nanjing South, that we somehow circumvented this huge city, which is really one of the very big Tier 1 cities here in China. Used to be several times in the past, in history, even the capital of China. And, really, it is worth a visit. It's a beautiful city, I have to say. And then we passed the river Yangtze. A few of you perhaps got a flavor of the river, but you were wrong because it was only one half, because then actually we passed an island, which was a huge distance, and then we came to pass the second part of the river Yangtze. And you might have realized that you even saw bigger vessels, up to 40,000 tons vessels are able to approach Nanjing and our site. So, from that, it's really a deep-sea harbor. At least, partially, for chemical purposes, you could describe it as deep-sea approachable, and as such, it is in a same situation and condition to being approachable like the SCIP side in Shanghai. Most of the people do not believe this but it's a matter of fact. Also, we are here 400 or 350 kilometers inland. Nonetheless, still these sea vessels are able to approach the site, for instance, this naphtha and some other stuff.

So, this was perhaps only an introduction, and as headline says, today, not anymore talking about the entire region, it's more talking about BASF in China, and in specific, here in Nanjing activities. And as you, for sure know, [indiscernible] China is, after Germany and United States, the third most important and largest market for BASF. So, from that, for sure it's your interest to know more about what's going on here at -- in China.

So, the forward-looking statement we, have read already because Maggie helped us, and therefore, let me introduce what we have -- what I have prepared for my session: trends in the chinese chemical market as we see it; then secondly, the BASF performance in China. And I got already, yesterday, a lot of questions regarding that one, in the bus and then at dinner. So let's see whether we come closer to answer in more detail what you have as questions in your mind, and then we talk about the strategy implementation in China. So, everything, what you have already realized and heard yesterday regarding the strategy, how we want it to go forward to implement those for China.

Let's start to have a little deeper look into how we see China and looking forward to 2020. Again, like we yesterday did, starting with GDP development. And then you'll see here, in comparison, of the entire region that we believe, strongly, that the GDP growth takes over, proportionally, place in China, coming from 33% of the piece of the coke -- if you will, of the cake, here in Asia Pacific, being then, in 2020, more than 40%. And if you ask, on that journey, where were we -- or where were the numbers in 2012, then please realize 35% was achieved in 2012. So it looks like that we are really with the Chinese economy on that journey to achieve these numbers.

That's not a gross matter but it's what we see and expect in China, that it will be looking forward to much more growth which is accompanied with sustainability. We emphasized this already yesterday. But this is very important for us, and it's very important and we took it into consideration to derive our strategy. And next to the topic of sustainability, it is the topic of turning the growth in China, and that is going into the direction to foster the internal consumption. It is to look for higher standards of living and more local value creation. So, as such, for sure, important topics we need to take into consideration for how we act and behave here in China.

Looking then to a second point, and this was elaborated yesterday at the dinner tables as well. What is with China as goals? Where does it take place? I always told you it is not evenly distributed. There is a change, there is a move that grows, not anymore takes place only in the coastal areas. In the meanwhile, mature Chinese or provincial economies, it goes more into the Western direction.

These slides hows you again to, and to give you some reminder of what normally is described as coastal areas. And in the 12th Five Year Plan, the development to -- for the western provinces is clearly described. And there is a lot of emphasis from Chinese government to develop the western part of China. And what is western part of China in that essence? You'll see it now with the blue colors and the provinces which normally are described as the next step to be developed. And these are 12 emerging provinces. And these 12 emerging provinces, you should take into consideration, represent more or less 50% of the population of China, so it's huge and enormous potential in these 12 emerging provinces.

So, talking about going west, just today, I read in the newspaper that Chinese government installed a consultative group to the government, to the highest level. And if I'm not misled then, 12 western CEOs are member of this consultative group, and they should give more input to the Chinese government, what to do and how to do, to achieve what is described in the 12 Years plan to develop the western provinces. From my point of view, it's underlining how important the development of these 12 emerging provinces as valued by Chinese government. And if you look to BASF, then you always hear -- yesterday, it was already a topic that Chongqing is our, let's say, participation in the go-west. And, later, I come to this in a little bit more detail, but you'll see Chongqing here, nicely on this map, as one of the provinces direct controlled by Beijing. In fact, it's a kind of city. We come later to it in a bit of more detail, but what I would like to emphasize on this map, from Chongqing, that is a starting point for a railway silk road going to Urumqi in Zhejiang province and from here to the west to Duisburg and Rotterdam.

Railway connection. And don't underestimate what's going on there. It's really working, meanwhile. And for instance, Ford established a manufacturing site here in Chongqing and parts are, meanwhile, distributed between Ford in Europe and Chongqing site. Hewlett Packard manufactures a lot of printers in Chongqing. If I'm not misled, it's a huge number of several digit millions of printers, and they use this kind of silk road, train silk road, rail silk road to bring their products to Europe. So, you see it's somehow remarkable, what's going on. And if you take, for instance, Fujian as an other to-be-developed province, 20% of world's shoe production, meanwhile, in Fujian province. Fujian province, in addition, is very well reputed here in China for fiber and textile industry. So a lot of polyester and polyamide fiber is produced in that province. So a lot of things are already installed in these provinces. And if you take Anhui province, then Anhui province, for instance, very well established, meanwhile, for refrigerators, air conditioners and other stuff. So I think this is very remarkably and we should take this into consideration.

Greater China, you saw this nice cake. This is split for GDP. But looking here, to the chemical production, you'll remember GDP, I had a number saying it will be more than 40%, 42% participation in the overall GDP of Asia Pacific. Now, talking about chemical production and you see it's even more, it's even more important. The importance of China visible here. 64%, in 2020, chemical production in Greater China. And from that this means the importance of China will even increase compared to how we see, today, the importance of China for the chemical production in this entire region. And for sure, it gives enormous potential, not only for us but for sure, for those who have a similar image for the future or into the future to go to China as well. We talked about competition yesterday, but it's not only we seeing opportunities. It's clear to others as well. And therefore, multinational companies, like local entrepreneurial companies, look for their future success in China, and they have, for sure meanwhile a heavy competition in different fields.

Looking into, for us, as BASF strategic elements markets in Greater China, we had a similar picture yesterday for the entire region. Then you'll see here that there is a growth to be expected, of 7%, as in compacted average growth rate from 2010 to 2020, in key industries which are key customer industries to BASF, like chemicals and plastics, consumer goods, construction, health and nutrition, transportation. So we are well-placed because these industries overproportionately grow, and 7%, that is our expectation. And from that, it will reach a total size of EUR 155 billion as a potential for our strategic relevant markets.

Looking into how we are positioned as BASF here in China, and this is a picture of chemical producers in Mainland China, then we have Sinopec, PetroChina, 2 oil majors. And for sure, in the sales numbers of those, there is the one or the other sales counted which is very close to refinery products. Nonetheless, they have chemical arms, and you'll see they are strong players. And then we are #4 in that ranking in front of Formosa Plastics, Dow, Bayer and others who are engaged heavily here in China.

This leads me to the second point of the agenda, and that is BASF business performance in China. So the hot topic of a lot of discussions yesterday, and you might have even more questions later when we come to the Q&A.

We, as BASF, we have a network in China. You saw yesterday Shanghai. What you saw was only one site in Shanghai. In fact, we have 6 sites in Shanghai. There was one question regarding Chongqing, how important Chongqing in the Shanghai Chemical Industrial Park, SCIP is for us, and I mentioned it is very important and it gets more important to the future. Then we have a Coatings Production side, we have a catalyst production and technical development center for catalysts in Shanghai, and we have Construction Chemicals, so we have, in total, 6 sites in Shanghai. You saw the major one today, we are here in Nanjing. And you know the regional headquarters we have in Hong Kong.

But now let's have a look what else we have here in China. And as you'll see out of that map, we have a fair distribution over the entire country, not only in coastal areas. It is far beyond, meanwhile, in specific, into these Western emerging provinces. In total, we have 32 sales offices and 32 production sites, and we have 21 major wholly-owned companies. What you see here on the map are only the major sites because otherwise, it would not be a readable map. And we have more than 1,000 people in sales distributed over the country. So, as a takeaway message, we are not a company only being settled in Nanjing, in Shanghai. We are much more distributed closer to our customers within China.

And looking forward, talking about customers, and we did yesterday. So let's do today as well. Then here you see only a few of our important customers here in China. And they are, not only, the typical suspects of Western customers whose growth we accompanied over the years. There are a lot of Chinese and Asian customers, if you go around here whose growth we accompanied already since long. Take for instance Haier. Haier was formed starting with a joint venture with Liebherr, and that is part still of the name, Haier, because it was, for the Chinese, leap higher. So they made Haier. Today, it's a 100% Chinese company, not anymore in a joint venture. It's the world's largest white goods producer. Everything, what is related to dishwashers, refrigerators, everything like that, air conditioners, that is Haier. A company with sales roundabout of EUR 18 billion. Meanwhile, busy globally, not anymore only China. We do business with Haier, already, since more than 20 years, 25 years or so. And it all started very small. It started with EPS, so fully styrene foam selling to them as a packaging material. And meanwhile, it is a customer of a size of close to EUR 100 million for us, and we do, meanwhile, joint development having in their laboratories researchers working. So we understand very well what are the challenges and what are the targets of Haier because we have people very close working together with them.

And take another example, BYD [ph] -- not BYD [ph]. Sorry, take Delta [ph] because you might not know Delta [ph] so much. This is a Taiwanese company, where we started, 15 years ago, to sell a bit of metal powder because they started the production to produce switches, and those switches made them a big company. Meanwhile, they are busy in visual displays, industrial automation, network productions, and they generated sales of EUR 4.5 billion. And from debt, it's a company where we do a lot of development, meanwhile, where we sell not only such metal powder. We sell a lot of engineering plastics, and we start joint development with them as well. And so I could go through that circle and tell you much more stories.

