BASF SE - Analyst/Investor Day

Jun. 5.13 | About: BASF SE (BASFY)

BASF (OTCQX:BASFY)

June 04, 2013 9:30 pm ET

Executives

Magdalena Moll - Senior Vice President of Investor Relations

Martin Brudermueller - Vice Chairman of the Board of Executive Directors

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

Gops Pillay - President of South & East Asia, ASEAN and Australia/New Zealand Regions

Analysts

Timothy Jones - Deutsche Bank AG, Research Division

Christian Faitz - Macquarie Research

Robert Drake Buhr - Societe Generale Cross Asset Research

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

Lutz Grueten - Commerzbank AG, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Andrew Benson - Citigroup Inc, Research Division

Tony Jones - Redburn Partners LLP, Research Division

Ronald Koehler - MainFirst Bank AG, Research Division

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

Magdalena Moll

Good morning, ladies and gentlemen, and welcome to the BASF Investor Day Asia Pacific. And this is a big warm welcome from the entire BASF team here today. We are so pleased that so many of you have taken the opportunity and who joined us here today in Shanghai. As you know, the region, Asia Pacific, is not only as important -- a great importance to the chemical industry, it is of equally great importance to BASF. And for this reason, we decided to host our second Investor Day Asia Pacific here in China. And, yes, ladies and gentlemen, China has been, in 2004, when we were first here in the country, already the hottest spot. And it is again the hottest spot today.

At BASF, we have a relatively long history with China. Believe it or not, in the year 1885, BASF has already been present in the country, supplying China with imported goods. And if you add it all up, then it's almost 130 years by now that BASF is represented here in China. And I have brought a neat little example for you to prove this. Yes, what you see here, this is a BASF label, namely you remember probably that in 1897, BASF has successfully launched its synthetic pure indigo. And with this BASF won the race to produce the king of natural dyes. And what you see on this chart is actually the label, a dye label, and it shows Chinese dyed works. And what BASF did at that time was a marketing profile. I have to say, it printed its magnificent motives on kletin [ph paper, and then it used to conceal paper to wrap the container. And then it why was done because when they shipped it overseas, this label served as a product identifier because many end-users in the foreign markets, they were not able to read. So with this, they got immediately an instruction how to use the product.

So 100 years ago, in 1913, BASF had already quite some significant exports to China, namely 16.6 million marks. And at that time, this was already 14% of total sales of BASF Group. And today, obviously, we have a strong and growing asset base and footprint here in this country, and we have our -- grown our business here in China to almost EUR 7 billion in sales in the year 2012.

So when we basically look back to our trip that we had in the year 2004, and here I see many familiar faces who have already been with us in the year 2004, then we probably remember that we got a firsthand view on Nanjing in Shanghai, but particularly our ongoing investment, a bond investment in Nanjing. And at that time, it was still under construction. Since then, it has been totally completed, successfully put in operation, and even already expanded a couple times. And, yes, both partners, Sinopec and BASF, have already earmarked a combined USD 1 billion for further investment, which are currently being executed. And all that, ladies and gentlemen, you will see on our trip tomorrow.

But coming back to today and to tomorrow, basically, the objective is, in the next 2 days, to talk in detail about our regional footprint here and our business approach in Asia Pacific. You will hear today that BASF has very long-term ambitious targets and a long-term strategy to further expand our position in this region.

Yes, we are basically -- wanted to show you in the next 2 days. And this is our agenda. This morning, we would like to show you our BASF strategy for Asia Pacific, and we also want to show you how this strategy Asia Pacific really ties into the BASF Group strategy 2011, which we communicated to you in November 2011. And basically, it will tell you how we translate the group strategy into the regional level. And we will discuss with you all the actions and measures that we are taking basically to complete our targets.

And then you will have lunch here in the building, and in the afternoon then we will walk over to our Innovation Campus Asia Pacific. And this will be very exciting for you because you will receive first-hand information on innovation projects, which will drive BASF's future growth.

So now, for this purpose, I would like to introduce to you our speakers for this morning. I would like to start with the Martin Brudermüller, our Vice Chairman of the Board, and responsible for Asia. And with the us today is also Albert Hauser. He's the President of Greater China. So he is also basically, yes, the President of this site here, and functions Asia Pacific as well. And with us today is also Gops Pillay. He's the President, South and East Asia, ASEAN and Australia, New Zealand.

The gentleman will give their presentations together basically. And then after they have completed it, we will have an extensive Q&A session. We also like to inform you that we are videotaping and we are audio recording the presentations and to the Q&A session. But it will not be live a webcast today. Yes, and then following our lunch, which is downstairs at the ground floor, we are then moving in the afternoon to the Innovation Campus where, as I've told you, we will discuss 3 exciting innovation examples, which you see here [indiscernible], then the electronics specialty for LCD panels and mobile emissions catalysts for Asia. But basically, the background is we not only wanted to show you the Innovation Campus, but we also want to show you what we innovate here in Asia for Asia. And yes, we have our colleague, Piada, here. SHe's here in the back. And Piada [ph] is heading our research and development activities in Shanghai, and she will lead us through the afternoon.

Yes, to come to a close, I would now like to ask you to please turn off your mobiles and Blackberries because they could interfere maybe with our microphone systems, so I ask you for your understanding. I would also like to refer you to the disclosure language, which is right here behind me on the screen. And finally, I would really like to wish you all a very interesting, exciting, but also a very fun day with BASF here in Shanghai today. And with this, I would like to turn it over to Martin.

Martin Brudermueller

Yes, good morning, ladies and gentlemen. We are very happy that you are joining us today. I'm extremely happy that you're able to make so much of your time to us because I think talking, discussing is one thing, but I think also seeing is believing. And that is why I think to understand what we do here, it is also important to see the environment, to see China, but to see also our operations and our answers here for everything. Thank you for the taking the time.

It is a very exciting time actually for us here in the BASF in Asia Pacific. And also, Maggie told you, BASF has been present in the region for more than 100 years. The region is already a solid contributor to BASF growth, you still believe that there are many more opportunities for us to capture here in the future. We have the solutions to create chemistry in Asia Pacific, and we believe that it will be successful here by growing smartly.

First, I would like to give you really the global percentage, so then again we let you know how this all fits together. You all know, our global communicated in November 2010, which traces 3 fundamental questions for the company. The first one, why do we do what we do? And the answer here is our corporate purpose to create chemistry for the sustainable future. And second, how do we do this? And the core values, which we have defined, give a clear guidance to the whole team, how we want to act. We want to be creative, open, responsible and entrepreneurial. And third, what will do we do to achieve our purpose? And here, our 4 strategic principles define where we focus on and how we see the company. We add value as one company, we try sustainable solutions, we innovate to make our customers more successful and we form the best team.

So today, we would like to structure the strategy briefing as follows. And first, I will introduce our current status in the region and the progress we have made so far. Then second, I will talk about extra new trends that are influencing our business in the region here. And then I will introduce briefly our updated Asia Pacific Strategy, which we grow smartly. And then finally, my colleagues, Albert Hauser and Gops Pillay, will take you through the strategic levers and concrete initiatives, which we need to implement the strategy.

Well, this picture is a snapshot of where we are in the region. BASF is very value-established in Asia Pacific with respect to our customer base, our people and our manufacturing footprint. In 2012, which was actually a quite difficult year, BASF in Asia Pacific achieved EUR 12.5 billion in sales and contributed EUR 1.2 billion to our global EBITDA. This was thanks to our excellent team of more than 16,000 employees who are working in more than 100 production sites and nearly 150 sales offices in the region.

Now we build on a history of very solid growth in both sales and EBITDA over the past decade, and since 2004, our sales to customers in Asia Pacific have been growing at a rate of 14% per annum, while our EBITDA has increased at a rate of 11% per annum. Since 2012, I have to admit the experience of more moderate market growth and stronger competition in the region. Despite this, BASF was able to increase sales on a like-to-like basis. This was attributable to high demand in Chemicals and Advertising Solutions segments. EBITDA had a decline in the fierce competitive environment, mostly due to weaker margins in the Chemicals segment.

I need to mention here, just to remember, I'm sure you all know that, but just to capture everyone, a very important technical point. As you know, in March of this year, we appointed the adult, the new global IFRS 10 and 11 accounting standards. As one major effect, 50-50 joint venture such as our large operation fee license in Nanjing are no longer consolidated. And therefore, we provide you with both the former, as well as the restated figures of 2012. And I would like to make clear that all the targets we mention in the presentation going forward are on the basis of the new accounting standards.

Let's have a closer look at the recent sales of EUR 12.5 billion that we have achieved in 2012. Our Chemical activities, and that means the safety of these chemicals, performance programs and functional materials and solutions accounted for 88%, and Agricultural Solutions accounted for 4% of the Asian sales, respectively. BASF focuses its business activities on 6 subregions that we organize, Greater China, South Korea, Japan, ASEAN, South Asia, which is mainly India, as well as Australia and New Zealand. Greater China, includes for us Thailand, Hong Kong, Macau and Mongolia, and represents 42% of our total business in Asia Pacific in 2012. And that is our most important market in the region.

China is, therefore, one of the cornerstones of our gross margin strategy, but we eagerly strive to develop the other strong growing markets in Asia Pacific as well.

So the question is, can we still build on the trends in Asia Pacific that we have experienced over the past decade? A very clear answer is, no, because the region is changing fast. We have done some exercise to analyze those strengths in more details, and I would like to summarize here in the next page, Asia Pacific will face a lot of huge challenges, while remaining the world's largest growing market. And it's full of opportunities for the chemical industry.

From a macroeconomic point and competitive point of view, Asia is always dominating growth. We see a rise of Asian global companies as champions in all industries in the marketplace, which were sized a change of global trade settlements, as well as an acceleration of the intra-Asian cooperation and trade agreements. Meanwhile, China's global influence is increasing. China is becoming a dominate -- dominating not only economically, but also politically in all of the region. The Chinese economy is a terminal sector for Asia regarding growth, trade, as well as regulations. And also, competition for challenge has visibly intensified, particularly in China, but as well all over the region.

At the same time, societies and governments are becoming much more demanding for corporations. We see a more outspoken civic society and a stronger role of national governments in safety and regulation. This requires corporates to take up a more active social role. In particular, resource casts the -- jeopardizes the current resource-intensive economic growth model, and tries the need for more innovative and sustainable solutions. I do believe it's important to remark that volatility, seat, complexity and uncertainty will be constant factors in the future. Even the raw materials prices are changing competitive environment or game-changing technology. I would say good old times will not come back. You will see later on how we are addressing this trend in our expenditure.

Let's turn the attention to some microeconomic data. And the data you see here on the chart show how Asia Pacific will be dominating global growth in this decade, and how the importance of the region will increase. With an annual growth rate of 4.8%, Asia will have a share of 1/3 of global GDP by 2012 -- 2020.

And within Asia Pacific, China will become the dominating economy. We expect China's share of Asian GDP to grow from a little over 1/3 in 2012 to 41% by 2020. With all the focus on China, however, we should not forget that the other Asia Pacific markets together will stand and account for almost 60%. They will also grow in their impressive rates.

What else does this mean now for our chemical markets? While industrialization in the Asia Pacific region continue to drive the growth of Chemicals, higher disposal to income and the loving conditions and investments in our customers' initiatives drive chemical demand. And In 2010, Asia will make up half of the global chemical market.

Within the Asia Pacific region, it's no surprise that China will be the dominating chemical market, with nearly 2/3 of the region's chemical production by 2020. This means naturally that we need to intensify our relationships with our customers in China to participate amicably from limiting the domestic demand. We must not, however, neglect the other Asia Pacific markets as they also offer very attractive growth potential for us. And you will see later how we want to capture this opportunity.

