Speech & charts of BASF Q1 2012

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BASF 1 st Quarter 2012 Analyst Conference Call April 27, 2012, 8:30 a.m. (CEST), Mannheim Analyst Conference Call Script Hans-Ulrich Engel The spoken word applies.

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Charts and Speech accompanying the 1Q2012 Conference Call for investors and analysts on April 27, 2012

Transcript of Speech & charts of BASF Q1 2012

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BASF 1st Quarter 2012 Analyst Conference Call

April 27, 2012, 8:30 a.m. (CEST), Mannheim

Analyst Conference Call Script

Hans-Ulrich Engel

The spoken word applies.

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Hans-Ulrich Engel

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

[Chart 3: BASF with solid start to 2012]

After a rather slow fourth quarter 2011, we have seen a significant

improvement in business activity since the beginning of the year.

However, in line with our assumptions demand in our chemical

activities could not match the level of the exceptionally strong first

quarter 2011, which benefitted from high consumption and re-

stocking effects. The market environment for our Agricultural

Solutions as well as the Oil & Gas businesses, on the other hand,

was quite favorable, leading to a good start into 2012.

In the first quarter, we increased sales by 6 percent to 20.6 billion

euros. Overall volumes were flat. Volumes in our chemical

activities declined by 5 percent due to lower demand as well as

the modification of an earnings-neutral swap for cracker products.

We were able to successfully raise prices by 5 percent. Higher

raw material costs could not be fully passed on to the market.

EBITDA amounted to 3.9 billion euros, up 16 percent versus the

first quarter of last year.

EBITDA as well as EBIT were positively impacted by the disposal

gain of our fertilizer activities in Belgium and France in the amount

of 645 million euros.

EBIT before special items came in at 2.5 billion euros, 7 percent

below the record first quarter of last year.

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Net income was 1.7 billion euros, 28 percent lower than a year

ago. Last year’s results included a capital gain of close to 900

million euros from the sale of our stake in K+S.

Adjusted earnings per share were 1.57 euros in Q1 2012 after

1.94 euros in Q1 2011.

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[Chart 4: Important milestones in Q1 2012]

In the first quarter, we achieved important milestones:

We significantly strengthened our activities in battery materials

through several smaller acquisitions. In January, we announced

the acquisition of a stake in Sion Power, the global leader in the

development of lithium-sulfur batteries. In February, we bought

Ovonic, the global leader in nickel-metalhydride battery

technology. We also signed the purchase agreement for Merck’s

electrolyte activities. The transaction was closed last week. And

just yesterday we announced the acquisition of Novolyte

Technologies, a manufacturer of electrolyte formulations for

lithium batteries. With production sites in Europe, the United

States and Asia Pacific region we are now positioned as a global

supplier in the electrolyte formulation business. Last but not least,

our battery material plant in Ohio is on track to start operation in

Q4 of this year. All these measures support our goal to become

the leading supplier of battery materials.

Last month, we signed a heads of agreement with PETRONAS

for the expansion of our existing joint venture in Kuantan and the

construction of a number of new downstream plants at

PETRONAS’ new integrated RAPID complex in South Johor, next

to Singapore. The projects are to be implemented between 2015

and 2018. In total, we plan joint investments of one billion euros.

Finally, at the end of Q1 we completed the sale of our fertilizer

activities. We realized a disposal gain of 645 million euros, which

was booked as special item in ‘Other’.

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Now I will explain the financial performance of our business

segments in more detail. The basis of comparison is the first quarter

2011.

[Chart 5: Chemicals – Margins improved over Q4 2011 thanks

to higher prices]

In the Chemicals segment we generated higher sales. The

Styrolution joint venture contributed positively to the top-line

because feedstock sales to the JV are now reported as third party

sales, which are shown as structural effect. Volumes dropped

mainly due to an earnings-neutral swap agreement for propylene,

which became effective in Q3 of 2011. On a comparable basis,

volumes increased slightly. Due to ongoing high raw material

prices, EBIT before special items did not reach the high level of Q1

2011.

In Petrochemicals, sales increased significantly. Prices for

cracker products moved above prior year. Prices for all other

product lines were below the very high prior year level. Margins

declined because we could not fully pass on the high raw material

costs to our customers. Overall, EBIT before special items was

considerably lower.