But let's come to an other important information, and that is how we developed our Chinese business in sales and profitability. And you'll see it on that slide, that sales went up starting 2004, here on that slide, with less than EUR 2 billion. Meanwhile in 2012, achieving a number which was close to EUR 7 billion. We had yesterday, already, the topic that we have to restate our sales numbers, and you'll see that with IFRS regulations, our reporting is now if now of 2012 starting with little bit above EUR 5 billion in sales. But I think it's a very fascinating development. Somehow, we tripled sales over the last 8 years, and at the same time, EBITDA was 8x. I think this is very remarkably, and there were a lot of questions yesterday, how profitable is our growth, and I think this is part of an answer.

Looking to BASF in China, it's not only looking to steal Ireland business. It is looking to what is our contribution to people, what is our contribution to the society. And we are a well-recognized corporate citizen in China. We got and get a lot of awards like, for instance, China Green Company Top 100. We are a top employer, not only in 2013, but we got this award in several years. And you'll see and can read by yourself, when there are interesting awards under these. And from that, truly, we feel, in China, at home. And we are seen, for sure, as a multinational company. But nonetheless, everybody has an idea that BASF is a good citizen and well behaving here in China. That's important for our attractiveness looking forward to get the right people on board.

Let me come to the next topic on the agenda. So the strategy implementation in China. And here again, we have 2 figures. Where are we today? You saw the restated sales number, EUR 5.1 billion, the restated sales in 2012. And as mentioned already yesterday for the entire region, for sure, as China is 1/2 of the region we want to go grow, we want to go faster than the chemical market as such, and we want to achieve, coming from EUR 5.1 billion, EUR 12 billion in sales in 2020. So, that means we need to capture all the market opportunities. We will accompany the growth of our customers. I told you the story of Haier. I could tell you stories of, for instance, OEMs in the automotive industry, who meanwhile, Chinese OEMs going to South America and we accompany them because we are in South America obviously. So we are good suppliers to them because we can sell the same stuff we sell to them here, for instance, in Coatings or in automotive catalyst or in engineering plastics, not only are in China but accompany them in their new assembly lines in Brazil, which are just under construction from several of the Chinese OEMs.

Then we will develop our business in emerging provinces. I showed how important that is. And for sure, we will increase the operational efficiency. That will be elaborated in more detail by Stephan and by Mingwei Qin. So, from that, there are clear few homeworks to do to achieve this very ambitious target. But let me start looking into the business opportunities by our industry teams. It was a topic yesterday already, topic yesterday for the entire region. But please take away, it's not only a topic for a few people sitting in Hong Kong, it is a hot topic for the entire organization here in China. And these are the industry teams we have established here in China, where we look deeply into and where we divide this industry kind approach, learn as an overall company a lot about issues and needs and development of those industries and then tackle these industries by providing good solutions to them.

And let me take out the automotive as one example because it's a nice example, but I could tell the same story for the other industry teams as well, that we formed teams where there is all the industry-specific know-how pooled, and that is very well established here in China, not only in other places of the region. Why is automotive so important here in China to be ahead of others to tackle these industry with a holistic approach? That is due to the fact that China is the hot place for the automotive industry, the very hot place. Already in 2012 or in '11, there was, out of the global production of 77 million cars, 17 million cars coming out of China, produced in China. And look to the other regions: North America, smaller; Europe, it's here being up a little bit because it's Europe, Middle East and Africa production. In fact, if you take only EU, then China production was higher, which is 17 million. Looking forward, it will nearly double in 2020. That is not only our expectation. It is the expectation from others as well.

Automotive industry, China. I'll give you one example. The use of plastic material in the cars, China and Europe. In Europe, it's double the use of plastic materials in car -- in cars compared to China, which means huge potential. It is not only the number of cars, it is the potential to replace metallic solutions, steel and other materials by engineering plastics. So it's a huge potential for us looking forward. The same with auto catalysts. The auto catalysts built in the Chinese cars are still not yet the same -- of the same standard we have in North America and Europe, but we are prepared and prepared when government and authorities take the next step that it is necessary to come to higher standards like Euro IV and Euro V, and this is not only for passenger cars but for the trucks. And we have all the solutions at hand.

Automotive industry in China, what does it really mean? You'll see here, China has a lot of production facilities. You can cluster them in different regions. You'll see the number of plants and the production numbers of cars. And from that, you'd see, around Nanjing again, there is a huge cluster already existing. It will be broadened, it will be increased. And again, all this is nicely steered to help the 12th Five Year Plan to fulfill, looking for the development of the emerging provinces.

How do we tackle these clusters of the automotive industry? We always talk about, we are close to our customers. And I think this is a nice example that we are really close to our customers. We have, for instance, for coating system supply in Chongqing, which is meanwhile the biggest Volkswagen production facility on this globe, bigger than the Wolfsburg production facilities. There, we have embedded in the production, BASF people working. They have the blue color with BASF, the chemical company, working in the assembly line, 40 people. I think in Changchun, it's even a bit more, working to do the coating of the [indiscernible].

So, and the same, we have, for instance in Guangzhou, coat -- sorry. We have it in Guangzhou as well, close to Hong Kong. That is not Volkswagen. That is, for instance, in that case, Honda. We have it at other places as well in Nanjing. And you'll see -- you can go forth. For sure, we are a heavyweight in the automotive cluster in Shanghai, with engineering plastics, with coolants, polyurethanes, system house [ph], automotive catalysts. And I talked yesterday already, that in the south, we want to bring it to a strength we have in Shanghai, meanwhile as well. So not only have this kind of coating system supply but polyurethane and auto and catalysts as well. And we use it to have much more partnerships in a sense of R&D, working together with those automotive customers.

One information which is on the next slide. This information is somehow known to you out of an automotive day, which was held last year.

Nonetheless, I found it worthwhile to break it down to China and how we see our participation in the global growth targets of what we want to achieve in this automotive industry.

And there or as a reminder, you remember that BASF strives to generate EUR 17 billion in sales with automotive industry in 2020. And you can expect that we will outperform the underlying growth rate in China because it has to. Otherwise, we could not accompany this huge and enormous development of automotive industry overall because it will take place, the growth of automotive, only in China. Don't expect too much of development in the next years to come in the automotive industry in Europe or North America.

We have mentioned -- I have mentioned several times of the growth in China. Yesterday at dinner, you asked me, is it still growing? Yes, it is still growing. I can confirm, and we grow as well. Even just last month and the month before, we talked yesterday. Did we fulfill that we grow just right now 2 percentage points above average? We said we are lagging a little bit behind. Nonetheless, a lot of growth opportunities.

And this picture shows you, overall, growth rate in the last years, in Greater China was 10%. And then we look to the emerging provinces, then you'll see the orange line, the compacted average growth rate even higher, a big double-digit number. And that is due to the fact that we really focus, since a couple of years already, on these emerging provinces.

Let me therefore come again to Chongqing. Chongqing, as a kind of province, approximately 30 million people living but it's surrounded by, in total, 300 million consumers. From that, it's a hotspot and we feel rightfully placed because a lot of industries are developed there. Meanwhile, I talked about automotive, electronics and computers, et cetera.

And here again, 2 numbers. Over the last 5 years, Chongqing GDP developed from EUR 100 billion to EUR 185 billion in 5 years. So you'll see it's really a hotspot. And therefore, we feel very well placed with our investment.

Talking about the investment, here you have an updated picture, how it looks like. So it's reality and perhaps maybe once we have such kind of meeting in Chongqing and not in Nanjing, and that would be beautiful because you would be surprised how Chongqing looks like. It's an enormous city. You saw the picture before. Everybody in China is very proud of Chongqing in that essence that it looks like Manhattan. And somehow when you are there, you understand what they talk about. It really looks like and they do a lot of steps to make it a very livable city.

Magdalena Moll

[indiscernible]

Albert Heuser

Good. So Chongqing, as a memory, EUR 850 million BASF investment, a lot of investment of other suppliers surrounding us. And we talked about that yesterday. And other example of going west into emerging provinces, this is province of Xinjiang, where we have a partner, Markor, where we use their stake in natural gas.

And only as a reminder, this is the largest province, Chinese province. It's very much to the west. If you fly from Beijing to Urumqi, it takes you 4 hours only to the west, so you are 1/2, more or less, to Europe already, only as a reminder. You have huge deserts. Taklamakan Desert has the size of Germany, and close to that, we built, together with our partner, Markor, an industrial complex.

They have already production here and this production is, from my point of view, what they have built and established world-class. That we have to admit, they understand how to build and how to run a chemical plant as well, which tells you there are competitors coming up, where we really have to move ourselves because, like always, competition has 2 sides. And we take the side that we feel the heat and that we will improve ourselves.

We team up with this partner for corporation to produce, then in a couple of years THF and PTHF and BDO, so a whole value chain for products going into the textile industry known as spandex fiber, for instance. And from that, we are very happy that we found an agreement with this partner, which is a private entrepreneur, not a state-owned company, a private entrepreneur, where I can tell, perhaps later, a little bit more about.

We talked about EUR 10 billion being invested until 2020 in the entire region. Here, you have the breakdown to China. We will not break down further for each and every other country. But our idea is to, more or less, invest 1/2 of the entire investment in the region. In China, we have a lot of ongoing projects where we do, just right now, investments. And I showed you 2 examples, and you see it's distributed all over the place where we do investment, and it is distributed all over the activities of BASF.