As outlined already, the region, Asia Pacific, drives the growth of chemicals. But even more important, Asian companies increased their share of the global chemical markets from 21% in 2006 to 30% in 2011. And this expresses the speed of Asian competitors in catching up with their capabilities and competitiveness. That these competitors grow faster than the market, and we have to admit, they get better. In order to be successful in this dynamic and increasingly competitive market environment, companies have to secure access to competitive feedstock and attract excellent local talents.

With the strengthening of Asian competitors, the share of local production has increased over the last 10 years from 60% in 2002 to 76% in 2012. Due to the early stages of development of most markets in Asia Pacific, the demand for classical chemicals continues to grow at a rapid rate in the region, triggering capacity additions within the region, and in the Middle East, fueled by favorable raw material conditions. Asia Pacific is, however, forecast to remain a net importer of basic chemicals, such as ethylene and propylene derivatives, until 2025. As you can see, on the right-hand side, the chemical market in Asia Pacific has varied preferences. Sinopec and PetroChina, the biggest players only account for a market share of about 4%, where thousands of SMEs are operating in certain market segments.

At the same time, the competitive landscape will continue to change quite drastically in the future. Global companies are emerging as powerful competitors. BASF is the world's leading chemical company on a global basis, and it is the only non-Asian company which made it into the ranking of the top 10 chemical producers in Asia Pacific. And therefore, we are now positioned to participate in the outstanding growth of the [indiscernible] in the future in this region.

The strong growth in the region has is ever rising. And if you look at some of these figures here, it is very clear that the current resource-intensive growth models are reaching very nice. In 2015, more than 9 billion people will live in our planet, and you should be aware, of which then more than 5 billion will live in Asia Pacific. This creates a unique set of economic, social and environmental challenges to our region. And there is a strong recognition all across Asia that economic growth will not only be possible within the framework of sustainable development.

It's remarkable. Asian competitors across our industries are aware of the need of sustainable development. And according to the Dow Jones Sustainability World Index, they have already overtaken U.S. companies. However, there is still a large gap to keep up with European companies.

The urgent need for sustainable and growth models is actively recognized by governments all over Asia Pacific, and they are increasingly driving initiatives to address the rising issues. As you see, the focus is very much on energy, water, waste and waste management today of regulations, will intensify and cover more area tomorrow. And this is exactly where BASF comes in, where we have solutions to offer, focusing our portfolio more on sustainability in a clear -- is a clear differentiator for us. It make us an attractive partner in the region, and it offers us many new opportunities.

Positioning sustainability is becoming key in Asia Pacific. Asian companies are catching up quickly as global players, but we can see that this -- that we can see this in the approaches adopted by various companies. They start from rather risk reduction phases and grow them to include various EHS and CSR activities, the development of sustainable products and solutions by looking into energy and resource efficiency. And ultimately, it leads to an overall holistic approach for sustainability.

Now let's now focus on our new Asia Pacific Strategy in this framework. In a nutshell, growing smartly means that we want to develop sustainable solutions in the most efficient way as possible. Our new strategy will balance the 3 dimensions of sustainability, economy, society and environment, and we will measure ourselves along the 3 dimensions.

First, economy, we aim to grow profitably at, at least 2 percentage points above chemical market production. In 2020, BASF targets to generate EUR 25 billion sales in Asia Pacific with an EBITDA in line with the profitability targets of the BASF Group. Environment, we aim to foster a resource efficient growth model. With a capital investment plan of roughly EUR 10 billion, including hard work and equity participations. We want to ensure that 75% of what we sell in Asia Pacific is also manufactured here. This kind of local production is one important way to minimize our ecological footprint stemming from imports, but we also have other important measure in this area, which we will talk about in a moment.

And last on this, society, we also aim to contribute to a continuous development of society. We will create around 9,000 new jobs in Asia Pacific and will engage the society and stakeholders to operate as well-accepted parts of society.

This brings me now to the implementation of the strategy. We have developed measures along 6 strategic levers in line with our global strategy, which is market, innovation, portfolio, investment, people and excellence. At that point, I will hand over to my colleague, Albert and Gops, to take you through the strategic levers. So Albert, please?

Albert Heuser

Thank you, Martin, and a warm welcome from my side here to the Shanghai Pudong site, which is our BASF China headquarters, and Innovation Campus and production site at the same time. Let's start to look into the strategic levers and starting with the first one, market.

By 2020, we aim to increase our sales to customers in Asia Pacific to EUR 25 billion. We will do this by working even closer with our customers and business partners, and by exploring opportunities in new markets. And given the volatility of the markets we are in and the growing strengths of our competitors, this is for sure not an easy task.

We have set ourselves ambitious targets, and BASF intends to grow by about 9% per year until 2020, and thus double total sales to EUR 25 billion. This means growing more than 2 percentage points above our market assumptions. And reflecting on the currently weaker growth in 2012 to date, this is very challenging. Organic growth will be the main driver of our sales force. We can build on our strong footprint we have in local presence. Our portfolio and our innovation capabilities cause business growth initiatives, investments, innovations and acquisitions will all contribute to this strong growth.

Let's have a closer look at the industry. Where does the growth come from? We show here our 8 key customer industries on the right side of this chart. For BASF, the most important customer industries in terms of sales are Chemicals and Plastics, consumer goods in orange and transportation in red. BASF is outgrowing the strategic relevant markets in all key customer industries, except Chemicals and Plastics, as you see on the chart. The operating divisions focus on the key industries, transportation, energy and resources, consumer goods, electrical and electronics and construction drive BASF's sales growth in Asia Pacific.

Several years ago, we introduced the concept of industry teams at BASF and specific here in Asia Pacific. The objective of the industry teams is to fully leverage BASF's capabilities across divisions. As you can see on the slide, we have already a broad cross division of portfolio serving all these industries. And we are constantly analyzing the components, the players and the dynamics of important value chains. And this, we use as our industry knowledge base, which is accessible to all of our divisions and be systematically built on these foundations to significantly enhance the regional industry expertise. And we are now extending this very successful approach to other industries as well, as indicated here, to mining, food, agriculture, electrical and electronics, wind energy and textiles. And we have dedicated growth rates in mines for these industries as well take, for example, mining, 11%; food and agriculture, 8%; electrical, electronics, 9%; wind energy and textiles need still to be defined in a deeper dive.

Now let's have a look at our sales growth in the ones for our strategic relevant markets, and this again for the entire region Asia Pacific. As mentioned before, Greater China will account for a large chunk of the overall chemical market. And this is -- and will be reflected in our sales, as well as you see here dominantly by the red spot. You can also see that in all subregions, we have ambitious targets, and intend to grow above the market.

And we also want to look at the untapped markets. Of course, they do not compare in size with our established markets. By being in both in those emerging markets, we not only open up new growth opportunities beyond 2020, but we will become part of the growing, emerging industry structure in these countries. We will set up task force to explore the potentials in Asia Pacific's untapped markets like Laos, Cambodia, Mongolia and Myanmar.

We will also explore opportunities in the base of the pyramids markets. The base of pyramid is a new market, suggests that new business opportunities lie in developing and selling products and solutions for customer segments on subsistence and lower income level. We will start to enter with the right customers in India and later extend this approach to other markets, as well, for instance, in ASEAN, and other countries in South Asia. Our focus area in this market segment are solutions for affordable mass housing, food fortification, solar and wind energy and water purification.

The strategic lever of innovation will be strengthened in the upcoming years. And this afternoon, you will get a much deeper dive into this topic. With increasing consumption in Asia Pacific local consumers and increasingly more sophisticated end-user industries are demanding products and solutions being tailored for Asia and the requirement there.

Based on our strong global R&D network, we will considerably strengthen our innovation capabilities in Asia Pacific, enabling us to better serve our customers in this region. Our objective is to create innovation from Asia Pacific for Asia and for sure, for the growth and for the work. By 2020, we plan to have around 3,500 employees in R&D in Asia Pacific, a huge increase compared to the roughly 800 we have as of today.

Building on our global R&D platform, we will address regionally specific R&D areas with importance for Asia Pacific, in particular, electronic materials, agriculture, catalysts, polymers and materials, mining and water. It is through these research areas that we can develop innovative solutions for our customers in Asia because they address the major challenges in this region.

By 2020, BASF will conduct around 1/4 of its global research activities in Asia Pacific, 1/4. For this, we need to expand our R&D footprint in the region and to develop products and solutions for, and with our customers, BASF established a BASF Innovation Campus Asia Pacific in Shanghai in 2012, and you'll be the testimony later this afternoon to see under the headline, Seeing is Believing, like you said, Martin, what we have started to do and to achieve here. And we are now planning a second such kind of Innovation Campus for India.

The Shanghai Innovation Campus is the first innovation center for the region. Additionally, we will establish industry-specific R&D centers in key markets such as in a global R&D center for electrical and electronics in Korea, an R&D center for water solutions in Singapore and for mining in Australia.

Our third lever is portfolio enhancement. Many of the innovations in new businesses for BASF, but also acquisitions will help us to continuously enhance our portfolio. Our goal is to generate more than EUR 2 billion in regional sales through new businesses and acquisitions.

On this chart, you can see our current portfolio of 11 growth fields, which will deliver innovative, sustainable solutions for 7 key customer industries. We will continuously develop this portfolio. An examples of growth fields in which we already offer solutions are batteries for electric mobility, water treatment and wind energy.

Let me elaborate one example, and let's take the battery material. Battery Materials are a very attractive future market. And the vast majority of that market is and will be in Asia Pacific. We want to position ourselves as a system suppliers and solutions provider for cell manufacturers. We see a sales potential for Battery Materials of more than EUR 350 million in the region, and this in 2020. And this number will represent 70% of our global sales potential. Therefore, we have acquired Novolyte, a manufacturer of electrolyte formulations, polyurethane batteries. In addition, we have established an R&D laboratory just recently and an application technology center for Battery Materials in Japan, and we are intensifying our cooperation with universities in the region and globally.

Let me conclude talking about the portfolio to show you how this developed over the recent years. From 2001 until today, we have divested in Asia Pacific businesses with sales of about EUR 500 million and bought businesses with sales over EUR 3 billion. We divested more commoditized and cyclical businesses, while acquiring close to customer-specialized businesses. This has increased our customer focus and made us more resilient to economic cycles. Our portfolio strategy also includes powerful partnerships with strong Asian companies such as PETRONAS, Sinopec and Exxon, just to name a few. This portfolio development shows that we never rest on our laurels, but shape actively our successful future.

And with this, I hand over to Gops to take you through the other 3 strategic levers.

Gops Pillay

Thanks, Albert. To lever investments. I think with the measures -- sorry, with measures under our strategic lever investments, we aim to further expand our local production network. Our ambitious goal is that 75% of the products we sell in Asia-Pacific are produced here in the region. We refer to this as our OMP ratio, meaning own manufactured products. To achieve our target of 75% OMP by 2020, we aim to invest approximately EUR 10 billion in the region together with partners.

Why do we want to produce locally? First, local production allows us to be closer to our customers, enabling us to address their requirements much more flexibly and improving our supply capabilities. At the same time, a stronger local footprint also improves source -- resource efficiency by reducing the transportation needed for imports and exports and by enhancing energy and raw material efficiency through a highly integrated production system close to customers. This in turn means lower energy use and thus a lower environmental impact.

To achieve our target OMP of 75%, we plan to invest EUR 10 billion together with partners by 2020 in Asia-Pacific. We expect the planned BASF share to be at a lower level as in the last 2 decades, expressing that we want to benefit from partnering opportunities also in the future. This is a very strong increase in investment compared to the previous years because we have numerous major projects initiated and even more in the pipeline. Now let's have a deeper look at the regional split and the key investment projects.

According to the market development, it is not surprisingly, as Albert has hinted to, that the largest share -- the largest market is China and a larger share of our investments would go to Greater China. It is however important to express that we see major investment opportunities also in South Asia and ASEAN, which also mitigate our risk not to be overinvested in China.

