Basf Se

XETRA:BAS

Earnings Call Transcript 2020-Q3

[Operator]

[Interpreted] Ladies and gentlemen, good morning, and welcome for the press conference telephone call for BASF SE.[Operator Instructions] The conference is going to be recorded; and is broadcast live on the Internet, under basf.com/pressconference. [Operator Instructions]I'll now give the floor to Juliana Tischel, Vice President, Corporate Communications.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Good morning. Welcome also from my side, ladies and gentlemen, and thank you that you are connected to our telephone conference.Today, we are going to present BASF's financial figures for the third quarter 2020 to you in more detail. You're going to be talking to Martin Brudermuller, Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, our CFO.Before we start, let me give you a few points of information. The conference language is going to be German, with a simultaneous interpretation into English. [Operator Instructions]And I will give the floor to Martin Brudermuller.

[Martin Brudermuller]

[Interpreted] Good morning, ladies and gentlemen. Hans Engel and I would like to wish you a warm welcome to our third quarter press conference.I hope very much that you and your families are doing well. Unfortunately, the spread of the coronavirus is once again increasing sharply in many countries. At the moment, we are all seeing how quickly conditions can change again, which goes to show how important it is to act deliberately and consistently during this pandemic. This means we must continue to be cautious. At BASF, we are doing everything we can to work safely in this environment. This is why we reintroduced stricter measures that were no longer necessary during the summer months. To protect our customers and employees, we are once again increasingly having employees work from home. We are doing a very good job of switching over to this precautionary mode. Especially in times like these, the Board of Executive Directors team is pleased to see that we can count on every single person in our company. Responsible conduct is part of our DNA at BASF and this is apparent in moments like these.On October 9, BASF published preliminary figures for the third quarter 2020 and released an outlook for the full year 2020. Today, we'd like to give you some more detail. Let's first take a look at the macroeconomic environment.For now, we have to rely on estimates for the third quarter of 2020, as current figures for most countries are not available yet. Overall, the macroeconomic indicators improved in the third quarter of 2020 compared with the preceding quarter. However, the future macroeconomic development remains very uncertain. According to the preliminary data, global chemical production was slightly positive in the third quarter of 2020 compared with the same quarter of 2019, one reason being that we are seeing some resilience in chemical demand in some highly relevant customer industries. Another reason is China. The country continues its V-shaped recovery. Regarding the development in other regions, we seem to have emerged from the trough and a gradual recovery is occurring.Global GDP and global industrial production declined by 4.3% and 3%, respectively, compared with the prior year quarter. Global automotive production was still around 2% below the prior year quarter. For the full year 2020, we now expect light vehicle production to decline by around 20%. So far, we had assumed a decline of 27%.We also want to look at the developments in the regions and our volume growth there. Overall, BASF Group sales volumes were 2% lower in the third quarter of 2020 compared with the third quarter of 2019. This resulted from lower volumes in July and August. By contrast, we achieved a 4% volume increase in September 2020 compared with September 2019. In Europe, volume growth improved month-over-month and turned positive in September. In the United States, volume growth compared with the prior year months remained negative due to the outage of the steam cracker in Port Arthur, Texas. Excluding this effect, volumes in the United States would also have turned positive in September despite the high infection rates. The cracker is now up and running again. Our business in Greater China continues to develop positively. Here we recorded double-digit volume growth in each month of the third quarter and in almost all segments. We continued to benefit from our strong position in China. The planned new Verbund site in Guangdong province will further strengthen our market position by increasing our presence and customer proximity in the dynamically growing Chinese market.Ladies and gentlemen, the gap between average daily order entries is slowly narrowing, as a comparison of April to September with the same months of the previous year shows. So far in October, daily orders are still slightly below the same month of the prior year. The recent increase in coronavirus infections worldwide is jeopardizing this development and the pandemic might again negatively impact our order entry in the coming months. As in the prior quarters, customers remained very cautious and are ordering lower volumes more frequently. About 50% of orders on hand across BASF are booked in the course of the next month. Another 30% of orders have a