Basf Analyst Conference Q1 2011 Speech

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BASF 1 st Quarter 2011 Analyst Conference Call May 6, 2011, 8:30 a.m. (CEST), Mannheim Analyst Conference Call Script Dr. Kurt Bock Dr. Hans-Ulrich Engel The spoken word applies. 1 BASF 1st Quarter 2011 Analyst Conference Call Powerful start to 2011 BASF remains on growth track First Quarter 2011 Financial highlights May 6, 2011

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Charts and Speech accompanying the 1Q2011 Conference Call for investors and analysts on May 6, 2011

Transcript of Basf Analyst Conference Q1 2011 Speech

Page 1: Basf Analyst Conference Q1 2011 Speech

BASF 1st Quarter 2011 Analyst Conference Call May 6, 2011, 8:30 a.m. (CEST), Mannheim

Analyst Conference Call Script

Dr. Kurt Bock Dr. Hans-Ulrich Engel

The spoken word applies.

1BASF 1st Quarter 2011 Analyst Conference Call

Powerful start to 2011BASF remains on growth track

First Quarter 2011 Financial highlightsMay 6, 2011

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3BASF 1st Quarter 2011 Analyst Conference Call

Sales €19.4 billion +25%EBITDA €3.4 billion +28%EBITDA margin 17.4% 17.0%EBIT before special items €2.7 billion +40%EBIT €2.6 billion +39%

Net income €2.4 billion +134%EPS €2.62 +134% Adjusted EPS €1.94 +47%

Business performance Q1’11 vs. Q1’10

Powerful start to 2011First quarter highlights

Excellent sales and earnings growth in the chemical activitiesCognis contributed significantly to the good results in Performance ProductsAgricultural Solutions started with strong sales and earningsHigher sales and earnings in Oil & Gas despite lower volumes from Libya

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Dr. Kurt Bock Ladies and Gentlemen, good morning and thank you for joining us.

[Chart 3: Powerful start to 2011]

Global economic growth continued in the first quarter. BASF had

a powerful start to the year driven by ongoing strong demand and

our ability to protect margins by passing on higher raw material

costs. There was no significant impact on our business from the

severe earthquake in Japan as well as the tense political situation

in North Africa.

In Q1 2011, we increased sales by 25 percent to 19.4 billion

Euros compared with the first quarter of 2010. Volumes rose by 5

percent. Excluding Oil & Gas, volumes were up by 9 percent. We

were able to raise prices by 13 percent. Cognis contributed 6

percentage points to sales growth.

We reached an EBITDA of 3.4 billion Euros, up 28 percent,

resulting in an EBITDA margin of 17.4 percent. Earnings before

special items came in at 2.7 billion Euros, an increase of 40

percent compared to the first quarter of 2010. Special items of

182 million Euros included in EBIT were mainly related to Cognis

integration costs.

The financial result included a capital gain of 887 million Euros

from the sale of our stake in K+S. This gain was booked as a

special item. We generated net income of 2.4 billion Euros, lifting

earnings per share to 2.62 Euros. Adjusted earnings per share

came in at 1.94 Euros mainly due to the one-time gain from the

sale of our K+S stake.

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Important milestones in Q1 2011

Gas for Europe StrategyMDI project in Chongqing Fertilizer activities

Project approvedConstruction already startedCompletion in 2014World-scale capacity of 400,000 metric tons Total investment~€860 million

Two Memoranda of Understanding signed with Gazprom

– Development of two additional sites of Achimovdeposits in Russia

– Acquisition of 15% stake in South Stream

10.3% stake in K+S sold– Capital gain before taxes

€887 millionPlan to sell major part of the fertilizer assets:

– Sales: Mid three-digit million– Capacity: 2.5 million tons

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[Chart 4: Important milestones in Q1 2011]

In the first quarter we achieved important milestones:

In March, our planned MDI facility in Chongqing was approved by

the Chinese authorities. We have already started construction

and we expect the facility to be operational in 2014. It will be

100% BASF owned with an investment of about 860 million

Euros. MDI is a precursor for polyurethanes and we expect

polyurethanes to grow faster than Chinese GDP over the coming

years.