Looking again to the slide I showed before how to move from EUR 5 billion to EUR 12 billion in sales in China. For sure, there is a lot of goals from these upcoming and announced projects. This is kind of business as usual and accompanying the growth. The growth from projects under consideration, those we can't talk about today, because it's still can't under consideration, and we do not know whether everything might be materialized. That is indicated here as well. And then we have new business, what we discussed yesterday, and this will lead us to the EUR 12 billion and we feel comfortable to achieve that.

This brings me to my summary slide and perhaps to the key messages and your takeaways. So we have a lot of production for the local Chinese market. We see this market very encouraging, evolving in specific in the western part of China and the emerging provinces. We will, and have already, our answers to accompany all these opportunities by being close to our customers. And we have a strong local organization in sales and marketing here in China.

I talked about 1,000 people only in sales and not only sitting in Shanghai. They are distributed over the country. We have powerful assets in place we will hear more about, and we have good partnerships in both, on the customer side and in production. And from that, accompanied with the development to more sustainability in all the need for this society in China, we are very well prepared. We feel well established to be the right company, to be successful in this market because we have a competitive edge. And therefore, it's a challenging target to achieve the EUR 12 billion, but we see this as an opportunity we can really take.

And from that, that's what I had as a message to China. And now I'm very happy to take your questions.

Question-and-Answer Session

Magdalena Moll

[indiscernible] and we're now moving in Q&A. We have about 15 minutes so I hope you bear with me. That would be 1 question per person. And I saw Andreas Heine first, and then I saw Tim Jones and then I saw James Knight and then I saw Bill Cross, so we'll take those 4 first. Andreas?

Andreas Heine - Barclays Capital, Research Division

One question regarding the last slide on the sales and earnings. Looking on the growth you predict for Asia and China, both from 2010 to 2020, if I take the 2012 number and calculate from 2012 to 2020, then the...

Magdalena Moll

[indiscernible]

Andreas Heine - Barclays Capital, Research Division

Sorry. If I calculate the numbers from 2012 to 2020 from the market, then the Asian growth is 5% and the Chinese growth is 6%. If I compare this with the growth target of BASF in the region, then it is substantially higher than the 2% above market growth, so 9% and 11%. Looking on what you said for this year, where you have difficulties to keep up this growth, so what makes you confident that you can change this when we have seen this last year on to growth? And could you elaborate a little bit what you call as consistent increase in profits compared to the sales increase?

Albert Heuser

Yes. If you come back to these numbers only to set that one number in a different light, 7% we see as the growth of our strategic relevant markets. So for sure, we deduct, first looking to GDP growth and then looking to the chemical markets and then we'll have a look to the strategic development markets, those for us being of interest. We do not look really into growth of polyethylene, polypropylene or whatever. So 7%, that is our starting point. And then we say we want to outperform this growth opportunity by 2%. And that is somehow then perhaps 9%, you would say. It's still not the 11%. But as I mentioned, we see a lot of potential in specific automotive industry. Take that as an example that we are able to outperform, and we see the potential with our industry team approach to come to new businesses on top, and that was indicated in that slide where you saw the 3 breakdown, so to say: The organic parts with all the investment, which is already under execution and being announced; then the ones which is under consideration; and then the final part is that we need, for sure, to define additional business opportunities. And then we come to the 11%. Second part of your question was, that we told you yesterday already, that we are behind looking to the current numbers, looking to 2011 second half and now the first months of 2012. But you saw how volatile the development used to be over the last years. Looking into different products, then we have a shortage in the one or the other product. And from that, we are very confident these new capacities being onstream soon, that we will demonstrate that we come back to the planned growth path.

Magdalena Moll

Our next question now comes from James Knight, Table #10 -- 13.

James Knight - Exane BNP Paribas, Research Division

The growth targets have been described as challenging and ambitious, I think ambitious. Could you give us an idea of how you and your senior management are remunerated, not details but whether organic growth is an integral part of that and whether the targets match short term, medium, long term versus those externally communicated to targets?

Albert Heuser

It's a good question. Yes, we have such kind of remuneration aspects in place. So there -- when it comes to, for instance, the bonus estimation, then it is part to look to fulfill our growth aspiration. Therefore, we told you yesterday that we have made a very detailed kind of strategy in a bottom-up process, which means we have good numbers for each and every business. So we have it for the local operating managers of the business units acting here in China on a very detailed level, what we expect in the forthcoming years, what sales and earnings they should achieve. So from that, the incentives are clearly in place, that it is focused on growth and profitability. So it's not only one KPI, it is, for sure, the profitability which is associated.

Magdalena Moll

Next question is from Tim Jones, same row at the end.

Timothy Jones - Deutsche Bank AG, Research Division

Forgive me for my pronunciation, but is it Xinjiang, the investment in land that you're doing with Markor?

Albert Heuser

Xinjiang.

Timothy Jones - Deutsche Bank AG, Research Division

Close.

Albert Heuser

The place is Korla. The city is Korla.

Timothy Jones - Deutsche Bank AG, Research Division

That's probably easier. But you talked yesterday a lot about you look for preferential raw materials and you trade back against your technology. So I can sort of understand that with Chongqing and MDI, but I'm a bit more confused about what you're offering in technology for BDO, PolyTHF and things like that. And you yourself said they've already got an established chemical platform so along with that question but what is BASF bringing to that platform vis-à-vis technology?

Albert Heuser

We bring the technology for PolyTHF that is not known to Markor. They have already running a BDO acetylene, BDO and THF complex. And what we built is in the first part, we built new capacities jointly. And then the final stages where we bring PolyTHF is our technology to them, and that is perhaps the trigger.

Timothy Jones - Deutsche Bank AG, Research Division

But you're not the only producer of PolyTHF, not the technology. So I mean I understand Verbund and engineering and things like that, but I'm still struggling with what do you offer that another company doesn't offer? Is it the view, longer-term, that there are further downstream specialty chains you could further develop or is it just a cost issue?

Albert Heuser

It is, first of all, you are right. There are other PolyTHF producers. They do not license their technology like we don't do. We do not license this technology. Therefore, they had -- Markor had either to develop themselves or find a partner. We partner now up with them. So that is the number one step. Number second step, if you go there, then you understand much more is feasible. It could be a starting point even for doing more, not talking about the BDO downstream value chains but other value chains as well. And therefore, I mentioned it's a very well-established production already. They have built in a Phase 1 and in a Phase 2. Now, together with us, they come into a Phase 3 and they have already ideas for Phase 4. And honestly, for sure, we will look into potential to team up even more deeply in that Phase 4.

Magdalena Moll

Next question is from Bill Cross. Table #7.

William Cross

[Indiscernible] I have a question, but first is perhaps a correction of a typo on Slide 22, which if we look at it, it would suggest that your expectations for automotive chemical sales in China are both well under your 11% targets, more generally, for the country and also less than your global chemical sales. The picture suggests this is not correct but the number suggests that there's a -- is that a typo?

Magdalena Moll

No.

William Cross

So if it's not a typo, why would you, in this important local growth market, be growing slower in automotive chemical sales in China than you would in your automotive chemical sales globally and in your sales...

Albert Heuser

This is the global picture. This is a global picture. It's not the China picture. Therefore, I mentioned you know this already, because it was used in June for the Investor Day. Not in June. It was when?

Magdalena Moll

In September.

Albert Heuser

September, the Investor Day dedicated to our automotive business. So this is a well-known picture. And I said we will contribute to this target of EUR 17 billion, because the overall growth takes place in China. Therefore, overproportionately in China, we contribute to fill that jump from EUR 9.5 billion to the EUR 17 billion. It's a global picture.

William Cross

Okay. You're not saying that the Chinese growth in automotive chemical sales is at 6.7%, compounded?

Albert Heuser

No. What it indicates -- the yellow color indicates BASF automotive chemical sales in China, it is somehow a smaller amount today and it will be a much bigger proportion.

William Cross

But you're not telling us at what rate?

Albert Heuser

Yes.

William Cross

Okay, thank you. And then also another slide-related question. Slide 12. You observed that the profit growth has been more rapid than the sales growth for the 9-year or 8-year period. But looking over the last couple of years, it would appear that the profits have plateaued. So can you give us a sense of the margin outlook? You've talked a lot about the sales outlook. But what is the margin outlook? And to the extent that you expect margins to expand, how do you intend to do that?

Albert Heuser

Yes. As, I think, this goes a longer point, which was already discussed yesterday. Yes, we see more competition. Therefore, there is a certain pressure. But nonetheless, with our development growing more downstream, going more to establish ourselves as a solution provider, we see that, overall, the margin looking forward, we can, at least, keep or improve. And for that, we need the one or the other investment. Therefore, investment in specific for downstream's are important, but also downstream development we do here in China need somehow, the well-established raw material supply from the upstreams. And therefore, here in China, what you'll see and what we do is to invest not only in the downstreams but doing in the upstreams as well. And later we have a good example. Mingwei Qin will talk about one plant, which we will, in today, which is then using raw materials from [indiscernible] So without these raw materials, it would have been hard to come to a project and to an investment under 100% BASF for downstreams. So that is how it is working and how it is connected.

Magdalena Moll

So the next question is coming from Paul Walsh. Please stick to one question because otherwise, we won't get [indiscernible].

Paul Richard Walsh - Morgan Stanley, Research Division

Yes, sure. No problem. Paul Walsh from Morgan Stanley. Mine was something, an observation as well, related to that chart. I understand that the competition is increasing, that Chinese EBITDA has been somewhat stable. But the charts you showed yesterday showed Asia Pacific suffering a EUR 300 million decline in EBITDA. So it doesn't look like it's China that's responsible for the absolute decline. So can you just talk a bit about which markets have actually faced the bigger drops in profitability? It's actually within Asia, this looks like a relatively good new story.