delivery date in the month after that. This means that 80% of all our orders on hand will be booked within the next 2 months and we continue to have no clear view beyond that.Ladies and gentlemen, let's now turn to the volume development by segment.Compared with the prior year quarter, sales volumes declined by 2% at BASF Group level. This volume decline was mainly attributable to the Chemicals segment. At BASF Group level, the steam cracker outage in Port Arthur had a negative volume effect of around 1% in the third quarter of 2020 and thus accounted for half of the decline. In the Materials and Industrial Solutions segments, we also recorded lower volumes mainly owing to lower demand from the automotive industry. In Other, volumes declined on account of lower raw material trading activities.Volumes in the Nutrition & Care segment were almost stable after we experienced elevated demand during the first half of the year. Volumes increased in the Surface Technologies segment and even more strongly in the Agricultural Solutions segment. This partially offset the volumes decline in other segments.Let's move on to our sales and earnings development in the third quarter of 2020 compared with the prior year quarter. I will start with our sales development and the graph you see on the left.Sales decreased by 5% to EUR 13.8 billion. Currency effects of minus 6% were the main driver here. These resulted primarily from the devaluation of the Brazilian real and the U.S. dollar. Lower volumes of minus 2% also contributed to the sales decline, as I mentioned previously. Prices increased by 2%. Considerably higher precious metal prices in the Surface Technologies segment contributed to this. The Agricultural Solutions segment achieved slightly higher prices. Portfolio effects contributed plus 1%, mainly from the acquisition of Solvay's polyamide business.Now we come to earnings development, which is shown in the graph on the right-hand side. EBIT before special items came in at EUR 581 million, 45% below the level of the prior year quarter. All segments recorded lower earnings. Compared with the second quarter, however, EBIT before special items in the third quarter rose by EUR 355 million to EUR 581 million. This significant increase was mainly driven by good business development in September.In the Chemicals segment, both divisions recorded considerably lower EBIT before special items due to lower margins and volumes. The decline was most pronounced in the Petrochemicals division. The cracker outage at the Port Arthur site had a negative earnings impact of around EUR 100 million in the third quarter. In the Intermediates division, lower fixed costs could partially offset the earnings decline.In the Materials segment, EBIT before special items decreased considerably due to lower earnings in the Monomers division. Lower volumes and prices for polyamides were the reasons for this decline. Higher isocyanate margins due to lower raw materials prices and increased MDI volumes could only partially offset this. In the Performance Materials division, EBIT before special items increased slightly mainly due to a positive contribution from the acquired businesses from Solvay. Compared with the second quarter of 2020, EBIT before special items in the Monomers and the Performance Materials divisions improved significantly.EBIT before special items in the Industrial Solutions segment came in slightly below the level of the prior year quarter due to considerably lower contribution from Performance Chemicals. In this division, we recorded lower volumes, for example, in fuel and lubricant solutions as well as oil field chemicals. In the Dispersions & Pigments division, EBIT before special items improved slightly mainly due to lower fixed costs.EBIT before special items in the Surface Technologies segment almost matched the level of the third quarter of 2019. In the Catalysts division, earnings improved slightly mainly due to lower fixed costs. In the Coatings division, earnings decreased compared with the third quarter of 2019 due to lower sales volumes. The main reason for this was the decreased demand from the automotive industry. Compared with the second quarter of 2020, EBIT before special items in the Catalysts and the Coatings divisions improved especially strongly.In the Nutrition & Care segment, EBIT before special items decreased considerably. The Nutrition & Health division recorded lower EBIT before special items primarily as a result of higher fixed costs. The prior year quarter had benefited from an insurance payment. Earnings also declined considerably in the Care Chemicals division. This was primarily due to lower volumes and higher fixed costs. The figure for the prior year quarter included a contractual one-off payment in the personal care solutions business.In the Agricultural Solutions segment, EBIT before special items came in considerably below the prior year quarter. While volumes significantly increased and prices were slightly up, sales and earnings were burdened by strongly negative currency effects. The currency impact was most pronounced in South America and here mainly driven by the depreciation of the Brazilian real.In Other, EBIT before special items decreased significantly compared with the third quarter of 2019.And I now will hand over to Hans Engel.