To support our growth in China and the emerging markets, we are

currently looking into further investment opportunities. With

Sinopec and Petronas, we signed Memoranda of Understanding

to explore further expansions of our joint Verbund sites in Nanjing

and Malaysia respectively. In Brazil, we are evaluating new

investments for acrylic acid, butyl acrylate and superabsorbent

polymers.

We also signed two Memoranda of Understanding in order to

further strengthen our successful partnership with Gazprom. We

will expand our gas production by jointly developing additional

areas of the Achimov deposits of the Urengoy fields in Western

Siberia. Furthermore, we intend to acquire a 15% stake in South

Stream, which will support the growth of our gas trading business

in South-East Europe.

In March, we announced plans to sell major parts of our fertilizer

activities, which no longer fit with BASF’s future strategic direction

and we also sold our 10.3% stake in K+S.

With this I will hand over to Hans.

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ChemicalsRecord earnings

Intermediates709+22%

Inorganics353

+25%

Petrochemicals2,214+28%

€3,276+27%

461

687617

537

765

0

200

400

600

800

Q1 Q2 Q3 Q4 Q1

2%0%21%4%Q1’11 vs. Q1’10

Sales developmentCurrenciesPortfolioPricesVolumesPeriod

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €)

20112010

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Dr. Hans-Ulrich Engel

Good morning ladies and gentlemen.

I will highlight the financial performance of the segments in more

detail and focus on the business development in comparison to the

first quarter of 2010.

[Chart 5: Chemicals – Record earnings]

In the Chemicals segment, we increased sales substantially due to

ongoing high demand and price increases, which we implemented

to offset high raw material costs. EBIT before special items reached

a record level.

In Petrochemicals, many of our product markets were still tight,

due to strong demand as well as planned and unplanned

outages. We realized higher cracker margins in all regions.

Acrylics supply remained very tight, resulting in significantly

improved earnings.

In Inorganics and Intermediates, higher margins for ammonia

and tight markets for butanediol and several amines supported

our sales and earnings increase.

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PlasticsStrong volumes and prices lifted sales and earnings

Polyurethanes1,479+21%

PerformancePolymers

1,309+34%

€2,788+27%

279

349 371

285

393

0

200

400

Q1 Q2 Q3 Q4 Q1

2%0%11%14%Q1’11 vs. Q1’10

Sales development CurrenciesPortfolioPricesVolumesPeriod

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €)

20112010

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[Chart 6: Plastics – Strong volumes and prices lifted sales and

earnings]

In Plastics, we experienced strong demand in all product lines and

achieved record earnings.

In Performance Polymers, strong volume and positive pricing

momentum, especially for caprolactam, drove sales growth. The

Engineering Plastics business benefitted from high demand from

the automotive industry. After the start up of the Ecoflex plant in

Ludwigshafen, sales of biodegradable plastics developed very

well. As a result, EBIT before special items was up significantly.

In Polyurethanes, higher demand especially from the automotive

and construction industries resulted in increased sales and EBIT

before special items. However, we have not yet been able to fully

pass on higher feedstock costs in our sales prices.

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2%29%5%3%Q1’11 vs. Q1’10

Sales developmentCurrenciesPortfolioPricesVolumesPeriod

Performance ProductsAcquisitions are paying off

419471

370294

554

0

100

200

300

400

500

600

Q1 Q2 Q3 Q4 Q1

PerformanceChemicals

895+23%

Care Chemicals1,376+117%

€3,982+39%

Paper Chemicals393- 6%

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €)

Nutrition & Health469+27%

Dispersions& Pigments

849+17% 20112010

[Chart 7: Performance Products – Acquisitions are paying off]

All divisions in the Performance Products segment, except Paper

Chemicals, posted a rise in sales thanks to higher volumes and

increased prices. Cognis contributed 29 percentage points to sales

growth. EBIT before special items surpassed the earnings level of

Q1 2010 by far, due to higher volumes and the excellent

performance of the Cognis businesses. In addition, we realized cost

synergies related to the Ciba acquisition and successfully

repositioned the combined businesses.

In Dispersions & Pigments, sales increased significantly in all

product lines. Demand for our pigments remained strong,

particularly in Europe and Asia. EBIT before special items was

clearly higher.