Some examples, construction of our new world-class MDI complex in Chongqing, Western China is well underway. We expect first units of the facility to be operational in 2014. The EUR 860 million investment will be an important first step in our Go West initiative in China. We stepwise expand our Verbund site in Nanjing. Together with our joint venture partner, Sinopec, we are currently building plants for acrylic acid, butyl acrylate and superabsorbent polymer and study further possibilities for expansion of this site. In Maoming, we are building a world-class isononanol plant jointly with Sinopec. Isononanol is used as the feedstock for the production of next-generation plasticizers.

But you can also see that we have significant projects underway in India and Malaysia. In India, we are planning to open a site in Dahej for polyurethanes, surfactants and dispersions. With this location, we are closer to raw materials and to our customers. BASF would be able to grow its business in the important Northern and Western regions of India. In Malaysia, we are planning to invest around EUR 500 million, together with our partner PETRONAS, to build an integrated aroma ingredients complex, containing plants for citral as well as downstream products such as citronellol and L-menthol. With this investment, we will serve the globally growing demand of our customers in the flavor and fragrance industry, especially in Asia-Pacific.

To make all this happen, we need the best team. It's all about people. Our employees are key to our long-term success in Asia-Pacific. We are focusing on attracting, retaining and developing the most qualified talent. By 2020, we need to create around 9,000 new jobs in the region to execute our ambitious targets.

We are implementing our global best team strategy in Asia based on the strategic priorities of excellence in people, leadership and place to work. Excellent people is about attracting the right people and creating the space for their professional and personal development. To groom excellent leaders, we need to foster a feedback culture with clarity on expected leadership behavior and demonstrated competencies to live our values and implement our strategy. To make BASF an excellent place to work, we want to cultivate a working environment that inspires and connects people.

From these priorities, we have derived key strategic measures. Based on a strengthened brand, we will implement a more differentiated recruitment approach, addressing the right talent for the right job. We will bring our learning offerings under one umbrella via BASF Learning Campus, with Asia-Pacific being the pilot region. We will ensure that our competencies address the needs of the customers and markets in Asia-Pacific. This includes an employee and leadership engagement program to embed sustainability into everything that we do. We will adapt our performance management system so that it allows us to leverage fully on the strength of BASF.

Our work in the areas of human resources in Asia-Pacific has been very successful so far. Recent studies confirm that BASF is already a valued employer in the region. In our latest employee survey, 74% of our employees in Asia-Pacific showed higher levels of commitment than industry average. With respect to the attrition rate, BASF comes in with 6.8%, significantly below peer average. Thanks, Martin. Sorry about that.

To further improve the professional and personal growth for BASF employees in Asia, we will establish a pilot for the global Learning Campus, the first facility of the global Learning Campus will be in Singapore. The Learning Campus will present specific learning offerings for all employee groups, as well as flagship programs in cooperation with best-in-class external partner institutions. This concept will contribute to further reduce attrition, as well as improve attraction. The Learning Campus will have also a key role in our sustainability, engagement and training.

Excellence. This brings me to the final lever, but a very crucial one. A key driver to achieve our ambitious profitable growth is excellence. We need to continuously improve our operational efficiency and our organization effectiveness to lift our profitability to counteract a tougher competitive environment. As a result, we plan to achieve annual cost savings of EUR 1 billion by 2020.

We address excellence in everything we do. Excellence in functional units, marketing and sales, organizational structures, investment executions and operations are the 4 key areas addressed in the excellence initiative to establish a competitive advantage for BASF in the region. This is one of the examples. This chart gives you some background to the potential that we have by improving our investment process in excellence. This includes measures in engineering, procurement and scheduling. Project A and B are investment projects, which are being or have been implemented under this approach and show impressive results. The improvements are: Around 30% lower engineering service cost, 50% reduction of important equipment and project realization in 10 months shorter time. Our investment in water treatment and paper chemicals plant in Nanjing, which Albert will show you tomorrow, was fully implemented in only 18 months, which almost 1-year faster than usual. Thus, we have a huge lever to reduce specific investment cost and depreciation in the future. We will consequently execute this approach for all future investments.

Our excellence measures overall will improve our productivity per employee. While sales are expected to double from 2012 to 2020, personnel cost will only rise by 80%. And most of your are from the investor community, and you would say, Gops, this does not sound so terrific at first glance. However, these are good fixed cost. The planned headcount increase in R&D, plus the additional headcount in production to raise our OMP to 75%, happens about 80% of the total headcount increase. This shows we are drastically increasing our productivity per employee in all other disciplines in the coming years.

And with this, I hand it back to Martin for the wrap up.

Martin Brudermueller

Thank you, Gops. Thank you, Albert. Ladies and gentlemen, you can see that we have a very concrete plan on how to profitably grow in Asia-Pacific and how to achieve our objectives. It is all about growing smartly, developing sustainable solutions in the most efficient way. By staying close to the market, focusing on innovation and expanding our portfolio, we will develop and bring those solutions to our customers. And by localizing our production, engaging our people and focusing on efficiency, we will ensure that Asia-Pacific is contributing strongly to the BASF overall mid- and long-term growth and profitability targets.

And with this, we come to the end of the presentation. Thank you for your patience, and we are happy to take all your questions. Thank you very much.

Gops Pillay

Thank you.

Magdalena Moll

Yes, I would like to thank all 3 gentlemen for their interesting presentations. And ladies and gentlemen, I would now like to open up the question-and-answer session. There is a little change today. Mainly, I would like to allow you to put 2 questions because my dear friend Tim Jones at the last end of this conference has a little bit been critical that I am so strict. So in so far, I would like to put the first 2 questions to Tim. Tim, do you have some questions, you would get first chance.

Question-and-Answer Session

Timothy Jones - Deutsche Bank AG, Research Division

Is this on? So we use this. So 3 questions, if I may. Can I talk to Brudermüller, back to your presentation, you refer to EBITDA trends in the region in line with the group target, do you mean that margins in the region will be in line with the group by 2020? Or do you mean that EBITDA relative to sales will outgrow by 2020? That's the first question. Second question is, I haven't heard the phrase, earn a premium on cost of capital in the presentations. So then, can you talk a little bit about the trend for earning a premium on cost of capital both in China and Asia? And specifically, can you comment on whether you earned a premium in Asia and China in 2012? And if not, when you think you will earn a premium on the cost of capital in those regions?

Martin Brudermueller

Yes. Let me elaborate a little bit on this EBITDA. And I'm not sure that this is the first question because we did not find out specifically on the EBITDA, which we want to achieve in the region. Ripe is the occasion, and I really would like to explain a little bit. I think you cannot expect from an Asian operation as we have it today, which after the IFRS correction fell back to 54% of OMP. That is region contributes the same EBITDA margin than a region like Europe that produces OMP 100% in exports. Because we get for all the products we sell in here from import, we get the sales margin, and all the pre-earnings are in the European operations. If you think about an export, which is significant from Europe's example, for example, to the region which is between almost EUR 2 billion, for example, then all the pre-earnings for the market from Asia-Pacific are shown to you in the European operations and then you say now, this is the very profitable Europe, and this is the not profitable Asia-Pacific operation. So we have only a chance to bring up the EBITDA contribution in Asia if we increase OMP. Theoretically, if we have 100% OMP here, I would say, it is very real that this operation on average has to bring the same profitability than in the other region. We will not come to 100%. We will most probably never come to 100% because we will always have some plants where you have one global specialized plant, which serves the world. And that most of the time, most probably, it will not be in Asia. So with this, we will stay at a lower point. If you take the overall portfolio Tim, I will say, if we go the way as we described in the strategy, that if we go more to innovation that we basically deserve EUR 25 billion out of a market of EUR 1.1 trillion, we select very much the market segments and pockets where we can differentiate, yes, then I would say on average, we should have about similar margins. Or if we have lower margins, we have to do everything with lower cost. So at the very end, this is what it is about. And that is why we have the excellence lever really to reduce also the operating cost on one hand to respond to the fact that in some of the sectors where we are in, particularly in the base chemicals, we probably have lower margins in the region than in other comparable regions. So that is why we have not given you a clear EBITDA target. We have also not given an EBITDA margin on the group level as you know. But I think with this and the understanding working on the cost basis on one hand and in the portfolio on the other hand, we come in this direction that Asia-Pacific is delivering its fair and necessary share of the overall global EBITDA number. I think this is -- I think which is reasonable and understandable. In terms of cost of capital, Tim, we have never released the cost of capital or the premium we achieve per region. And those are a little bit of what I'm allowed to say, you can say. I think that it's fair to say, if I say in the past that most of the time we have generated also something positive here in the region. I would not go further and even break that down in China. But you will see also from the presentation of Albert tomorrow, where he shows you the sales development and the EBITDA development, how profitable the China operations I think. And that needs to be the last question for it. And that also shows a lot of assets which we have in Asia are in China, and that is why China has grew because of its high OMP. If you have in Japan, where most is merchant business, we have a low margins also in there.

Magdalena Moll

So the next on my list would be Christian Faitz and Robert Buhr and then I have Jean De Watteville. I have [indiscernible], but a little bit later, okay? So we start with Christian Faitz, 15.

Martin Brudermueller

We have enough time for all questions.

Magdalena Moll

Yes, 15b.

Christian Faitz - Macquarie Research

Christian Faitz from Macquarie. Two questions. First of all, 9 years ago, when we had the same argument here with BASF, apart from Nanjing, obviously, Caojing was very much in focus. What is happening there at the moment because I don't see a lot of mentioning of Caojing here in the presentation? How happy are you there with the joint venture structure? Can you update us, please on the Caojing operations? And then, second of all, can you update us on recent demand trends in China after the relatively slow demand strength even post the Chinese New Year? What's happening at the moment? What are you see here on the ground? What are your salespeople saying on the ground?

Martin Brudermueller

I've imposed questions for the President of Greater China.

Albert Heuser

Yes, happy to take that. And Caojing was your first question. You mentioned 9 years ago there was a lot of talk. I have to say, meanwhile there was a lot of action. And perhaps you have seen it on the one slide, ongoing investments in the region. Yes, Caojing, we do investments as well. Just right now under execution, for instance, a new coatings plant, which is for the waterborne coatings for the automotive industry, very much important. This is just under construction. Yesterday, we had the piling of our polyamide 6 plant, which is a 100,000 tons capacity in the SCIP Park, so Caojing. And we have other ideas what to do at the SCIP Park as well. You might have seen that we are going to look into the expansion, together with our partners, for our polyurethane capacities we have at Caojing. So conclusion to your first question, Caojing is a very important pillar in our asset structure here in China. And for sure, we look into opportunities, which will come up when Gaoqiao, the refinery next door of Sinopec will relocate to the SCIP Park. And we have 2 joint ventures together with Gaoqiao, and we will look into the opportunities to use this relocation of the refinery as well. So clear answer, Caojing, important for us. Demand trends in China, the current trends you were asking. When we look into the different industries, there is a different picture. When we look into, for instance, the olefins, then we see that the demand is not that terrific as it used to be. This is associated to less demand for polyolefins that you know that this is not our core business. But for sure, when we talk about olefins, they are the trendsetter. When we look into the automotive industry, which is very important for us, then we see a very stable, high growth for material we are supplying to the automotive industry. So you see already with these 2 examples, there is a mixed picture. And from that, there is not one clear answer to that.

Christian Faitz - Macquarie Research

I guess one of the -- maybe I should specify the last question. March was kind of slow post the Chinese New Year. I take it from other companies comments that April was slow as well, but May, sequentially has improved. Is that what you see as well?