[Hans-Ulrich Engel]

[Interpreted] Thank you, Martin. And good morning, ladies and gentlemen.Let me start with the impact of the pandemic on our key customer industries.The preliminary external data for the third quarter represents the aggregate of the situation in the EU, China and the United States. China has a considerable weight in many of these industries. Therefore, the development is strongly impacted by the V-shaped recovery there. Nonetheless, these figures should give a good indication of global trends. Besides the strong recovery in the automotive sector, especially in September, we see a recovery of durable consumer goods and in construction activity. Information and communication technologies continue to show robust growth owing to solid demand and the very high weight of China's production. Demand in the health and nutrition market is less volatile and shows tendencies towards normalization.After describing the development, let me now look at the details on the impairments in the third quarter of 2020. After describing the development of our customers and -- identified fixed assets impairments of EUR 2.8 billion due to our expectations of a considerable weaker macroeconomic environment in the coming years and weaker demand in certain industry segments as a consequence of the pandemic, the impairments were mainly booked in the following segments.In Surface Technologies, the weaker future demand of the automotive and aviation industries led to impairment charges of around EUR 1 billion. In the Chemicals and Materials segments, the continued oversupply of basic chemicals and the respective margin pressure resulted in impairments of around EUR 1.3 billion in total. In the Agricultural Solutions segment, measures to streamline BASF's glufosinate-ammonium production resulted in impairments of around EUR 300 million. In the Industrial Solutions and Nutrition & Care segments, impairments added up to less than EUR 200 million in total.Let us move on to the measures we are implementing under the umbrella of our Excellence Program. Overall, we are well on track to achieve the targeted EUR 2 billion annual EBITDA contribution by the end of 2021. In terms of personnel cost savings, we had set a target of reducing 6,000 positions globally by the end of 2020. According to our current estimate, around 10% of this reduction will likely be delayed to 2021. This is mainly attributable to labor market effects caused by the pandemic.Let me also specifically -- or specify the EBITDA contribution and associated onetime costs. We are on track and now expect an EBITDA contribution of around EUR 1.4 billion by the end of 2020. This is a run rate. The associated onetime costs in 2020 are estimated to be around EUR 300 million.At the end of September, we announced the realignment of BASF's Global Business Services unit. The division was established as of January 1, 2020. As of that date, around 8,400 employees worldwide transferred to Global Business Services. Since then, Global Business Services have been providing services for BASF Group ranging from financial and logistical processes to services in the areas of communication, human resources and environment, health and safety. Organizational changes have not yet been initiated. The division will now fundamentally simplify and reorganize processes as well as systematically utilize digital solutions. As a result, Global Business Services will be able to meet the needs of the business units even more flexibly and competitively. As part of this, more services than before will be bundled in hubs, which will offer as many services as possible for the units at the -- in the BASF Group. Following this bundling and the implementation of a wide-ranging digitalization strategy, the number of employees in Global Business Services will be reduced by up to 2,000 by the end of 2022. This reduction is not part of the Excellence Program, which we will conclude at the end of 2021.From 2023 onward, we expect to achieve annual cost savings of over EUR 200 million from the realignment of the Global Business Services unit. In the third quarter of 2020, provisions of around EUR 300 million for the necessary measures were set aside.Let me now provide you with a brief update on the portfolio measures.We closed the sale of the construction chemicals business to an affiliate of Lone Star on September 30. The purchase price on a cash and debt-free basis is EUR 3.17 billion. The construction chemicals business now forms the newly founded MBCC Group and is very well positioned in its market. We wish the team every success in the future. The sale of the construction chemicals business and the related gains realized likely to be around EUR 300 million to EUR 400 million will only be reflected in BASF's reporting on the fourth quarter of 2020. However, payments received until September 30 in connection with this divestiture are included in the statement of the cash flow for the third quarter 2020, under cash flows from investing activities.Ladies and gentlemen, we had been aiming to close the sale of our pigments business to DIC Sun Chemical in the fourth quarter of 2020. We now expect the closing to be delayed to Q1 2021. The joint project teams are preparing for the closing and the integration to allow for a seamless cutover once merger clearance from all relevant authorities have been granted. Wintershall Dea is realizing the announced synergies. We're also working on the IPO preparedness and now assume an initial placement in 2021, again subject to market conditions.I will now give you further details about the earnings and cash flow development of BASF Group in the third quarter of 2020, as compared with the prior year quarter. That's what I'll begin with.EBITDA before special items decreased by 22% to EUR 1.5 billion. EBITDA amounted to EUR 1 billion compared with EUR 2.3 billion in the third quarter of 2019. EBIT before special items came in at EUR 581 million, 45% lower than in the third quarter of 2019.Special items in EBIT amounted to minus EUR 3.2 billion compared with plus EUR 280 million in the third quarter of 2019. Around [ EUR 2.8 billion ] are related to the noncash-effective impairments, and around EUR 300 million are related to the realignment of Global Business Services. EBIT thus decreased to minus EUR 2.6 billion from EUR 1.3 billion in the third quarter of 2019.Net income amounted to minus EUR 2.1 billion compared with EUR 911 million in the third quarter of 2019. This was mainly due to the noncash-effective impairments, the lower EBIT before special items and provisions for restructuring.In the third quarter of 2020, cash flows from operating activities increased by 5% to EUR 2.1 billion. Payments made for property, plant and equipment and intangible assets decreased by EUR 190 million to EUR 736 million. Free cash flow increased by 27% to EUR 1.4 billion.Turning to our balance sheet at the end of September 2020 compared with year-end 2019.Total assets were stable at EUR 87 billion compared with the end of December 2019. Noncurrent assets decreased by EUR 4 billion to EUR 51.9 million (sic) [ EUR 51.9 billion ], mainly driven by the noncash-effective impairments. In addition, negative currency effects contributed to the decline. Current assets rose by EUR 4.1 billion to EUR 35 billion mainly due to higher cash and cash equivalents as well as higher other receivables.Compared with year-end 2019, net increased -- net debt increased by EUR 196 million to EUR 15.7 billion. And compared with the end of the second quarter of 2020, net debt increased -- or decreased by EUR 4.8 billion.At the end of September 2020, the equity ratio amounted to 39.8%.Now let me hand over to Martin Brudermuller for the outlook.

