BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013, 11:00 a.m. (CEST)
Ludwigshafen
Analyst Conference Call Script (long Version)
Kurt Bock Hans-Ulrich Engel
The spoken word applies.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Cautionary note regarding forward-looking statements
This presentation may contain forward-looking statements that are subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realized from the proposals described herein. Forward-looking statements may include, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation and supply and demand. BASF has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and financial performance may be better or worse than anticipated. Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice and BASF does not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations.
2BASF Q3 2013 Analyst Conference Call October 25, 2013
Robust 3rd quarter 2013 for BASF
Sales developmentPeriod Volumes Prices Portfolio Currencies
Q3’13 vs. Q3’12 6% (1%) 1% (5%)
3BASF Q3 2013 Analyst Conference Call October 25, 2013
Business performance Q3’13 vs. Q3’12 Q1-Q3’13 vs. Q1-Q3’12
Sales €17.7 billion +1.5% €55.8 billion +3%
EBITDA €2.5 billion +16% €7.8 billion (1%)
EBIT before special items €1.7 billion +15% €5.7 billion +6%
EBIT €1.7 billion +20% €5.6 billion (1%)
Net income €1.1 billion +18% €3.7 billion (4%)
Reported EPS €1.20 +19% €4.03 (4%)
Adjusted EPS €1.28 +10% €4.35 +1%
Operating cash flow €2.0 billion +21% €6.0 billion +19%
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Kurt Bock Ladies and Gentlemen, good morning and thank you for joining us.
[Chart 3: Robust 3rd quarter 2013 for BASF]
The global economic environment in the third quarter continued to
be challenging showing only moderate growth. Economies in the
Eurozone developed at different speeds with Southern Europe
still declining, Western and Eastern Europe showing slight growth.
North American GDP grew moderately. Growth in China picked
up in the third quarter. The ASEAN countries saw a slowdown in
growth. The major Latin American economies continued to face
headwinds with weaker than expected but improving GDP growth.
Despite these trends, BASF’s performance remained robust.
Sales increased by 1.5 percent to 17.7 billion euros. This growth
was mainly attributable to Oil & Gas, as well as to a good
performance in the Agricultural Solutions and Functional Materials
& Solutions segments. It was partly offset by a weaker
development in Chemicals. Moreover, all segments experienced
significant negative currency effects.
EBITDA came in 16.5 percent higher at 2.5 billion euros.
EBIT before special items increased by 15 percent to 1.7 billion
euros. Functional Materials & Solutions contributed significantly,
and earnings in Performance Products advanced.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
EBIT before special items in Other improved considerably.
Amongst others, a main contributor to this improvement was a
lower provision for our long-term incentive program in Q3 2013.
BASF recognized special items in EBIT of minus 10 million euros.
A one time gain in the amount of 164 million euros resulted from
the sale of an oil & gas asset to Statoil. This was offset by
restructuring measures, impairment charges as well as integration
costs related to Pronova BioPharma and Becker Underwood.
EBIT amounted to 1.7 billion euros, an increase of 20 percent
versus prior year.
The tax rate was at 23.1 percent. In the third quarter 2012, the tax
rate was at 20.8 percent.
Net income strengthened by 18.5 percent to 1.1 billion euros.
Adjusted earnings per share increased to 1.28 euros in Q3 2013
after 1.16 euros in Q3 2012.
Operating cash flow reached again 2 billion euros, surpassing the
previous year’s level by more than 300 million euros mainly driven
by improvements in net working capital.