Albert Heuser

I would not say that we see the same. What perhaps we see after Chinese New Year that it was not a terrific start as we had seen in the past in several years after Chinese New Year. But it was good, I would say, healthy growth, not a huge dynamic and differentiated to the different industry segments as I elaborated.

Martin Brudermueller

But I think it's fair if you would compare last year with this year, you had more to the third quarter, which is harder to compare because there is Chinese New Year. It was in February, January changed over the year. So to compare January and February doesn't make sense. If you take these together, we have to be in I'd say, March where everyone expected, now it's picking up, did not happen. April was better than March. But it is, I think, very much also this expectation management. I think first of all, everyone expected and that was also what mainly the west convert it. If the new government comes in place -- can we close the doorway please -- that then the new government comes and we see a huge stimulus, and they need when they are in place to show that the economy goes up. Obviously, that was also my impression when Lee Ki Chan [ph] was in trading interest 1.5 weeks ago. The Chinese government is not unhappy with the current situation and the current growth, and that probably it did not have many stimulus. And for that reason, I think we all talk about in the moat that this has to take up now after Chinese New Year which didn't happen. So in that respect, we see an improvement, but not in the way that it's all tasty or it is goes back to old times.

Magdalena Moll

So our next question comes from Robert Buhr, which is 14d.

Robert Drake Buhr - Societe Generale Cross Asset Research

Coming back first to the sales target of this EUR 25 billion compared to the former EUR 29 billion, it looks to me that it is mainly the correction of the new accounting rules. But nevertheless, what I think you include differently to former targets, this EUR 2 billion for new business and acquisition, so it looks to be a little bit to fill the gap, was that the case? Or why you mentioned especially also acquisition, is there something more close to that, that we can expect something in the near term or why you mentioned that? And second question is about the excellence program, this EUR 1 billion target, can you give a little bit more a time schedule to ramp up to this EUR 1 billion in the next years? And perhaps are there also some additional expenses where you have to do to come to that level?

Martin Brudermueller

Robert, I take the first one. The second one I just give to Gops. With respect to the corrections, yes, in the November 10, we used the [indiscernible] between our chemistry strategy there, EUR 29 billion target for that we will reduce to EUR 25 billion, which is basically the IFRS correction. And then you saw that also at the global level of our income statement when we communicated in March, we come down EUR 5 billion on the target forward in '15 of in the EUR 85 billion or I should say the EUR 80 billion and EUR 115 billion to EUR 110 billion, and there, EUR 4 billion are in Asia-Pacific, and the reason is that we had the big 50-50 joint ventures in this. So it is basically only the correction of the IFRS and the expectation how these businesses would have developed under 2025 in our plan. Another reason why we have put out this EUR 2 million.

Albert Heuser

It's billion.

Martin Brudermueller

EUR 2 billion is major partners already grows. Our businesses have done for this strategy a very diligent, detailed bottom up plan. So each and every SBU has clearly a plan what they need to do, how much they invest, how much R&D they have and others. And these add up in the current portfolio to growth of about EUR 10 billion. What we wanted to make out of this growth piece, which we have indicated, one always means that these sophisticated markets are mainly in the U.S. and in Europe. In fact, that is not true. A major part of these new markets will be in Asia-Pacific, and I think in the [indiscernible] case, it was very impressive to show you that EUR 350 million out of the EUR 500 million are here. These are now businesses that are planned today because we don't have them. So in the present plan they missed, and for that reason I said we have to show this space that there is a EUR 2 billion coming from new businesses, which we don't have today. We really wanted to indicate this. It's a portfolio development, which is happening over there. The acquisition part, and we will probably need to talk about that later I think in more detail because you have more questions on it, go away a bit from this strategy to do the big acquisitions more for the the technology-driven acquisitions. Some acquisitions are factored in, in the base plans of our Asian divisions. They are part of this EUR 25 billion. But there will be also acquisitions in new businesses, which are not part of the plan. And, for example, this [indiscernible] is very much a technology-driven business to supplement our own skills in the [indiscernible]. And so we wanted just to indicate that both on developing the new businesses and also acquiring technology-driven businesses in Asia-Pacific add up to something significantly in this EUR 25 billion because it's almost 10% of our businesses in 2020. That is why it's not that we think we are improving, it is really to highlight that there is in Asia not only more of the same, but there is something new coming up. That was the reason for that. And maybe later on Asia -- anyway we can talk more, how -- let's say, what you at all can do in Asia because I think we all know it's not so easy. It's more easy and it's worse than in the business. So Gops, a bit more to that.

Gops Pillay

I think what is important is not only the EUR 25 billion from the EUR 1 trillion market. I think you to value this also about the fixed cost base. So as I hinted to earlier on, by 2020, we will have a lower fixed cost base of EUR 1 billion. I gave you one example of the project execution. I think this is just one example. I think the other side there we have is also the structural excellence program. Simply put is, how can we as BASF be a little bit smarter. For example, with using interfaces within the organization to become much more market focused. I think this is another example. And to give, I don't know whether I like it or not but, for example, to change the tradition of how we work together, myself and Martin in Hong Kong in future will share an office. I don't think this is heard of in the chemical industry. So this is really where the genetic makeup of the company has to change. The other part is really to be very clinical, and I think -- I remember my time when I was in the M&A department, you have a lot of spreadsheets. So it's really about being clinical on how we approach our cost base. For example, certain processes that can go more to back office, so we have the shared services center. So we basically decentralize and bundle. So I think moving forward, we have to do this, and I would imagine if we are sitting here in 2020, probably we need another structural excellence program for another EUR 1 billion. So I think you need to do both. It's not only about the top line, and I think this is something -- it's very much becoming more and more part of our DNA. So there's a lot of initiatives, and we can also check later on about more details.

Martin Brudermueller

Maybe to add to [indiscernible] I mean, it's talked really about people and cost of people. I mean, what we have seen in the last years is dramatic salary increases, and they're partly up to 10% here in China per year. I have made this very, very rude to our people here in the last employee meeting when I asked them -- I said, you don't deserve your salary. You were there, and it was just me. But I think I'm right. You have a 10% salary increase, but your productivity did not rise 10%. So if we just go on like this to raise the cost, and we don't on the other side react to bring home productivity goals that they can earn their salary increase, we slowly go down. So this is not possible. And this is why the mentality has to change, which we had in the past of labor is so cheap. You just get a few hints from the market to correct while the markets remain in the floor. First of all, there are less markets in the floor. Second, they haven't monetized it. So I have to teach the people who come to work, working together, that is, so we have to do more with less. That is why we cannot recruit so many people as you have in your minds, we have to learn to organize yourself in a way that you can do things with less people. The good news is, which I told also the people, I think if you look at salary levers and the efficiency in Europe and the one we have here, them there's a room -- a big room for improvement. And that is going -- every process will have. You really want to afford to hand over with 5 people in the role or you just say 3 people in one process is enough. So you reengineer. And this is all these pieces, which is in this forecast. It's a very diligent one. There is also, for example, another one, purchasing. Let me tell you for the investments, we purchase more locally and spend less, yes. Then they have to build up a purchasing organization here in Asia-Pacific that is capable to do that. It is the pre-investment under the same moment I later on increase the efficiency of my purchasing, and I start buying the stuff cheaper. So all these kind of things add up to the EUR 1 billion. And as you have the STEP program in the global level, and within the single array here, we have collected a lot of savings. Savings that come up to this EUR 1 billion, and they're basically the whole organization in Asia-Pacific is somehow involved in capability building.

Robert Drake Buhr - Societe Generale Cross Asset Research

I have one again. Is there, between -- from year-to-year, can we have a little bit -- is it more a late stage ramp up? So what we can expect the years to come the next 2 years to come at?

Martin Brudermueller

I mean, as we hit -- I mean, we have a plan here. I would dare to say now, this contribution per year and I might in the future, next time really give a little bit more on that. We have a plan here, but we are in the middle now of the structural excellence program, where we define roles and responsibility and all this. So I would not now give you next year's level in that. But you can assume that, let's say, from the investment part, which is the lower depreciation, which is also part of that fixed in labor because it has tended to all come as the investments come. But some of the structural piece, which we are going to establish end of the year this year should also be visible in 2014 obviously. So I believe you taking your best assumptions today, the different ingredients kicking in a bit slowly, longer term, shorter term take a little bit of [indiscernible]. We certainly try to split it up in the next years more, but I cannot give you detailed numbers now because, I mean, our strategy now is implementation. We have an idea, but a little bit more time to make it a bit more precise.

Magdalena Moll

Good. So then we move on to the next question from Jean De Watteville, 7b.

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Two question on competitivity and efficiency again. First of all, as you said in your presentation, of course, access to cheap feedstock is very important. Can you share with us what are you doing? And what will you do to optimize access to cheap feedstock? Will you invest in some of the alternative gas opportunity? Some investments are underway currently in China. I'm interested about the role you intend to play for these investments? Second question is about manufacturing set up. Forgive me if I'm wrong. But looking from the outside, when you look at the BI setup in Asia, it probably looks less optimized than what you have in other regions. We have a partnership in Nanjing, a partnership in Caojing, the Pudong site. Now the investment in Chongqing and the sites in Kuantan. You have not realized a centralized hub the way you have in Europe with Ludwigshafen. So from an external perspective, it seems that probably your setup is not as optimized as you could reach. I would be very interested to have your view on that and what you can do to improve the development of a centralized hub to improve competitiveness?

Martin Brudermueller

I'll take over first one, the second one is Albert. Let me elaborate a little bit on this -- a little bit more in detail on this feedstock piece because I think this is very important to define the future or define the future competitiveness. It is still vague a little bit, let's say, here for us mainly in China. The dealer situation is that 2 as a [indiscernible] will go out and we now have 50% in an acquired company. And the government is, maybe they are grooming this centrally in NDRC and that means that CNC, SINOC, PetroChina and Sinopec obviously will tell us, they want to partner with us. And if they are generous, they shared with you in a 50-50 joint venture. If not, you get the [indiscernible]. In other words, they scaled in the past. They get access to key building blocks in the chemical industry. What happened in the meantime is that there is many other opportunities in doing chemistry. First of all, gas. So you have then the methanol into [indiscernible] and now coming up coal. And with this is you have, first of all, on purpose technologies, which are not falling under any rule about existence, so it increases the fear of people who can get access to building blocks. And also new technology owners because the product is one thing, but the coal and chemistry and the [indiscernible] is other people who hold these technologies. So on the other side it's good because it's opening up the opportunities, how you can gain access. But on the other hand, also to say there is no one in the world who ever made a gift to BASF. There's no one who ever will make a gift to us. So the only deal for us was probably enough, you gave us access to cheap feedstock, we provide good technology and do the integration and have the whole portfolio to run something integrated. That was the model of the past however. That still works to a certain extent, but it also only works to a certain extent because there is more technology proliferation. Also those partners here have more choices. That's why it's not only BASF the only guy who could do this. It can be even others. That's why we see, they spread their portfolio also into others. Then we are pretty rude on that, and the quick result, you can see it from the fact that we dropped out to some approach with PETRONAS. Everyone expected that if you announce such huge projects, [indiscernible] and you may do it. I think it's a very good example that we invest 2 years of heavy resources to study this, to negotiate this and walk away at the end because we say the producers are not fine. And one of the reasons for that was Malaysia wants to have a natural gas price of LNG prices. It's not competitive in this world. So [indiscernible]? No, we don't do it. That's why we have to wait. On the other hand, the March 4 announcement which we did that Jean mentioned, this BDO and PTHF now in the Xinjiang Province, which is far away, but which is the province where most of the Chinese gas reserves are. This is the Tarim Basin where may -- most of the convention gas comes from today. We have a partner who has access to very cheap profitable gas, which was building to go for a deal [indiscernible] technology. So we bring in our PTHF technology, share it with them and get cheap feedstock. So you have to be much more selective in the opportunities where you go to. This also means you have to be ready to open up your partnership portfolio. That means you have more poly new players in, where you go for a certain location for a certain product that fits and you do it when price is good. So -- and that reflects more flexibility from our side. And maybe let me point out one last point in this elaboration, coal chemistry. If you look into this, there was quite a hesitant reaction for us on the Chinese government. They are not so sure whether they should do it. You also saw that some of the projects have been [indiscernible]. On the other hand, solvents -- since about 6 months, everything that's go and green light for the whole project. And there is now a huge wave of coal projects coming on. It's investments with about billions for the stock because it's very, very capital intensive. It goes from coal to olefins and then mostly to ordinary commodities, which means you are in a commodity business label, which doesn't have differentiation but huge capital funding. And in the same moment, yes, if you look on cash cost for coal in China, this is also easy to mine because you don't have to go down. It's basically daylight mining. So you have very low cash cost for coal. They are competitive with shale gas in the U.S., but there's this huge amount of capital in there, first; and second, millions of tons of CO2. So you have to think about whether you really want that one. As long as there is no CO2 cost, okay, that is competitive. I'll leave it to your judgment whether regulation in 10, 20 years in China, the CO2 still has no cost. And it would become a cost, all of these projects [indiscernible]. And if you invest USD 3 billion, USD 4 billion, USD 5 billion for such a coal project, really long time and commodities to get to manufacturing. So I didn't have to think about that one answer [indiscernible] and under the circumstances and what the product portfolio could be if [indiscernible]. So what I wanted to say is this -- the situation has been much more complex. There is no [indiscernible]. It's hard work to assess and access those resources. You have to be flexible, not pragmatic, not arrogant in order to really catch up the [indiscernible]. For that reason, not everything will be with Sinopec. There will be new partners, and we will do it in a very smart way. That is how any collaborator works piece of problem [indiscernible].

