Speech BASF Analyst Conference Q3 2012

BASF 3rd Quarter 2012 Analyst Conference Call October 25, 2012, 11:00 (CEST)

Ludwigshafen, Germany

Analyst Conference Call Script Kurt Bock Hans-Ulrich Engel

The spoken word applies.

BASF 3rd Quarter 2012 Analyst Conference Call October 25, 2012


Kurt Bock

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

[Chart 3: BASF maintains good business performance]

Times continue to be demanding. Uncertainty remains high and

we have not seen any improvement in global business sentiment.

The European sovereign debt crisis and an economic weakening

in China continued to dominate the headlines. In the third quarter,

China showed once more a lower growth, which did not come as

a surprise given the sluggish demand for chemicals we have seen

since end of last year. Let me now show you how BASF has

performed in this challenging environment.

All in all, our business held up well in Q3 – thanks to our

diversified portfolio. We generated sales of 19 billion euros, an

increase of eight percent compared to the same period of last

year. Main driver were higher volumes – primarily resulting from a

higher production of crude oil. Positive currency effects more than

offset lower prices.

While Oil & Gas and Agricultural Solutions posted another strong

quarter, we saw a continuously weak development in our

chemical activities. As demand softened in some areas, volumes

in our chemical activities declined by one percent and prices fell

by four percent compared to Q3 2011.

EBITDA amounted to 2.8 billion euros, up by four percent versus

the prior-year quarter.


EBIT before special items rose by roughly one hundred million

euros to 2.1 billion euros. The higher contribution from Oil & Gas

as well as our successful crop protection business were able to

more than offset lower earnings in our chemical activities.

Special items in EBIT of minus 68 million euros resulted primarily

from planned restructuring measures.

The tax rate increased to 46 percent due to the resumption of the

highly taxed oil production in Libya. As a result, net income dropped by 246 million euros to 946 million euros.

Adjusted earnings per share decreased 22 percent to 1.19

euros.


[Chart 4: Ongoing portfolio optimization]

Over the past six weeks, we announced several important measures

to further optimize our portfolio, especially to further strengthen our

good performing Ag and Oil & Gas businesses:

In September, we signed an agreement with Norwest Equity

Partners to acquire Becker Underwood for a price of roughly one

billion dollars. The company is a leading global provider of

technologies for biological seed treatment. With expected sales of

240 million dollars for the fiscal year 2012 and a strong

technology platform, the planned acquisition will further

strengthen our global crop protection business, particularly in the

rapidly growing seed treatment market. The purchase is subject to

approval by the relevant authorities and closing of the transaction

is expected by the end of 2012.

In addition, we will invest more than 200 million euros in Germany

and the United States to scale up production and formulation

capacities for our successful fungicides F 500® and Xemium®.

Beginning of October, we announced the restructuring of our

Construction Chemicals division to strengthen its competiveness

in Europe. We will adjust the business to declining markets,

especially in Southern Europe and Great Britain, by downsizing

our marketing and sales organization as well as by reducing

production capacities. In addition, we will enhance the overall

efficiency and customer focus by improving business processes in

Germany and Eastern Europe. The planned measures will affect

about 400 positions including portfolio optimizations. We will also

put some smaller non-core activities up for sale.


And, at the beginning of this week Statoil and BASF announced

an asset swap, which will increase our oil and gas production

footprint in Norway considerably. Wintershall will acquire equity in

the three producing fields Brage (32.7 percent), Gjøa (15 percent)

and Vega (30 percent) from Statoil, containing 2P reserves of

around 100 million barrels of oil equivalent. Through this

transaction we will raise our production in Norway from currently

around 3,000 boe to almost 40,000 boe per day. This will strongly

contribute to Wintershall’s operating cash flow and EBIT. In

return, Statoil will receive a 15 percent share in the development

field Edvard Grieg and a financial compensation of 1.35 billion

dollars. A potential payment of up to 100 million dollars will be

made dependent on additional volumes from the development of

the Vega field. The collaboration also includes important

technology-oriented topics such as joint research and projects on

Enhanced Oil Recovery (EOR) and the development of

unconventional deposits in Germany and internationally.


[Chart 5: Outlook 2012 confirmed] For the fourth quarter of 2012, we do not anticipate an upturn in

the global economy and also do not expect demand to pick up for

our chemical activities. Prospects are clouded by continued

uncertainty, especially in the eurozone, and by slower growth in

Asia.

We, therefore, have adjusted some of our expectations for the

global economy. For 2012, we now anticpate chemical

production growth at 2.9 percent, a reduction of 0.6 percentage

points. Our assumptions for the Brent oil price of 110 dollars per

barrel and the dollar/euro exchange rate of 1.30 remain

unchanged.

We confirm our outlook for 2012: We aim to exceed the 2011

record levels in sales and income from operations before special

items.

