Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019....

25
Analyst Conference Call Q2 2019 Ludwigshafen, July 25, 2019

Transcript of Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019....

Page 1: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

Analyst Conference Call Q2 2019Ludwigshafen, July 25, 2019

Page 2: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 20192 | BASF Analyst Conference Call Q2 2019

Cautionary note regarding forward-looking statements

This presentation contains forward-looking statements. These statements are based on currentestimates and projections of the Board of Executive Directors and currently available information.Forward-looking statements are not guarantees of the future developments and results outlinedtherein. These are dependent on a number of factors; they involve various risks and uncertainties; andthey are based on assumptions that may not prove to be accurate. Such risk factors include thosediscussed in Opportunities and Risks on pages 123 to 130 of the BASF Report 2018. BASF does notassume any obligation to update the forward-looking statements contained in this presentation aboveand beyond the legal requirements.

Page 3: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 20193 | BASF Analyst Conference Call Q2 2019

Key drivers for the earnings decline in H1 2019

Uncertainty even higher than expected; low visibility Slowdown in global industrial production stronger than

expected (+1.5% in H1 2019) Slowdown in global automotive production

(-6% in H1 2019) Slowdown in European and German chemical production

(Europe -0.5% and Germany -3.5% in H1 2019) Severe weather conditions in North America

(affecting agricultural sector) No ease of trade conflicts

Lower margins in isocyanates and crackerproducts

Turnarounds of steam crackers in Port Arthur and Antwerp

Margin development in isocyanates and cracker products even weaker than expected

Macro

Micro

UnexpectedExpected

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July 25, 20194 | BASF Analyst Conference Call Q2 2019

BASF Group H1 2019 – Sales and EBIT before special items

-500

500

1,500

2,500

3,500

4,500

EBIT before special items by segment H1 2019 vs. H1 2018million €

Sales bridge H1 2019 vs. H1 2018million €

Sales development

H1 2019 vs. H1 2018 (4%) (2%) 4% 2%

Agricultural Solutions 23%

Nutrition & Care (6%)

Surface Technologies 4%

Industrial Solutions 14%

Materials (58%)

Chemicals (54%)

2,777

4,25331,483 31,335

-1,408 -669

1,248 681

10,000

15,000

20,000

25,000

30,000

H1 2018 Volumes Prices Portfolio Currencies H1 2019

Other (122%)H1 2018 H1 2019

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July 25, 20195 | BASF Analyst Conference Call Q2 2019

BASF Group H1 2019 – Volume development

* Location of customer

(4%)

(4%)0%

Δ Volume H1 2019Δ Volume H1 2019 rest of the portfolio

(6%) (7%)

(2%)

2%

Cracker turnarounds

Lower demand from automotive

Adverse weather conditions in North America

EuropeNorth America

Asia Pacific

South America, Africa, Middle East

Volume development%

Volume development by region*%

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July 25, 20196 | BASF Analyst Conference Call Q2 2019

Historically low North American cracker marginswith global repercussions*

0

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Production cash margin, Naphtha feed

Naphtha, full range, spot average, CIF NWE ARA

Ethylene, contract incl. market typical discounts(estimated), delivered WE

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Spot cash margin, Naphtha feed

Naphtha, full range, spot average C&F Japan

Ethylene, spot average, CFR NE Asia

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Spot cash margin, weighted average feed

Ethane, purity, spot FOB Mont Belvieu

Ethylene, spot, pipeline delivered USGC

* All data according to IHS Markit

US$/mt North America North East Asia Western Europe

2015 2016 2017 2018 2019 2015 2016 2017 2018 20192015 2016 2017 2018 2019

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July 25, 20197 | BASF Analyst Conference Call Q2 2019

