Basf Analyst Conference Q1 2011 Speech

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Charts and Speech accompanying the 1Q2011 Conference Call for investors and analysts on May 6, 2011

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Basf Analyst Conference Q1 2011 Speech

  1. 1. BASF 1st Quarter 2011 Analyst Conference CallMay 6, 2011, 8:30 a.m. (CEST), Mannheim Powerful start to 2011 BASF remains on growth track First Quarter 2011 Financial highlights May 6, 2011 BASF 1st Quarter 2011 Analyst Conference Call 1Analyst Conference Call ScriptDr. Kurt BockDr. Hans-Ulrich EngelThe spoken word applies.
  2. 2. Page 2BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Powerful start to 2011 First quarter highlights Business performance Q1’11 vs. Q1’10 Sales €19.4 billion +25% EBITDA €3.4 billion +28% EBITDA margin 17.4% 17.0% EBIT before special items €2.7 billion +40% EBIT €2.6 billion +39% Net income €2.4 billion +134% EPS €2.62 +134% Adjusted EPS €1.94 +47% Excellent sales and earnings growth in the chemical activities Cognis contributed significantly to the good results in Performance Products Agricultural Solutions started with strong sales and earnings Higher sales and earnings in Oil & Gas despite lower volumes from Libya BASF 1st Quarter 2011 Analyst Conference Call 3
  3. 3. Page 3BASF 1st Quarter 2011 Analyst Conference May 06, 2011Dr. Kurt BockLadies and Gentlemen, good morning and thank you for joining us.[Chart 3: Powerful start to 2011] Global economic growth continued in the first quarter. BASF had a powerful start to the year driven by ongoing strong demand and our ability to protect margins by passing on higher raw material costs. There was no significant impact on our business from the severe earthquake in Japan as well as the tense political situation in North Africa. In Q1 2011, we increased sales by 25 percent to 19.4 billion Euros compared with the first quarter of 2010. Volumes rose by 5 percent. Excluding Oil & Gas, volumes were up by 9 percent. We were able to raise prices by 13 percent. Cognis contributed 6 percentage points to sales growth. We reached an EBITDA of 3.4 billion Euros, up 28 percent, resulting in an EBITDA margin of 17.4 percent. Earnings before special items came in at 2.7 billion Euros, an increase of 40 percent compared to the first quarter of 2010. Special items of 182 million Euros included in EBIT were mainly related to Cognis integration costs. The financial result included a capital gain of 887 million Euros from the sale of our stake in K+S. This gain was booked as a special item. We generated net income of 2.4 billion Euros, lifting earnings per share to 2.62 Euros. Adjusted earnings per share came in at 1.94 Euros mainly due to the one-time gain from the sale of our K+S stake.
  4. 4. Page 4BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Important milestones in Q1 2011 MDI project in Chongqing Gas for Europe Strategy Fertilizer activities Project approved Two Memoranda of 10.3% stake in K+S sold Construction already started Understanding signed – Capital gain before taxes with Gazprom €887 million Completion in 2014 – Development of two Plan to sell major part of the World-scale capacity of additional sites of Achimov 400,000 metric tons fertilizer assets: deposits in Russia Total investment – Sales: Mid three-digit million – Acquisition of 15% stake in ~€860 million South Stream – Capacity: 2.5 million tons BASF 1st Quarter 2011 Analyst Conference Call 4
  5. 5. Page 5BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 4: Important milestones in Q1 2011]In the first quarter we achieved important milestones: In March, our planned MDI facility in Chongqing was approved by the Chinese authorities. We have already started construction and we expect the facility to be operational in 2014. It will be 100% BASF owned with an investment of about 860 million Euros. MDI is a precursor for polyurethanes and we expect polyurethanes to grow faster than Chinese GDP over the coming years. To support our growth in China and the emerging markets, we are currently looking into further investment opportunities. With Sinopec and Petronas, we signed Memoranda of Understanding to explore further expansions of our joint Verbund sites in Nanjing and Malaysia respectively. In Brazil, we are evaluating new investments for acrylic acid, butyl acrylate and superabsorbent polymers. We also signed two Memoranda of Understanding in order to further strengthen our successful partnership with Gazprom. We will expand our gas production by jointly developing additional areas of the Achimov deposits of the Urengoy fields in Western Siberia. Furthermore, we intend to acquire a 15% stake in South Stream, which will support the growth of our gas trading business in South-East Europe. In March, we announced plans to sell major parts of our fertilizer activities, which no longer fit with BASF’s future strategic direction and we also sold our 10.3% stake in K+S.With this I will hand over to Hans.