Free cash flow increased to almost 800 million euros in Q3,
totaling 2.9 billion euros in the first nine months.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Cash offer of 4 US dollarsper share,
Offer expires on October31, 2013
Enterprise value~62 million US dollars
Acquisition will strengthenBASF‘s footprint in theenzyme growth market
Optimization of global production network
Reduction of 650 positionsworldwide
Investment of €250 millionin production and R&D
Transaction completed July 31, 2013
Increased production from 3,000 to ~40,000 boe per day in Norway
Compensation payment of781 million US dollars*
Important corporate developments
4
Transaction with Statoil completed
Restructuring in Pigments business
Cash offer for Vereniumenzyme biotechnology
BASF Q3 2013 Analyst Conference Call October 25, 2013
* Euro/dollar exchange rate July 31, 2013: €1= $1.3275
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 4: Important corporate developments]
On October 23, 2013 we announced the implementation of
several measures to reduce capacities and to strengthen
competitiveness of our pigments business. Plans include the
closure of the Paisley plant in Scotland and the restructuring of
the Huningue plant in France. In addition, we are examining
strategic options for the site in Maastricht, the Netherlands. We
plan to reduce around 650 positions globally by 2017. At the
same time, we will invest 250 million euros in the next four years
in our production network as well as in research and
development.
On October 18, 2013 BASF and Yara announced the evaluation
of a joint investment into a world scale ammonia plant at the US
Gulf Coast. With this investment we intend to take advantage of
the very competitive natural gas prices in the US, while further
increasing our backward integration.
On September 20, 2013 BASF announced a cash offer to acquire
Verenium, a US-based enzyme biotechnology company, for 4 US
dollars per share. Based on all outstanding shares and including
all net financial liabilities, the enterprise value would be
approximately 62 million US dollars. The offer period is scheduled
to expire on October 31, 2013. This acquisition will strengthen
BASF’s footprint in the enzyme growth market.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
In Oil & Gas, we completed the transaction with Statoil on July 31,
2013. With the transfer of shares in the Brage, Vega and Gjøa
fields, Wintershall’s daily production in Norway has risen from
approximately 3,000 BOE to nearly 40,000 BOE. As part of the
transaction, Statoil received from Wintershall a 15 percent share
in the Edvard Grieg development project as well as a financial
consideration in the amount of 1.35 billion US dollars (1.02 billion
euros). The transaction was concluded with retroactive
commercial effect as of January 1, 2013. Taking into account our
earnings from shares in the production of the Brage, Vega and
Gjøa fields, as well as investments made in the fields affected by
the swap since January 1, 2013, this resulted in a net cash
outflow of 781 million US dollars (588 million euros).
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
ChemicalsPressure on volumes and margins
Intermediates700
(7%)
Monomers 1,599
(11%)
Petrochemicals1,925
(6%)
€4,224(8%)
Q3’13 segment sales (million €) vs. Q3’12
Sales development Period Volumes Prices Portfolio Currencies
Q3’13 vs. Q3’12 (2%) (3%) 0% (3%)
5
EBIT before special items (million €)
569445
650
495 527
0
200
400
600
800
Q3 Q4 Q1 Q2 Q3
20132012
BASF Q3 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 5: Chemicals – Pressure on volumes and margins]
Sales in the Chemicals segment declined caused by a combination
of lower volumes, prices and negative currency effects. EBIT before
special items came in lower as the higher contributions of olefins
could not fully compensate for lower earnings in other areas. We
booked special items of 85 million euros due to impairment charges
on a production plant.
In Petrochemicals sales decreased due to lower volumes and
prices. In North America, cracker margins improved strongly as a
result of the optimization of our Port Arthur cracker towards lighter
feed. Cracker margins in Asia Pacific continued to be under
pressure due to weaker market demand. EBIT before special
items increased significantly.
Sales in Monomers declined mainly because of lower prices.
Margins for isocyanates in Asia Pacific as well as for ammonia
were down as price decreases could not be offset by lower raw
material costs. Caprolactam margins remained stable at low
levels versus prior year. Overall, EBIT before special items
decreased substantially.
