Basf Analyst Conference Q1 2011 Speech
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Transcript of 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
Page 2
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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
Page 3
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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.
Page 4
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
4BASF 1st Quarter 2011 Analyst Conference Call
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
Page 5
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 6
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
5BASF 1st Quarter 2011 Analyst Conference Call
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
Page 7
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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.
Page 8
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
6BASF 1st Quarter 2011 Analyst Conference Call
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
Page 9
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 10
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
7BASF 1st Quarter 2011 Analyst Conference Call
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.
Page 11
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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.
Page 12
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
8BASF 1st Quarter 2011 Analyst Conference Call
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
Page 13
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 14
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
9BASF 1st Quarter 2011 Analyst Conference Call
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
Page 15
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 16
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
10BASF 1st Quarter 2011 Analyst Conference Call
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
Page 17
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 18
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
11BASF 1st Quarter 2011 Analyst Conference Call
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
Page 19
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 20
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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 €
Page 21
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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.
Page 22
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
13BASF 1st Quarter 2011 Analyst Conference Call
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
Page 23
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.
Page 24
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
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
Page 25
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
[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
Page 26
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
16BASF 1st Quarter 2011 Analyst Conference Call 16
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
Page 27
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
18BASF 1st Quarter 2011 Analyst Conference Call
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)
Page 28
BASF 1st Quarter 2011 Analyst Conference May 06, 2011
20BASF 1st Quarter 2011 Analyst Conference Call
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