  6. 6. Page 6BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Chemicals Record earnings Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €) Intermediates Inorganics 800 765 709 353 687 617 +22% +25% 537 600 461 €3,276 400 +27% 200 Petrochemicals 2,214 0 +28% Q1 Q2 Q3 Q4 Q1 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 4% 21% 0% 2% BASF 1st Quarter 2011 Analyst Conference Call 5
  7. 7. Page 7BASF 1st Quarter 2011 Analyst Conference May 06, 2011Dr. Hans-Ulrich EngelGood morning ladies and gentlemen.I will highlight the financial performance of the segments in moredetail and focus on the business development in comparison to thefirst quarter of 2010.[Chart 5: Chemicals – Record earnings]In the Chemicals segment, we increased sales substantially due toongoing high demand and price increases, which we implementedto offset high raw material costs. EBIT before special items reacheda record level. In Petrochemicals, many of our product markets were still tight, due to strong demand as well as planned and unplanned outages. We realized higher cracker margins in all regions. Acrylics supply remained very tight, resulting in significantly improved earnings. In Inorganics and Intermediates, higher margins for ammonia and tight markets for butanediol and several amines supported our sales and earnings increase.
  8. 8. Page 8BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Plastics Strong volumes and prices lifted sales and earnings Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €) Polyurethanes 400 371 393 349 1,479 +21% 279 285 €2,788 200 +27% Performance Polymers 0 1,309 +34% Q1 Q2 Q3 Q4 Q1 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 14% 11% 0% 2% BASF 1st Quarter 2011 Analyst Conference Call 6
  9. 9. Page 9BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 6: Plastics – Strong volumes and prices lifted sales andearnings]In Plastics, we experienced strong demand in all product lines andachieved record earnings. In Performance Polymers, strong volume and positive pricing momentum, especially for caprolactam, drove sales growth. The Engineering Plastics business benefitted from high demand from the automotive industry. After the start up of the Ecoflex plant in Ludwigshafen, sales of biodegradable plastics developed very well. As a result, EBIT before special items was up significantly. In Polyurethanes, higher demand especially from the automotive and construction industries resulted in increased sales and EBIT before special items. However, we have not yet been able to fully pass on higher feedstock costs in our sales prices.
  10. 10. Page 10BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Performance Products Acquisitions are paying off Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €) Care Chemicals Performance 600 554 1,376 Chemicals 500 471 +117% 895 419 400 370 +23% Nutrition €3,982 300 294 & Health 469 +39% 200 +27% 100 Dispersions Paper Chemicals & Pigments 0 393 849 Q1 Q2 Q3 Q4 Q1 - 6% +17% 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 3% 5% 29% 2% BASF 1st Quarter 2011 Analyst Conference Call 7[Chart 7: Performance Products – Acquisitions are paying off]All divisions in the Performance Products segment, except PaperChemicals, posted a rise in sales thanks to higher volumes andincreased prices. Cognis contributed 29 percentage points to salesgrowth. EBIT before special items surpassed the earnings level ofQ1 2010 by far, due to higher volumes and the excellentperformance of the Cognis businesses. In addition, we realized costsynergies related to the Ciba acquisition and successfullyrepositioned the combined businesses. In Dispersions & Pigments, sales increased significantly in all product lines. Demand for our pigments remained strong, particularly in Europe and Asia. EBIT before special items was clearly higher.
  11. 11. Page 11BASF 1st Quarter 2011 Analyst Conference May 06, 2011 In Care Chemicals, sales doubled mainly due to the integration of Cognis. Moreover, we experienced strong demand for our hygiene products as well as for detergents and formulators. EBIT before special items improved sharply. Sales in Nutrition & Health increased substantially in part due to Cognis. We faced some price pressure, especially for vitamin E. However, EBIT before special items matched last year’s high level. In Paper Chemicals, despite the challenging business environment we were able to increase prices. However, volumes were lower mainly due to our optimized product portfolio. EBIT before special items came in higher as the consistent implementation of our restructuring program is paying off. In Performance Chemicals, sales and EBIT before special items increased substantially thanks to strong demand, particularly from the automotive and refinery industries as well as the inclusion of Cognis.