Isocyanate margins on subdued level below historical averages*

* All data according to ICIS, Reed Business Information

US$/mt North America Asia Western Europe

500

1,500

2,500

3,500

4,500

5,500

6,50001

.201

703

.201

705

.201

707

.201

709

.201

711

.201

701

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803

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.201

807

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801

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.201

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TDI margin above toluene

Polymeric MDI margin above benzene

TDI, bulk, domestic, midpoint

Polymeric MDI, drummed, domestic, midpoint

500

1,500

2,500

3,500

4,500

5,500

6,500

01.2

017

03.2

017

05.2

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TDI margin above toluene

Polymeric MDI margin above benzene

TDI, CFR South East Asia, spot, midpoint

Polymeric MDI, CFR China, spot, midpoint

500

1,500

2,500

3,500

4,500

5,500

6,500

01.2

017

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TDI margin above toluene

Polymeric MDI margin above benzene

TDI, Western Europe, contract, midpoint

Polymeric MDI, Western Europe, contract, midpoint

2017 2018 2019 2017 2018 2019 2017 2018 2019

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July 25, 20198 | BASF Analyst Conference Call Q2 2019

Strategy announced in November 2018 is being implementedwith speed and determination

People: Transform organization to be more agile and customer focused

Portfolio: Sharpen portfolio and strengthen the Verbund

Digitalization: Leverage automation/digitalization acrossthe company and develop new business models

Operations: Improve competitiveness through technological leadership and operational excellence

Sustainability: Drive long-term competitiveness via carbon management and circular economy approaches

Innovation: Innovate with impact for our customersby closely connecting research and development

Page 9: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 20199 | BASF Analyst Conference Call Q2 2019

BASF to reshape organization– Leaner structures and simplified processes

A lean Corporate Center with <1,000 FTE supports the Board of Executive Directors in steering BASF Group(Corporate Development; Finance; Legal, Compliance, Tax & Insurance; EHS; HR; Communications; Investor Relations; Corporate Audit)

Our Operating Divisions & Technology Platforms are empowered to drive growth and profitability

Service Units ensure a competitive, demand-driven and effective service delivery(Global Engineering Services, Global Digital Services, Global Business Services, Global Procurement)

The Regions & Countries focus on supporting and enabling the businesses locally

Our customers

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July 25, 201910 | BASF Analyst Conference Call Q2 2019

Excellence program 2019-2021

Key facts Operational excellence with focus on production, logistics and planning

In digitalization and automation, smart supply chains and smart manufacturing are major contributors

Organizational development targets leaner structuresin the areas of services, R&D and headquarters (~€300 million) Significant parts of functional services embedded in businesses,

closer to our customers Leaner structures and simplification of process landscape

Estimated one-time costs of €0.8 billion over the 3-year period. This includes special charges in a mid-triple-digit million-euro-range

€2 billion annual EBITDA

contribution from 2021 onward

Page 11: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 201911 | BASF Analyst Conference Call Q2 2019

Active portfolio management

BASF to acquire Solvayʼs integrated polyamide business On January 18, 2019, the EU Commission granted conditional

clearance for BASF to acquire Solvay’s polyamide business Closing expected in H2 2019 after all remaining conditions have

been fulfilled, incl. the sale of the remedy package to a third partyOil & Gas Sales 2018: ~€4.1 billion Merger took place on May 1, 2019 IPO planned for H2 2020, subject to market conditions

Water and paper chemicals Sales 2018: ~€0.8 billion Closing took place on January 31, 2019

Construction Chemicals Sales 2018: ~€2.5 billion High interest from various parties; indicative bids received Signing expected by the end of 2019

Pigments Sales 2018: ~€1 billion Divestment process started Closing expected by the end of 2020 at the latest

AcquisitionsDivestitures and other strategic options

“Best-owner”: Asset and

technology fit Benefit from

or contributionto Verbund

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July 25, 201912 | BASF Analyst Conference Call Q2 2019

BASF Group Q2 2019 – Sales decreased slightly; EBIT before special items considerably below prior-year quarterFinancial figures Q2 2019 Q2 2018 Change

€ € %Sales 15,158 million 15,783 million (4)EBITDA before special items 1,975 million 2,709 million (27)EBITDA 1,626 million 2,645 million (39)EBIT before special items 1,045 million 1,972 million (47)EBIT 548 million 1,906 million (71)Net income 6,460 million 1,480 million 336Reported EPS 7.03 1.61 337Adjusted EPS 0.82 1.77 (54)Cash flows from operating activities 1,946 million 2,224 million (13)