Albert Heuser

So that means you are positively surprised to see this because yesterday, you take the -- okay, all clear. So obviously, what we discussed yesterday in other markets, in Asia Pacific, where we do not have, to the full extent, an all manufacturing within the market, there we suffer a bit, that we do a good business. But the earnings and the profitability is shown elsewhere. As we have, meanwhile, with more or less EUR 6 billion in investments done in over the last 20 years, we have already an established footprint of own production, own manufacturing here in China. We do not suffer the same, like perhaps other parts of the entire region.

Paul Richard Walsh - Morgan Stanley, Research Division

[indiscernible] Japan?

Albert Heuser

Sure, it is Japan, then you have this extra burden of currency effects. It is partly India, where we import a lot of materials, where, by the way, the growth rates are not terrific just right now. So sure. It's in those markets.

Magdalena Moll

Going on, the next question comes from Jeremy Redenius.

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

Looking back in that chart that Bill pointed on Page 22, I'm just doing some rough eyeballing, very sophisticated analysis. I get to about 20% growth rate in that yellow area. Oh that...

Magdalena Moll

Honestly, this wasn't really [indiscernible] I painted it yellow. That was me.

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

It's a big number. The fundamental question is where does that growth come from? Is it -- maybe you can dimensionalize it. Does it come from multinationals producing in China or more from Chinese producers? What does that mix look like? And how much of that are you assuming about auto production growth versus material substitution where there's more chemical you're sitting on?

Albert Heuser

I indicated that we expect a lot of new chemical solutions in the Chinese automotive market. I made this comparison 6% to 8% of the cars is plastic materials in China. For European car, it's double. It tells you what enormous potential exists in this market only by replacing the existing volumes of automotive production. And then on top, you have this dramatic increase in car production, more or less, coming from the 17 million to the 30 million cars. And this is the second part of your question, what is our expectation? Will it be a different kind of split between Western brands and perhaps, here, the local brands? We expect that the Chinese automotive market, the Chinese OEMs that we see much less in future but much bigger ones because, today, you have more than 80 Chinese local OEM brands. There is a clear tendency supported by government to have less, much less, to create perhaps the one or the other global brand over time. And we, for sure, tried to identify the future with us of the Chinese OEMs and work closely together with them.

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

Can you give us a sense of where you're starting from now? Are you 90/10 multinational versus Chinese producers or is it closer to 50-50 or...

Albert Heuser

Hard to say. This is too much of captioning, I would say. Let's question perhaps more to an automotive expert from Volkswagen or whomever or a consultant group. But there will be a clear tendency that the cake of the Chinese OEMs will be much broader in 2020 than it is today.

Magdalena Moll

The next question comes from Lutz Grueten.

Lutz Grueten - Commerzbank AG, Research Division

Lutz Grueten, Commerzbank. A follow-up on Page 12 again. The EBITDA margin, which was not marginally growth rate which was indexed here, is this based on the EBITDA number. As you see them here in your local reporting or are they adjusted for imports and the lower trading margins related to that? First part of the question. And then on Page 15, you gave the growth rates for sales, and now you're saying EBITDA margins should be stable, at least, saying that the CAGR for that EBITDA then should be at least 11%, yes?

Albert Heuser

So coming to the first part, so it's local company EBITDA plus the margin which is coming than elsewhere on top.

Lutz Grueten - Commerzbank AG, Research Division

Adjusted for that margin, in part.

Albert Heuser

It's, in that sense, if you will, adjusted, right? Yes. So second part of your question?

Lutz Grueten - Commerzbank AG, Research Division

Are you saying the margin should be at least stable? It means that the CAGR you're looking for 2012, 2020 EBITDA should be then at least 11% as well as top line full cost?

Albert Heuser

You asked for what year?

Lutz Grueten - Commerzbank AG, Research Division

EBITDA CAGR.

Albert Heuser

For what year?

Lutz Grueten - Commerzbank AG, Research Division

2012 to '20.

Albert Heuser

Okay. So for sure, as mentioned yesterday, we want to and have to contribute to the overall group's target, and that is what we have announced. And as we do anyhow our investment decisions based on what is the profitability. And you learned yesterday, we have more project ideas on global scale than money, then it's very clear that we have to deliver profitability and earning -- earnings in the sense of EBIT and EBITDA, which is competing to other regions. In other words, it has to be on, more or less, the same level.

Magdalena Moll

So we have 3 more questions. [indiscernible]

Albert Heuser

[indiscernible] that's all the time?

Magdalena Moll

Yes, but we don't have time anymore. I'm very sorry. Shadeep?

Unknown Analyst

Yes. Can you give us a feeling in your current setup, excluding the CapEx projects, what is the potential for you to grow the EUR 5 billion sales too? So if you exclude all the investments that you're talking about. In the current setup, what can that EUR 5 billion be in the next 5 years? Until 2020?

Albert Heuser

And what's your assumption by importing more material or by sweating the assets and...

Unknown Analyst

I just want to know what is your target is like [indiscernible]

Albert Heuser

Okay, okay. So for sure, this is now that I do not have one single number. You have to look into each and every detail. As I said yesterday, and you'll hear more about by Stephan, petrochemical industry, just right now, in China looks different than, for instance, everything what goes into automotive industry. Automotive industry for us a bigger double-digit number. Therefore, somebody derived a number. It is more -- it's not the 10%. It's more how we grow with that industry. When we look in petrochemical, for sure, it's different picture. Sinopec, PetroChina not earning money in the first quarter, we still have petrochemicals. So that is a proxy for the market. Then you look in BASF's Nutrition & Health business. We are on a very good track just right now in China. So you have really to go business by business. If you look to Construction Chemicals, it looks a bit different as well as we decided to switch over to more high sophisticated products and that has a few consequences. Let me give up the one or the other product and by this reduce, perhaps even sales for a certain period of time. So therefore, I don't -- can't give you one single number.

Magdalena Moll

So I'm really sorry to do this but we are so late in time that we have to stop the Q&A now. We will be able to do more maybe on the bus later. And I would like to thank Albert. And now ask Stephan to continue with BASF YPC. Thank you.

Stephan Kothrade

So ladies and gentlemen, let's have now a closer view at our Nanjing Verbund site and BASF-YPC. I'm really proud of what we are doing here. And I believe that this Verbund site truly is a jewel in the crown of BASF in Asia Pacific. Now I'm sure that Maggie tells you very often that Verbund is in our DNA. And I hope that today you can get a feel when we have a look later at our site what that does mean to us. And now in the next 20 minutes, I would like to show you how we create competitive advantages with our Verbund that's what it's all about.

Now first, I want to start out by showing you how we established this growth scale Verbund site at the right place and with the right partner. The second part will be elaborating on the business performance. What differentiates BASF-YPC from all the others? So what is our success formula? That's what I'm going to tell you in the third section. And last but not least, we would also like to share some of our expansion plans with you.

So let's get started with a question. Why is this Verbund site located here in Nanjing, the capital city of Jiangsu Province and not elsewhere?

Why is this here the right place for a Verbund site? Marked in blue on this slide, you see Jiangsu province right in the heart of the big Yangtze River delta industry cluster. Jiangsu is an ideal location for a Verbund site. It's an industrial powerhouse, with a population equaling Germany. With a highly developed infrastructure and manufacturing accounting for more than 50% of GDP, Jiangsu province economy ranks among the top 3 in China. And when it comes to foreign direct investment and per capita income, it's #1 in the country.

Now to put these figures into perspective, the GDP of Jiangsu equals that of the Netherlands or Indonesia, and if Jiangsu were a country in the European Union, it would rank #6.

So let's zoom in on Nanjing.

Nanjing has 8 million residents, and it's one of the most important production bases in China and that's important to us, close to our customers. Albert mentioned already that Nanjing has a harbor for seagoing vessels. Actually, it's the #1 harbor in inland China. Nanjing also hosts the second-largest chemical cluster in China, with 400 companies equaling in size, the entire Belgian chemical industry. I think that's really amazing.

The most important players, BASF-YPC, BASF, Celanese air products, Wacker and of course, Sinopec, are located to the north of the city here in the Nanjing Chemical Industry Park. And here in this chemical park, we enjoy substantial cost advantages through direct access to pipelines for naphtha and natural gas, our main raw materials, a close integration with our customers and partners, waterborne transportation with logistic cost advantages, and last but not least, on top of that, we enjoy lower labor costs than in cities like Shanghai or Nanjing.

Well, certainly, there are also other good locations for chemical production in China. If you ask me, you cannot find a better place than Nanjing. And that's the reason why we are very happy to be here and to have this fantastic site with our partner, Sinopec.

Just to give you a feel for the dimensions. So the Nanjing site, as you will see today, is already the third largest Verbund side BASF has worldwide, covering 340 soccer fields. While this is, roughly, 1/2 of our Antwerp size and a 1/4 of Ludwigshafen, and this shows our commitment to China, we built this 11, 10 years in Ludwigshafen. It duplicates in Antwerp as well.

BASF-YPC is a 50-50 joint venture, employing 2,000 people and up to now, we jointly invested USD 4.5 billion equaling EUR 3.5 billion. The total production capacity is around 3 million metric tons that are coming out of our naphtha steam cracker in 16 plant clusters. Commercial startup was in 2005 and already 6 years later, the first downstream plants, as a result of our first expansion wave, came on stream.

Important to mention is that the President's position, which is relevant for the operational decisions in the joint venture, is always held by BASF, whilst the Chairman of the Board is a Sinopec representative.