  12. 12. Page 12BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Cognis – integration objectives Targets Achieve 20% EBITDA margin in the Performance Products segment by 2012 Acquisition accretive as of 2012 Costs One-time integration costs of €290 million until end of 2013 Inventory step-up of €120 million Costs already incurred: − 2010: €80 million (thereof €60 million inventory step-up) − Q1/2011: €158 million (thereof €60 million inventory step-up) Synergies Generate €275 million of additional EBIT − €135 million growth synergies by the end of 2015 − €140 million cost synergies by the end of 2013 BASF 1st Quarter 2011 Analyst Conference Call 8
  13. 13. Page 13BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 8: Cognis – integration objectives]Now, I would like to give you a short update on the integration ofCognis, which is running at full speed.As you know, we have set ourselves ambitious targets: We want to achieve a 20 percent EBITDA margin in the Performance Products segment and Make the Cognis acquisition accretive as of 2012.We expect one-time integration costs of 290 million Euros until theend of 2013. An additional 120 million Euros have been incurredfrom inventory step-ups. Of these costs, 80 million Euros werealready booked in 2010 and 158 million Euros in the first quarter of2011.On the other hand, we aim to generate 275 million Euros ofadditional EBIT annually through growth and cost synergies. 135million Euros will come from growth synergies by the end of 2015.We will benefit from leveraging the joint customer base as well asextended solution and innovation capabilities.We aim to realize 140 million Euros of cost synergies per year bythe end of 2013. These are related to savings in procurementactivities, the consolidation of administrative structures and the ITlandscape as well as the improvement of production efficiency.
  14. 14. Page 14BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Functional Solutions Strong automotive demand drove sales and earnings Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €) Catalysts Construction 165 158 1,677 Chemicals 150 142 +58% 469 111 +9% €2,818 100 +35% 50 33 Coatings 672 0 +13% Q1 Q2 Q3 Q4 Q1 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 18% 13% 1% 3% BASF 1st Quarter 2011 Analyst Conference Call 9
  15. 15. Page 15BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 9: Functional Solutions – Strong automotive demanddrove sales and earnings]Volumes in the Functional Solutions segment were significantlyhigher, reflecting the global recovery of the automotive industry.Demand from the construction industry rose slightly, primarily owingto the robust building activity in emerging markets. EBIT beforespecial items improved substantially. Catalysts’ sales rose sharply, mainly attributable to higher volumes in mobile emissions and chemical catalysts as well as higher precious metal prices. As a result, our EBIT before special items came in far above the level of the previous year. Sales in Construction Chemicals grew slightly. We experienced a positive business development in Eastern Europe, Asia and South America, but North America remained challenging. Due to higher raw material and fixed costs, EBIT before special items did not match the previous year’s level. In Coatings, the positive trend in demand continued for all product lines. However, raw material prices could not yet be fully passed on. As a result, EBIT before special items was only up slightly.
  16. 16. Page 16BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Agricultural Solutions Strong sales and earnings growth Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items (million €) 1,400 1,230 400 +7% +7 % 343 1,200 1,145 321 1,000 300 800 600 200 400 100 200 0 0 Q1 Q1 Q1 Q1 2010 2011 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 8% (2)% 0% 1% BASF 1st Quarter 2011 Analyst Conference Call 10
  17. 17. Page 17BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 10: Agricultural Solutions – Strong sales and earningsgrowth]Agricultural Solutions started the new season successfully. Positivemarket conditions with higher soft commodity prices and theimproved liquidity situation of farmers contributed favorably to salesand earnings performance.We achieved sales growth across all regions and indications. Ourfungicide business in Europe and North America performedparticularly well. The development of Kixor, our recently launchedherbicide, is well on track.Despite strong overall demand, there was price pressure on someherbicides in the North American market. Nevertheless, we haveseen stable prices since last quarter.
