Speech and Charts of BASF Analyst Conference Q1 2013
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Speech and Charts of BASF Analyst Conference Q1 2013

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Charts and Speech accompanying the 1Q2013 Conference Call for investors and analysts on April 26, 2013. Full report at http://on.basf.com/ZLPSLU

Charts and Speech accompanying the 1Q2013 Conference Call for investors and analysts on April 26, 2013. Full report at http://on.basf.com/ZLPSLU

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    Speech and Charts of BASF Analyst Conference Q1 2013 Speech and Charts of BASF Analyst Conference Q1 2013 Document Transcript

    • BASF 1stQuarter 2013 Analyst Conference CallApril 26, 2013, 8:30 a.m. (CEST), MannheimAnalyst Conference Call ScriptHans-Ulrich EngelManfredo RübensThe spoken word applies.Solid 1st quarter of 2013 for BASFFirst Quarter 2013Financial highlightsApril 26, 2013
    • Page 2BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013Cautionary note regardingforward-looking statementsThis presentation may contain forward-looking statements that are subject to risks anduncertainties, including those pertaining to the anticipated benefits to be realized from theproposals 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 withrespect to future events and financial performance. Actual financial performance could differmaterially from that projected in the forward-looking statements due to the inherentuncertainty of estimates, forecasts and projections, and financial performance may be betteror worse than anticipated. Given these uncertainties, readers should not put undue relianceon any forward-looking statements. The information contained in this presentation is subjectto change without notice and BASF does not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, except to theextent required by applicable laws and regulations.2BASF with a solid start to 2013Business performance Q1’13 Q1’12 vs. Q1’12 Sales €19.7 billion €18.8 billion +5% EBITDA €2.9 billion €3.3 billion (14%) EBIT before special items €2.2 billion €2.0 billion +10% EBIT €2.2 billion €2.6 billion (17%) Net income €1.4 billion €1.7 billion (15%) Reported EPS €1.57 €1.85 (15%) Adjusted EPS €1.67 €1.54 +8% Operating cash flow €2.0 billion €1.5 billion +33%Sales developmentPeriod Volumes Prices Portfolio CurrenciesQ1’13 vs. Q1’12 5% 1% 0% (1%)3BASF Q1 2013 Analyst Conference April 26, 2013  
    • Page 3BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013Hans-Ulrich EngelLadies and gentlemen, good morning and thank you for joining us.[Chart 3: BASF with solid start to 2013] BASF started into the year with a solid first quarter despite arather moderate global economic development. Please let me remind you that the basis of comparison with prioryear are the restated numbers we published end of March,reflecting the IFRS and IAS changes as well as our new segmentstructure. In Q1, 2013 we increased sales by 5 percent to 19.7 billion euros.This growth was mainly attributable to the excellent developmentof our Agricultural Solutions segment and higher volumes in Oil &Gas. Our chemical activities saw volumes and prices flatreflecting the overall challenging market environment. Inparticular, growth in China following Chinese New Year has comein below expectations. We were able to increase EBIT before special items by 10percent to 2.2 billion euros. Special items amounted to minus 45 million euros. In the prioryear we reported positive special items of 588 million euros due toa disposal gain of 645 million euros for the sale of our fertilizeractivities. As a consequence, EBIT for Q1 of this year came in 17percent lower. EBITDA declined versus prior year quarter by 450 million euros to2.9 billion. Last year’s EBITDA included the above mentioneddisposal gain.
    • Page 4BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013
    • Page 5BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013 For the same reason, net income came in 15 percent lower at1.4 billion euros. Net of this effect adjusted earnings per share increased to 1.67euros in Q1 2013 after 1.54 euros in Q1 2012. At 2.0 billion euros, operating cash flow was strong andsurpassed the level of the previous year’s first quarter by about500 million euros. Free cash flow reached 1.2 billion euros and was up by 400million euros.