[Martin Brudermuller]

[Interpreted] Thank you, Hans.Ladies and gentlemen, as already announced on October 9, we expect 2020 sales of EUR 57 billion to EUR 58 billion mainly due to weaker demand because of the pandemic. We expect EBIT before special items for 2020 of between EUR 3 billion and EUR 3.3 billion. As a result of the impairments in the third quarter of 2020, we anticipate a return on capital employed of between 0% and 1%.For the fourth quarter of 2020, we expect a further improvement in EBIT before special items compared with the third quarter of 2020. Our forecast assumes that severe restrictions on economic activity to contain the pandemic, such as lockdowns, are not reintroduced.As we have been asked several times, let me also touch on our dividend policy. BASF remains highly committed to its progressive dividend policy. We've based our dividend policy on BASF's midterm macroeconomic assumptions and the related earnings expectations. If the future macroeconomic environment reduces BASF's growth opportunities and significantly impacts BASF's profitability, we might have to adapt our dividend payout. However, I would like to make clear today that we will only decide on this matter in February of 2021 based on our actual cash flow in 2020 and a more reliable medium-term forecast.Let me conclude by discussing our measures to continue navigating BASF safely through the pandemic and mitigating the associated financial impacts.With our customers in the center of all our activities, our corporate strategy is more than ever the right answer to successfully operate in this environment. We've significantly increased interactions with our customers during the pandemic. This gives us the ability to now react even better to changes in their demand patterns. Our BASF team is now working to create long-term profitable growth supported by strategic agreements with our customers. In this context, our global production network makes us highly flexible and we are well positioned to benefit from a market recovery. We have a clear focus on further cost reduction and are fully on track to achieve the targeted earnings contribution from our Excellence Program. In addition, the realignment of BASF's Global Business Services unit will further improve BASF's efficiency.In these times, safeguarding cash is a top priority. In 2020, we will bring down capital expenditures by EUR 600 million to EUR 2.8 billion. Combined with strict management of working capital, this will also support a robust free cash flow even in a year as difficult as 2020. We will continue to critically review the projects in our 5-year capital expenditures budget. To support BASF's future profitable growth, we will continue to energetically pursue our investment project in Guangdong and our investments in the production of battery materials. They will further support the profitable growth of our company.Ladies and gentlemen, we at BASF are actively managing this crisis. Our diversified portfolio, our solid balance sheet and the robust cash flow are strong assets in these times.And now we are happy to take your questions. Thank you very much.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Okay, this brings us to the Q&A session. [Operator Instructions] Okay, let me wait a second, for questions are being registered. Great. So we can get started, and the first question comes from the German conference room, by Patricia Weiss, Reuters.

[Patricia Weiss;Reuters;Journalist]

[Interpreted] A follow-up question on the dividend policy. You mentioned an adaptation of the payout might be necessary. Can you be more specific what this adaptation could look like? And in the forecast we see that this will only apply if there is no second lockdown. Today, we have negotiations in Germany among politicians and we fear that there might be more drastic measures. And France probably will start a 1-month lockdown. We see the same situation in other European countries. We don't know about China, but what do the steps planned by the federal government mean for BASF?

