BASF FY2011 results speech

BASF Full Year 2011 Analyst Conference

February 24, 2012, 4 pm (CET)

Ludwigshafen, Germany

Analyst Conference Script

Dr. Kurt Bock

Dr. Hans-Ulrich Engel

The spoken word applies.

BASF Full Year 2011 Analyst Conference February 24, 2012


Dr. Kurt Bock

Ladies and Gentlemen,

Good afternoon and thank you for joining us this afternoon at our

headquarters in Ludwigshafen and via webcast.

[Chart 4: Record year 2011]

BASF achieved again new record sales in 2011: In the last

12 months, we reached sales of 73.5 billion euros, up 15 percent

compared with the full year 2010.

EBITDA at 12 billion euros and EBIT before special items at

8.4 billion euros also marked new record highs.

We also delivered on our promise to significantly increase EBIT

before special items adjusted for non-deductible oil taxes. We

achieved 8 billion euros, which represents an increase of

12 percent.

EBIT came in slightly higher than EBIT before special items due

to the disposal gain from the formation of the Styrolution Joint

Venture.

Net income climbed to 6.2 billion euros, an increase of

36 percent.

Adjusted EPS reached 6.26 euros, up 9 percent, and finally

Operating cash flow was 7.1 billion euros, up by 10 percent and

a new record as well.


In the fourth quarter 2011, we saw – as expected – a slowdown

in business activities but we continued to pursue our value before

volume strategy. Moreover, customer orders were down due to

slowing demand and tight inventory management. This resulted in

lower volumes and margins across most of our chemical

businesses.

Sales in Q4 increased by 10 percent to 18.1 billion euros,

primarily due to our successful price increases of 9 percent.

BASF achieved again a record EBITDA in a fourth quarter of

2.9 billion euros, up 7 percent.

EBITDA as well as EBIT of 1.9 billion euros were positively

impacted by the disposal gain of Styrolution in the amount of

593 million euros.

EBIT before special items declined by 14 percent mainly due to

lower volumes and margins in several of our upstream

businesses. In addition, EBIT before special items was down as

the Styrenics activities were moved out of BASF into the

Styrolution joint venture.

Net income was 1.1 billion euros, up 3 percent, and

adjusted earnings per share were at 1.05 euros in Q4 2011.


[Chart 5: Major achievements in 2011]

What did we achieve in 2011?

We are on track with our announced investments for future growth.

Just to name a few, we successfully started up the plants of the

second phase of investments at our Verbund site in Nanjing, and

commissioned Nord Stream and the OPAL pipeline.

In 2011, we have completed the integration of Cognis and we are

on track to realize synergies of 290 million euros.

Our Styrolution joint venture with Ineos successfully commenced

business in October.

In September, we signed a contract with EuroChem to sell our

fertilizer activities in Antwerp, Belgium. In January of this year, we

announced that we signed a contract to also sell our 50 percent-

share in PEC-Rhin in Ottmarsheim, France, to our joint venture

partner GPN, a member of the French Total Group – thus

completing our exit from the fertilizer business.

We also delivered on operational excellence: We finalized our

NEXT program, which will lead to more than 1 billion euros annual

earnings contribution this year.


[Chart 6: Strong and profitable growth in emerging markets]

BASF already has leading positions and fast growing businesses

in the emerging markets and we will continue to build on these.

BASF’s sales in the emerging markets increased to 21.2 billion

euros in 2011. This represents 34 percent of BASF’s total 2011

sales excluding Oil & Gas. Since 2001, we have generated a

compound annual growth rate of 13 percent with our activities in

the emerging markets.

We will further spur organic growth in these countries by

increasing our sales forces, strengthening regional R&D, and

investing in new production capacities. We expect that in 2020,

emerging markets will contribute around 45 percent to BASF’s

sales excluding Oil & Gas.


[Chart 7: €2.6 billion premium on cost of capital]

In 2003, we set the goal of earning a premium on our cost of

capital. Since then we earned a premium every year, with the

exception of the crisis year 2009.

In 2011, we again reached a significant premium of 2.6 billion

euros on our cost of capital.

We achieved this high premium despite a higher cost of capital

rate: For 2011, the cost of capital rate increased from 9 to 11

percent, which explains the lower premium achieved. For 2012,

we are also calculating with a cost of capital rate of 11 percent.

In the coming years, we strive to earn an average premium on

cost of capital of at least 2.5 billion euros per year.


[Chart 8: Attractive shareholder returns]


As you know shareholder return is of utmost importance to us!

We stand by our dividend policy to increase our dividend each

year, or at least maintain it at the previous year’s level.

We will propose to the Annual General Meeting to pay out a

dividend of 2.50 euros per share, an increase of 30 euro-cents or

13.6 percent. Over the past ten years, the compound annual

dividend growth was 15.2 percent.