  18. 18. Page 18BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Oil & Gas Higher oil and gas prices compensated for lower volumes Q1’11 segment sales (million €) vs. Q1’10 EBIT before special items / Net income (million €) Exploration & 800 744 Production 629 118 1,068 600 +4% 145 €3,455 400 +7% 626 Natural Gas 200 484 273 306 Trading 2,387 0 +9% Q1 Q1 2010 2011 EBIT bSI Natural Gas Trading Net income EBIT bSI Exploration & Production Sales development Period Volumes Prices/Currencies Portfolio Q1’11 vs. Q1’10 (13)% 20% 0% BASF 1st Quarter 2011 Analyst Conference Call 11
  19. 19. Page 19BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 11: Oil & Gas – Higher oil and gas prices compensatedfor lower volumes]Sales in Oil & Gas increased slightly, mainly due to higher oil andgas prices. EBIT before special items improved significantly. Sales in Exploration & Production increased slightly. Higher oil prices, with Brent averaging 105 US Dollars per barrel compared with 76 US Dollars in Q1 2010 compensated for lower oil production in Libya. End of February, we suspended our oil production in Libya. Nevertheless, earnings increased substantially, driven by the higher oil prices. Since the winter in Europe was less severe compared to the first quarter 2010, volumes in Natural Gas Trading decreased. However, gas sales were up as a result of higher sales prices. Earnings, on the other hand, decreased significantly as a result of lower demand and negative time-lag effects.A look at the income statement shows, that net income after taxesand minority interests rose by 12 percent to 306 million Euros. Non-compensable oil production taxes amounted to 280 million Euros.
  20. 20. Page 20BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Review of “Other” Million € Q1 2011 Q1 2010 Sales 1,812 1,338 thereof Styrenics 843 666 EBIT before special items (209) (266) thereof Corporate research (83) (82) Group corporate costs (55) (51) Currency results, hedges and other (78) (136) valuation effects Styrenics, fertilizers, other businesses 185 101 Special items (35) (34) EBIT (244) (300) BASF 1st Quarter 2011 Analyst Conference Call 12
  21. 21. Page 21BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 12: Review of “Other”]In “Other”, I would only like to highlight the positive businessdevelopment of Styrenics, which benefitted from ongoing strongdemand and higher prices. EBIT before special items in “Other”improved by 57 million Euros.Now I would like to hand back to Kurt.
  22. 22. Page 22BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Excellent operating cash flow in Q1 2011 Million € Q1 2011 Q1 2010 Cash provided by operating activities 2,255 1,368 thereof Changes in net working capital 260 (680) Cash provided by investing activities 257 (454) thereof Payments related to tangible / intangible assets (547) (392) Cash used in financing activities (1,200) (757) thereof Changes in financial liabilities (1,073) (679) Dividends (127) (78) First quarter 2011 Despite improved business activities net working capital decreased slightly Free cash flow at €1.7 billion Net debt reduced by €2.4 billion to €11.1 billion since December 31, 2010 €972 million proceeds from the sale of K+S stake BASF 1st Quarter 2011 Analyst Conference Call 13
  23. 23. Page 23BASF 1st Quarter 2011 Analyst Conference May 06, 2011Dr. Kurt Bock[Chart 13: Excellent operating cash flow in Q1 2011]Thank you, Hans. Let me now briefly talk about our cash flow beforewe conclude with the outlook.Thanks to our strong business performance in the first quarter, wegenerated an excellent operating cash flow of 2.3 billion Euros, up900 million Euros compared with Q1 2010. Despite improvedbusiness activities, cash tied up in net working capital decreasedslightly by 260 million Euros. This continues to demonstrate BASF’soutstanding cash generating capability.Cash from investing activities was positive and amounted to257 million Euros; this included 972 million Euros of proceeds fromthe K+S disposal. Capex came in at 547 million Euros. As a result,we turned in a very strong free cash flow of 1.7 billion Euros in thefirst quarter. From the beginning of 2011, we were able to reducenet debt by 2.4 billion Euros to 11.1 billion.