In Intermediates sales decreased due to a more pronounced
seasonal summer dip primarily in Europe. Our business with
butanediol and its derivates improved, but we experienced lower
demand for amines. Thus, EBIT before special items came in
lower.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Performance ProductsGrowth in volumes and earnings
PerformanceChemicals
896
(3%)
Care Chemicals1,209
(1%)
€3,939(1%)
Paper Chemicals365
(8%)
Q3’13 segment sales (million €) vs. Q3’12
Nutrition & Health540
+10% Dispersions& Pigments
929
(2%)
EBIT before special items (million €)
Sales development Period Volumes Prices Portfolio Currencies
Q3’13 vs. Q3’12 6% (3%) 1% (5%)
344
183
379 394 376
0
200
400
600
Q3 Q4 Q1 Q2 Q3
6BASF Q3 2013 Analyst Conference Call October 25, 2013
20132012
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 6: Performance Products - Growth in volumes and earnings]
Sales in the Performance Products segment were almost stable
despite adverse currency effects. Volumes were up. Prices
decreased as we partly passed on lower raw material costs. EBIT
before special items came in higher, driven by Care Chemicals and
Dispersions & Pigments. Our fixed cost management contributed as
well. We incurred special items of 54 million euros related to our
ongoing restructuring program.
In Dispersions & Pigments sales decreased slightly. We saw
volume growth, especially in dispersions, pigments and
formulation additives. Prices decreased slightly. Strict cost
containment measures contributed to a substantial increase in
EBIT before special items.
Sales in Care Chemicals were stable. Volumes increased, with
strong contributions from personal care specialties, home care
and hygiene. Prices decreased. EBIT before special items
increased significantly because of higher volumes and successful
fixed cost management.
In our Nutrition & Health division, sales were up due to the
consolidation of Pronova BioPharma. Volumes grew in pharma,
human nutrition and aroma chemicals. Volumes in animal nutrition
were down given weak demand. We experienced continued
competitive pressure on vitamin E prices. EBIT before special
items came in slightly higher.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Sales in Paper Chemicals decreased in a declining market.
Demand for graphical paper applications declined, especially in
Europe and North America, while volumes for packaging
remained stable. Demand for paper chemicals in Asia Pacific was
weaker than expected. Prices declined in all regions, as we had to
pass on lower raw material costs. EBIT before special items came
in significantly below the level of last year.
In Performance Chemicals sales were slightly below prior year.
Increased volumes, particularly in fuel and lubricant solutions,
plastic additives as well as in water, oilfield and mining,
compensated for lower prices. Negative currency effects reduced
sales. Cost containment measures were consistently
implemented. EBIT before special items decreased slightly.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Functional Materials & SolutionsSound overall demand, especially in automotive
Catalysts1,466
+12%
ConstructionChemicals
576
(9%)
Coatings728
(5%)
€4,439+3%
Q3’13 segment sales (million €) vs. Q3’12
Sales development Period Volumes Prices Portfolio Currencies
Q3’13 vs. Q3’12 8% 2% (1%) (6%)
Performance Materials 1,669
+5%
231 228 239293 300
0
200
400
600
Q3 Q4 Q1 Q2 Q3
7
EBIT before special items (million €)
BASF Q3 2013 Analyst Conference Call October 25, 2013
20132012
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 7: Functional Materials & Solutions – Sound overall demand, especially in automotive]
In our Functional Materials & Solutions segment, sales were up,
mainly supported by continued good overall demand from the
automotive industry. We were able to increase volumes and prices
in all four divisions, which was partially offset by negative currency
effects. EBIT before special items increased substantially.
Sales in the Catalysts division rose significantly. Demand for
mobile emission catalysts in North America, Europe and Asia
Pacific was up. Refinery catalyst volumes rose as well. In
chemical catalysts, demand was below the high level of Q3 2012,
especially for custom catalysts. Revenues from precious metal
trading grew to 657 million euros versus 512 million euros a year
ago. EBIT before special items more than doubled due to the
good performance of mobile emission catalysts and lower raw
material costs.
Sales in Construction Chemicals declined. European sales
suffered from ongoing weak demand in Southern Europe.
Emerging markets such as Middle East and Russia experienced
excellent growth. Higher volumes especially in the admixture
systems business lifted sales in North America. In Asia Pacific
weaker demand as well as portfolio optimization measures
reduced sales. EBIT before special items increased due to margin
improvements and fixed cost reductions.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Despite higher volumes and slightly increased prices, sales in
Coatings decreased due to negative currency effects. Demand
for automotive OEM coatings grew in all regions. Refinish
coatings showed good growth in Asia Pacific, while volumes in
Europe and North America declined. Volumes and prices in our
Brazilian decorative paints business remained almost stable.