In Intermediates, sales decreased slightly. Demand was high

from key customer industries such as plastics and coatings, but

did not match the very good level of the previous year. Thus

volumes and margins declined. Consequently, EBIT before

special items came in lower.

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Sales in Inorganics were stable. EBIT before special items did

not match the very good level of Q1 2011, mainly due to lower

margins in basic products.

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[Chart 6: Plastics – TDI and MDI margins improved on higher

prices vs. Q4 2011]

In our Plastics segment sales decreased. Price increases could not

compensate for considerably lower volumes. The record margins for

polyamide precursors and polyurethanes, generated in Q1 2011,

could not be sustained. Earnings were substantially below the

excellent level of the previous year.

In Performance Polymers, sales were slightly lower. Slow textile

fiber demand in Asia led to lower volumes and margins for

caprolactam. On the other hand, continuously strong demand

from the automotive industry, particularly in North America, lifted

sales in engineering plastics. Foams’ sales exceeded the prior

year quarter based on healthy demand from the construction and

packaging industries. However, EBIT before special items

dropped substantially mainly due to a margin decrease.

Sales in Polyurethanes were down moderately. Sales to the

appliance and construction industries weakened but demand from

the automotive sector remained robust. The scheduled

turnaround of our Geismar site also negatively impacted volumes.

We continued to pursue our value-before-volume strategy and

successfully implemented price increases for TDI and MDI. As a

result, we saw margins in both TDI and MDI recover during the

quarter. EBIT before special items was significantly below prior

year given lower volumes and margins.

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[Chart 7: Performance Products – Solid demand but below

exceptionally high level of Q1 2011]

Sales in Performance Products were stable. Demand for several

product lines was lower than a year ago. In the prior year quarter,

we benefitted from tight markets in several products. However, price

increases and positive currency effects compensated for lower

volumes. As we could not fully pass on higher raw material costs,

margins were softer and EBIT before special items declined.

In Dispersions & Pigments, sales rose significantly driven by

higher volumes and prices. Pigment sales were strong in North

America, but softer in Asia and Europe. Due to higher costs of idle

capacities and an unfavorable product mix effect, EBIT before

special items fell short of the prior year.

In Care Chemicals, sales decreased. The challenging

competitive environment led to lower volumes overall. Specialties,

however, continued to perform strongly. Since price increases

could not fully offset higher raw material costs, EBIT before

special items fell significantly.

Sales in Nutrition & Health increased slightly due to continued

good demand in nearly all businesses. Pharma showed lower

volumes. Margins in vitamins were affected by higher raw material

costs, which could not be passed on fully. EBIT before special

items was down on softer margins.

In Paper Chemicals, we made substantial progress in our

restructuring efforts. We were able to increase sales although the

market remained challenging. EBIT before special items improved

benefitting from higher selling prices and fixed cost reductions.

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Sales in Performance Chemicals slightly increased. To

compensate for higher raw material costs, we raised prices. In a

competitive market environment, volumes were below the

previous year. As a consequence, EBIT before special items

decreased.

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[Chart 8: Functional Solutions – Good performance driven by

high demand from automotive]

In our Functional Solutions segment, we slightly increased sales.

Demand from the automotive industry – especially from premium car

manufacturers – improved further. Lower precious metal prices and

volumes, however, had an offsetting effect. EBIT before special

items improved.

Sales in Catalysts dropped slightly due to lower prices and

volumes in precious metal trading, while we experienced high

demand for mobile emissions and chemical catalysts. EBIT before

special items increased due to the good volume growth in mobile

emissions and chemical catalysts.

Sales in Construction Chemicals grew by seven percent.

Demand in Asia and South America remained favorable and

North America showed a first positive development. Business in

Europe was affected by the cold weather and continuing

weakness in Southern Europe. We increased prices in all regions.

EBIT before special items slightly increased in this seasonally

weak quarter.

In Coatings, sales were up due to the continued high demand in

particular from premium car manufacturers as well as good

business in Asia and North America. In decorative paints, sales

declined due to lower volumes. We realized price increases

across all regions and for all major product lines. EBIT before

special items almost matched the good level of the previous year.