Albert Heuser

Yes, the second part was regarding the manufacturing setup in the region, and you said the impression from outside is somehow it is a little bit scattered compared to other regions. Part of the answer was already given by Martin. But perhaps to add on that, for sure, the region is different from other regions. It's a very complex region with a lot of countries, different markets. So there is a need to be close to our customers in these different markets. And for instance, if you take our investment just right now on the execution in India, in Dahej, this is a clear manufacturing cluster for India and we are happy that we are able to cluster in the northwest of India a lot of our downstream chemistry. And talking about northwest, this indicates that we have somehow were in [ph] specific for the automotive industry than in the southeast, for instance, a second kind of cluster for India where we then consequently will build on. If you go through the entire region, then you mentioned by yourself on our BPC joint venture in Malaysia with PETRONAS. We just announced that we look into further expand activities there. So we have certain clusters. If you go to China, then we have -- Zhao Jing [ph] mentioned very early on in one of the first questions where we look to have their much more of our activities. We look into, for instance, an hub for serving the automotive industry the south of China by establishing an automotive kind of hub where we bring activities together to have more than a clear place to serve the automotive industry. And so we have put a lot of efforts under the excellence topic at the end to look into our structure, which sometimes is a structure where we have to lift this for a certain period of time because we acquired some companies and we earned a lot of additional sites. And so from that point of view, an answer to you is be aware of -- that we look under the umbrella of excellence very much so into the site setup that we have clear ideas how to structure for the future. And secondly, that we look to decrease clearly complexity of this setup. One measure I could give you is that we underwent a program of consolidation of our legal entities all over the region. A lot of efforts we do here and by this excellence is clearly increasing.

Martin Brudermueller

Just one [indiscernible]. First of all, is the asset base is young. You have more potential in the long term to reduce your costs and hedge potentially with OPEC [ph] which we will do increasingly because when we start to pick size first of all, is that they are saying they are reliable [indiscernible] and then you basically work on them to get more and squeeze more out of it. This is [indiscernible] potentially and which we lift. And the other part is still to what I said and Albert elaborated, it is a chance of us to one hand to be flexible, but on the other hand, to keep as much as we can [indiscernible]. This is somehow diverging, but that's why I said pragmatic positioned us to that.

Albert Heuser

And tomorrow you will see a good example, next to our joint venture BYC site, we have 100% BASF operations. You will see it tomorrow, and it's remarkably how we make use of streams coming out of the joint venture operations, BYC, and you'll see it tomorrow we elaborate this in more detail.

Magdalena Moll

We are now moving on to Thomas Gilbert, 16B.

Thomas Gilbert - UBS Investment Bank, Research Division

UBS. 2 questions. Following on from Jean on feedstock. If I understand it on the whole coal versus gas versus oil feedstock, would you consider an on-purpose butadiene investment in Asia? And what is your view on butadiene globally and in the region: long, short or balanced out to 2020? And the second question, and I hope I make myself clear, you've announced EUR 10 billion of CapEx in the region. And if I look at the waterfall chart, EUR 10 billion of organic growth contribution to sales and the CapEx probably includes the share in joint ventures, which basically means what the sales doesn't. So the incremental CapEx potential looks incredibly stunning. I mean, it looks like the incremental return, you spent less CapEx than sales. So what is your IRR for a downstream investment in Asia? And does the organic sales contribution include some cyclical recovery in the base business where the CapEx is already done? Can you break down the growth -- organic growth between payback on investments and component of base business cyclical recovery in the region?

Martin Brudermueller

I'd like to start with the second one. I cannot certainly because, I mean, we talk about a 3-digit number of projects that come up to EUR 1 billion, [indiscernible] same go . And you can imagine, I mean, there are some bigger chunks and there are some smaller. If you take out the -- or remember maybe the picture out of the global nuclear chemistry space, you can say they go away from the classic [ph] chemicals more to the unhealed materials spot [ph], which is in the value chain. This is true for BASF group-wide. It's not totally true for our group -- true for Asia Pacific. We still do have [indiscernible] further investments a significant part from the more capital-intensive basic chemicals and guidelines. And so on the acrylic acid plants, that are heavily capital intensive but which are the basis to start to load these value chains. There is much more capital investment than we will have in investment for making dispersion. So it is very mix based for the reason, I think, first of all, we have not calculated all them because the supply [ph] until 2012 as you can imagine, and it's then also a mix aggregate number. I can only say if you look on the single SKUs [ph], how they have blend their sales and what they want to invest, it makes a lot of sense. But the aggregated number maybe looks to you is strange. You should also not forget that some of the investments are like an equation [indiscernible]. If you start an acrylic build in acrylic acid and you consume 80% in SAP, you don't see the sales stopping. But it still improves your margin, your cost situation. [indiscernible] for that reason, the aggregated number, I think, doesn't give you too much. As you start in new markets to build up these value chains, there's always [indiscernible] integration and capital-intensive, it's still the best competitive position, which allows you to buy [ph] and to make good money, but it is not that you just do something which is always one to one, giving [indiscernible]. For that reason, I think, why basically cannot say in terms of IRR. I mean, at the very end, it was a plan until 2020, not everything become one to one, we know that. It comes later, the other one might change over the way over there. But each and every project has to fulfill a single project [indiscernible] various moderates [ph] for, I mean, that project. We have [indiscernible] more project than money, which is good. There's competition internally. So every project has made its way through this bottleneck to be a [indiscernible]. Your first question was about butadiene. I mean, I tried to tell you that from a more general point of view. First of all, with the all-purpose technologies which I mentioned, if you do propane [indiscernible], that you do coal to olefins, that always means that C4 is short because all [ph] may basically hit [ph] the very low, if not at all, it's all in C4. In the same moment, you see shale gas impact in the U.S., which goes from heavy to light feedstock, which has the same effect: C4 is short. That is why I generally would say structurally, C4 is getting shorter than before [ph] because it's not the standard [indiscernible] which has a certain [indiscernible] C4. More C2 and C3s coming from other sources and that there's no shelves [ph] in C4. For that reason, heavy access to C4, if you [indiscernible] value chains like we do, is critically [ph] challenging with how you have to do [ph]. For that reason, I can also say in R&D, we look on-purpose butadiene. So that's a project which we have, so you make on-purpose butenes and you make as well on-purpose butadiene. But you have the same opportunity that you need butadiene. You cannot only look for cracker output, but you can do it on your own if you have butene feedstock for its own [ph]. I have to say butadiene is not the top critical raw material product in Asia Pacific. We have it in [indiscernible] dispersions, which is Paper Chemicals, which is challenging anyway. The whole industry is challenging, and you have also here some new developments, I have to say, that you go to different raw materials, which we also do. You dilute the existing starch, natural materials. So with this, I don't see a dramatic need for, for this year. ABS [ph] is no longer part of BASF's portfolio because it is inside of Ludwigshafen. So for that reason, butadienes, we need some, but it's not a critical resource [ph]. Yet the volumes we would get, we would always get. And for BASF in total, I would say this is true, the same. And if we have on purpose technology, we get access on our own. But lonely [ph] I would say, butadiene is more difficult to get expertise [ph].

Magdalena Moll

Thank you for this very good answer. Now we come to Hans Grueten.

Lutz Grueten - Commerzbank AG, Research Division

Lutz Grueten, Commerzbank. Thanks for taking my 2 questions. The first question regarding, in an earlier slide, you showed us on the EBITDA, which is shrinking since 2010. I'm not talking about the accounting effect here. And the explanation you gave in your presentation was talking about an increased competition. While BASF, now for centuries, is used to work in a competitive environment, I'd like to get a bit of understanding for the situation here in China or in Asia Pacific, what's different? How you describe the competitive situation here, and how you want to overcome that situation? Because in one other slide showed that local competitors are gaining market share, so I guess you are losing market share or have lost market share in the past. That's my first question. The second question regarding R&D. You got the plan to generate 25% of your R&D budgets -- not generating, dedicating here in Asia. How you describe the current situation of intellectual property and the protection of that here in China and in Asia Pacific.

Martin Brudermueller

Yes, I'll take the first one; one of you, the second. I mean, EBITDA, yes, we saw we have in 2010 record EBITDA of EUR 1.7 billion and then the next 2 years, it was going downwards. I mean, first of all, you cannot change a portfolio so quickly. That is actually what we will do with the investments, that we will go further into areas that differentiate us down the value chain, that you also are in areas where innovation plays in. We have also good obvious [ph] capabilities. I think we have to say you have a lot of these thousands of companies which were in this pie chart, which are actually our competitors. We are always asked how we do against Dow. People care about Dow. I care about the hundreds of local competitors, which are competing you in distinct products. And there I have to say there was more the attitude in the past wherein [ph] they produce something this much [ph]. They have 10 containers, they go to the customer and they sell it at low -- at some price. The next 3 months they are out of business until the end of the next rollout. So I have to say in that respect, these fellows have become better. They have sales process now. They start to invest in customer relationship, that you also nurture your relationship if you don't sell for 2 months. You invest more in the market intelligence that you know better outlook [ph]. Where are the customers who pay a higher price and offer more margin. So in that respect, I think we have to say they stepped up in their capabilities. And that is also what you see very differently in the different areas. In some areas, they're half [ph]; in others, less. And that is something which we just have to realize, [indiscernible] this comes, that's why we have this strategy. But I have to admit, it came much faster than we saw it and in that respect, yes, we grew and on the other hand, let's very faintly [ph] talk about it, 9% growth rate for the business [indiscernible] 2020 in the moment those lift to [ph] this. The current development we talked about is, and you know the numbers, it was 4% to 5% in 2012 and the first quarter was not throughly elaborated and this, in the moment, we are faraway from the 9%, we are half of it. But on the other hand, we also clearly have to say, I mean, we talk about the strategy for the next 8 years, and we also know actually 2 to 5 [ph] years. I mean, 2010 was so [indiscernible] better than any strategic assumption as 2012 was for us [ph]. But I have to say I think some of this competitive strengthening will not go away anymore. And so the consequence is that we have to invest smartly in those programs where we can differentiate. On the other hand, we have to really step up this innovation and change also the customer portfolio, and that is good. We have more and more Chinese customers that are more demanding. They don't buy just the commodity products, but they engage with you into developments, whether you have a higher [ph] in appliances where you do joint projects or whether you have local OEMs in the automotive who want to learn to replace plastic against -- metal against plastic, then you have these pockets where you still run ahead of your competitors. And this is why we simply have to accelerate, and this is why we say 3,500 R&D staff in June [ph] of 2020. You cannot grow overnight, but you'll see it -- we'll see it from the chart on the team [ph] how fast we have been here and it's really impressive. And you can see next to it that [indiscernible], which will be Phase 2 of the R&D centers, so the next plot [ph] is coming. So that is what we have to acknowledge: growing has become more difficult. And it will not go away anymore and it is on us. I don't complain about this. As I said, we have to do our homework. For that reason, the fundamentals which we have shown you, I think, are still valid. And if you take the growth rate and the GDP, and the chemical market growth of our protection going forward, it is pretty much in line what you have the last 10, 15 years. And I think [indiscernible]. They shift a bit as we invest in China. But ASEAN is very strong, so that is what we have collected [ph]. You have to catch-up now that -- during this current situation, which is not what we want in terms of growth in turn [ph] just to come up with the 9 percentage here.