So how did we design our Verbund and what was the rationale behind? Of course, we had a strategy when we came here. And this value chain depicts and shows you the stepwise development of our site. Firstly, we laid the Petrochemical foundation, investing upstream into a naphtha-based steam cracker and the main products, ethylene and propylene, you know all that, were the basis for the C2 and C3 value chain. And in addition to that, we also had, from the very beginning, a C1 complex based on natural gas. This was the basis for further downstream expansion to cater then to the most attractive growth markets. And the second wave here, marked in blue, came along with an expansion of the steam cracker, and we also added a C4 value chain.

Now let me, here, on this slide, demonstrate to you how Verbund works. We have here one molecule, we call it DMA 3. DMA 3 is a special key monomer that will play an important role in my presentation later. So please, remember it.

In order to have a complete backward integration into DMA 3, you need 3 value chains. You need building blocks from C1, C2 and C3. And you need it at one site. We have that. Nobody else in China and the region can have the benefit from the cost advantages of a complete backward integration. And the same logic, of course, applies to other products we manufacture here.

Now currently, we are continuing to go downstream. We are supporting the growth of our acrylics business. And I will tell you more about these projects at the end of my presentation.

With all due modesty, I believe that with the establishment of such a huge integrated site, on schedule, on budget, and with a successful startup of all of the plants without major hiccups, we really differentiate from many other producers in China.

So let me show the capital expenditures of both partners over time. I mentioned already the EUR 3.5 billion, USD 4.5 billion. Here you can see the first investment wave, the Petrochemical foundation, and then the second wave, the downstream investment and the related figures. And of course, this will continue and during the cycle, you will see a lot of construction going on, demonstrating what we are doing for growth here in Nanjing.

Let's come to business performance. What comes out of these investments?

This is a 5-year view of sales and EBITDA at BASF-YPC. 2 things may catch your attention, with respect to our sales displayed here as bars. Firstly, the dip in 2008 and 2009 was probably less pronounced than some of you expected. This clearly demonstrates our competitiveness, if you try our Verbund. We could sell our material when others had to stop producing. And secondly, there was quite a jump in sales in 2011. This is, of course, due to the downstream expansion I mentioned. And in 2012, our sales achieved almost EUR 3 billion.

Now looking at EBITDA, the orange line, we can say that even in difficult times, in difficult years, we earned good money. And I can say this because we can benchmark ourselves against Sinopec, for example, Albert mentioned it as well. Sinopec calls us very often the, by far, most profitable joint venture and a benchmark in terms of profitability. So BASF-YPC is a pearl for its parent companies, and an excellent performance in 2010 and 2011 underlined this.

You may ask why the EBITDA dipped in 2012. Well, 2012 was, especially for Petrochemicals, a very tough year. The growth in demand slowed down. At the same time, new capacities came on stream. So the prices were under pressure. And at the same time, the naphtha cost stayed high. So what we saw is a pronounced margin squeeze.

And while we certainly cannot influence the macroeconomic development, what we are doing here is our homework in terms of optimization. We are continuously improving our operations and our cost structure. And therefore, I would like to address now the topic of operational excellence.

This slide shows you how we, in a positive way, squeeze out as much as we can from our assets by continuously optimizing. Now we have a local team, and we are driving performance in production, logistics, maintenance, all the other site services. It's especially the role of the BASF delegates to transfer the knowledge and methodologies we apply in long-established Verbund sites like Antwerp or Ludwigshafen, also here in our local team. And with a plethora of measures, which I cannot mention now, just let me give you 2 examples, we will achieve a solid double-digit bottom line annual contribution, annually from the mid of the decade in the EUR 1 million, of course. So the examples, is a reduction of energy consumption by 5% and a reduction of raw material consumption by 0.5%. All this adds up to such a significant contribution. And that is very important, when we are done, we will restart again. This is not a one-time project. It's a continuous process. And I believe this is distinguishing BASF from others because we do this even at new sites and in joint ventures.

So let's talk about success factors. What differentiates us from many others in a market that is attractive but getting more competitive?

Firstly, the success of this joint venture is based on a grown partnership between BASF and Sinopec. For example, we can benefit from a broad range of local synergies. When we started up this site in 2005, we did not have to recruit from the labor market. We got experienced operators, engineers, technicians from Sinopec, and could ensure a smooth startup of the entire site. This was the priceless advantage. We see our infrastructure wherever we can, like for example, a wastewater treatment plant. We get naphtha from Sinopec at very competitive conditions. And we can rely on Sinopec experts' advice and support when it comes to increasingly complex permitting procedures in China.

Now what does BASF bring to the table? We have, of course, our technological expertise. We have our Verbund approach and the continuous optimization of operational excellence, we know how to do this. But even reaching beyond the joint venture, the grown partnership is helpful to establish BASF's wholly owned specialty side speak. There are synergies between our joint venture and the wholly owned BASF site. So let's have a closer look at our collaboration and the synergies.

Just a stone throw away from here, you will see it later, BASF specialties, Nanjing, BASNJ as we call it, produces specialty chemicals. And my friend, Qin Mingwei, will give you later, an introduction of his activities.

Now on Slide 7, I mentioned this molecule DMA 3, and I've shown to you how our Verbund with C1, 2 and 3 value chain enables us to have a cost advantage in producing this key raw material. Now this key raw material goes via pipeline to BASNJ and in 2-step process, BASF producers organic flocculants. We also provide them with services and utilities. So what you see is really a fully backward-integrated, value chain for organic flocculants, the first one in China and the region, and even a new BASF site can benefit as a standalone activity, so to speak, from the cost structure of a fully fledged Verbund site.

Of course, we also have other customers than BASF. Now customer proximity is one of the most important success factors of BASF-YPC. And 80% of our customer's plants are within only 400 kilometers of Nanjing. And many of them can be reached on the waterway. But proximity does not only translate into logistic advantages. We are also close to our customers and enjoy enhanced market access through the sales networks of BASF China and Sinopec.

Now looking at our customer portfolio, you see the locals here on the slide. We have good business relations with local champions like Haier. Albert mentioned how important Haier is in -- for BASF in China. We are also contributing to this successful corporation. But there are also other names, local companies you may not yet heard of like GREE, who are also a producer of white goods, and they are about to become the highest of tomorrow and we are already having good business with them. But we also benefit from BASF global key accounts, who expect us to provide the same specifications, the same quality products here in Nanjing, the same quality they are used to get for their operations in the U.S. or in Europe.

Of course, we need the right people to be successful. And actually, I can say that we are very successful in getting qualified people from the local talent pool and in retaining them. And this is because we have an excellent reputation as, a, maybe the top employer in Nanjing. And this claim can be substantiated when looking at our attrition rate. It's only 2%, 2% in China. We cooperate with academia, locally in Nanjing, but also together with BASF on a national level. And here it clearly helps to become a magnet for talents. It also helped that BASF was an early entrant in China, building a reputation, and the local talents, we recruit here in Nanjing, they have also career options in BASF Group, not only in the joint venture. So on average, every year, more than 10 executive candidates and tenants join BASF, so you could say that BASF-YPC is not only a successful joint venture, it's also a successful recruitment platform for BASF in China.

One aspect that certainly contributes to our reputation and also contributes to the fact that we are a very attractive employer, is our EHS track record. We are a benchmark in terms of process safety and occupational safety. And this is not what we tell you, this is what government tells us. And we are also a role model for environmental protection in China. We have, for example, a dedicated process safety expert of BASF here at our site. We participate at all occupational health campaigns of BASF Group, and we have an on-site clinic, according to BASF standards. All this clearly goes beyond standards in China.

You can see our statistics here, the lost time incident ratio. While just to give you a feel for the figures, we are talking about 1 or 2 events per year for 2,000 employees and roughly, the same number of contractors. This is outstanding, and by the way, it's consistently better than the average of BASF Group. And therefore, we won as 1 out of only 2 companies across all sectors and all industries in Jiangsu province, the National Safety Culture Model Enterprise Award. It's a difficult name, and it's also difficult to get this award.

So when it comes to EHS, we are also looking beyond the fence of our site. Because, we want to be a good corporate citizen. What does it mean?

We are also, as we said, a frontrunner in stakeholder engagement, not only in EHS. So we take care of distribution safety. Just an example, we are a pioneer in pushing for double-hull tankers for river transportation of chemicals, and implementing product stewardship practices concepts with our customers. But stakeholder dialogue, of course, goes beyond customers. So we publish an annual EHS report. We have regular town hall meetings, we make donations to schools and hospitals, and we also invite students, and here you can see 2 pictures on this slide where we discuss with students of one of the local universities about our EHS philosophy. I clearly believe that the excellent EHS track record, in combination with the open dialogue, helps us to create trust with all stakeholders. And the trust is what we need when it comes to getting permits and support for our further growth.

So you have seen our success factors. I believe we have a unique positioning in China. And therefore, we can be quite optimistic and enthusiastic about future growth. And now, I would like to show you where this growth is expected to come from.

Together with our partner, we are looking at the third wave of investment projects, with a potential total investment of, roughly, USD 1 billion. All these projects, though, are based upon individual feasibility studies. Now already in execution, is an expansion of the acrylics value chain. This comprises a new 60,000 tonne capacity of superabsorbent polymers. And if you turn your head now and look out of the window, the construction site, you see this is the new building. It's already quite advanced. It will come on stream beginning of next year. As a backward integration to this SAP plant, we need an acrylic SAP plant, so this we are building as well, world-scale, the second world-scale plant we have at the site. And also a new world-scale facility for the manufacture of butyl acrylate.

We also have a defined list with some projects under consideration and these include, for example, HPPO, a neopentylglycol plant and expansions for ethylene oxide 2-propylheptanol and non-ionic surfactants. But let's have now a look at the acrylics.