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In Care Chemicals, sales doubled mainly due to the integration

of Cognis. Moreover, we experienced strong demand for our

hygiene products as well as for detergents and formulators. EBIT

before special items improved sharply.

Sales in Nutrition & Health increased substantially in part due to

Cognis. We faced some price pressure, especially for vitamin E.

However, EBIT before special items matched last year’s high

level.

In Paper Chemicals, despite the challenging business

environment we were able to increase prices. However, volumes

were lower mainly due to our optimized product portfolio. EBIT

before special items came in higher as the consistent

implementation of our restructuring program is paying off.

In Performance Chemicals, sales and EBIT before special items

increased substantially thanks to strong demand, particularly from

the automotive and refinery industries as well as the inclusion of

Cognis.

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Cognis – integration objectives

TargetsAchieve 20% EBITDA margin in the Performance Products segment by 2012Acquisition accretive as of 2012

CostsOne-time integration costs of €290 million until end of 2013 Inventory step-up of €120 millionCosts already incurred:− 2010: €80 million (thereof €60 million inventory step-up) − Q1/2011: €158 million (thereof €60 million inventory step-up)

SynergiesGenerate €275 million of additional EBIT− €135 million growth synergies by the end of 2015− €140 million cost synergies by the end of 2013

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[Chart 8: Cognis – integration objectives]

Now, I would like to give you a short update on the integration of

Cognis, which is running at full speed.

As you know, we have set ourselves ambitious targets:

We want to achieve a 20 percent EBITDA margin in the

Performance Products segment and

Make the Cognis acquisition accretive as of 2012.

We expect one-time integration costs of 290 million Euros until the

end of 2013. An additional 120 million Euros have been incurred

from inventory step-ups. Of these costs, 80 million Euros were

already booked in 2010 and 158 million Euros in the first quarter of

2011.

On the other hand, we aim to generate 275 million Euros of

additional EBIT annually through growth and cost synergies. 135

million Euros will come from growth synergies by the end of 2015.

We will benefit from leveraging the joint customer base as well as

extended solution and innovation capabilities.

We aim to realize 140 million Euros of cost synergies per year by

the end of 2013. These are related to savings in procurement

activities, the consolidation of administrative structures and the IT

landscape as well as the improvement of production efficiency.

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3%1%13%18%Q1’11 vs. Q1’10

Sales developmentCurrenciesPortfolioPricesVolumesPeriod

Functional SolutionsStrong automotive demand drove sales and earnings

Catalysts1,677+58%

Construction Chemicals

469+9%

Coatings672

+13%

€2,818+35%

111

165 158

33

142

0

50

100

150

Q1 Q2 Q3 Q4 Q1

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €)

20112010

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[Chart 9: Functional Solutions – Strong automotive demand

drove sales and earnings]

Volumes in the Functional Solutions segment were significantly

higher, reflecting the global recovery of the automotive industry.

Demand from the construction industry rose slightly, primarily owing

to the robust building activity in emerging markets. EBIT before

special items improved substantially.

Catalysts’ sales rose sharply, mainly attributable to higher

volumes in mobile emissions and chemical catalysts as well as

higher precious metal prices. As a result, our EBIT before special

items came in far above the level of the previous year.

Sales in Construction Chemicals grew slightly. We experienced

a positive business development in Eastern Europe, Asia and

South America, but North America remained challenging. Due to

higher raw material and fixed costs, EBIT before special items did

not match the previous year’s level.

In Coatings, the positive trend in demand continued for all

product lines. However, raw material prices could not yet be fully

passed on. As a result, EBIT before special items was only up

slightly.

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Agricultural SolutionsStrong sales and earnings growth

321 343

0

100

200

300

400

Q1 Q1

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €)

20112010

0200400600800

1,0001,2001,400

Q1 Q120112010

+7% +7%

1%0%(2)%8%Q1’11 vs. Q1’10

Sales developmentCurrenciesPortfolioPricesVolumesPeriod

1,1451,230

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[Chart 10: Agricultural Solutions – Strong sales and earnings

growth]

Agricultural Solutions started the new season successfully. Positive

market conditions with higher soft commodity prices and the

improved liquidity situation of farmers contributed favorably to sales

and earnings performance.