Lutz Grueten - Commerzbank AG, Research Division

But regaining market shares, that's the aim, growing 2% faster than the market means regaining market share. And I guess you, among the cost leaders in the region, is price a function to regain market share?

Martin Brudermueller

I think most of you, you cannot generally say this is the portfolio. I would say we are, pricewise, very well positioned with many products, but we are also acquisition perfect in each project. I mean, as he -- as Albert said on the automotive, we strongly grow double-digit in the moment. It's really great, and then you have other sectors where you have [indiscernible] because you have not so much space anymore to compete. And then [indiscernible] from BASF, we have more value [indiscernible] driven company. In the sense where if it's then really going 4, 5 [indiscernible], we safeguard the margins [indiscernible] margins and do not buy every chunk of the market for any price. So -- but within this process [ph], you have to decide business-by-business what is the right things and on the overall, BASF come up with the 9% [indiscernible]. And the second one was...

Albert Heuser

The second part was regarding IP, IP topic, IP protection. And as innovation is so important looking forward for us for sure, we have an idea about IP protection. And then we talk about the Innovation Campus here in Shanghai, then we talk about IP protection in China, which for a long period of time, was always under discussion and somehow was seen very critical. I have to say we prepared ourselves very much so before establishing all these assets for the Innovation Campus, and I can assure you that we take measures. And the second to see is that there is a clear development of China authorities to protect much more IP because they want to have and create much more intellectual property in this country. Meanwhile, they have more patents than all other countries. They move [ph] for their industry in the shift from the old economy being very much export-driven to a new economy, which should be much more scientific-driven. That intellectual property has to be protected, so this plays into our cards. And third, we, for sure, look that we keep our people because this is the key. We talked about attrition rate and as such, this is another important part, talking about how to protect IP. So I think all these measures and together, we feel comfortable to have placed our Innovation Campus here in Shanghai, being close to our customers. By the way, as Martin elaborated, we do a lot of research development together with customers, even having a few of our researchers embedded at the customer site in their laboratories, and they have the same interest like us to keep what comes out at the end protected. So from that, I think it will -- it is a question more or less perhaps of history. We see it much more differentiated today.

Martin Brudermueller

Great. One thing here because, I mean, this IPR stuff comes always from the general industry view. And as [indiscernible] China speak opportunities as part of the Asia Pacific affairs [ph], I address this on the political level all the times in the interest of the German and the European industry. It's indeed right that 500,000 applications last year from China. So it's a very [indiscernible] applications. It's where it is [ph]. It's part of the 5 years plan, the government says [indiscernible] all the time you will have to be innovative. So now we are innovative. Now you complain again because of too many patents. But there is a KPI, 1.3 patents for 100,000 people. So the governments, the provincial governments, the companies, they go forward to [indiscernible]. What I complain for at the highest level, I think, even from the venture partner [ph] was say, "We appreciate what you do. It's great that this has to come [indiscernible] of your industry to be innovative, but please take care about the quality of the patents because many of those patents are trustworthy [ph] with a very low invention. And if you continue to do this, you bring the whole global system to a collapse because if you have to handle 10 million patents [indiscernible] can move in verticals just one starts the case against the other one and it's not really healthy and it's preventing innovation. That's why we said you have to look on that one and there is another important part, which is not so much on our side, which is in general [indiscernible] so I think it's utility application. So it basically says if you -- if someone invents a gadget [ph] and you can go in China and say I have one problem, so the red form [ph] for the blue form [ph], so the yellow bottle [ph] and for the green bottle [ph], and then each of these utility patent basically saves costs anyone to go [ph] with the green bottle [ph]. This is not healthy innovation. And that is something which on the other hand is always connected with the physical piece not with the chemical. So [indiscernible] utilities stuff is nothing important for us but more for our downstream customers. And the last remark I'd make there to you just in [ph] 1/3 of all patent applications in China is chemicals. So it shows you that this innovation, this color [ph] is really an innovative industry and for that reason, we will see many technology applications over there. And last but one [ph] pressure I made, and this is my major threat for European investment industries is these patents are written in Chinese and you cannot read them. And then you do your own patents, you study what the landscape is, you forget to write in your state-of-the-art what the Chinese invention is. And then you launch your patent, you try to get your protection and then they attack you by saying, "This is no longer an innovation because it was known already." For that reason, we have squeezed them a lot to make all Chinese patents accessible in English, which was what planned for 2014. And you reach [ph] those political success, I would say, there is now from EPA, from the European Patent Authorities, a Google translator where you get an English version of the abstract and everything, so that you can at least assess what's out there. It tells you something, it's [indiscernible]. They will have innovation [ph]. They will have their own technology, and that is also why you have to step up here locally to compete. But I have to say the drug [ph] is always something exceptional with China and we have it with the U.S., with the Japanese, with the French, with Netherlands...

Albert Heuser

Koreans.

Martin Brudermueller

So it's not China [indiscernible]. But we, as a company, have to prepare ourselves and not only complain.

Magdalena Moll

We're now moving on to Paul Walsh, 18A, and then I have Andreas Heine and Andrew Benson.

Paul Richard Walsh - Morgan Stanley, Research Division

So my 2 questions focused on, firstly, can you talk a little bit about the agriculture segment? It's still a small portion of what BASF is doing in Asia Pacific. If you could talk around the growth opportunities here and how that fits into the strategy as well. And secondly, on polyurethanes, you guys are expanding capacity, others are also expanding capacity, specifically in Asia and there are mixed views on the capacity increases and the landscape for utilization rates. Can you share your view on that front as well, please.

Martin Brudermueller

Agriculture, yes, I think you saw in the last, I think, meeting we have with agriculture, we said we will think about this. I think if you go in the past, we have to admit, we act [ph] a little bit too long before we discovered the Asian markets. Some of the competitors have adjusted much faster and earlier and positioned in here [ph]. And one reason for that, indeed, was the IPR issue. It wasn't the patent [ph] BASF some people [indiscernible] rather than go in this market because of IPR, which I think was a wrong assessment. And today, we say we will see that these markets are huge potential if we have to assess them. That's why we have to speed up, that's why we try to catch up and I think this is also looking quite well. We grow nicely, and we have a huge capacity buildup. You also saw that in Rudong in Jiangsu Province. We built a new formulation and packaging plant for agriculture, which will help us then to penetrate and to package in the right way to penetrate those markets in China. [indiscernible] India, this is a new project, then we have this approach to penetrate [ph] 100,000 of farmers and then we teach them how to use agriculture -- agrochemicals and increase their yield and their income. So there is a lot going on. And [indiscernible] yes, it's part of the global strategy that we have to catch up [indiscernible] to take advantage out of these markets, and I think we are doing well in this. But we also believe for that reason, [indiscernible] smaller than many of our competitors.

Paul Richard Walsh - Morgan Stanley, Research Division

[indiscernible] landscape. Do you face a sort of different set of competitors here in China with the domestics producing on the crop protection side from a generic perspective or not really?

Martin Brudermueller

Well, I think -- I mean, it is a very differentiated market, and it's a huge country and for that reason, they get really access everywhere. And so you have [indiscernible]. I think that it's one development which I think is in favor of us because if you look on the 5 key industries in the last 5 years plan, one of those industry mentioned is agriculture where they clearly want to step up [indiscernible] productivity of the sector. They also heavily group [ph] on the hundreds of generic companies. That's too much. So they try to consolidate. They partly still [indiscernible] that those beyond the companies do not get approvals [ph] anymore for their products to really force them into consolidation partly [ph] for us [indiscernible] business. So I think that is a positive environment for us to position here with our products, and we are still on the innovative end because, I mean, we bring in [ph] new entities and not generics. So that means [indiscernible] that you focus on the right markets.

And I think [indiscernible] can tell you a bit about the areas we want to focus on. So we have the [indiscernible], that's why we are stronger. Indeed, we are stronger in food and produce. So I think you have to do it also in that perspective that you cannot do everything, but I think it is working well and it's a favor [ph] to the environment as we [ph] do that

Albert Heuser

And for sure, there is a change in the agro industry as such on there are so-called mega farm projects under development in parts of China and all of this will lead to a different kind of how to do agriculture. And that's -- they're not only talking about, let's say our key agriculture products like fungicides, herbicides and insecticides, it's talking about some other solutions like packaging, which becomes important. And so we try to take those developments at the right spots as well.

Unknown Executive

But also, you could sort of turn it around because if you look at it in the chore market of basic Australia and Japan. And if you look at the upside potential and this is where we also have the media day 2 weeks ago in Singapore and I think if you look at the upside potential we have in the ag business its really because we are really [indiscernible] to mature markets. So I think as Martin and Albert alluded to, there's a lot more potential in this marketing.

Unknown Executive

And then going back to your second question in China. I mean, we have a very well respected competitor, [indiscernible]. I think it is one of the [indiscernible] and we talked about competitors, I talked about small and medium size. There are also some people who wants to do very well and that means there's no room for arrogance to compete and we have to say, from a perspective, looking at them, the short time period they needed to catch-up with western producers is absolutely impressive. And if you look on the capacities it depends on how you count it, but it takes a few years when one market leader in MDI globally with their capacity so #1, no question. Coming out of the shadow and being #1 globally in MDI. They dilute capacities here in [indiscernible] they get certainly all the training from the government and it's one of the deluxe companies of the government. I have to say, it's one of the global champions. It's about 45% owned by the [indiscernible] government, the shares, so which you can imagine this is a beloved entrepreneur, it's a great guidance this company, they have good technology, they copy BAS proponents and integrated and with this I think they -- they are a good competitor. But on the other hand, I tell you, there's no reason to complain about anything. This is then the one we have to measure ourselves and we have to find our own setups to compete. We are thinking that the move is a smart one because it is thousand kilometers away over from other plants and this is 300 million people living in this region. And our plan is that over time, all the volume of the 400,000 tons in MDI will be consumed in that region. So transporting 100,000 tons of MDI across China is maybe also not the most sustainable pattern for the future. And for that reason I think we have a recent differentiation there we have economies of scale, we have market over there. Let our answer in this more competitive market than in the future. Yes, and became more competitive and we are definitely [indiscernible].

Albert Heuser

And I guess part of your question was at least to -- I sense it out to ask about the capacity and the polyurethanes and coming to that parts in a little bit more detail. Why is polyurethanes such a kind of interesting product? Because it helps to give a lot of on solutions to tackle energy saving, for instance. Bring it on a higher headline, help to have better sustainability. And as such, it is -- when you look into the 12 years plan, then it's clearly one of the product mentioned indirectly, that those products should be fostered under the 30 years plan, will help to create a better sustainable industry and better sustainable solutions to be introduced. And therefore, it's not a surprise that a lot of capacities come on stream and are under construction like ours because it's a market segment in the chemical industry, which has high growth rates.

