BASF Q3 Report Speech at Analyst Conference

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Charts and Speech accompanying the 3Q2013 Conference Call for investors and analysts on October 25, 2013 …

Charts and Speech accompanying the 3Q2013 Conference Call for investors and analysts on October 25, 2013
More: http://on.basf.com/1gL2I7t
Full report: http://on.basf.com/1eOQjuH

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  • 1. 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.
  • 2. Page 2 rd BASF 3 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 forwardlooking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations. 2 BASF Q3 2013 Analyst Conference Call October 25, 2013 Robust 3rd quarter 2013 for BASF Business performance Q3’13 vs. Q3’12 Q1-Q3’13 vs. Q1-Q3’12 €17.7 billion +1.5% €55.8 billion +3%  Sales  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% Sales development BASF Q3 2013 Analyst Conference Call October 25, 2013  6% Prices  Volumes (1%) Portfolio  1% Currencies  Period Q3’13 vs. Q3’12 (5%) 3
  • 3. Page 3 rd BASF 3 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.
  • 4. Page 4 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013
  • 5. Page 5 rd BASF 3 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.
  • 6. Page 6 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Important corporate developments Restructuring in Pigments business  Optimization of global production network Cash offer for Verenium enzyme biotechnology  Cash offer of 4 US dollars per share, Transaction with Statoil completed  Transaction completed July 31, 2013  Reduction of 650 positions worldwide  Offer expires on October 31, 2013  Investment of €250 million in production and R&D  Increased production from 3,000 to ~40,000 boe per day in Norway  Enterprise value ~62 million US dollars  Compensation payment of 781 million US dollars*  Acquisition will strengthen BASF‘s footprint in the enzyme growth market * Euro/dollar exchange rate July 31, 2013: €1= $1.3275 BASF Q3 2013 Analyst Conference Call October 25, 2013 4
  • 7. Page 7 rd BASF 3 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.
  • 8. Page 8 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013
  • 9. Page 9 rd BASF 3 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).
  • 10. Page 10 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Chemicals Pressure on volumes and margins Q3’13 segment sales (million €) vs. Q3’12 EBIT before special items (million €) Intermediates 700 Monomers 1,599 800 (11%) 600 (7%) 650 569 495 445 €4,224 (8%) 527 Q2 Q3 400 200 Petrochemicals 1,925 0 Q3 (6%) Q4 Q1 2012 2013 Sales development Q3’13 vs. Q3’12  BASF Q3 2013 Analyst Conference Call October 25, 2013 (2%) Prices  Volumes (3%) Portfolio 0% Currencies  Period (3%) 5
  • 11. Page 11 rd BASF 3 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.
  • 12. Page 12 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Performance Products Growth in volumes and earnings Q3’13 segment sales (million €) vs. Q3’12 EBIT before special items (million €) Care Chemicals 1,209 600 Performance Chemicals 896 (1%) Nutrition & Health 540 400 (3%) €3,939 (1%) 379 344 Dispersions & Pigments 929 Paper Chemicals 365 376 Q1 Q2 Q3 183 200 +10% 394 0 Q3 Q4 2012 (2%) 2013 (8%) Sales development BASF Q3 2013 Analyst Conference Call October 25, 2013  6% Prices  Volumes Q3’13 vs. Q3’12 (3%) Portfolio  1% Currencies  Period (5%) 6
  • 13. Page 13 rd BASF 3 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.
  • 14. Page 14 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013
  • 15. Page 15 rd BASF 3 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.
  • 16. Page 16 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Functional Materials & Solutions Sound overall demand, especially in automotive Q3’13 segment sales (million €) vs. Q3’12 EBIT before special items (million €) Performance Materials 1,669 600 +5% Construction Chemicals 576 (9%) €4,439 +3% 400 231 228 239 Q3 Q4 Q1 293 300 Q2 Q3 200 0 Coatings 728 Catalysts 1,466 (5%) +12% 2012 2013 Sales development Q3’13 vs. Q3’12 BASF Q3 2013 Analyst Conference Call October 25, 2013  8% Prices Portfolio  2%  Volumes (1%) Currencies  Period (6%) 7
  • 17. Page 17 rd BASF 3 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.
  • 18. Page 18 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013
  • 19. Page 19 rd BASF 3 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.
  • 20. Page 20 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Agricultural Solutions Sales growth despite pronounced currency headwinds Q3’13 segment sales (million €) vs. Q3’12 1.200 1,054 1,008 EBIT before special items (million €) 200 171 172 900 600 100 300 0 0 Q3 Q3 Q3 Q3 2012 2013 2012 2013 Sales development Volumes Prices Portfolio Q3’13 vs. Q3’12  8%  4%  3% BASF Q3 2013 Analyst Conference Call October 25, 2013 Currencies  Period (10%) 8
  • 21. Page 21 rd BASF 3 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.
  • 22. Page 22 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013
  • 23. Page 23 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013  For the full year 2013 we expect to again achieve new sales and earnings records.
  • 24. Page 24 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Oil & Gas Substantially higher net income Q3’13 segment sales (million €) vs. Q3’12 Exploration & Production 754 Natural Gas Trading 2,376 +29% €3,130 +25% EBIT bSI/Net income (million €) 499 500 422 400 +15% 300 396 360 451 200 318 100 103 62 0 Q3/2012 Net Income Q3/2013 Net Income Exploration & Production Natural Gas Trading Net income Sales development Volumes Q3’13 vs. Q3’12  22% BASF Q3 2013 Analyst Conference Call October 25, 2013 Prices/Currencies  Period (2%) Portfolio  5% 9
  • 25. Page 25 rd BASF 3 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.
  • 26. Page 26 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Review of “Other” Million € Sales EBIT before special items Thereof Corporate research Group corporate costs Currency result, hedges and other Valuation effects Other business Special items EBIT BASF Q3 2013 Analyst Conference Call October 25, 2013 Q3’13 Q3’12 947 (105) (90) (57) (74) 1,087 (343) (95) (63) (249) 59 30 (24) (44) (129) (387) 10
  • 27. Page 27 rd BASF 3 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.
  • 28. Page 28 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Cash Flow Excellent cash flow in Q1-Q3 2013 Million € Q1-Q3’13 Q1-Q3’12 Cash provided by operating activities 5,982 5,025 Thereof Changes in net working capital Miscellaneous items 374 (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) 411 Cash used in financing activities (1,300) (3,383) thereof Changes in financial liabilities Dividends 1,304 (2,604) (868) (2,510) Q1-Q3 2013  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 BASF Q3 2013 Analyst Conference Call October 25, 2013 11
  • 29. Page 29 rd BASF 3 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%.
  • 30. Page 30 rd BASF 3 Quarter 2013 Analyst Conference Call October 25, 2013 Outlook 2013 Outlook 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 Assumptions 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) BASF Q3 2013 Analyst Conference Call October 25, 2013 12
  • 31. Page 31 rd BASF 3 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.