Our forecast is supported by the continuous crude oil production

in Libya and by our successful crop protection business. In our

chemical activities, earnings will not match the level of the

previous year, even if earnings in Q4 might be above the

relatively weak fourth quarter of last year.

Ladies and gentlemen, as you know we continuously strive to

strengthen our competitveness and enhance our profitability. Our

operational excellence program STEP, which we announced at

the end of last year, is making good progress. By the end of

2015, it is expected to contribute around 1 billion euros to

earnings each year. STEP comprises more than 100 projects that

aim to lower costs and raise profit margins.

With this I’ll hand over to Hans.


Hans-Ulrich Engel

Good morning ladies and gentlemen.

Let me highlight the financial performance of each segment in more

detail and focus on the respective business developments in

comparison to the third quarter of 2011.

[Chart 6: Chemicals – Declining margins and plant shutdowns]

In Chemicals, sales increased significantly mainly as a result of

recent portfolio measures. Feedstock sales to Styrolution Group

companies and to the new owner of the divested fertilizer business

contributed to the topline. In addition, higher volumes and currency

tailwinds more than compensated for lower prices. EBIT before

special items declined considerably compared to the strong prior-

year quarter – mainly due to lower margins as well as planned and

unplanned shutdowns.

Sales in Petrochemicals increased. Slightly higher volumes,

feedstock sales to Styrolution and positive currency effects more

than offset a significant drop in selling prices. Demand for acrylics

and cracker products further weakened in Europe and Asia.

Higher raw material costs could not fully be passed on, putting

margins under severe pressure. EBIT before special items was

considerably lower due to weaker results mainly from cracker

products and acrylics as well as unplanned shutdowns of the Port

Arthur cracker.


In Inorganics, sales went up sharply. Main driver were feedstock

sales to the new owner of the divested fertilizer business, which

are now reported as third-party sales. Higher prices and volumes

also contributed to sales growth. EBIT before special items

increased primarily due to improved margins for inorganic base

chemicals.

Continuous strong demand from important customer industries,

such as agrochemicals and plastics, as well as positive currency

effects led to higher sales in Intermediates. Prices, however,

declined and raw material cost increases could not fully be

passed on. Due to scheduled plant shutdowns, EBIT before

special items came in lower.


[Chart 7: Plastics – Significantly weaker margins for polyamide precursors]

Sales in Plastics increased driven by a positive business

development in Polyurethanes and by favorable currency effects.

EBIT before special items declined though, mostly due to a weaker

performance of polyamide precursors.

In Performance Polymers, sales decreased slightly as positive

currency and portfolio effects did not fully compensate for lower

prices and volumes. Polyamide precursors, which were at record

price levels in Q3 of last year, continued to suffer from weak

demand and declining prices, in particular in Asia. In contrast, our

engineering plastics business developed positively thanks to

healthy demand from the automotive industry. Earnings,

nevertheless, fell sharply primarily as a result of weaker margins

for polyamide precursors.

Sales in Polyurethanes grew significantly. Demand from the

automotive industry remained overall strong – in particular in Asia

and North America – while Europe developed slightly weaker.

Sales to the construction industry were below the prior-year

quarter. The market for basic products was tight. As a

consequence, we were able to increase volumes and prices for

both TDI and MDI. EBIT before special items rose substantially.


[Chart 8: Performance Products – Competitive market environment and higher fixed costs]

Sales in Performance Products came in slightly above the prior-

year quarter. Lower prices and volumes were offset by positive

currency effects. EBIT before special items was down primarily as a

result of higher cost for idle capacity and increased R&D expenses.

In Dispersions & Pigments, sales rose slightly thanks to

favorable currency effects. Volumes declined slightly. While the

demand for resins and additives developed positively, we

experienced softer demand for dispersions and pigments. Due to

lower volumes for high-margin pigments and higher fixed costs,

EBIT before special items was significantly below the prior year

quarter.

In Care Chemicals, sales did not reach the prior-year level

despite positive currency effects. A highly competitive market

environment led to declining volumes and prices. In particular, the

businesses with ingredients for personal care and home care

remained weak. EBIT before special items decreased

significantly.

Sales in Nutrition & Health grew due to positive currency effects

and higher volumes. Demand improved in almost all businesses

while vitamin prices were under pressure. Increased raw material

costs could, however, only partially be passed on to customers,

resulting in lower margins. With higher fixed costs, EBIT before

special items was considerably below the good level of last year’s

third quarter.


In Paper Chemicals, sales did not match the prior year quarter

mainly due to lower prices. Volumes declined slightly. As a result

of operational and strategic measures, fixed costs were reduced

and EBIT before special items went up.