This reflects an attractive dividend yield of 4.6 percent, based on

the share price of 54 euros on December 30th, 2011.


[Chart 9: Delivering consistent, long-term value]

Moreover, we continue to deliver consistent long-term value for our

shareholders:

Over the past ten years, the average annual return on BASF

stock was 14 percent, clearly outperforming the German and

European stock markets as well as the MSCI World Chemicals

index.

In the last five years, which were impacted by the economic

crisis, the outperformance was even better.


[Chart 11: Outlook 2012

Expectations for global economy]

Let’s turn to the future. Obviously today the uncertainty about the

development of the next 12 to 24 months is much higher than

expected a year ago. Our plan for 2012 is based on the following

assumptions:

In 2012, we expect GDP growth of 2.7 percent, the level achieved

in 2011.

We expect global chemical production (without pharmaceuticals)

and industrial production to grow by 4.1 percent, respectively,

which is below 2011, and

We assume an average oil price of 110 dollars per barrel as well

as an average exchange rate of 1.30 dollars per euro.


[Chart 12: Outlook 2012 by region

Chemical production (excl. pharma)]

In 2012, global chemical production (excluding

pharmaceuticals) will continue to grow in all regions. While the

current uncertainties in financial markets will dampen growth

perspectives, the chemical sector will benefit from positive

impulses from emerging markets.

In Europe, we expect growth at a lower rate. However, please

keep in mind that we saw a significant surge in demand in Europe

in 2011.

In Asia (excluding Japan), growth continues to be strong at

approximately 8 percent. Despite an anticipated slowdown in

growth due to lower export demand, China is expected to still

grow strongly with nearly 9 percent in 2012.


[Chart 13: Outlook BASF Group 2012]

Based on these assumptions, our outlook for the year 2012 is as

follows:

We strive to increase volumes in 2012 excluding the impact from

acquisitions and divestitures.

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

special items achieved by BASF Group in 2011.

In the first half of 2012, we will most likely not achieve the excep-

tionally high results of the comparable period in 2011. However,

we expect to outperform the second half year results of 2011.

More specifically, we plan to increase sales and earnings in all

our business segments with the exception of the segment

Chemicals, where we expect sales to be above the level of 2011

but earnings to decline due to margin pressure in petrochemicals

and intermediates. Sales and EBIT before special items in “Other”

will be lower than in 2011 due to the formation of Styrolution, now

accounted for at equity.

Looking at 2012 and beyond – we announced at our Strategy Day

last November – that BASF wants to deliver an EBITDA of

15 billion euros by 2015, compared with 12 billion euros in 2011.


Dr. Hans-Ulrich Engel


I will focus in my presentation on the business development in the

fourth quarter of 2011 in comparison to the fourth quarter of 2010.

[Chart 15: Chemicals]

In Chemicals, successful price increases in all divisions led to

higher sales. In addition, the start-up of the Styrolution joint venture

contributed positively to the top line because feedstock sales to the

joint venture are now reported as third party sales. Due to

weakening demand and ongoing high raw material prices, EBIT

before special items came in significantly lower.

In Inorganics, sales grew by 9 percent mainly as a result of higher

prices and slightly higher volumes. EBIT before special items was

significantly up driven by higher margins.

Following excellent results in the first three quarters of 2011, we

saw a softening of demand in Petrochemicals. However, sales

grew by 9 percent. We increased product prices due to higher

feedstock cost. Volumes were considerably down since customers

speculated on falling prices and consequently delayed their orders.

EBIT before special items came in substantially lower given

reduced volumes in many product lines and lower margins

particularly for cracker products in all regions.


Sales in Intermediates decreased by 4 percent due to customers’

destocking at year-end. Accordingly, we adjusted our global

capacity utilization and reduced our inventories. EBIT before special

items declined.

For the full year 2011, sales in Chemicals rose by 14 percent and

EBIT before special items reached a new high of 2.4 billion euros.


[Chart 16: Plastics]

Despite lower volumes in major product lines, sales in Plastics

increased due to higher prices primarily in the Performance

Polymers division. EBIT before special items declined considerably

due to lower margins as a result of weak demand and increased

raw material costs.

In Performance Polymers, sales went up by 8 percent. Polyamide

& Intermediates sales rose driven by price increases. In Engineering

Plastics, higher demand in North America compensated for lower

volumes in Europe and Asia. EBIT before special items was

however, significantly lower due to receding margins, especially in

intermediates.

Sales in Polyurethanes rose by 2 percent. We realized higher

prices in all businesses, with the exception of TDI. TDI prices and

margins remained under pressure since sizable new capacities

came on stream during the year and higher raw material costs could

not be passed on to our customers. EBIT before special items was

substantially down mainly due to lower TDI margins.