EBIT before special items decreased slightly, mainly due to
adverse currency effects.
Sales in the Performance Materials division were up. In
engineering plastics and PU systems sales grew due to higher
demand in the transportation industry. Demand for appliances as
well as electronic equipment was slightly up. EBIT before special
items increased strongly as a result of higher volumes.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Agricultural SolutionsSales growth despite pronounced currency headwinds
Q3’13 segment sales (million €) vs. Q3’12
Sales development Period Volumes Prices Portfolio Currencies
Q3’13 vs. Q3’12 8% 4% 3% (10%)
0
100
200
Q3 Q30
300
600
900
1.200
Q3 Q3
1,054 1721711,008
8
EBIT before special items (million €)
20132012
BASF Q3 2013 Analyst Conference Call October 25, 2013
20132012
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 8: Agricultural Solutions – Sales growth despite pronounced currency headwinds]
Our Agricultural Solutions segment delivered a good performance
in the seasonally slow third quarter. High demand led to a strong
volume increase across all indications, at higher prices. We were
able to increase sales by five percent, despite significant negative
currency effects. The consolidation of the former Becker Underwood
business led to a positive structural effect.
Sales in South America increased, driven by high demand for
fungicides and herbicides. The recent launch of our herbicide
Kixor has already significantly contributed, and we just received
registration for the fungicide Xemium, which we will start selling
before the end of the year.
North America delivered a positive finish to a very successful
season. We saw continued high demand especially for plant
health products. The seed treatment business of the former
Becker Underwood contributed as well.
Business in Europe remained on a high level, particularly
supported by high herbicide demand in the Western European
markets as well as a good specialty fungicide business in
Southern Europe. Prices were also up.
In Asia Pacific sales declined. This was mainly caused by
significant currency headwinds. Wet weather conditions in India
also had a negative impact.
Despite pronounced negative currency effects we were able to
keep EBIT before special items on the high level of the prior third
quarter.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
For the full year 2013 we expect to again achieve new sales and
earnings records.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
103
318
62
451
0
100
200
300
400
500
Q3/2012 Net Income Q3/2013 Net Income
Oil & GasSubstantially higher net income
Exploration &Production
754
+15%
Natural GasTrading 2,376
+29% €3,130+25%
Q3’13 segment sales (million €) vs. Q3’12 EBIT bSI/Net income (million €)
Natural Gas Trading
Exploration & Production
Net income
Sales development Period Volumes Prices/Currencies Portfolio
Q3’13 vs. Q3’12 22% (2%) 5%
499
396 360
422
9BASF Q3 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 9: Oil & Gas – Substantially higher net income]
In the Oil & Gas segment, sales grew significantly. This was due to
the transfer of shares in the Brage, Vega and Gjøa fields as well as
higher volumes in natural gas trading. EBIT before special items
came in lower, primarily related to lower margins in natural gas
trading, higher costs for the abandonment of an oil platform as well
as a lower contribution from Libya. We recognized a one time gain
of 164 million euros from the sale of a 15 percent stake in the
Edvard Grieg field in the North Sea. Since this disposal gain was
tax-free, net income increased significantly to 451 million euros.
Sales in Exploration & Production increased, because of the
transfer of shares in the Brage, Vega and Gjøa fields as well as
increased production volumes from the Achimov reservoir. Sales
from our Libyan offshore concessions came in lower than in the
prior third quarter. The average price for Brent crude oil
decreased by 4 euros to 83 euros per barrel in the third quarter of
2013. EBIT before special items decreased, related to the lower
oil price, an increase of the provision for the abandonment of an
oil platform in the North Sea and lower production volumes in
Libya.
Sales in the Natural Gas Trading business grew considerably
due to higher volumes, especially through intensified trading on
European spot markets. EBIT before special items, however, fell
substantially because of a squeeze in margins.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Review of “Other”
Million € Q3’13 Q3’12Sales 947 1,087EBIT before special items (105) (343)Thereof Corporate research
Group corporate costsCurrency result, hedges and otherValuation effectsOther business
(90)(57)(74)
59
(95)(63)
(249)
30
Special items (24) (44)
EBIT (129) (387)
10BASF Q3 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 10: Other]
Sales in Other decreased by 140 million euros to 947 million
euros mainly due to lower raw material trading volumes.