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[Chart 9: Agricultural Solutions – Excellent start into the year]

Sales in Agricultural Solutions rose significantly. We were able to

grow volumes in all indications and implemented a three percent

price increase, thus maintaining the positive pricing momentum from

the previous two quarters. EBIT before special items was up

significantly.

The start of the new season in the Northern hemisphere was strong.

In Europe, the recent launch of our new fungicide Xemium® is

already a success: Q1 sales in the three major fungicide markets –

France, Germany and UK – confirm that Xemium has blockbuster

potential. Our crop protection business in the Eastern European

growth markets also developed favorably.

In North America, the early start of the season supported sales

growth, especially in herbicides. Our plant health business also

developed well.

Sales in Asia came in slightly lower, as the increased demand in

China could not fully compensate for a weaker season in Japan.

South American sales increased due to strong demand for Fipronil-

based products for sugar cane applications.

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[Chart 10: Oil & Gas – Higher volumes and prices boosted

sales and earnings]

Sales in Oil & Gas increased strongly driven by Natural Gas

Trading as well as Exploration & Production. EBIT before special

items rose sharply.

Sales in Exploration & Production were up by 25 percent

primarily driven by higher prices and volumes. With an average of

119 dollars per barrel Brent, the oil price was considerably above

the level of the prior year’s quarter. Volumes also grew as a result

of higher oil production in Libya and higher gas production in

Russia and the Netherlands. As a result, earnings soared.

In Natural Gas Trading, sales grew substantially given higher

volumes and prices. Due to the cold temperatures in Europe in

the first quarter, we were able to significantly expand trading

volumes. Earnings strongly improved due to higher natural gas

volumes as well as from operations of the new OPAL pipeline.

Non-compensable taxes on oil production amounted to 451 million

euros compared to 280 million euros in the first quarter of the

previous year.

Net income was 416 million euros, an increase of 110 million euros

versus Q1 of last year.

Let me give you a brief update on the situation in Libya. In Q1, we

achieved to increase our production to roughly 70,000 barrels of oil

per day. At this point, we cannot predict when we will be back at a

production level of 100,000 barrels per day. The technical condition

of the infrastructure remains the bottleneck.

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[Chart 11: Review of ‘Other’]

In ‘Other’, sales decreased by almost 30 percent due to the

deconsolidation of Styrenics following the formation of the

Styrolution joint venture with Ineos.

EBIT before special items declined to minus 330 million euros,

mainly due to the missing contribution from Styrenics and a higher

provision for the long-term incentive program.

Special items were positive due to a 645 million euros disposal gain

from the sale of the fertilizer business.

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[Chart 12: Operating cash flow at €1.6 billion in Q1 ‘12]

Cash provided by operating activities was 1.6 billion euros in the

first quarter of this year. The rise in working capital of roughly 430

million euros reflected increased raw material prices compared with

one year ago.

Cash from investing activities amounted to 159 million euros. This

includes a cash inflow of roughly 680 million euros primarily

resulting from the divestiture of our fertilizer activities. The prior year

figure contained proceeds of almost 900 million euros from the K+S

disposal. Capex rose by 173 million euros to 720 million euros

compared to the previous year’s quarter.

Free cash flow came in at 0.9 billion euros compared to 1.7 billion in

Q1 2011.

From the beginning of this year, we were able to reduce net debt by

1.5 billion euros to 9.4 billion euros.

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[Chart 13: Outlook 2012 confirmed]

Our outlook for 2012 remains unchanged:

We strive to increase volumes in 2012.

We aim to exceed the record levels of sales and EBIT before

special items achieved by BASF Group in 2011.

And – as stated at our analyst conference at the end of February

– in the first half of 2012, we will most likely not achieve the

exceptionally high results of the comparable period in 2011.

However, based on our assumption that the chemical demand will

pick up in H2 we expect to outperform the second half year

results of 2011.

Finally, we strive to earn a high premium on our cost of capital

again in 2012.

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[Chart 14: Delivering attractive shareholder returns]

Please understand that our earnings call has to be rather short

today due to our AGM this morning. Two of the key topics there will

be the approvals for

a dividend of 2.50 euros per share, which is an increase of

thirty euro cents over prior year

and a new share buy-back program for up to ten percent of

BASF’s shares over the next five year period.

And with that on to your questions.