The acrylics value chain is of high importance to BASF. We are the global market leader in this business. Now here, this pie chart shows you that China, the Chinese demand for acrylics is growing at an annual demand of more than 8%. And this will result in China becoming the biggest market for acrylics by 2020.

So our acrylics expansion is timely and it will strengthen BASF's market leadership. Our success in acrylics is based on our own technology where we have clear cost leadership, in combination with Verbund integration here at the Nanjing Verbund site.

SAP is the largest single application outlet for acrylics, with baby diapers being the most important segment. And especially, the growth in China is based on baby diapers because the income level is increasing, more parents can afford to buy diapers. And secondly, the new-generation diapers have a higher average content of SAP. So both plays into our hands. And our new plant now is a very concrete example how we follow global BASF key accounts to establish manufacturing, production here in China, to supply them with the same consistent product quality they used to get in other regions. And this brings me now to the end of my presentation.

Let me summarize. 5 things I would like you to remember. Firstly, BASF-YPC in Nanjing is a benchmark. We manage to transfer our success formula to China, and the success formula is Verbund plus consistent improvement, equals consistent profitability. Our customer portfolio will bode for further growth and we'd create significant synergies with the local wholly owned BASF site. Our growth story will continue, based on stepwise downstream expansions. We are a magnet for talent and enjoy extremely low attrition rate, and we are also a frontrunner in EHS and open dialogue with the stakeholders. And this creates the trust we need for further expansion. So in short, ladies and gentlemen, I see that BASF-YPC is a poster child for establishing Verbund strength in China, and I think we have now a fantastic platform for further growth. Thank you very much.

Magdalena Moll

Thank you, Stephan, and I would like to ask Mingwei Qin to give his presentation. And then we move into the Q&A.

Mingwei Qin

Good morning, everybody. I would also like to welcome you to Nanjing to our site, again. First, a short introduction about myself. My name is Mingwei Qin. I'm the General Manager of BASF Specialty Chemicals, Nanjing Corporation Limited. By education, I'm an engineer. Actually, I'm also a very good example about a local talent developed by BASF-YPC, which Stephan just mentioned.

Roughly 10.5 years ago, I started my BASF career at BASF-YPC. Having stayed here for roughly 5.5 years, I had some opportunities of working in different functional areas in the region and roughly 2.5 years ago, I had an assignment, back to set up this new site in Nanjing.

My introduction today consists of 2 parts. The first part is about insight and overview. The second part is about how we serve our customers here today. In my presentation, to say it some time, I would like to use an abbreviation, BSNG, as our company name.

So a question, what is a BSNG? In short sentence, BSNG is a newly established, a BASF wholly owned production site and located in Nanjing, focusing on producing downstream chemicals for wastewater treatment industry, paper chemical, tight production paintings and coatings.

We are also part of Nanjing Chemical Industry Park. In the area, we have roughly 37 hectares, 1/2 of which is almost occupied by our 6 approved projects, the other 1/2 would be used for the future investment.

We have 2 areas, one of which is called Sunrise, the other called, Henghai, which is very close to our Verbund site here at BASF-YPC. Actually, to share some of you with some more details about these 2 areas, I would like to share you or introduce you to these 2 areas, one by one.

First, Sunrise. The Sunrise area, you can see, we already developed or viewed 2 pigment plants, which we just put into production at the end of last year. There is one more ongoing construction plant or project called additives. So in addition to those plants, we also have some auxiliary facilities like an administration building and also some warehouses.

Let's move to the other area called Henghai. Henghai is the home of another plant. This area was selected strategically, close to BASF-YPC for some synergies. Last year, we put -- we distributed some new plants, for example, DMA3quat and a flocculant plant, which were just put into production in June and October last year, respectively. Looking at this new -- this picture. This is also one of -- another new plant, which we just put in -- pushed our button last 20 days ago, exactly. And this is -- from this picture, which was taken roughly 2.5 months ago, you can still see some scaffolding. Based on the agenda today, we will have a short stop over there for a group picture. At that moment, you can see a fully plant in full production.

We are not only very successful in plant startups. We are also very proud that we have very good project implementation at BSNG. I would use this flocculant plant as a very good example for more details. We spent, roughly, 18 months from piling to executing this project. We've kept our project cost under budget. We have no issues at all in environmental protection, health and safety.

How could it happen? This is mainly because we have a very good local engineering team. We also have -- we bought a lot of -- or most of the equipment from local vendors. We also have a very well-cooperated project team, consisting of some local construction companies, local joint properties, as well as a local site operational team.

With all these reasons, we make us a very good benchmark for successful project implementation in BASF China. Stephan just mentioned a very good example in some synergies between BASF-YPC and BSNG, regarding raw materials, utilities and services. We not only have the industry from BASF-YPC to feed our BSNG water plant, in raw materials, we have some more. For example, ammonia and isobutene to feed our new plant. Isobutene is a very limited accessible material in the market. In utilities, we have something from BASF-YPC by pipeline as well, including some water, compressed air, or fuel gas and the steams.

This is a really win-win situation for both parties. On one hand, for BASF-YPC, they have a stable outlet and they can make high utilization of their existing fixed asset. On the other hand, for BSNG, we have a very secure and stable supplier. We are -- we can also some operational cost because of that. Additionally, we have also some good corporation user on services. A very good example is the certified 35kV substation monitoring system. We -- by working together with BASF-YPC, we did not hire 6 people for monitoring that system, considering the total number of our employees, 165. This is a significant savings for BSNG.

As you may know -- as you may have learned a lot of information about a higher standard of BASF regarding safety, health and environmental protection, as well as quality management, as one of the production sites of BASF, we also follow that concept, we comply with all these regulations. We have no compromise in those regard with all the commitment from the people, from our employees. We think, safety first.

Let's move on to the second part about how we serve our customers in the market here. In general, BSNG is a chem production site for downstream chemical production, serving for the market. We produced cationic flocculants, zetag, for wastewater treatment and paper plants. We produce t-Ba for rubber and tire production. We also produce pigment and additives for paintings and coatings industries so far. To share you with more information, I would like to go through all these product one by one.

First, flocculants. So the demand for wastewater treatment industry in China is growing rapidly. On one hand, we are lack of water resources. On the other hand, people need a more clean water. For Chinese government, they are facing some challenges right now, such as water stress, health protection and sustainable energy growth. Our product, flocculant, is one of the answers to those challenges. Our product zetag flocculant is added to the wastewater for separation of particles and solids. This is a very crucial step for clean wastewater quickly, and we use less energy consumption. We developed this local market with some important flocculants in the last few years. However, by having a local production in Nanjing, with backward integrated system or process with BASF-YPC, we can improve our supply reliability and become more cost effective for our customers in the region.

Let's move on to the next product, t-Ba. The cost sales in China is also growing, I think, Dr. Albert had just mentioned -- gave you a lot of you information about the business here. So as you can also learn from this chart, the type -- the sales of automotives is very good and China is already the second largest car fleet in the world, as you may know. I can also share you with my own experience. So 3.5 years ago, I had no program at all in finding a parking lot in my compound. And now, it takes me some more minutes to find a place if I work overtime here, right? So I can assure you, this is -- as a local person, this is my real sense of experience for these developing market.

Of course, cars need tires. So based on this chart, as annual growth rates of these tire production China -- or sales in China, is roughly 7% and based on the forecast, the tire production by the end of this year, will be roughly 10 -- 410 million. These tires are used for new cars and tire replacement. Additionally, China is also one of the tire exporters in the world. Our product, t-Ba is very important material to accelerate organization process in tire production. T-Ba is used for producing accelerator called a TBBS, which is very important material for tire production quickly and with less energy.

Again, we imported a t-Ba to serve our markets here in the last years. However, after having production here in Nanjing, we backward integrated technology and process with BASF-YPC, once again, we can save some lead time, for example, by 6 weeks. We can also make us more cost efficient. Additionally, what makes us differentiate from our main competitors is that our process contains or generates very little or no wastewater. We are more environmental-friendly.

I would like to move to the last product so far, about pigment and protein additives. The market demand in China for paintings, coating additives is also growing. Looking at this chart, the annual growth rate is 12%. It is even higher than GDP. Chinese government is still having a lot of investments on infrastructures, and people are expecting higher living standard. Therefore, the market for paintings and the coatings is increasing, particularly in architecture, industry and automotive. BASF also follow a concept or trend for production in a more environmental-friendly way, meaning that our product or system contain very little or even less organic components.

People like colorful life and a smooth scheme. Pigment can add colors, while additives can make flow move easily. By having production here in Nanjing, we can again can serve our customers quickly, and we have more secure supply to our customers.

I think yesterday you already visited our new R&D center in Shanghai. This is also additional benefit to our site, frankly speaking. In case of some special request from our local customers, by working together with them and our colleagues in Shanghai, we can help them to work out a solution in the left, in Shanghai. And then we put them into production here in large quantities. We can have more flexibility.

You see this is how we are serving an interesting and also very attractive market here. Before you -- we go to a site tour, I would like to leave key information in your pockets. So again, what is BSNG, I would like to use the same sentence, BSNG is a newly established, a wholly owned by BASF production site located in Nanjing, focusing on producing chemicals for downstream market, for paper chemical industry, wastewater treatment industry, paintings and coatings. As part of BASF strategy, we grow smartly. Thank you.

Magdalena Moll

Thank you very much, Mingwei. Now I will I would say that you remain right there, Mingwei. And Stephan will join you and there are lots of questions and my proposal to you is if we can do it this way, we do 10 to 15 minutes both gentlemen and maybe we can finish up on the remaining questions that I've listed here [ph], okay? So I'm starting with Gilbert and then I see Jeremy and then -- okay, we'll start with those two.