    • Page 6BASF 1stQuarter 2013 Analyst Conference Call April 26, 20134 Integration activities on track Key work packages (e.g. IT, finance, human resources) proceed smoothly Integration expected to be completed by end of 2013Integration of Becker Underwood and Pronova BioPharma Water and oilfield & mining activities merged into new global business unit on April 1, 2013 Leather & textile chemicals: concentration of R&D activities at Shanghai Innovation Campus Plastic additives and pigments businesses: downsizing of Swiss operations and R&D activities Total net headcount reduction of about 500 positions by the end of 2015Restructuring measures to strengthen competitiveness of Performance Products segmentBASF Q1 2013 Analyst Conference April 26, 2013Portfolio optimization Joint $500 million investment to build integrated aroma ingredient complex 110 new jobs will be created in Kuantan, Malaysia Investment to meet globally growing demand in flavor and fragrance industry, especially in AsiaExpansion of the existing joint venture with PETRONAS in Kuantan, Malaysia
    • Page 7BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 4: Portfolio optimization]Since our last reporting day, we continued to further optimize ourportfolio: We are on track with the integration of our two recent acquisitionsBecker Underwood and Pronova BioPharma. Key work packagessuch as IT, finance and human resources are proceedingsmoothly and we will conclude the integrations latest by the end of2013. Furthermore, we plan to build together with PETRONAS anintegrated aroma ingredients complex in Kuantan, Malaysia asannounced yesterday. The investment will strengthen ourpositioning in the citral value chain. The joint site expansion will bein the magnitude of 500 million US dollars and will create 110 newjobs. With this investment, we will meet the globally growingdemand in the flavor and fragrance industry, especially in Asia. In addition, we are implementing measures to strengthen thecompetitiveness of our Performance Products segment.Increased standardization and the entry of new competitors havechanged the business environment for our Plastic Additives andPigments as well as for our Water, Leather and Textile Chemicalsactivities. To adopt to these changed market conditions, BASFaims to streamline processes, invest in new technologies andadjust its portfolio and its organizational setup. The measures willlead in total to a reduction of about 500 positions worldwide by theend of 2015. Further measures are being analyzed. Let me provide you with some more details: BASF aims toimprove the efficiency and profitability of the Plastic Additives andPigments & Resins business units in Europe. As announced on
    • Page 8BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013
    • Page 9BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013Tuesday of this week, the restructuring will encompass severalSwiss production sites and the Research Center in Basel. It willlead to a reduction of up to 350 positions in the Basel area by theend of 2015. As already announced in early April, we merged the Water andthe Oilfield & Mining activities into a new global business unit. Wealso intend to divest the industrial water management business. In the Leather & Textile Chemicals business, BASF will increaseits focus on the growing Asia Pacific region and high value addingapplications. The global R&D activities for leather and textilechemicals will be concentrated in Shanghai, China. These steps will strengthen the competitiveness and theprofitability of the Performance Products segment. Let me now discuss the Q1 2013 business development bysegment. The restated numbers for the first quarter 2012 serve asa basis for comparison.
    • Page 10BASF 1stQuarter 2013 Analyst Conference Call April 26, 20135ChemicalsEarnings increase due to higher marginsIntermediates700+4%Monomers1,680+4%Petrochemicals2,016(9%)€4,396-3%556601 5694456500200400600800Q1 Q2 Q3 Q4 Q1EBIT before special items (million €)20132012Q1’13 segment sales (million €) vs. Q1’12Sales developmentPeriod Volumes Prices Portfolio CurrenciesQ1’13 vs. Q1’12 (2%) 1% (1%) (1%)BASF Q1 2013 Analyst Conference April 26, 2013 
    • Page 11BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 5: Earnings increase due to higher margins]In Chemicals, sales in the first quarter 2013 decreased mainly dueto lower volumes. Prices, in turn, increased slightly. Higher earningsespecially in Petrochemicals and Monomers led to a considerableincrease in EBIT before special items. In Petrochemicals, sales declined, as volumes were lower due tothe planned shutdowns as well as maintenance work. Salesprices increased slightly driven by ongoing high raw materialcosts. Cracker margins improved in Europe and North America. InAsia, they were unsatisfactory due to low demand. EBIT beforespecial items was up significantly. Please note that there will be a scheduled turnaround of ourcracker in Antwerp in May/June 2013, which will impact EBITbefore special items by a double digit million euro amount in thesecond quarter. Sales in Monomers increased, due to higher volumes and pricesin the isocyanates business in all regions. EBIT before specialitems was up significantly. Higher isocyanates and ammoniamargins compensated for declines in caprolactam and polyamidemargins. Sales in Intermediates increased, benefitting from higherdemand. However, unfavorable supply/demand balances plushigh costs for several key raw materials led to margin pressure inall regions. Nevertheless, EBIT before special items rose slightlydue to higher volumes.