  24. 24. Page 24BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Outlook 2011 Assumptions We are increasing our Brent oil price forecast from $90/bbl to $100/bbl We are assuming that oil production in Libya will not restart during 2011 → EBIT before special items from our Libyan oil production for the full year 2011 will be about €1 billion lower compared with 2010 (thereof about €700 million of non-compensable oil taxes) Targets 2011 We expect to generate significantly higher sales We aim to significantly exceed the 2010 EBIT before special items adjusted for non-compensable oil taxes (2010: €7.2 billion) We expect to achieve a high premium on our cost of capital Medium-term targets We aim to grow sales on average by two percentage points per year faster than chemical production growth We strive to grow our earnings further year by year, and to achieve an EBITDA margin of 18% by 2012 BASF 1st Quarter 2011 Analyst Conference Call 14
  25. 25. Page 25BASF 1st Quarter 2011 Analyst Conference May 06, 2011[Chart 14: Outlook 2011]Now let’s come to the outlook for 2011. What do we expect? We are increasing our Brent oil price forecast from 90 Dollars per barrel to 100 Dollars per barrel. We are assuming that the oil production in Libya will not restart during 2011. Based on this assumption, EBIT before special items from our Libyan oil production for the full year 2011 will be about 1 billion Euros lower compared with 2010. However, as you all know, of these 1 billion Euros about 700 million are non- compensable oil taxes.For the full year 2011, we still expect to generate significantly highersales. Considering the suspension of oil production in Libya, EBITbefore special items excluding non-compensable oil taxes providesa much more meaningful guidance for 2011. Thus, we aim tosignificantly exceed the 2010 EBIT before special items excludingnon-compensable oil taxes which amounted to 7.2 billion Euros.Finally, we are committed to our target to achieve a high premiumon our cost of capital in 2011.Thank you for your attention. We are now happy to take yourquestions. BASF 4Q/FY’2010 Conference | February 24th, 2011 40
  26. 26. Page 26BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Back-Up BASF 1st Quarter 2011 Analyst Conference Call 16 BASF Group Q1 2011 Sales (billion €) EBIT before special items (billion €) 20 19.4 3.0 2.7 16.2 15.8 16.4 15.5 2.5 2.2 2.2 16 2.0 2.0 1.8 12 1.5 8 1.0 4 0.5 0 0.0 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2010 2011 2010 2011 Sales development Period Volumes Prices Portfolio Currencies Q1’11 vs. Q1’10 5%* 13% 6% 1% * Volumes +9% (without Oil & Gas) BASF 1st Quarter 2011 Analyst Conference Call 17
  27. 27. Page 27BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Financial highlights Strong earnings improvement in Q1 Million € Q1 2011 Q1 2010 Δ% Q4 2010 Δ% Sales 19,361 15,454 +25% 16,424 +18% changes due to - volumes +5% - prices +13% - portfolio 6% - currencies +1% EBITDA 3,365 2,627 +28% 2,703 +25% EBIT before special items 2,732 1,954 +40% 1,765 +55% Special items (182) (114) . (78) . EBIT 2,550 1,840 +39% 1,687 +51% Net income 2,411 1,029 +134% 1,100 +119% EPS (€) 2,62 1,12 +134% 1,20 +118% Adjusted EPS (€) 1,94 1,32 +47% 1,39 +40% BASF 1st Quarter 2011 Analyst Conference Call 18 Balance sheet further strengthened Balance sheet March 31, 2011 vs. end of 2010 (billion €) Proceeds from the sale of 60.2 60.2 BASF’s stake in K+S were 59.4 59.4 used to reduce debt Stock- Net debt decreased by €2.4 23.5 22.7 holders’ Long-term billion to €11.1 billion. Equity assets 32.7 Accounts receivable increased 34.5 by €0.9 billion due to the 13.9 Financial 15.0 debt expansion of our business Inventories 8.7 8.7 Equity ratio at 39% (up 1 Accounts 22.8 percentage point) receivable 11.1 10.2 21.7 Other liabilities Other assets 4.9 4.5 Liquid funds 2.8 1.5 Mar 31 Dec 31 Mar 31 Dec 31 2011 2010 2011 2010 BASF 1st Quarter 2011 Analyst Conference Call 19
  28. 28. Page 28BASF 1st Quarter 2011 Analyst Conference May 06, 2011 Cognis integration Generating €275 million of growth and cost synergies Synergies (million €) Growth synergies Providing joint customer base with access to broader portfolio 300 Increasing solution capabilities 250 Extending innovation capabilities Leveraging regional set-up 200 135 150 Cost synergies Realizing procurement cost 100 savings 140 Consolidating of administrative 50 structures 0 Improving production efficiency Consolidating IT landscape Growth synergies (by the end 2015) Cost synergies (by the end of 2013) BASF 1st Quarter 2011 Analyst Conference Call 20

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