Unknown Attendee

Can I just explore what it means when chemical companies say an expansion's under consideration? On the C2 chain, the ethylene glycol, ethylene oxide chain, is it under consideration because we have no actor [ph] has added [indiscernible] capacity, there's overcapacity. So you're waiting for the market to balance that opportunistic waiting? Or is it the joint venture partner disagreeing? Or is it bottleneck of engineering? Or why is it under consideration?

Stephan Kothrade

Okay. So obviously, there are various reasons and parameters you have to consider before you take the final decision for building a plant. You mentioned some. Now unfortunately, please understand that I will not disclose now the current status and details of our internal decision-making process. Obviously, the partners are also involved into that. I can only tell you, if we put on a slide that we are considering a certain project, we are considering it. It's not just a fancy idea that we created yesterday. So there is some serious thoughts behind, there's some strategy. But we are not yet that far that we can wholeheartedly say, we will build this plant. This also can have to do with the approval and permitting procedures related to government authorities and so on. So please understand, I cannot tell you more at this point in time. So that's why we differentiated on this slide between the plants that are already under construction, and you will see that they will come on stream next year. And the other plants and projects that are, again, only under consideration so far.

Unknown Attendee

[indiscernible] .

Stephan Kothrade

Well, you know permitting in China, like many other countries, it's not just a one-step process. So you need several permits to start a project in China. We have a project application report you need a construction permit, an environmental impact report. So you never get all the permits upfront. And then you start construction, this goes in parallel. So you never have, at such early stage, all government permits this is impossible procedure we know very well how to do this. So we are on track.

Magdalena Moll

Well, the next question comes from Jeremy Redenius, he's 15A, and then he switches over to Chris Willis [ph], 16A.

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

A couple of the expansions downstream, I'm just trying to understand the value creation model. Is this an example of something like -- examples like SAP or the flocculants. Is this an example of backing out exports or you're backing out your imports -- sorry, backing out imports so you're increasing your OMP [ph]? And/or is there's some other type of value creation that you had in mind? And then secondly, where is the propylene coming from? Because it looked like you had a couple of different very propylene-heavy products comes in right?

Stephan Kothrade

Okay. Let's start with the first question. Indeed, when we invest for example, into SAP, this is to have a local manufacturing base. We are following our global key accounts in this markets with premium quality SAP. They expect us to be present here as well. We have the full backward integration here, the Verbund site, so it's a perfect fit to build an SAP Plant. Another example -- and then, of course, currently, we are already present in the market. We are importing then later, we will have local manufacturing. Another example, neopentyl glycol, NPG. This is not only capacity we established here in the Chinese market. It's also an addition to our Verbund because the key raw material to NPG, isobutyraldehyde is a side product of our aux alcohol plant. So we have the key raw material. We have the full integration. And again, a nice additional building block to bring our Verbund to the full potential and at the same time, increasing the local manufacturing base for BASF. The property on the second part, sorry. Yes, you're right. Well, we have an old steam cracker and we have some propylene we can use to manufacture these downstream products. You're right, some of these activities would need a huge quantity of propylene, and this is also part of the considerations we are making together with our partner, the raw material supply, the technical setup, timing and so on.

Magdalena Moll

Please, only one question.

Unknown Attendee

If you could just talk -- elaborate a little bit on your naphtha purchases, do you have a cost advantage given your relationship with Sinopec? I mean, you're buying at a discount through a local [indiscernible]. Could you talk briefly about that? Thank you.

Stephan Kothrade

Yes. Well, the first big advantage is that because we get all of the naphtha from Sinopec, 95% plus, we have a very stable and reliable supply. We have, as I said, a pipeline, direct pipeline connection to the JPC refinery, south of the Yangtze River. So there is a very reliable supply. And we have 6 other Sinopec refineries who can supply us by ship. Now this itself is a huge value. And then there is also some cost advantage in logistics related to the situation, which we benefit as well from, yes, right. So we have a cost and a reliability benefit because of our partnership.

Magdalena Moll

Next question comes from Alexander Scrolla [ph] of 27A.

Unknown Attendee

You referred to the presentation to waste products. Could you specifically address CO2 and implications with regard how much [indiscernible] start to see regulation on CO2, either provincial or the state level. And then, I mean, from that, actually implications in the sense of relative competitive position.

Stephan Kothrade

Well, first of all, the CO2 topic is not only a topic for BYC here in Nanjing, it's a situation, a situation that is considered now across China. Some provinces and cities like Shanghai, Tianjin, Chongqing and so forth are pilots in this respect and they are now trying to figure out how an emission trading system could look like. We are at the very, very early stage. Jiangsu province is not part of these pilot provinces, so we are not yet directly confronted with the situation. Of course, we observe that and we are part of the steering committee within BASF Group, same of course within a Sinopec group. Here again, we benefit because we have 2 parent companies who are well-connected. If you would like to know now the current situation because BASF China is now in the lead, I would, pass on this question to Albert. But I can say, yes, we know about that, first answer. Second answer, there's not yet a clear picture what the authorities will ultimately do. So, thirdly, it's too premature to talk about consequences and measures. What I can say, generally speaking is, we have a huge Verbund site and integration does also mean energetic integration. So per se, at Verbund site, is very efficient in terms of energy consumption and this will help.

Albert Heuser

Yes, perhaps to add a bit. What just right now happens is a kind of evaluation phase. So government and authorities want to learn what are really the CO2 volumes, which are emitted. And they try to rely it then what kind of production is associated with these CO2 emissions. And all of that just right now happens. So it's not yet established a clear scheme to have a price ticket on CO2. But for sure, we expect something to come as Stephan mentioned, it is not yet an all-over China approach. It is dedicated to a few hotspots, very industrialized spots. But we all expect it will be broadened and that comes later, perhaps in a couple of years back to the discussion we had yesterday what could it mean potentially for all of these coal-based chemical projects. No answer yet. But the realize there is work in progress being started by Beijing. Maybe additionally as a local guy [ph], I think you can also learn this information from some media. So there were some discussions about the CO2 emission, so you can also get this information from newspaper or some news release.

Magdalena Moll

Next question we come to Hank Ruler [ph], 6B.

Unknown Attendee

It's a financial question to YPC, did you ever pay a dividend to the mother? And how is your, let's say, strategy going forward with all your investments you're also planning?

Stephan Kothrade

For sure, we are paying dividends to our parent companies on a regular basis. Yes, we do.

Unknown Attendee

And despite your CapEx, you're now planning -- you will continue to pay out dividend, which means a majority of CapEx is debt-financed or...

Stephan Kothrade

It's a mix of both. So the order of magnitude of the dividend is adjusted to the financing needs of the projects, it's quite balanced.

Magdalena Moll

10B?

Unknown Attendee

Stephan, I apologize for this question. But your predecessor, Dr. Blumenberg, was a larger than life character. So obviously, very large shoes that you have to fill. How is the transition from Sinopec's perspective gone? Have they accepted you very quickly? Any cultural transition issues or has it been incredibly smooth?

Stephan Kothrade

I guess, you're right. I mean my predecessor, he's a living legend in this part of the world. The transition was very smooth because what I benefited from is that Bernd is so well-connected that when you show up somewhere with him, all the doors are open. So basically his network not fully of course, because it's a personal thing, but it was, from the very beginning, open to me as well. So it was a smooth transition. You can ask the Sinopec how happy they are. I think they are very happy especially with the performance we showed now in a difficult year 2012.

Magdalena Moll

So coming to Jaideep Pandya 22, Table 22.

Jaideep Pandya - Berenberg, Research Division

Yes, if we stick to the example you gave, DMA-3. Could you tell us the output that you have in the Verbund site? And the flocculant plant, is it connected? So yes, the bet size. And is it you're only buying from BASF Verbund site or are you buying from external players as well?

Albert Heuser

For the industry, we only get it from BASF-YPC.

Stephan Kothrade

The scale of the investment was made to make sure that there is a fit. So BASF-YPC is supposed to be the backward integration of the wholly-owned BASF site. That's the strategic rationale behind the investment. It was not the idea to sell DMA-3 to the outside of market, at least not in large quantities.

Magdalena Moll

So the next question comes from Thomas Gilbert, 5B.

Thomas Gilbert - UBS Investment Bank, Research Division

It's a modeling question. Obviously, BASF-YPC we have to now to look at, if any, at the net income progression where it kind of give us sales and EBITDA. Is it fair to assume that net income trends will follow the EBITDA? And so no funny things in terms of restructuring charges, depreciation, tax, financing. Is it fair to say that as the operating performance of joint venture improves that what we will see in the consolidated results of the group, the net income contribution goes up -- where that tax benefits on the CapEx that are running out, et cetera, et cetera?

Stephan Kothrade

Well, as you said, there will be no fancy unexpected strange things. What I can tell you is that, we are working very hard on the efficiency. So the bottom line we'll benefit from all these activities I mentioned around operational excellence, for sure.

Thomas Gilbert - UBS Investment Bank, Research Division

[indiscernible] .

Stephan Kothrade

That's what we aim at.

Magdalena Moll

So then we'll move on to Tony Jones [ph], 19A.

Unknown Attendee

Could you talk a little bit about the rules of engagement with your partner from the perspective of process technology? So as you are moving downstream and you showed the acrylics example, you're introducing some of BASF's "drive-through technology". So what are the ownership rights and what's the protection for BASF's own technology?

Stephan Kothrade

Well, it's the same situation is another joint ventures in other parts of the world, we get a license from BASF and this license is respected by the joint venture. I tell you, if we would have the feeling that this is not the case, we would not keep on investing with our own technology at the site. So there is a lot of trust and that is why I said, it's not only a partnership. We have a growing partnership. And you see, we are expanding this concept now also to other sites. You may have read about the INA investment at Mauming [ph], another huge petrochemical and refinery site of Sinopec in northern China. So it's really based on trust.