[Martin Brudermuller]

[Interpreted] Ms. Weiss, I only commented on the dividend policy because we receive a lot of questions in this direction. And I wanted to repeat, at the moment, we cannot comment on this. We have told you we have to wait for the performance of 2020 to see what the cash flow looks like and you addressed this in the second part of your question. What about the stable medium-term forecast? Because this definitely is the basis for growth opportunities of BASF and thus also the opportunities for profitability. This needs to be our basis because -- you know that in our corporate strategy this is closely related, EBITDA situation, cash flow and dividend policy. This has to be a match. So it's early times now. We will definitely tell you in February when we know more. As a kind of disclaimer of the forecast, we said, provided there is no total lockdown, what we've heard so far, what will be discussed this afternoon by the presidents of the lender is services areas which will be affected. Restaurants will probably have to close earlier, saunas, gyms and so on. I think this will not adversely affect industry that much. So we think this will be the situation in many countries in the world. People learned from the first wave. If this is true, we are in line with our forecasts. And this is why for the rest of the year we gave you this range of between EUR 3 billion and EUR 3.3 billion EBIT before special items. And I can tell you, thus far, October is going as expected. And yes, weeks are passing and we are approaching the end of the year. That's my answer.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] And the next question comes from Siegfried Hofmann from Handelsblatt.

[Siegfried Hofmann;Handelsblatt;Journalist]

[Interpreted] I have actually 3 questions. Firstly, on the results and of the current year. With regard to the figures so far, do we have to assume that below the line there are going to be red figures? And then we do expect for the free cash flow a further improvement in the fourth quarter. Can you maybe give a comparison to the previous year? Can you catch up? And the second quarter (sic) [ question ] is the Asia business. You have had in Q3 a sales rise, but there is also a result decrease. Can you explain? And the third quarter (sic) [ question ] goes to the agro business. Your colleagues at Bayer have reduced their midterm and long-term forecasts and have made impairments, and I would like to be interested in how you see the long-term development in this segment.

[Hans-Ulrich Engel]

[Interpreted] Yes. This is Mr. Engel, and I would like to ask -- to answer your questions. The first was on the results, overall results. And if we look at the earnings figures there, minus EUR 2.2 billion in Q3; and also in the time between January to September, so after 3 quarters, with minus 1.2 -- EUR 2.1 billion. That's so negative that we cannot catch up in the fourth quarter, but please keep at the back of your mind that EUR 2.8 billion alone are non-cash-current or relevant impairments are included. On free cash flow, first of all, we see very good developments of the operational and free cash flow. In Q3, we see an increase, well, compared to the very good third quarter in 2019. And we said right from the beginning that the year 2020 will be a year in which probably we will not see so much the quality of profit and loss but far more the cash that we can generate overall and also in terms of the liquidity that we will see on our balance sheet after the full year. After what we have delivered over the first 3 quarters but particular also in Q3, that is very good. So how will the development be in Q4? That really depends on how the business development will look like. If we expand our business considerably, then that will need cash. That's what happens with a growing business. If we will remain on the level like in the third quarter, then I assume that in the fourth quarter cash will be generated, but if that will be at the cost of an expanding business, then we will also accept a slightly weaker cash flow in -- as in Q4 of the previous year. All in all, I think we can say, after the development of the first 3 quarters but also particularly Q3, that BASF is or has always been a good and strong free cash flow provider.Your third question went in the direction of our ag solutions business. Here, in the first 3 quarters, we saw a considerably good development in a difficult market environment. You know that the soft commodity prices have not recovered in 2020. There is a slight increase at the end of Q3 now, particularly now in Q4. That is when the focus is on the southern hemisphere. Here we are fighting with the depreciation of the currencies. Here we are talking particularly about the Brazilian real. And we could observe that in the business also already in Q3, and that will be continued in Q4. Underlying operational situation: The channels in South America are normal to full. And the business that we see here, apart from the very strong currency effect, makes -- or gives us reason for hope, also when it comes to our volumes development in the third quarter for Agricultural Solutions, also when we look at the price development. So all this looks quite okay. Glufosinate, you also mentioned. That is a real special effect that we do have in the portfolio, and it goes together with the strongly upcoming generics business. And that is not fully unexpected in its intensity, but the intensity is maybe very high and we might not have expected that, so we decided that for glufosinate the production network will be adapted, with effects of course in terms of provisions amounting to approximately EUR 300 million in Q3. All in all, however, we see for ag solutions looking forward a kind of growth which moves comparable to crop protection and seeds. So that is really at a normal level, comparable level. And I hope that covers your 3 questions.

[Siegfried Hofmann;Handelsblatt;Journalist]

[Interpreted] Sure. So expectations have not changed for the business.

[Unknown Executive]

[Interpreted] Well, no. The expectations have not changed in principle. What we did in Q3 is a special situation that we have for glufosinate-ammonium, and that was met with the respective impairment.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Okay. The next question comes from Alexander Jungert from Mannheimer Morgen.

[Alexander Jungert;Mannheimer Morgen;Business Editor]

[Interpreted] I do have 3 short questions for Mr. Brudermuller. The first question: You were talking about exacerbated measures and in the business, so can you maybe talk about that more? Then the IG BCE has criticized the job reduction in the administration business. What's your strategy there? And the third question, what do you expect by the presidential elections in the United States next week?