For the full year 2011, sales in Plastics rose by 12 percent and

EBIT before special items came in below the high level of the

previous year.


[Chart 17: Performance Products]

The Performance Products segment posted a 19 percent rise in

sales. The inclusion of the Cognis businesses as well as strong

price increases across all divisions contributed to this growth.

Volumes, however, declined by 6 percent, with a relatively strong

volume decrease in Paper Chemicals and Performance Chemicals.

EBIT before special items declined by 25 percent due to higher raw

material costs, margin pressure, and higher fixed costs partly

related to the integration of Cognis. Special items amounted to

125 million euros mainly related to the restructuring charges in

Paper Chemicals and the Cognis integration.

In Dispersions & Pigments, we posted higher sales in all regions

and in all product lines except in pigments. The sales growth was

driven by price increases and the inclusion of Cognis. Higher raw

material cost could partially be passed on to the market. EBIT

before special items declined substantially as a result of reduced

pigment volumes and lower margins.

Sales in Care Chemicals increased by more than 50 percent

thanks to the inclusion of Cognis. Price competition as well as tight

inventory management by our customers resulted in a slight volume

decline. However, ongoing price increases, especially for

detergents and formulators, compensated for the decline in

volumes. Integration costs related to Cognis negatively impacted

EBIT before special items.


In Nutrition & Health, the inclusion of the Cognis businesses and

slightly higher prices contributed to good sales growth. Higher fixed

and raw material costs as well as product mix effects outweighed

price gains. Consequently, EBIT before special items declined

substantially.

In Paper Chemicals demand was down because paper producers

ordered less given the weaker economic environment. Volume

losses could not be offset by higher selling prices. Despite these

challenges, EBIT before special items improved benefitting from

ongoing restructuring measures and stringent fixed cost reduction.

In Performance Chemicals, price increases and the inclusion of

Cognis lifted sales. However, volumes declined significantly due to

destocking activities at our customers. EBIT before special items

was lower due to reduced volumes and higher fixed costs.

For the full year 2011, sales of the Performance Products

segment increased by 28 percent to 15.7 billion euros. EBIT before

special items reached 1.7 billion euros, an increase of 11 percent.


[Chart 18: Functional Solutions]

Volumes in the Functional Solutions segment were up 6 percent

driven by growing demand from the automotive industry for mobile

emissions catalysts and automotive coatings. Demand from the

construction industry increased slightly, primarily owing to improved

building activity in North America and Asia. EBIT before special

items more than doubled.

Catalysts’ sales increased by 17 percent, mainly due to higher

sales volumes of mobile emissions catalysts particularly in Asia and

North America. With 676 million euros, the sales contribution from

precious metal trading was up by 3.4 percent driven by higher

prices. EBIT before special items improved strongly.

In Construction Chemicals, sales were up 4 percent. The

business environment in Southern Europe remained challenging.

However, we experienced a positive development in demand in

North America and Asia Pacific. EBIT before special items declined

mainly due to higher fixed costs. We implemented restructuring

measures to streamline our structures in Europe and Asia.

Sales in Coatings increased by 8 percent reflecting continued high

worldwide demand for automotive OEM and refinish. EBIT before

special items came in significantly above prior year. Coatings

incurred high special items primarily in preparation of the planned

divestment of Relius Decorative Paints.

For the full year 2011, sales in Functional Solutions rose by

17 percent to 11.4 billion euros and EBIT before special items was

up 20 percent at 559 million euros.


[Chart 19: Agricultural Solutions]

While reaching new records in both sales and earnings for the full

year 2011, Agricultural Solutions saw a slight sales decline in Q4

due to pre-buying of our customers in Q3 in South America and

portfolio optimization measures.

In Q4, price increases of 2 percent were achieved, confirming

guidance.

Regionally, sales in Europe were driven by positive year-end

business in France. In North America, sales were up due to higher

fungicide sales.

BASF’s growing success in South America and other emerging

markets has driven rapid growth of second half year Crop

Protection sales over the past years, surging from 1.3 billion euros

in 2009 to 1.7 billion euros in 2011. This corresponds to an increase

of 31 percent in only two years.

EBIT before special items in the fourth quarter almost matched the

prior year’s level, despite an increase in R&D spending and selling

costs.

The investments for our future growth are reflected in the

significantly increased peak sales potential of our R&D pipeline,

which amounts to 2.8 billion euros.

For the full year 2011, sales in Agricultural Solutions rose by

3 percent to 4.2 billion euros and EBIT before special items was up

8 percent at 810 million euros.