Magdalena Moll

There was question, Andrea [ph] right behind Mr. Wu [ph], is this correct? Wasn't there another question right -- oh, sorry. This is Andrew all the way from the back.

Andrew Benson - Citigroup Inc, Research Division

I'm Andrew Benson from Citi. I have 2 things, if possible. You restated your sales and you're going from modes of 5 to 12 [indiscernible] sales, but you've taken out the EUR 1.6 billion of associate. So I guess that's a substantial part of that associate is this one. So how significant would associates be in the growth through 2020, if you could kind of dimensionalize that. And the second point is, can you -- how do you determine whether a plant is going to be a BASF plant or joint venture plant? And how are you going to do that in the future to avoid the disputes?

Kurt W. Bock

Not pretty sure if I got your question right. I understood that you wanted to know a little bit more about how the influence of this new IFRS reporting has consequences looking forward, with respect to BYC. As mentioned this yesterday, BYC is a 50-50 JV, neither of the board mother companies has full operational responsibility. Therefore, we are not able to consolidate as Sinopec is not able to consolidate. Therefore, you will not find the sales of BYC back anymore. Therefore, we had to deduct in our BASF reporting in the sales numbers, in the reporting of profitability, EBIT level. You can find it back there BASF overall, but I think that was explained when we made the change of IFRS reporting. BASF decided not to show the EBITDA -- the earning return on the level of others. But show it one level up. So from that earnings, we report, but not other sales. And that's looking forward. I do not see...

Andrew Benson - Citigroup Inc, Research Division

[indiscernible] The wholly-owned sales are going from 5% to 12%, right? Your wholly owned sales in restated basis. So it...

Kurt W. Bock

It went down to 5.1%.

Andrew Benson - Citigroup Inc, Research Division

On the old accounting standard, how much would associates play in your growth even though we don't see it?

Kurt W. Bock

We had this question, I think, yesterday that roundabouts all over Asia Pacific, we had to deduct from our targeted 2020, the EUR 4 billion, because you know the announcement, we wanted to achieve 29, now we say its 25. So obviously, EUR 3 billion or EUR 4 billion are gone and that's the overall effect for the entire region. He is our biggest and most important joint venture in that. We have than 2 joint ventures in automotive catalyst, one in Korea, one in Japan. They are very important and showing a remarkable effect as well than we have here in China some other 50-50 JV's, for instance another one with Sinopec. We call it SGDB [ph], it's near the site we were yesterday. So these are the ones who go out. And in total, they come up with EUR 4 billion in 2020, that's the impact.

Andrew Benson - Citigroup Inc, Research Division

Just the same question, how do you decide whether its a wholly-owned plant or a JV plant?

Magdalena Moll

It depends on the level it performs.

Kurt W. Bock

There are clear, let's say, clear structures on how to come to a description are we controlling the joint venture or not. And we do not control, then we can't consolidate. In this case, as our joint venture contract says, we are not in full control of this joint venture.

Magdalena Moll

Okay. So we're now moving on to Laurent Favre, 13B.

Laurent Favre - BofA Merrill Lynch, Research Division

It's a question about solvents and the global footprint. You talk about how you got a lot of the demand growth internally and you want to reduce your [indiscernible] but you're not the only one having capacity in the region. You also have the Middle East, Brazil, [indiscernible]. I'm just wondering what's happening in your capacity in Western Europe or in the U.S.? Are you thinking about shutting some of that down or are you just hoping that there will be another demand growth?

Kurt W. Bock

So please understand, I am the President of BASF-YPC, I cannot speak now on behalf of BASF in Europe. But I don't think that we are about to shut down any of our capacity. I mean I also use [indiscernible], this is also a fantastic site. I mean, we are full Verbund integration for the most important superabsorbent capacities we have worldwide, Antwerp free port in future in managing. So we have an outstanding cost position. We are cost leader in acrylic asset. So we are in a growth mode, that will be my answer to that. If you need more details, I would ask Albert to comment.

Albert Heuser

I mean, when it comes to SAP, you heard it's under construction. So obviously, we can took a concise decision that there is a profitable project. And I can add, it's not only the project under execution in Nanjing in parallel, we took the blueprint of the acrylic acid plant and the SAP plant and the butyl acrylate plant, which is here under construction, took the blueprint in Beijing in the same engineering office and made it to build in parallel in Brazil. And this tells you something about the capability to look for a lot of synergies in how to have cost savings in the project design and in all that kind of engineering, detailed engineering and have project execution in 2 different regions and have more or less a copy paste situation. And from our point of view, there is some urgent need for these SAP capacities in China and in Brazil. For dedicated qualities, perhaps this is a trigger and a point which we could answer your question because with our technology, we are capable to produce a certain quality level, which is urgently asked by our key customers.

Stephan Kothrade

Now we are talking about fluffless [ph] diapers with a higher content of SAP and you need a premium quality, not everybody in the market is capable of supplying that into global key accounts who are leaders in their market for super absorbers diapers. And this, in combination, was a backward integration, which I also do not see with other players in China. I think we have a very unique position.

Magdalena Moll

Next question from Shawn McNeill [ph], Table #20 and the last question we have is from Paul Walsh.

Unknown Attendee

My question is actually on the first presentation. It's on the CapEx budget that you presented. Just if you can help me to understand and reconcile with what has been said yesterday. If I understand correctly, you're telling us that in China, you expect to grow sales by EUR 7 billion, which is more than half of the growth that the group expects in Asia Pacific. And you also said in your presentation that CapEx in Asia, are expected to be EUR 4 billion to EUR 5 billion with partner. So probably BASF share have been lower than that. So that clearly seems that the capital intensity of the growth you expect in China is much lower and therefore, lot of leverage from the existing assets which, I think, we can quite understand based on what you presented. But that also means that the capital intensity outside China is incredibly high. So I mean, is that something I'm missing or can you help us to reconcile or is there a huge Verbund site that you plan to build in Mongolia or somewhere around China to just supply China? Just help us to reconcile, please?

Stephan Kothrade

Good question and good observation. But for sure, in China, as you have learned today, we have a lot of assets in place. So we are able to do investments by -- that the assets left, with more money achieved, some more additional capacities with more money. So therefore, the per capacity needed money is less than building something grassroots. Second point in China, we look much more for downstream investments because we have this Verbund site. And then, Chaoqing [ph], somehow important site. We get a lot of raw materials for downstream activities as well from existing other potential suppliers. So such sites exist here in China. Therefore, the capital, the investment capital, needed here in China is less, right observation than we need for, instance, in ASEAN or India, to build up a higher footprint in production there. And then it comes to the effect yesterday already discussed when we look, for instance, to India, take that as a proxy. If we would build an acrylic acid, butyl acrylate, SAP and all that, it somehow needs to step in front, where the propylene is coming from. And if we do the investment potentially by ourselves or with a partner or however, then, you will not find back any sales from that kind of raw material supplier because it's within the company, it does not generating sales. And therefore, we have this typical thing very often in the company, we spend a lot of money but you do not find back the sales immediately on that step. you'll only find it back then downstream. So capital intensity, therefore, looking higher for the other parts of the region. Does it make sense?

Magdalena Moll

Paul Walsh, 26A.

Paul Richard Walsh - Morgan Stanley, Research Division

Mine is just a quick question really. Has the profitability of the JV improved this year versus last year?

Albert Heuser

Sorry, I didn't understand your question.

Paul Richard Walsh - Morgan Stanley, Research Division

Simple question, has the profitability of the JV improved it so far this year versus last year or not?

Stephan Kothrade

Okay. So we are not yet through. What we saw is a margin squeeze during 2012 and still basically the situation is the same. So there's not much of an improvements and speaking of BASF-YPC in petrochemicals.

Paul Richard Walsh - Morgan Stanley, Research Division

[indiscernible]

Albert Heuser

Comparable.

Magdalena Moll

[indiscernible] 1 last question that Robert still has it [indiscernible], a question you had before?

Unknown Attendee

It was is joint ventures [indiscernible] planned out of the 50-50? That was one question. And the second one you mentioned is railway connection. Can you give out a little bit of indication of what that means from the cost side compared to shipping it and also from the time you need? So that became a little bit [indiscernible] feeling?

Albert Heuser

So first part, we have -- we will establish 2 joint ventures. And the one joint venture where we have majority, clear majority, to be able to consolidate, will be the 51% owned by BASF for the PTHF, that was, I think, from one question, what do we bring to that relationship and to the partnership, that is what we really want to own because it's our technology and the other joint venture, we will form there via in minority, there are we have only 49% of that will be for THF.

Magdalena Moll

And the railway?

Albert Heuser

Then the railway connection, what is of interest is to bring material from Chongqing to, for instance, Rotterdam, takes less than 2 weeks. So roundabout, they target 10 to 15 days. And that is remarkably faster than any shipping route. And for sure, if you think about shipping route, normally from Rotterdam to Shanghai, for instance, or to Hong Kong, that would say you, only for the cruise, up to and then bringing it in out of the tax area, it takes you 4, 5 weeks. And then bring it inland to Chongqing. So from that, you see the big advantage when it comes to lead time. Cost, I'm not pretty sure to give you a good number. But I gave you the examples. Other companies start using it. It will be established and let's see how this develops over time. And we watch very carefully out because we think it could be at a certain point in time of interest for us as well.

Magdalena Moll

So thank you very much. We are now not using the railroad about going to use the bus. But first of all, I would like to thank all you gentlemen for their presentations and the interesting discussion with you. And then, I would like to tell you that this brings us to the end of the morning session.

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