We achieved sales growth across all regions and indications. Our

fungicide business in Europe and North America performed

particularly well. The development of Kixor, our recently launched

herbicide, is well on track.

Despite strong overall demand, there was price pressure on some

herbicides in the North American market. Nevertheless, we have

seen stable prices since last quarter.

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273 306

0

200

400

600

800

Q1 Q1

Oil & GasHigher oil and gas prices compensated for lower volumes

Exploration &Production1,068+4%

Natural GasTrading

2,387+9%

€3,455+7%

0%20%(13)%Q1’11 vs. Q1’10

Sales developmentPortfolioPrices/CurrenciesVolumesPeriod

118

EBIT bSI Natural Gas TradingEBIT bSI Exploration & Production

Net income

Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items / Net income (million €)

20112010

484626

629744

145

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[Chart 11: Oil & Gas – Higher oil and gas prices compensated

for lower volumes]

Sales in Oil & Gas increased slightly, mainly due to higher oil and

gas prices. EBIT before special items improved significantly.

Sales in Exploration & Production increased slightly. Higher oil

prices, with Brent averaging 105 US Dollars per barrel compared

with 76 US Dollars in Q1 2010 compensated for lower oil

production in Libya. End of February, we suspended our oil

production in Libya. Nevertheless, earnings increased

substantially, driven by the higher oil prices.

Since the winter in Europe was less severe compared to the first

quarter 2010, volumes in Natural Gas Trading decreased.

However, gas sales were up as a result of higher sales prices.

Earnings, on the other hand, decreased significantly as a result of

lower demand and negative time-lag effects.

A look at the income statement shows, that net income after taxes

and minority interests rose by 12 percent to 306 million Euros. Non-

compensable oil production taxes amounted to 280 million Euros.

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12BASF 1st Quarter 2011 Analyst Conference Call

Review of “Other”

(300)(34)

(82)(51)

(136)

101

(266)666

1,338Q1 2010

(244)(35)

(83)(55)(78)

185

(209)843

1,812Q1 2011

Salesthereof Styrenics

EBIT before special itemsthereof Corporate research

Group corporate costs Currency results, hedges and other valuation effectsStyrenics, fertilizers, other businesses

Special items

EBIT

Million €

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[Chart 12: Review of “Other”]

In “Other”, I would only like to highlight the positive business

development of Styrenics, which benefitted from ongoing strong

demand and higher prices. EBIT before special items in “Other”

improved by 57 million Euros.

Now I would like to hand back to Kurt.

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Excellent operating cash flow in Q1 2011

(392)(547)thereof Payments related to tangible / intangible assets

(454)257Cash provided by investing activities

(1,073)(127)

(1,200)

260

2,255

Q1 2011

(679)(78)

(757)

(680)

1,368

Q1 2010Cash provided by operating activitiesthereof Changes in net working capital

Cash used in financing activitiesthereof Changes in financial liabilities

Dividends

Million €

Despite improved business activities net working capital decreased slightly Free cash flow at €1.7 billion Net debt reduced by €2.4 billion to €11.1 billion since December 31, 2010€972 million proceeds from the sale of K+S stake

First quarter 2011

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BASF 1st Quarter 2011 Analyst Conference May 06, 2011

Dr. Kurt Bock

[Chart 13: Excellent operating cash flow in Q1 2011]

Thank you, Hans. Let me now briefly talk about our cash flow before

we conclude with the outlook.

Thanks to our strong business performance in the first quarter, we

generated an excellent operating cash flow of 2.3 billion Euros, up

900 million Euros compared with Q1 2010. Despite improved

business activities, cash tied up in net working capital decreased

slightly by 260 million Euros. This continues to demonstrate BASF’s

outstanding cash generating capability.

Cash from investing activities was positive and amounted to

257 million Euros; this included 972 million Euros of proceeds from

the K+S disposal. Capex came in at 547 million Euros. As a result,

we turned in a very strong free cash flow of 1.7 billion Euros in the

first quarter. From the beginning of 2011, we were able to reduce

net debt by 2.4 billion Euros to 11.1 billion.