[Martin Brudermuller]

[Interpreted] Mr. Jungert, well, the exacerbated measures. I think we started very early in time, in a reasonable fashion, to look at the infections in our site but also looking at our measures. In the summer, after via the lockdown and the behavior, the infection rates have been going down. We released some of the measures. At the peak, we had 40,000 people in home office. And at Ludwigshafen in particular people were returning to their offices, so the numbers were receding for people working from home. Now these measures are reactivated. That is we advised our people who are still in the office to return to home office. We know how it works and functions, and particularly in terms of the transactions, that have -- has worked quite well. So you see what is reflected also in the society. There is an increase in number. We also see it here at BASF. We had a very good development over many weeks, but now over the last days and weeks, we have seen an increase. These were all cases that were outside of BASF. Now we have to take great care that the infections do not rise at the offices and within the site, so we take all the measures that we have already tested.Talking about Global Business Services. Here everybody knows what we are planning. That was part of our strategy, our corporate strategy; and we presented it to you by saying we want to become leaner. We want to simplify processes. We want to aim at end-to-end, and this is why we founded the Global Business Services. So going away from the functional silos to an integrated working of our solutions. And all the units were then pooled in this division. That is 8,400. And of course, we said, okay, they will need a little time until they can work out their concept. They did that in a very short period of time, and now this concept shows good ideas of how to deal with automation. That's a very important deal but also the restructuring of the organization, and the process is end-to-end based. So here we have or want to lever very many synergies. So we knew right from the beginning that we are aiming at savings and effectiveness and effectivity, so nobody was really surprised because all the workforce, all the employees were integrated right from the beginning in this development. So please understand that I am not talking about the presidential elections in the United States. That's part of our policy. We do not comment these developments. It's a few days until the elections will be, so we of course are waiting for the results. We have to work with all kinds of administrations. So let me leave it at that now.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] The next question comes from [ Matthias Kros ], [indiscernible].

[Unknown Attendee]

[Interpreted] I have 3 brief questions. First of all, you said that the reduction by 6,000 positions will be delayed to Q1 2021. And you mentioned labor market effects. Maybe you can be more specific on this. And next, what about the furlough scheme? What are the current figures here for BASF in Germany and Ludwigshafen specifically? And you talked about an increase of corona infections also for BASF. Can you give us numbers here? How many infections do you have among the workforce at the moment? Do you have employees in quarantine?

[Unknown Executive]

[Interpreted] Well, first of all, [ Mr. Kros ], reducing 6,000 positions and the delay, where we said this is due to labor market effects. You know we have a site agreement and we will not go ahead with any dismissals for operational reasons. And you know we have this double effect that an employee receives an offer for severance pay, and he has to accept it or he can deny it on a voluntary basis. Well, when we signed this agreement, the labor market prospects were very good, so employees really liked to accept the severance payment and look for a job somewhere else. Now labor market situation is worse. You see unemployment figures rising, and then the employee will really think hard whether or not he will sign this offer for severance pay. And this is why some people hesitate and this is why we have this delay. Regarding the furlough scheme, I think at the moment we have 770 employees furloughed in Germany and around 50 of them at BASF SE. In Germany, only a few sites are affected, and the figure is decreasing. In Europe, we have a total of around [ 600, 630 ] employees at 10 sites who are furloughed, 10 sites in different European countries. Regarding the employees infected, so far within BASF, we had 1,740 employees infected. Of these, 80% recovered and returned to work.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Next question, from Sabine Wadewitz, Börsen-Zeitung.

[Sabine Wadewitz;Börsen-Zeitung;Deputy Head]

[Interpreted] I have 2 questions. dicamba, we heard today that in the U.S. this will be extended by 5 years. You have provisions already for the agreement that was pending. What effect does it have? And then financing: You said end of Q3. You mentioned the liquidity, EUR 2.6 billion. Are there any refinancing projects or any sums you have to pay back? And commercial paper, would you please give us a situation by end of quarter for the commercial paper?