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (6%) (2%) 2% 2%

Page 13: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 201913 | BASF Analyst Conference Call Q2 2019

BASF Group Q2 2019 – Sales and EBIT before special items

-200

500

1,200

1,900

EBIT before special items by segment Q2 2019 vs. Q2 2018million €

Sales bridge Q2 2019 vs. Q2 2018million €

Sales development

Q2 2019 vs. Q2 2018 (6%) (2%) 2% 2%

Agricultural Solutions (56%)

1,045

1,97215,783

15,158

-869-349

321 272

10,000

12,500

15,000

Q2 2018 Volumes Prices Portfolio Currencies Q2 2019

Other (37%)Q2 2018 Q2 2019

Chemicals (74%)

Nutrition & Care 3%

Surface Technologies 7%

Industrial Solutions 14%

Materials (56%)

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July 25, 201914 | BASF Analyst Conference Call Q2 2019

Cash flow development H1 2019

H1 2019 H1 2018million € million €

Cash flows from operating activities 2,319 3,455Thereof Changes in net working capital (904) (1,221)

Miscellaneous items (6,752) (351)

Cash flows from investing activities 452 (1,735)Thereof Payments made for tangible / intangible assets (1,722) (1,449)

Acquisitions / divestitures 2,292 64

Cash flows from financing activities (3,227) (518)Thereof Changes in financial and similar liabilities (215) 2,526

Dividends (3,013) (3,044)

Free cash flow 597 2,006

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July 25, 201915 | BASF Analyst Conference Call Q2 2019

Balance sheet remains strong

Balance sheet June 30, 2019 vs. December 31, 2018billion € Total assets increased by ~€2.2 billion,

mainly due to the new IFRS 16 standard on leases and higher accounts receivables related to the acquired agricultural solutions businesses

Noncurrent assets increased by€16.0 billion, mainly due to the recognition of our participating interests in Wintershall Dea and Solenis

Net debt increased by €675 million to€18.9 billion

Equity ratio: 46% (June 30, 2019)

Liquid funds

Accountsreceivable

Noncurrentassets

Inventories

Other assetsOtherliabilities

Financialdebt

Equity

27.0 23.9

5.8

21.0 20.8

40.8 36.1

June 30, 2019 Dec. 31, 20182.1 2.6

14.63.8

3.2

11.2

10.712.4

12.2

59.343.3

June 30, 2019 Dec. 31, 2018

86.688.8 86.688.8

Liabilities of disposal group

* For the oil & gas business and the paper and water chemicals business

Disposalgroup*

Page 16: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 201916 | BASF Analyst Conference Call Q2 2019

Underlying assumptions for H2 and full year 2019

Continued low growth in global gross domestic product(H2 2019 vs. H1 2019: around +1%; FY 2019 vs. FY 2018: around +2.5%)

Continued low growth in global industrial production(H2 2019 vs. H1 2019: around +0.5%; FY 2019 vs. FY 2018: around +1.5%)

Further slowdown in global automotive production(H2 2019 vs. H1 2019: around -2%; FY 2019 vs. FY 2018: around -4.5%)

Global chemical production negatively impacted by further decline in automotive(H2 2019 vs. H1 2019: around -1.5%; FY 2019 vs. FY 2018: around +1.5%)

No ease of trade conflicts, but also no further escalation Normal weather conditions in the southern hemisphere, particularly in South America

Low margins in isocyanates and cracker products to persist Turnaround of steam cracker in Ludwigshafen

Macro

Micro

Expected

Page 17: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 201917 | BASF Analyst Conference Call Q2 2019

Outlook 2019 for BASF Group

* For sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. For earnings, “slight” means a change of 1–10%,while “considerable” is used for changes of 11% and higher. At a cost of capital percentage of 10% for 2018 and 2019, we define a change in ROCEof 0.1 to 1.0 percentage points as “slight,” a change of more than 1.0 percentage points as “considerable.”