    • Page 12BASF 1stQuarter 2013 Analyst Conference Call April 26, 20136Performance ProductsStable volumes but lower earningsPerformanceChemicals8910%Care Chemicals1,2750%€3,880-2%Paper Chemicals362(8%)Q1’13 segment sales (million €) vs. Q1’12Nutrition& Health493+4% Dispersions& Pigments859(7%)452 4423441833790200400600Q1 Q2 Q3 Q4 Q1EBIT before special items (million €)20132012Sales developmentPeriod Volumes Prices Portfolio CurrenciesQ1’13 vs. Q1’12 0% (2%) 1% (1%) BASF Q1 2013 Analyst Conference April 26, 2013
    • Page 13BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 6: Stable volumes but lower earnings]Sales in Performance Products were slightly down. Volumes werestable but prices softened and we faced negative currency effects.The Pronova BioPharma business which we acquired in Februarymade a positive contribution to sales and earnings. EBIT beforespecial items declined due to weaker margins and increased R&Dexpenses, but more than doubled compared to Q4, 2012. In Dispersions & Pigments, sales came in below prior yearquarter. The European dispersions business suffered from thecold weather period. We experienced softer demand for pigmentsfrom key customers in all regions. Resins faced lower demand inNorth America and price pressure in Asia. Higher raw materialcosts could not be passed on to our customers resulting in asignificant drop in EBIT before special items. In Care Chemicals, sales were stable. Volumes increased thanksto higher demand for hygiene and personal care productingredients. Prices decreased primarily due to the pass-through oflower raw material costs especially for lauric oils. Higher marginsfor personal care ingredients lifted EBIT before special items. In Nutrition & Health, sales increased because of theconsolidation of Pronova. Volumes and prices were affected byweaker demand in animal and human nutrition. Pressure onvitamin prices continued. EBIT before special items came insignificantly lower than a year ago. Special items of minus 10million euros mainly resulted from the depreciation of theinventory step-up for the acquired Pronova business.
    • Page 14BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013
    • Page 15BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013 In Paper Chemicals, lower demand for paper products led to asignificant sales decline in all regions. We experienced intensecompetition, particularly in Asia and North America. EBIT beforespecial items decreased considerably due to lower volumes. Sales in Performance Chemicals were stable. A slight increasein volumes and prices was offset by negative currency effects.Fuel and lubricants, plastic additives and water solutionsexperienced a drop in sales. Oilfield and mining solutionscontributed positively to sales. EBIT before special itemsdecreased compared to the previous year’s first quarter.