In Performance Chemicals, sales rose thanks to positive

currency effects. Volumes were lower as strong demand for

oilfield and mining chemicals could not fully compensate for

weaker volumes in the other businesses. Due to our value-before-

volume strategy, EBIT before special items improved

considerably.


[Chart 9: Functional Solutions – Lower volumes and prices in precious metal trading]

Sales in Functional Solutions declined mainly due to a lower

contribution from precious metal trading. Currency tailwinds and

portfolio measures could not fully offset this effect. Due to high raw

material costs EBIT before special items came in lower.

Catalysts’ sales declined primarily as a result of lower precious

metal prices and trading volumes. At 556 million euros, sales in

precious metal trading were down by almost 120 million euros

versus the prior-year quarter. We were able to further grow our

business with mobile emission catalysts due to strong demand

from the automotive industry. Positive currency effects as well as

the strengthened activities with battery materials also contributed

to the topline. EBIT before special items did not reach the good

level of Q3 2011 mostly as a result of high raw material cost.

Sales in Construction Chemicals grew thanks to favorable

currency effects. While the construction activity in Southern

Europe stayed depressed, our business in North America

developed positively. Margins improved and EBIT before special

items went up.

In Coatings, sales rose as a result of higher volumes and prices

as well as currency tailwinds. Demand from the automotive

industry remained strong in Asia and North America. We were

able to increase our sales both in automotive OEM and refinish

coatings. EBIT before special items was higher.


[Chart 10: Agricultural Solutions – Successful start of season in South America]

Agricultural Solutions had another very good quarter. Continued

strong demand led to a volume increase of three percent. Sales

grew by eleven percent, currency-adjusted by three percent. Overall,

prices were stable.

The new season in South America started with significantly

higher sales than last year. Demand was strong in insecticides as

well as fungicides.

In North America, sales grew considerably – primarily driven by

an excellent herbicide business. The drought in the Midwest of

the United States only had a moderate impact on our business in

2012.

The autumn business in Europe developed positively. Strong

demand for fungicides and oilseed rape herbicides in Western

Europe more than offset the negative impact from the dry

weather conditions in Southern and Eastern Europe.

In Asia, sales declined due to the delayed onset of the monsoon

season in South Asia. In China, though, our business benefited

from higher fungicide sales.

EBIT before special items rose sharply and was a new record for

a third quarter.

Year-to-date earnings also posted a new record and reached for

the first time one billion euros – thus, topping the full-year 2011

figure by almost 200 million euros.


[Chart 11: Oil & Gas – Increased oil production in Libya]

Sales in Oil & Gas grew strongly mainly driven by higher volumes in

Exploration and Production due to the continuous production in

Libya. As a result, EBIT before special items tripled compared to the

prior year third quarter.

Sales in Exploration & Production more than doubled due to

higher volumes and prices. While in Q3 of last year the oil

production in Libya was suspended, we produced in our onshore

concessions on average about 85,000 barrels of oil per day in this

year’s third quarter – significantly more than originally planned.

The oil price increased in euro terms by roughly seven euros to

88 euros per barrel compared to the respective prior-year quarter.

Earnings rose sharply.

In Natural Gas Trading, sales grew considerably driven by

higher volumes on European spot trading markets. Earnings,

however, declined compared to last year’s quarter, which had

benefited from a one-time gain from contract adjustments with

customers. Concession income from the OPAL pipeline could

only partly offset this effect.

Non-compensable taxes on oil production were 492 million euros.

Net income amounted to 322 million euros, an increase of almost

one hundred million euros versus Q3 of last year.


[Chart 12: Review of “Other”]

‘Other’ posted a decline in sales, largely as a result of the

divestiture of our Styrenics business, which was contributed to the

Styrolution joint venture as of October 1, 2011.

EBIT before special items declined significantly. In addition to the

missing contribution from Styrenics, higher provisions for the long-

term incentive program – which resulted from the significant share

price increase – negatively impacted earnings. For your reference,

in the third quarter of 2011, we had reported a reversal of provisions

for the long-term incentive program, which led to an earnings

increase.


[Chart 13: Strong operating cash flow of €5.2 billion] Let me now briefly conclude with our cash flow.

We generated again a very strong operating cash flow in the first

nine months of 5.2 billion euros – thereof 1.7 billion euros coming

from the third quarter. In Q3, net working capital remained

unchanged compared to mid-year.

In the first nine months, we used 2.1 billion euros in investing

activities. Capex amounted to 2.8 billion euros, almost 700 million

euros above the same period of 2011.

Free cash flow reached 2.4 billion euros in the first nine months of

this year compared to 2.9 billion euros in the same period of last

year.

At 11 billion euros, net debt was at the level of the end of 2011,

but decreased by 600 million year-over-year.

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

questions.

Speech BASF Analyst Conference Q3 2012

Investor Relations

Transcript of Speech BASF Analyst Conference Q3 2012