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14BASF 1st Quarter 2011 Analyst Conference Call

We aim to grow sales on average by two percentage points per year faster than chemical production growthWe strive to grow our earnings further year by year, and to achieve an EBITDA margin of 18% by 2012

We are increasing our Brent oil price forecast from $90/bbl to $100/bblWe are assuming that oil production in Libya will not restart during 2011 →EBIT before special items from our Libyan oil production for the full year 2011

will be about €1 billion lower compared with 2010(thereof about €700 million of non-compensable oil taxes)

Assumptions

Medium-term targets

Outlook 2011

We expect to generate significantly higher salesWe aim to significantly exceed the 2010 EBIT before special itemsadjusted for non-compensable oil taxes (2010: €7.2 billion)We expect to achieve a high premium on our cost of capital

Targets 2011

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[Chart 14: Outlook 2011]

Now let’s come to the outlook for 2011. What do we expect?

We are increasing our Brent oil price forecast from 90 Dollars per

barrel to 100 Dollars per barrel.

We are assuming that the oil production in Libya will not restart

during 2011. Based on this assumption, EBIT before special

items from our Libyan oil production for the full year 2011 will be

about 1 billion Euros lower compared with 2010. However, as you

all know, of these 1 billion Euros about 700 million are non-

compensable oil taxes.

For the full year 2011, we still expect to generate significantly higher

sales. Considering the suspension of oil production in Libya, EBIT

before special items excluding non-compensable oil taxes provides

a much more meaningful guidance for 2011. Thus, we aim to

significantly exceed the 2010 EBIT before special items excluding

non-compensable oil taxes which amounted to 7.2 billion Euros.

Finally, we are committed to our target to achieve a high premium

on our cost of capital in 2011.

Thank you for your attention. We are now happy to take your

questions.

40BASF 4Q/FY’2010 Conference | February 24th, 2011

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Back-Up

17BASF 1st Quarter 2011 Analyst Conference Call

1%6%13%5%*Q1’11 vs. Q1’10

Sales developmentCurrenciesPortfolioPricesVolumesPeriod

BASF Group Q1 2011

* Volumes +9% (without Oil & Gas)

2.02.2 2.2

1.8

2.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Q1 Q2 Q3 Q4 Q1

EBIT before special items (billion €)

15.5 16.2 15.8 16.419.4

0

4

8

12

16

20

Q1 Q2 Q3 Q4 Q1

Sales (billion €)

2011201020112010

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Financial highlightsStrong earnings improvement in Q1

+118%1,20+134%1,122,62EPS (€)

.(78).(114)(182)Special items

+25%2,703+28%2,6273,365EBITDA

+47%

+134%

+39%

+40%

+25%

+5%+13%

6%+1%

Δ%

1,39

1,100

1,687

1,765

16,424

Q4 2010

+40%1,321,94Adjusted EPS (€)

+51%1,8402,550EBIT

+119%1,0292,411Net income

1,954

15,454

Q1 2010

+55%

+18%

Δ%

2,732EBIT before special items

19,361

Q1 2011Sales

changes due to- volumes- prices- portfolio- currencies

Million €

19BASF 1st Quarter 2011 Analyst Conference Call

Balance sheet further strengthened

Balance sheet March 31, 2011 vs. end of 2010 (billion €)

Liquid funds

Accountsreceivable

Long-termassets

22.7

15.0

21.7

34.5

10.2

1.5

Otherliabilities

Financialdebt

Stock-holders’Equity

Mar 312011

Mar 312011

Dec 312010

Dec 312010

60.2

32.7

11.1

2.8

60.2

23.5

13.9

22.8

Inventories

Other assets

8.7

4.9

8.7

4.5

59.459.4

Proceeds from the sale of BASF’s stake in K+S were used to reduce debt

Net debt decreased by €2.4 billion to €11.1 billion.

Accounts receivable increased by €0.9 billion due to the expansion of our business

Equity ratio at 39% (up 1 percentage point)

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Cognis integrationGenerating €275 million of growth and cost synergies

Providing joint customer base with access to broader portfolioIncreasing solution capabilitiesExtending innovation capabilitiesLeveraging regional set-up

Cost synergiesRealizing procurement cost savingsConsolidating of administrative structuresImproving production efficiencyConsolidating IT landscape

Synergies (million €)

140

135

0

50

100

150

200

250

300

Growth synergies (by the end 2015)Cost synergies (by the end of 2013)

Growth synergies