    • Page 16BASF 1stQuarter 2013 Analyst Conference Call April 26, 20137Functional Materials & SolutionsIncreased demand in Performance MaterialsCatalysts1,453(1%)ConstructionChemicals458(9%)Coatings698(2%)€4,181+0%Q1’13 segment sales (million €) vs. Q1’12257216231 228 239050100150200250300Q1 Q2 Q3 Q4 Q1EBIT before special items (million €)20132012Sales developmentPeriod Volumes Prices Portfolio CurrenciesQ1’13 vs. Q1’12 2% 0% 0% (2%)BASF Q1 2013 Analyst Conference April 26, 2013PerformanceMaterials1,572+6%
    • Page 17BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 7: Increased demand in Performance Materials]In Functional Materials & Solutions, sales were stable. Overallvolumes were up especially in the newly created PerformanceMaterials division. EBIT before special items declined mainly due tolower earnings in our Catalysts division. Sales in Catalysts were slightly down due to lower rare earthprices which were passed through. While demand grew forrefinery and mobile emission catalysts, our business withchemical catalysts developed weaker than in the prior year.Demand growth for mobile emission catalysts in Asia and NorthAmerica overcompensated lower demand in Europe. However,lower chemical catalyst sales as well as start-up and R&D costsincurred by the battery materials business led to a decline of EBITbefore special items. Sales in Construction Chemicals declined in this seasonallyweak quarter. Demand in Europe and North America decreasedsignificantly mainly due to the long cold weather period. We sawcontinued structural weakness in Southern European markets.Margins improved supported by selective price increases andlower raw material costs. Thanks to our global restructuringprogram, EBIT before special items came in slightly higher. In Coatings, sales were slightly below the prior-year quarter.OEM coatings demand grew strongly in the Americas and Asia. InEurope it was stable due to our strong business relations withpremium car manufacturers. Demand for refinish coatings was upin Asia and South America.
    • Page 18BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013
    • Page 19BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013Sales for decorative paints were impacted by weaker demand andnegative currency effects in South America as well as thedivestiture of the Relius business in Europe. EBIT before specialitems matched the level of the previous year. Sales in the new Performance Materials division were up onhigher volumes for polyurethane systems, engineering plasticsand polyurethane solutions. Our business with premiumautomotive manufacturers in Europe continued to perform well.Volumes for Styropor and Neopor foams which are mainly sold tothe construction industry were weak due to the long cold weatherperiod in Europe. Nevertheless, we were able to slightly increaseEBIT before special items.
    • Page 20BASF 1stQuarter 2013 Analyst Conference Call April 26, 20138Agricultural SolutionsExcellent start into the year, record sales and earningsQ1’13 segment sales (million €) vs. Q1’12 EBIT before special items (million €)201320120200400Q1 Q12013201205001.0001.500Q1 Q11,5564984191,327Sales developmentPeriod Volumes Prices Portfolio CurrenciesQ1’13 vs. Q1’12 13% 1% 4% (1%)BASF Q1 2013 Analyst Conference April 26, 2013  
    • Page 21BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 8: Agricultural Solutions – Excellent start into the year]Agricultural Solutions delivered an excellent quarter. Sales rosestrongly, driven by high demand for our products in the NorthernHemisphere. Slightly higher prices were offset by currency effects.The integration of the former Becker Underwood business led to apositive portfolio effect. With an EBIT before special items of almost500 million euros, Q1 2013 marked an all-time record. Special itemsof minus six million euros were mainly related to the depreciation ofthe inventory step-up for the former Becker Underwood business. In Europe, we realized considerable sales growth due to highdemand for herbicides and fungicides. We saw strong sales inFrance, Germany and Eastern Europe despite the delayed springseason. North America delivered an excellent performance, thanks tostrong herbicide demand and excellent sales of our Xemiumfungicide. Sales rose by more than thirty percent, excluding thecontribution of Becker Underwood. Sales in Asia were up slightly. The strong growth of our fungicideand herbicide business in India and China was largely offset bynegative currency effects. South American sales decreased compared to the strongprevious year quarter, as some product lines saw highcompetitive pressure towards the end of the season. Following the very positive first quarter development we areconfident to once again increase sales and earnings in 2013. Ouroptimism is backed by our innovative product portfolio, sounddemand growth and the performance of the acquired BeckerUnderwood business.