Martin Brudermueller

It depends a little bit on how the projects are stated. Sometimes they are a little bit delayed or not oil companies [indiscernible] supply demand will be a little bit more stressed than it was in the past days.

Magdalena Moll

Ladies and gentlemen, given the fact that we still have about 30 minutes and I still have 10 questions, I would like to implement an operational excellence program. And maybe we go to one question per person and then I promise, you can come back in the queue. Okay, so we are now coming to [indiscernible] table 6b, then Andrew Benson, then have Chris Willis [ph].

Unknown Analyst

[indiscernible] sorry, a short one on Chongqing, where you have already started to give some information on, is that planned -- in the MDI plant still on scheduled for 2014 because there are statement that it might be a little bit later. And is that side or new for this MBI plant or we get this type see more products in that area? And a more general question on 2020. Will the Asian market be different in chemicals to the U.S. and the European market in those days and what that may mean for the product range BASF is offering here for the margins? So taking out agro and taking out oil and gas, how will be the business in Asia in 2020 for BASF compared to Europe and U.S.?

Unknown Executive

[indiscernible] I mean, first of all, yes, it's still in schedule 2014 and we are very much to the plan and our Chinese partners are a bit behind the plan. It's a huge project for the partner [indiscernible] the other [indiscernible] to serve as [indiscernible] and materials. We have them earn much to take this challenge because it is the largest investment they ever had and we have to help them a bit, the question is how do we manage this now in the months going forward. It is certainly a challenge, but we still see the 2014 target. Then your question about The Asian market structure in 2020, I mentioned already that today, it is still more in the base chemicals side. I would say it's getting closer to European markets in 2020, but still will be different. Because I think too many people who just come to the stage that they can afford to buy some goods which they could not, so there are still a very much a basic need to get all the materials to trust, feed the basic whether it's polyolefins or whether this is polyurethane or other materials. So they are building that more sophisticated, innovative will grow fastly and will basically become more alike Europe and [indiscernible] but still the share in the peak basic chemicals will be higher in 2020 in the overall markets than in the other regions.

Gops Pillay

But also to add to that, I mean, right now there is no homogeneous Asian market. I mean, this is the other point that people -- so it's hard to compare Asia-Pacific to Europe or NAFTA. I think it's, certainly, if you look at Japan compared to maybe Asian, there's some similarities, but I think more downstream innovation will become important so you have to be closer to customers.

Magdalena Moll

And we come to Andrew Benson.

Andrew Benson - Citigroup Inc, Research Division

The sales grade you got still seems, I don't know, still seems high relative to the sort of environment that I think what's in our economies and so city expects in terms of a greater proportion of service, a lower level of GDP growth, a low level of volume pull through. Now you achieved, I guess, about 9% growth in the historic data you provided but of that probably, I don't know, 1/3 to 40%, 50% is raw material cost and the oil price was going very high over that period. So actual unit volume growth. And you've said you've lost a bit of market share so there does seem to be a gap between what you're targeting and the market environment. And also, I think, and what Thomas Gilbert's talked about the amount of money you're planning on investing to achieve that sales growth. So either I'm missing something or there are other factors, perhaps there's a greater focus on M&A you're not telling us about or there's a great level of inflation or perhaps you're expecting a collapse in the value of the euro or something. I wanted to sort of be critical and quiz you on the delivery of them growth routes into the metrics you talked about and then the second part which is part of the first question is the profitability, because you talked in about the about the development of new technologies and generally new technologies have high startup costs, you talked about a fourfold increase in R&D. And presumably, you're not talking about cheap paper here. You're talking about a 10% general wage inflation and yet you talked about margin and expansion as well. Again, there seems to be a mismatch between what you're hoping to achieve and what you're putting in place at this point in time. So if I could squeeze you on that sales and margin expectation.

Martin Brudermueller

Andrew, I mean we mentioned that more than one -- it's an ambitious goal in mind, it is very clear. And it only works on the assumption that the macroeconomic picture is right, that's why we showed something going in the future. I mean, coming from the 12.8% of GDP growth in the region, we'll penetrate you on one hand and then the 6.2% on the chemical market. At best, we'd go down and certainly our 9% has to go down. The 9%, we tell you, on the basis that this is the macroeconomic assumptions. We change we have developed. It still more than 2% then yet normally more than the average BASF. I ask you also, I mean, the 2% that you sell for the company, you can imagine the 2% does not make sense for each and every business. There businesses where you defend. There are business where very innovative, where you control but it could grow more than 2%. So I think in dynamic markets when you have a market growth of 6.2%, it's more easy to outgrow the market because you can ease every local competitor, still a scenario where they also can grow. If you grow 2% above market, in the European market, the growth only is 1.5 and you want to go to 3.5, I think it is more difficult than in Asia where your total market growth maybe is 6 or 7 and you managed with 9 and some of your competitors might come down to 3 or 4. What is happening now, at least we have 4, but no but they still have growth environment. So this is a very clear answer and is challenging is. And if you only fly if all these [indiscernible] if in areas like that where we really get it and we catch it. If the innovation kicks in fast enough, then our current portfolio can renew their product portfolio, that you can be in a more in one-to-one strategic development [indiscernible]. I mean, no [indiscernible] customer of ours in a global level and we have a global target that we want to achieve with them. You trust the management team with again, okay, makes you part of that as we have now in Asia. So it is also that you partly within your global corporations, not the same problem with your customers. Some of your customers say I have to accelerate my growth in Asia. I can only do that if you work in Asia and you give me the same stuff I get from you in U.S. and in Europe. And then they tell me automatically, in terms of innovation, I don't get it here. Imagine how fast can they save up. On the other hand, you'll have to say this increasing innovation and getting additional people, you won't have to do anyway on the global level. So that reason to say why do I do it in Europe, you really do it here. It's no cost savings in this novel, but don't higher the people here because we think the research Shanghai cost less in Germany this is not the point. The point is in different entity, most of the customer. I can only say, yes, very challenging but we still think the fundamentals are that we can do it and I ask myself why should we give our team a low challenge, finding out. I think, yes, start they have to run in [indiscernible], yes. And I assure you that we'll be yield until 2020 but we'll not go to $0.90 but I hope they all have the reason [indiscernible]. And I think we showed this in the past I mean, 2009, 2010 and then it was much [indiscernible] 2011 to 2012, first, somehow I think if you talk about purely the strategy in this room, not every year is the same [indiscernible]. With respect to your investment piece, I think I cannot say much more than I said here and there is significant part also in the equation, that you're the raw material source and then build up the chain. It is very difficult if you see the aggregated number to make this understand. But I think EUR 1 investment, roughly EUR 4, a little bit more than EUR 1 of sales is not a bad number. If you think about that, you have to build up new positions in some areas and I cannot elaborate on this but if you watch carefully enough, you saw a big part of India. The position of BASF in India have to look on his independence. You have to build up [indiscernible] so that means money and it's not one-to-one as I said in the sales, but I think if I -- it can only say we spend days, hours with each and every business and we grill them and challenge them on their plans, so we have looked into investment plan business by business throughout all the appeals, it makes sense but there's [indiscernible] the aggregated number, cannot say very much more but [indiscernible].

Magdalena Moll

So with this we're coming to Chris Willis [ph], 24B, and then I have Tony Jones.

Unknown Analyst

I realize that forecasting can be perilous and that you prefer not to put out 2020 EBITDA margin forecast, but if we shift to the present what if -- let's say, we were to take your OMP ratio up to the 75% that you're hoping to hit, can you give us an idea of how much of a margin lift you might have today if you were producing a lot more in the region versus shipping in? [indiscernible] just gave us an idea of that differential in sort of current terms?

Martin Brudermueller

It's more than I already said, I mean, maybe returning also to something that was said earlier what Andreas asked how the business is doing. If you look at the business composition here in Asia-Pacific today, it does not reflect among the [indiscernible] is much normal, [indiscernible] chemicals is much bigger. So in retrospect, you will see increases this year, we will have more very profitable agricultural business generated here. On the other hand, we have to say the active ingredient is still mostly produced in the U.S. and Europe let's say, which is basically the margin, but there is still not margin [indiscernible]. So there will be also in 2020 still a different portfolio proposition in the group. You get close to, as I mentioned earlier, there will be more fee investments and for that reason it will be more exposed because these markets are. So in that respect, we have been to end up all the sites you build them here and you have on the urethanes margins contributing here more strongly than they would have in Europe. If you take urethanes business and you look in this growth and most probably the Asia business in 2020 or '25, it's bigger than what we have flown in to date. I mean, there is major, major shift in all this composition and I really think I cannot say much more by taking EUR 1 billion out of the costs. It would be this -- if we have today, it would be EUR 2.2 billion EBITDA that has to come in and then on the other hand, you create this shift in the portfolio. You create more innovation which, allows you also higher margins, then I think looking into this roadmap, you came up to this conclusion to say, yes, we get closer to what group. I know I should give this more quantitative number.

Albert Heuser

Perhaps, to add on that, because you mentioned the shipping cost alone and I elaborate on that one, perhaps. Typical shipping cost, my answer would be EUR 50 to EUR 150 per ton, depending on the chemical you really ship. Is it, for instance a liquefied gas and then it is more than EUR 150, if it is let's say, some polymers, which is in the past than it is more of the EUR 50. So this gives you already an indication but it's not only the shipping cost as such, it's a whole logistics in which for sure you have to take into consideration and then the lead time. So from that, only and that, out of these indications, you will get an idea that we carefully look at all of our products when and where it make sense to do it, the investment closer within the markets.

Martin Brudermueller

Let me put one other piece in here. I mean if you look on the [indiscernible] and you import almost 6 billion. If the state is the OMP, we will import 12 billion [indiscernible]. First of all, can you tell me how we should handle 12 billion import [indiscernible]? Second, when I ask you, where should the material come from. I mean we don't have the capacities there to organize and to manage the growth, we'll have to build the capacity. For that reason, it is how much opportunities in terms of raw materials, location, cost we get all those capacities service staff how much of that you can really, how much we can handle to really execute with engineers and everything and how many good raw material access we be so at the access we be so at the very end, we need this capacity anyway to grow this [indiscernible] 12.5 billion, 4.5 billion. And I think if you look into ever extendings of and how much we get out of it and we take that in the effects that we have to build some of the value chains will continuously or totally well, then I think the R&D investment is roughly in line with what we need to fuel the growth at all.

Magdalena Moll

So we're now moving on to a next question from Tony Jones.

Tony Jones - Redburn Partners LLP, Research Division

I just wanted to ask a question about the strategy to get closer to the customer. Now it sounds like a very good thing to do, so it helps you capture more of the future growth, obviously sort of leverage acquisition. But one thing, how are you going to prevent, as you're collaborating and spending more time with your customers, what's the danger that as that customer knows more about your process and the products and the costs, what's the danger that actually you lose part of the value opportunity in the future and rather than transacting at more so than arm's length, what cost that?

Albert Heuser

I think it's depends on the portfolio, look at a concrete example, our investment in Dahej, India. We're investing roughly EUR 150 million in 3 product lines. Let's look at dispersions, this sort of business. And if you buy coatings, for example, there's no paint -- the quality of paints are very low. So we can produce, for example, these versions with no odor. Then we have to collaborate with people who know the market and then it's a joined win. I think in terms of the margins we have for these products, I think this is protected because what we are bringing is not only the product, but actually the formulation of it all, so a full package. And even in some of these businesses, we are actually growing and extending our called resources in formulation [indiscernible], so with this sort of joint development agreement we have with key accounts, we're securing this. And I think also in terms of the customer side, it's in their long-term interest to collaborate with us because they also want to have the head of the innovation curve, so this is a key enabler for us moving forward for our downstream businesses.