EBIT before special items improved from minus 343 million euros
to minus 105 million euros. Amongst others, a main contributor to
this improvement was a lower provision for our long-term
incentive program in Q3 2013.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
Cash Flow Excellent cash flow in Q1-Q3 2013
Million € Q1-Q3’13 Q1-Q3’12Cash provided by operating activities 5,982 5,025Thereof Changes in net working capital
Miscellaneous items374
(327)(639)(450)
Cash provided by investing activities (4,629) (2,018)thereof Payments related to tangible / intangible assets (3,038) (2,702)
Acquisitions / divestitures (1,093) 411Cash used in financing activities (1,300) (3,383)thereof Changes in financial liabilities
Dividends 1,304
(2,604)(868)
(2,510)
Net working capital decreased
Increased capex at €3 billion
Strong free cash flow of €2.9 billion against €2.3 billion in 2012
Equity ratio of 41%; net debt increased by €1.8 billion to €13 billion
Q1-Q3 2013
11BASF Q3 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 11: Excellent Cash Flow in Q1-Q3 2013 ]
Let me turn to our cash flow, which continued to improve in Q3.
Please be reminded, that we will summarize the first nine months of
2013.
At 6 billion euros cash provided by operating activities was
excellent, exceeding the prior year number by almost 1 billion
euros.
Net working capital decreased due to higher accounts payable
and provisions.
Cash used in investing activities amounted to 4.6 billion euros.
Capex increased to 3 billion euros, compared with 2.7 billion
euros in the prior year. For the transaction with Statoil as well as
for the acquisition of Pronova BioPharma we incurred cash
payments of 1.1 billion euros in the first nine months of 2013. In
the prior year we recorded a cash inflow primarily from the
divestiture of the fertilizer business.
Free cash flow amounted to 2.9 billion euros, an increase of
approximately 600 million euros.
Cash inflow resulting from the change in financial liabilities
amounted to 1.3 billion euros. This was mainly the result of the
issuance of several bonds. Overall, financing activities led to a
cash outflow of 1.3 billion euros.
Net debt amounted to 13 billion euros, representing an increase
of 1.8 billion euros in comparison to December 31, 2012. Our
equity ratio remained at 41%.
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
We do not anticipate an acceleration of global economic growth in the 4th quarter of 2013
For the full year, BASF confirms its outlook: We strive to exceed the record levels in sales and EBIT before special items in a challenging economic environment
Our focus on growth markets and innovation, in combination with our measures to optimize our portfolio and to improve operational excellence, will contribute to this
We aim to earn a high premium on cost of capital in 2013
Outlook 2013
GDP: +2.0% (unchanged)
Industrial production: +2.7% (unchanged)
Chemical production: +3.1% (unchanged)
US$ / Euro: 1.30 (unchanged)
Oil price (US$ / bbl): 105 (unchanged)
Assumptions 2013
Outlook 2013
12BASF Q3 2013 Analyst Conference Call October 25, 2013
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BASF 3rd Quarter 2013 Analyst Conference Call October 25, 2013
[Chart 12: Outlook 2013]
Coming to the outlook:
Business was robust in the third quarter. However, we do not
anticipate an acceleration of global GDP growth in the fourth quarter
of this year. We assume ongoing economic volatility and uncertainty
in the markets we operate in and we expect continuing negative
currency effects on sales and earnings.
For 2013, we continue to expect global GDP to expand by 2.0
percent. For industrial production we see a 2.7 percent growth.
Chemical production growth is expected to remain at 3.1 percent.
Our projections for the average Brent oil price and the dollar/euro
exchange rate remain unchanged at 105 US dollars per barrel and
at 1.30 US dollars, respectively.
For the full year 2013, BASF confirms its outlook: We strive to
exceed the record levels in sales and EBIT before special items
generated in 2012.
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