    • Page 22BASF 1stQuarter 2013 Analyst Conference Call April 26, 20139Oil & GasSales growth due to higher productionExploration &Production789+14%Natural GasTrading3,871+21%€4,660+20%Q1’13 segment sales (million €) vs. Q1’12 EBIT bSI/Net income (million €)2014151623970200400600800Q1/2012 Net Income Q1/2013 Net IncomeNatural Gas TradingExploration & ProductionNet income640Sales developmentPeriod Volumes Prices/Currencies PortfolioQ1’13 vs. Q1’12 19% 1% 0% BASF Q1 2013 Analyst Conference April 26, 2013439 468630
    • Page 23BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 9: Oil & Gas – Increased oil and gas production]Sales in Oil & Gas grew strongly mainly due to higher volumes inExploration & Production as well as in Natural Gas Trading. EBITbefore special items came in slightly lower at 630 million euros.Please note that due to changes in IFRS 10 & 11 sales from ouronshore production in Libya are no longer reported in the top line.Instead, the equity income is considered in the EBIT line sinceJanuary 1, 2013. The significant sales increase in Exploration & Production wasdriven by higher volumes due to the start-up of additional wells ofour Achimgaz joint venture late in 2012 and by higher offshoreproduction in Libya. The higher volumes more than compensatedfor a lower oil price.Overall, EBIT before special items in Exploration & Productionincreased, as the additional more than offset the negative impactfrom the lower oil price. Sales in Natural Gas Trading grew strongly, mainly caused bysignificantly higher volumes. This was driven by an increase indemand due to the long cold weather period as well as higherspot market sales in Europe. Margins, however, decreased due tostronger competition. Earnings came in below the very high levelof the prior year’s first quarter.Net income in Oil & Gas decreased slightly to 397 million euros.
    • Page 24BASF 1stQuarter 2013 Analyst Conference Call April 26, 201310Review of “Other”Million € Q1’13 Q1’12Sales 1,065 976EBIT before special items (182) (314)thereof Corporate researchGroup corporate costsCurrency results, hedges and othervaluation effectsStyrenics, fertilizers,other businesses(97)(56)5659(97)(58)(206)145Special items (28) 578EBIT (210) 264BASF Q1 2013 Analyst Conference April 26, 2013
    • Page 25BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 10: Review of ‘Other’]Sales in ‘Other’ increased to 1.1 billion euros mainly due to highersales of the Ellba joint venture.EBIT before special items came in at minus 182 million euros. Theimprovement versus a year ago was also triggered by a large swingin provisions for our long-term incentive program.Special items of minus 28 million euros were mainly related to therelocation of our plant biotechnology activities to the US andsubsequent organizational measures. In the prior year first quarter,the 645 million euro disposal gain from the sale of our fertilizeractivities led to positive special items of 578 million euros.
    • Page 26BASF 1stQuarter 2013 Analyst Conference Call April 26, 201311Strong operating cash flow of €2 billionMillion € Q1’13 Q1’12Cash provided by operating activities 2,041 1,539thereof Changes in net working capitalMiscellaneous items(713)615(310)(560)Cash provided by investing activities (1,637) 176thereof Payments related to tangible / intangible assets (831) (697)Acquisitions / divestitures (514) 683Cash used in financing activities 363 (44)thereof Changes in financial liabilitiesDividends429(66)33(72) Net working capital increased by €713 million mainly as a result of higher tradeaccounts receivable Cash outflows in acquisitions/divestitures of -€514 million primarily as a result of thePronova BioPharma acquisition Free cash flow amounted to €1.2 billion, an increase of €368 million vs. Q1 2012First quarter 2013BASF Q1 2013 Analyst Conference April 26, 2013
    • Page 27BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 11: Strong operating cash flow of €2.0 billion]Cash provided by operating activities was 2.0 billion euros in the firstquarter of this year, an increase of about 500 million euros versusQ1 2012.The rise in net working capital led to an outflow of more than 700million euros, mainly related to an increase of trade accountsreceivables. However, this was mostly offset by an increase ofliabilities in the magnitude of 600 million euros related to thedisposal group for the assets to be swapped with Gazprom. This isreported under miscellaneous items.Cash used in investing activities amounted to minus 1.6 billioneuros. This included cash outflows for acquisitions of 514 millioneuros, primarily for Pronova BioPharma. In Q1 2012, the divestitureof our fertilizer activities had led to a cash inflow of 680 millioneuros. Capex amounted to 831 million euros compared to 700million euros in the previous year’s quarter.Free cash flow came in at 1.2 billion euros compared to 0.8 billioneuros in Q1 2012.