[Chart 20: Oil & Gas]

In Oil & Gas, sales increased by 33 percent driven by higher sales

volumes and prices in Natural Gas Trading. In Libya, the onshore oil

production restarted mid-October with 20,000 barrels per day, and

reached 60,000 barrels per day at the end of December 2011

compared to a production capacity of 100,000 barrels per day. EBIT

before special items for the entire Oil & Gas segment declined by

4 percent in Q4 2011 due to lower production levels in Libya.

Reported EBIT, however, came in 11 percent higher due to lower

special items.

Net income after minority interests went up by 20 percent to

276 million euros.

Exploration & Production, volumes were below previous year’s

level as a result of the curtailed oil production in Libya. However,

higher oil prices partly compensated for the lower production

volumes. Consequently, sales declined by only 4 percent.

Sales in Natural Gas Trading rose strongly thanks to higher gas

prices and volumes. Margins, however, continued to be under

pressure by the relatively low price level on the spot market. This

effect was more than compensated by additional earnings from the

start-up of the OPAL pipeline.

For the full year 2011, the Oil & Gas segment reported sales of

12.1 billion euros, up 12 percent. EBIT before special items

decreased by 13 percent to 2.1 billion euros. Adjusted for non-

deductible oil taxes, EBIT before special items came in 16 percent

higher at 1.7 billion euros. Net income rose by 15 percent to

1.1 billion euros.


[Chart 21: Review of “Other”]

In “Other”, sales decreased by 30 percent due to the

deconsolidation of Styrenics following the formation of the

Styrolution joint venture with Ineos on October 1st, 2011.

EBIT before special items, increased by 128 million euros due to

both, lower hedging losses as well as a lower provision for the long-

term incentive program.

Positive special items of 623 million euros resulted primarily from

the disposal gain of Styrolution. For further details please refer to

the Annual Report 2011, page 161.


[Chart 22: Excellent operating cash flow in 2011]

We started the year 2011 with a cash position of 1.5 billion euros.

With 7.1 billion euros, we again generated an excellent cash flow

from operations in 2011 thereof 2.1 billion euros in Q4.

Free cash flow reached 3.7 billion euros, thereof 768 million

euros generated in the fourth quarter.

In 2011, we stuck to our priorities with regard to the use of cash:

– We spent 3.4 billion euros for capital expenditures, which

was significantly up from previous years’ levels. Major

projects which started operations in 2011 included the

expansion of the Nanjing Verbund site in China and the

construction of a methylamine plant in Geismar, Louisiana.

In addition, we completed the new oleum plant in Antwerp,

Belgium, and extended our natural gas pipeline grid with

the OPAL and NEL pipelines in Germany.

– Net cash-in mainly related to the formation of the

Styrolution joint venture amounted to 0.5 billion euros.

– We paid 2.5 billion euros in dividends to our shareholders

and minority interest holders.

– And we used 2.4 billion euros for the repayment of debt.

– Other cash inflows include mainly the proceeds of the K+S

disposal.

At the end of 2011, we had a cash position of 2 billion euros.


[Chart 23: Balance sheet remains strong]

Let me finally turn to our balance sheet.

Compared with 2010, total assets rose by 1.8 billion euros to

61 billion euros.

Long-term assets declined by 445 million euros.

Due to the sale of K+S, financial assets declined by 1.1 billion

euros.

The Styrenics net assets in the amount of 734 million euros which

were reported as assets of the disposal group were

deconsolidated with the start-up of the Styrolution joint venture.

BASF’s 50 percent stake in the Styrolution joint venture will from

now on be reported at equity.

Our equity ratio improved from 38.1 percent to 41.5 percent.

In 2011, we repaid two bonds in the amount of 1.2 billion euros.

We reduced net debt by 2.6 billion to 11 billion euros, a reduction

of 650 million euros in Q4. With this, our net debt EBITDA ratio is

now below one [0.9].

With our A1 / A+ rating and a well-balanced maturity profile of

financial debt, BASF has an excellent financial position.


Now, to help you with your projections for 2012, I would like to give

you some additional numbers:

Literally, we are now taking the next STEP in operational

excellence: Key focus areas of the recently announced STEP

program are fixed cost reductions and margin improvements

across the entire Group. We expect the program to result in

annual earnings contributions of about 1 billion euros by the end

of 2015.

Generating a strong cash flow will remain a key priority for 2012

and we will continue to keep tight control on our working capital.

Our priorities for the use of cash remain clearly set:

We continue to put great emphasis on organic growth through

innovations. Therefore, we plan to increase our global R&D

expenditures from 1.6 billion euros to 1.7 billion euros in 2012.

We project CAPEX spending of about 3.5 billion euros.

As demonstrated again this year, we remain committed to our

dividend policy.

In conclusion, BASF continues to be fit for 2012 and beyond!

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

questions.


[Backup: Financial Highlights Agricultural Solutions]

BASF FY2011 results speech

Investor Relations

Transcript of BASF FY2011 results speech