Outlook 2019* Since July 8, 2019 PreviousSales Slight decline Slight increaseEBIT before special items Considerable decline of up to 30% Slight increaseROCE Considerable decline Slight decline

Further underlying assumptions for 2019 Exchange rate: US$1.15 per euro (unchanged) Oil price (Brent): US$70 per barrel (unchanged)

Page 18: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.
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July 25, 201919 | BASF Analyst Conference Call Q2 2019

ChemicalsSales declined on lower volumes and prices; earnings decreased due to lower volumes and margins

Sales Q2 2019 vs. Q2 2018million €

EBIT before special items million €

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (17%) (6%) 0% 1%

457398

257306

119

0

400

800

Q2 Q3 Q4 Q1 Q22018

Intermediates 717(11%)

Petrochemicals1,463(26%)

€2,180(22%)

2019

Page 20: Analyst Conference Call Q2 2019 - BASF · July 25, 2019 | BASF Analyst Conference Call Q2 2019. BASF Group Q2 2019 – Sales and EBIT before special items-200. 500. 1,200. 1,900.

July 25, 201920 | BASF Analyst Conference Call Q2 2019

MaterialsSales down on lower prices and volumes; earnings decreased mainly due to lower isocyanate margins

EBIT before special items million €

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (5%) (12%) 0% 1%

Sales Q2 2019 vs. Q2 2018million €

765664

155

323 334

0

200

400

600

800

Q2 Q3 Q4 Q1 Q2

Performance Materials

1,562(8%)

Monomers1,399(22%) €2,961

(16%)

2018 2019

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July 25, 201921 | BASF Analyst Conference Call Q2 2019

Industrial SolutionsSales decreased primarily due to portfolio effects; earnings up on higher margins and lower fixed costs

EBIT before special items million €

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (2%) 0% (8%) 1%

Sales Q2 2019 vs. Q2 2018million €

213164

61

264 243

0

200

400

Q2 Q3 Q4 Q1 Q2

Performance Chemicals805(15%)

Dispersions & Pigments1,336(4%)

€2,141(9%)

2018 2019

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July 25, 201922 | BASF Analyst Conference Call Q2 2019

Surface TechnologiesSales increased mainly due to higher prices; earnings up on lower fixed costs and higher margins

EBIT before special items million €

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (4%) 11% 0% 2%

Sales Q2 2019 vs. Q2 2018million €

178142

211

159190

0

100

200

300

Q2 Q3 Q4 Q1 Q2

* Until signing of a transaction agreement, Construction Chemicals will be reported under Surface Technologies

Construction Chemicals* 680+2%

Catalysts2,222+18%

Coatings939(2%)

€3,841+9%

2018 2019

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July 25, 201923 | BASF Analyst Conference Call Q2 2019

Nutrition & CareSales increased primarily due to higher product availability; earnings mainly up on lower fixed costs

EBIT before special items million €

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 5% (3%) 0% 2%

Sales Q2 2019 vs. Q2 2018million €

214189

79

222 220

0

100

200

300

400

Q2 Q3 Q4 Q1 Q2

Care Chemicals1,004(4%)

Nutrition & Health491+26%

€1,495+4%

2018 2019

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July 25, 201924 | BASF Analyst Conference Call Q2 2019

Agricultural SolutionsEarnings down due to seasonality of the acquired businesses and lower volumes in crop protection

Sales development Volumes Prices Portfolio CurrenciesQ2 2019 vs. Q2 2018 (12%) 3% 28% 1%

H1 2019 vs. H1 2018 (9%) 3% 43% 1%

Sales H1 2019 vs. H1 2018million €

Seed Treatment 256

+38%

Fungicides1,237(7%)

Insecticides383

+34%

€4,445+38%

Seeds & Traits1,037-

Herbicides1,532+8%

EBIT before special items Q2 2019 vs. Q2 2018 andH1 2019 vs. H1 2018million €

121

278

861

701

0

200

400

600

800

1,000

Q2 2019 Q2 2018 H1 2019 H1 2018

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July 25, 201925 | BASF Analyst Conference Call Q2 2019

Review of “Other”

Financial figures Q2 2019 Q2 2018million € million €

Sales 744 689

EBIT before special items (182) (133)

Thereof Costs of corporate research (100) (90)

Costs of corporate headquarters (66) (66)

Foreign currency results, hedging and other measurement effects (13) 32

Other businesses 39 17

Special items (191) (16)

EBIT (373) (149)