[Unknown Executive]

[Interpreted] Well, Ms. Wadewitz, let me start with dicamba. We were glad to hear the news from EPA new registration after the registration had been canceled after a court decision. So new registration for a period of 5 years, which means we have a product we can offer to farmers again, especially when it comes to herbicides for corn. Our customers, of course, reacted very positively to the news. Provisions for the civil proceedings related to dicamba, well, there are none because we thought the court decision that had been announced is not acceptable, and we will take action against it. Financing: In the course of the year, net indebtedness was decreased considerably. And we returned to a level of the end of 2019, around EUR 200 million higher compared to the end of 2019. I think, in Q4, we have to pay back one bond for 1 billion. And then we have payback potential regarding our commercial papers, and we have to wait and see what we need in Q4. In other words, good development of net indebtedness, which goes in line with the good cash flow development and also due to the fact that, by the end of Q3, the purchase price for construction chemicals could be accounted for. And I hope this answered all your questions.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Yes, apparently so. Okay, this goes for the questions in the German[Audio Gap]

[Unknown Attendee]

So the first question from the English colleagues comes from Andrew Noel from Bloomberg.

[Andrew Marc Noel;Bloomberg;Journalist]

I've got a couple, please. It's probably my least-favorite topic, but it's on Brexit. I understand that you've indicated to the U.K. government that you will register most of your products with U.K. REACH. Could you give me an idea of what products you will not register with U.K. REACH? Just to give me an idea of perhaps some niche chemicals that won't be financially viable post Brexit. And another question is on, please, could you talk a little bit about your performance in Care Chemicals, specifically cleaning chemicals. From my view, that market seems to have been going very well, yet it looks like your sales have been a bit weaker around home care and cleaning, so I'm just wondering why that would be. And well, if I -- if there's time for another one on Brexit: And the U.K. government seemed to undermine a little bit the GBP 1 billion costs of U.K. REACH, the impact on the chemical industry. They -- their phrase was they can't prove it's wrong, but it -- to them it looks less. I'm just wondering. Do you think they've got it wrong? Are they underestimating the costs of U.K. REACH?

[Martin Brudermuller]

Yes, Andrew, thanks for your question. I mean, about the which products we register, please understand that I will not give you detailed analysis here because this is also somehow competitive information, but you can imagine that, I mean, for the sound businesses we have in Great Britain and which we want to defend and which we want to grow, we will register the products for that with U.K. REACH. I mean to answer also the last one to this: I mean it is absolutely concerning because I think with the European REACH system we have the world's best registration system for chemicals, that this is now diversifying, I have to say, into a U.K. piece and then also maybe with the European [ deals ]. Also, questions on the European level, I think this is not a productive contribution also, which we have to expect here. I mean, very clearly, if the costs will be too high, everyone will think about whether the business size in Great Britain makes sense to register the products. And that might be that for some of the competitors -- for some of the customers in U.K. the product offering will go down. So it is a very simple thinking how much you have to invest in something and how much you get back. So I think this is not a very positive development overall for the British economy.Then your question about Performance Chemicals. I cannot see that we are underperforming here. I think overall we are very happy. We always said that this will -- has been proven as a rather resilient business, but I have also to say, in the first months of the lockdown, and I think this had to do with the behavior of consumers, in many countries they have bought a lot of soaps and detergents and cleaning materials and have also a certain stock at home. And this is why I would say the demand for the ingredients for these productions have normalized over time. That is what we have observed, but it is still a very robust and sound business. And certainly, I mean, if you think about industrial cleaning, then I would say overall the demand goes down a little bit. I mean, if we have now partial lockdown in the service sector and everything has to shut down and service hours are reduced, that means also cleaning is reduced. So I think it is a very, very natural development over here, but we are very happy with that business and performing well. And I cannot see that there is any problem except of a certain normalization of demand.

[Andrew Marc Noel;Bloomberg;Journalist]

Okay, great. I mean, if I've got time for one more, just very briefly. Correct me if I'm wrong, but the last time you talked about progressive dividend policy, I thought you indicated that you would be happy to take on extra debt but -- and cover the dividend for like 2 or 3 years. So I'm just wondering. What's changed there now that you're sort of sending out a soft warning today?

[Martin Brudermuller]

Andrew, overall, nothing changed. I just tapped on this topic today because we got some questions. And I wanted to reiterate that we will decide about that in February next year when we have the data. What is very clear, and this is what I also said in my comment today -- and you have to look into a long year forecast and perspective. And I think, yes, for a single year, I said always, this happened also in the past, that the free cash flow does not necessarily have to be higher than the dividend payment, but I think in a longer period you certainly have to look that this is balanced. And that's why I said it has to do with the long-term midterm growth perspective and earnings perspective of BASF. So nothing new to this. My only point, because there is a certain penetration of questions, please give us the time until February, if we have the data and a better view, and then we will decide on that.

[Unknown Attendee]

So next question come from Tom Brown, ICIS News.