Martin Brudermueller

And I think the biggest risk is attrition. When you educate your people, they learn from BASF, they work in all this and then they move to the competition because they did this suddenly some of the position's 50% higher. And now most of the reasons have invested them, we upgrade them, that's why we are able to attrition. And we try and I always say to my people in BASF, you have 3 news to brainwash their first day, because many coming to us, they [indiscernible]. Many even come with the intention to say [indiscernible] and then I move on. If you manage to tell them that there is a career maturity, there is a, there is culture and so on and less go away, then first of all the investment in the person comes be much rather and you have less risk that you leverage [indiscernible] from our competitors they try to hire our guys to get access fast on the learning curve to not do it from scratch but jump in the middle and to shorten the way. And this is part of what I said earlier is the competitive win. They certainly been hired partly with us and this is sharpen the time. So I think it is as Gops has said, I mean, why should the companies initiative less reliable than in Europe, they are more and more if you generate this would growth keep it confidential and we reducing attrition rate given the management generally good measures.

Magdalena Moll

So we're now moving on to Pandia [ph], 12B.

Unknown Analyst

Can you talk a little bit to in context, what are your expectations for capacity increase over the next sort of 8 years? You're talking about a production or demand increase of 6.2% and in relation to that, what do you expect with regards to imports? My specific target here is the Dow Sadara project in Saudi Arabia, when that project comes on, with that change those internal pricing because it is a low cost or low feedstock project?

Martin Brudermueller

I mean, first of all, when we the mining business, suddenly have drive single business and that starts to make since from top, you have to really read each and every business they have certainly tried to factor in the global picture of the capacity development. Sadara is one example of other Middle East projects, but I have to say also the U.S. plans for shale gas, I mean if you think about add up all the -- it would come 30% of today's U.S. capacity will come in addition to Shell Gas projects. I think you be no one in the U.S. true for in China and in India, as well as simply tidies you plan to a certain extent it comes to show down but when we have done this very often we get always the question, why are you not [indiscernible]. But if you do the calculation paperwork and you see what you need over there is that investments usually more expensive, utilities are partly requiring different solutions to cool something some of 50 -- of 60 or 50 degrees is also challenging and so on. If you take all these investments are more expensive. And then we have gradual greenfield and so on. So for that reason, sometimes, the 20%, or 25% rebate in raw materials does translate to be at par with cost of customer. If you calculate all the logistics and everything to lend with a customer in India, China, you need these kind of rebates. [indiscernible] I don't want to say they are not competitive but it is also not dead, they change the word totally. They have to also come to this countries to lend and the have risk of something and whatever, there's a lot of factors also in retrospect. You have to look this line by line. Certainly, those materials we will meet them in the market, we have took some benchmark some are certainly competitive, some others we don't understand why people do services, I think all these competitor in China [indiscernible] but then we have to find the answer business by business. And some of the change might get along for some time before they stop coming dissipates.

Gops Pillay

And if it will were to export out of Middle East like your major example of the more you are upstream. So the more it is the polyethylene, energy, all that works, go more downstream, it will not work. So you can elaborate a little bit more on that but for sure we expect that such commodity kind of products, they will still be imported in Asia in 2020. Today, we have for instance, in polyethylene, polypropylene, millions of tons being imported. Polyethylene, it's somehow about EUR 6 million to 7 million tons, so huge volumes and expectation is in 2020, it will still be in import in Asian markets from Middle East in such commodities. Energy and other example, yes, very clearly.

Martin Brudermueller

[indiscernible] It is a good in favor of the raw materials. That is not the case then, we would have this.

Magdalena Moll

Now we come to our next question from Han Koehler [ph], he's always [indiscernible].

Ronald Koehler - MainFirst Bank AG, Research Division

It's Ronald Koehler from MainFirst. The question on M&A, you already started a bit to elaborate. Actually, 2 parts of that. The first part is when I understood your 10 billion brought enough target you said operations also planning with M&A and that, just to clarify that. There is an M&A part into that and it's not only organic growth, if I rightly understand. The second question is a bit more general on your M&A, you said over the last targets are rarely available. You see more on bolt-on acquisitions. Is there -- can you a bit elaborate on that and is there anything kind of, let's say, more realistic short-term or is it a very broad-based strategic thinking?

Martin Brudermueller

So there are some smaller things in the plans of the ODs, not so much, that's why you face [indiscernible] growth around things, let's say smaller things in certain markets I think if you look back, if you saw the chart which [indiscernible] regained, this was a major part from the global [indiscernible]. I think we have maybe one of the best databases about the companies here. We have 3,000 companies, thousands in China, thousands in India, 700 in Asian, 700 in Japan, I don't know how many [indiscernible]. If you do that, you come from a long list very short list, why, because first of all, very often let's say that the portfolio has only [indiscernible] which follows something which I absolutely don't want to. Then you have huge currency problems, there's a huge ratio I don't even touch [indiscernible] do business [indiscernible] there's a lot of EHS issues its horribly planned with environmental programs, which we also but she also we would have invest so much to operate [indiscernible] newly but also that makes sense. The fourth element is that some of the more interesting pieces, which are smaller ones are family-owned. So if you go to the owners and say I want to buy the business [indiscernible] shows you a picture with 5 children it's for the future of my choosing, why should I sell it to you unless you pay me 30 times EBITDA, by and by, it doesn't mix. So at the very end if you select by this criteria, accessibility, [indiscernible], EHS government the list becomes very, very short. We have looked into some of those, we have also some in the pipelines. This is not because things but let's say road checks that are more let's say business focused where you have 1 business in 1 country, something which pretty broaden. But this is sometimes very troublesome because very often, this is private-owned so long discussion try the government of why discussion go forward and then these [indiscernible]. I think the experience we did not make this alone acquiring in the biggest dial in Asia is not so easy. There is one thing I think that could also alluded to that in one of the other meetings with you that we have made not on the agenda now to continue with one big acquisition after the other. And you saw what we have done in the [indiscernible] let's say 18 months that is more these focused acquisitions like Pronova, like Becker Underwood but also like [indiscernible] and the other smaller acquisitions which we have done in the [indiscernible]. So we've tried more to business with distinct positions in all growth technology part. And actually looking into this, there is some chance in Asia because you had some startups, you had some of these very specialized businesses family-owned, which we would like to assess and they are part of this 2 billion but then I have to say I have [indiscernible] one or the other bigger acquisitions here [indiscernible] and not accessible it was even China not a target [indiscernible] or you have at least a provincial government only 30% each will never get [indiscernible] so you can integrate this [indiscernible] on this one which is a separate business. So there's a lot of things where we say it's not [indiscernible]. I do not give up in that and we will look into this, but I just brands [indiscernible] you into this smaller purse strengthening that make another sense in what business we made in it.

Magdalena Moll

So now we're coming to Jeremy Redenius.

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

Jeremy Redenius from Sanford Bernstein. I almost hate to ask this question about shale gas since I spent so much of my time talking to investors about why it's not such a major problem for BASF. But what is BASF doing, if anything, in China to encourage the development of shale gas, so that you could take advantage of it over the next decade or more?

Martin Brudermueller

Yes, I think we have to be also be very realistic [indiscernible] coal and [indiscernible] gas these our natural resources which you don't get [indiscernible]. You can share it with a partner if you can do the deal, as I said, they provide the raw material technology that makes sense, it would be another joint venture. There are several provinces that came to us especially the [indiscernible] but also [indiscernible] who offer such a partnership. And you give a good feedstock price and you deliver in there. And here to study these very selectively, very critically, but that we could do something that only the access to those market [indiscernible]. And if I can see and it's coal I talked already about shale gas, it's still uncertain how much shale gas this year. Now some people will say it's more than in the U.S. There are some geological formations but about how much a huge area in China we have because not only enough price mix it to maybe see how much it is, so it is very [indiscernible], very clear. I think for the assessment of the shale gas reserves in the U.S. we have a very particular situation of also technology and landscape and infrastructure to do that. China is far away from copying the U.S. They don't have it. I mean, if [indiscernible] the 10,000 holes for shale gas last year, the industry number. China could not do it. They don't have the facilities, they don't have the people, they are in remote area. So the shale gas will take much longer here, that's for sure. And then it will be always a small portion compared to the needs of the company. So you will have a mix hack between LNG imports, synthetic gas out of coal, coal bed conventional and shale gas. So for those I don't think that you get too much of that access and there is also a pricing scheme coming from NDRC and a little did a bit more in the richer things. So I think you came out of the excess. I think what we have is a good one, which is such an arrangement. Partnership with this technology could go on [indiscernible].

Magdalena Moll

And now we've come to the end of our first Q&A round. There's 2 follow-up questions, but only real quick once, promise? Okay Gilbert and then [indiscernible] and then we'll finish.

Unknown Analyst

[indiscernible]. Is your customer base in Asia or rather the international companies going to China or you have lost Chinese customers and picked up to follow with capital under Asia-Pacific strategies?

Martin Brudermueller

Let me answer this quickly. I mean, the way how we come to Asia was to follow our real team traditional customers on their major issue. That was the first step and that was how we grew with them. And then now, and I elaborated this, I think today, more and more and thanks to that development, we have Asian and Chinese customers in business being less dependent on the LNG and spreading. But I think there is an opportunity if you have good customer relationships to do exactly the same [indiscernible] again, to move. I mean, if that is coming to a point that there is a significant demand in candidates in Africa, which is basically the last right spot somehow, but they guess if you can convince that you do exactly the same to grow, with your customers over there, why not? I think it is a very smart move. Let's see how that works, but it's definitely volume out of ownership.

Gops Pillay

But also if you look at the shoes they're producing flats, for example, a lot of raw materials come from us. So also, we have also the African strategy that's also dialing into this, so I think...

Martin Brudermueller

Talk about [indiscernible] moment [indiscernible]...

Gops Pillay

Exactly. So I think it's -- I have a vested interest with them, South Africans, or maybe...

Magdalena Moll

Okay. [indiscernible].

Unknown Analyst

Can you [indiscernible] the paper market and the petrochemicals market? I'm trying to [indiscernible] because my understanding is that the largest part of the paper market is run out of China. And would it make sense for you to consolidate all your global paper chemical activities in China? What's your strategy there?

Martin Brudermueller

Well, it's no secret that petrochemicals is part of our performance from [indiscernible] local performers in the tough market. It's also an industry I have to say [indiscernible] and it's one of those industry that is hard to understand. And it's not very dedicated to innovation. They somehow have the tendency whatever they find, they share among each other and they leverage their advantage over European and company's do that. It's a tough market, I mean, if there is market growth in order paper in Asia than in China if you look on the per capita consumption, it is still ridiculously the whole year in China compared to the western part. So for that reason, even if you assume the most positive scenarios for electronic media and everything, there should be significant able growth, particularly also I have to, let's say for us, because of packaging. You'll also include [indiscernible] well, that is a major focus has to be in East part of business here and most are significant part of the growth of petrochemicals is coming from Asia and particularly from China. And it will also depend on how we develop this business and how successful it will be, somehow, in Asia, how we managed to organize our growth here. What that would mean in terms of how to organize this in United States [indiscernible] I can't imagine that this is all part what we do in Performance Products to step up our performance there compared to what we have once promised and what we would like to see over there. But also here, I have to say, these are very tough market, it's a very competitive market, mentioned earlier that the buying also are in the mood here in trying to bring the cost down, which will be parts based a lot of developments in this, if there is cost effective [indiscernible].

Magdalena Moll

Okay, ladies and gentlemen, this brings us to the end of our morning session. I would like to thank you and the BASF management team for the lively discussion.

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