    • Page 28BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013Balance sheet remains strongBalance sheet March 31, 2013 vs. Dec. 31, 2012(billion €)Liquid fundsAccountsreceivableLong-termassets27.713.323.235.39.51.6OtherliabilitiesFinancialdebtStockholders’equityDec 312012Dec 312012March 312013March 31201362.725.612.822.3InventoriesOther assets9.63.462.7Highlights March 31, 2013 Long term assets increasedmainly due to consolidation offormer Pronova BioPharmabusiness Short term assets up due toincrease in accounts receivable Increase in financial debt due toissuance of long-term bonds Net debt: €10.9 billion Equity ratio: 41%36.511.12.49.93.766.73.166.7Disposalgroup2.5Disposalgroup123.3 2.0BASF Q1 2013 Analyst Conference April 26, 2013
    • Page 29BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 12: “Balance sheet remains strong”]Let’s now have a look at our balance sheet. Total assets compared to year-end 2012 rose by 4.0 billion eurosto 66.7 billion euros. The Pronova BioPharma acquisition resulted in a net increase inlong-term assets by about 550 million euros. This was due to anincrease in both intangible assets as well as in property, plant andequipment. Intangible assets contain goodwill of 158 million eurosrelated to Pronova BioPharma. BASF’s inventories remained fairly constant. Accounts receivable,however, were up by 1.5 billion euros reflecting in particular thestrong sales in Agricultural Solutions. Our financial indebtedness increased from 12.8 billion euros atyear-end 2012 to 13.3 billion euros by the end of the first quarter2013. Given favorable market conditions, we issued long-termbonds with a total amount of 1.2 billion euros. Net debt amounted to 10.9 billion euros, a decrease of roughly300 million euros versus the end of 2012. At 41 percent, our equity ratio remained on a strong level.
    • Page 30BASF 1stQuarter 2013 Analyst Conference Call April 26, 201313 Excluding the effects of acquisitions and divestitures, we strive to increase our sales volumesin 2013 We aim to exceed the 2012 restated levels in sales and EBIT before special items The expected increase in demand, together with our measures to improve operationalexcellence and raise efficiency, will contribute to this We aim to earn a high premium on cost of capital once again in 2013Outlook 2013 GDP: +2.4% Industrial production: +3.4% Chemical production: +3.6% US$ / Euro: 1.30 Oil price (US$ / bbl): 110Assumptions 2013BASF Q1 2013 Analyst Conference April 26, 2013Outlook 2013 confirmed
    • Page 31BASF 1stQuarter 2013 Analyst Conference Call April 26, 2013[Chart 13: Outlook 2013 confirmed]Let me now come to our outlook for 2013.We keep our macroeconomic assumptions for the year unchanged.However, uncertainties have increased during Q1 mainly becausegrowth in China was below expectations and new concerns in theEuro area came up. On the positive side, US growth has been morerobust than expected and sentiment in Japan is currently improving.We expect global chemical production to grow by about 3.6 percent.However, in Q1 growth still has been below.Today we confirm our outlook 2013 for BASF Group, based on therestated figures we provided in March of this year: We strive to increase volumes in 2013, excluding the effects ofacquisitions and divestitures. We want to exceed the 2012 levels in sales and EBIT beforespecial items. The expected increase in demand, together with our measures toimprove operational excellence and raise efficiency, willcontribute to this. And last but not least, we aim to earn a high premium on our costof capital once again in 2013.Thank you for your attention. We are now happy to take yourquestions.