[Tom Brown]

I just had 2 quick questions. In -- back in February, you said that envisage EUR 23.6 billion on growth projects such as Guangdong, India, the battery tech through 2024. How has the constraints of the coronavirus impacted on both -- on that figure, if at all? And does that have any effects on the time lines for any of these projects? And the other question was just you said that you have visibility just for 2 months ahead. I just wondered how things are looking for November and December and if momentum is as strong as it was in October.

[Martin Brudermuller]

So I mean, on our growth projects, I think, if you talk about long-term projection of the growth opportunities of the company, you cannot change that just because of corona. And I mean very clearly, if you look on the Chinese data about the market size and its share in the global chemical market, that looks very good and looks indeed even better than it did pre corona because there's a very strong focus now on the domestic market. There is a kind of a re-steering from export-driven to a domestic economy. That will all be positive on the long-term demand. So we cannot see at all any impact on the China project. And I think it is very impressive, what we saw in our numbers and also in the macroeconomic part concerning the recovery. I think, with the battery materials, there's also no questions that the tipping point somehow for electric car was reached; and that this is a very, very strong growth market. Whether we talk now about a few cars less or more, let's say, over the next 2, 3 years in terms of partially electrified or e-vehicles, it does not change the projection either. And I think, if you look now on the numbers in several countries, the overall cars, certainly new cars, have been much less, but the share of e-cars has actually been higher. So I think that all shows that in principle the trend is not -- has not to be revised, and this is also why we keep our [ ideals here you know ].Time lines. I mean I think nothing changed to that either. So what you know is currently we are preparing the China investment that can -- you can imagine is a huge endeavor, a lot of people involved. And the other part, important part, is that we are in the execution for our European battery material projects with C2 investments in Finland and in Germany, and that is totally on track -- sorry. About the visibility...

[Hans-Ulrich Engel]

Yes, I'll take your question on, yes, basically the order book for November and December. As we've shown on Slide 4, you see how the gap with respect to daily orders during the month of October is closing compared to prior year months. Where we were at minus 27% in April, in October month-to-date, we are now at minus 3%. So the good development that we've seen, in particular during the month of September, continues in October, which means that our order book for November looks fine. And as explained by Martin, about 50% to 55% of our total orders is month 1, and then 25% to 30% is month 2. So we have good visibility for November. And as I say, that looks good. And December, based on everything that we can assess on the basis of our order book, is also looking fine at this point in time.

[Unknown Attendee]

We have no further English questions now, so we switch back to the German room.

[Juliana Tischel, Vice President Corporate Communications]

[Interpreted] Okay, the last question obviously comes from Bernd Freytag from FAZ.

[Bernd Freytag;FAZ;Journalist]

[Interpreted] I have 2 questions but very brief questions really to reiterate the depreciations and provisions you were talking about. Is that affecting the Bayer business that you acquired? And what about the situation in the litigation case with Bayer about the purchase, about the acquisition? And maybe you can also explain which are the problems in south Arthur that the cracker had to be shut down there -- Port Arthur, sorry.

[Hans-Ulrich Engel]

[Interpreted] Yes, Mr. Freytag, Mr. Engel here. I'm talking about the Bayer business. Yes, the glufosinate-ammonium business is a business which we acquired from Bayer in August 2018. And again, the competitive pressure has gone up. We were quite aware of that, but it came a little faster and more heavily, and that led to this impairment that we have seen in Q3. On the litigation with Bayer in the context of the acquisition of assets from them, I can only tell you that the arbitration case is up and running, and well, let's leave it at that.

[Unknown Executive]

[Interpreted] Mr. Freytag, Port Arthur, that's big machines, and there's the compression of large amounts of natural gas. There's [ rotating ] compressors working there. And we had damage in one of the important mechanical parts there, and the damage was higher than expected. And these are not spare parts that are just sitting there in the warehouse for the picking, so in workshops we had to arrange with the suppliers to deliver and repair as fast as possible. The cooperation worked very well, but this, of course, causes delay and takes some time. And so the damage was big. The size of the machine is big, and so that has quite a considerable effect on BASF figures. So you have seen it in our figures. And it is painful, for this to happened in these times, but it does happen from time to time.

[Unknown Executive]

[Interpreted] Okay, I do not see any further questions. Thank you very much from our side. And I would like to inform you that, on the 10th of December, we will have a research press conference on the circular economy. That will be held online, adequate to the pandemic times, but I hope this will be extremely informative to you too. The full year figures for 2020 will be presented on the 26th of February next year. And of course, we would be very pleased to have you onboard for both conferences.So thank you very much from our side, and have a very nice day.