Page 3 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012Kurt BockLadies 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.
Page 5 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012 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.
Page 7 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 4: Ongoing portfolio optimization]Over the past six weeks, we announced several important measuresto further optimize our portfolio, especially to further strengthen ourgood 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.
Page 9 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012 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.
Page 11 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[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.
Page 13 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012Hans-Ulrich EngelGood morning ladies and gentlemen.Let me highlight the financial performance of each segment in moredetail and focus on the respective business developments incomparison to the third quarter of 2011.[Chart 6: Chemicals – Declining margins and plant shutdowns]In Chemicals, sales increased significantly mainly as a result ofrecent portfolio measures. Feedstock sales to Styrolution Groupcompanies and to the new owner of the divested fertilizer businesscontributed to the topline. In addition, higher volumes and currencytailwinds more than compensated for lower prices. EBIT beforespecial items declined considerably compared to the strong prior-year quarter – mainly due to lower margins as well as planned andunplanned 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.
Page 15 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012 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.
Page 17 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 7: Plastics – Significantly weaker margins for polyamideprecursors]Sales in Plastics increased driven by a positive businessdevelopment in Polyurethanes and by favorable currency effects.EBIT before special items declined though, mostly due to a weakerperformance 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.
Page 19 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 8: Performance Products – Competitive marketenvironment and higher fixed costs]Sales in Performance Products came in slightly above the prior-year quarter. Lower prices and volumes were offset by positivecurrency effects. EBIT before special items was down primarily as aresult 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.
Page 21 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012 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.
Page 23 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 9: Functional Solutions – Lower volumes and prices inprecious metal trading]Sales in Functional Solutions declined mainly due to a lowercontribution from precious metal trading. Currency tailwinds andportfolio measures could not fully offset this effect. Due to high rawmaterial 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.
Page 25 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 10: Agricultural Solutions – Successful start of seasonin South America]Agricultural Solutions had another very good quarter. Continuedstrong demand led to a volume increase of three percent. Salesgrew 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.
Page 27 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 11: Oil & Gas – Increased oil production in Libya]Sales in Oil & Gas grew strongly mainly driven by higher volumes inExploration and Production due to the continuous production inLibya. As a result, EBIT before special items tripled compared to theprior 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.
Page 29 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[Chart 12: Review of “Other”]‘Other’ posted a decline in sales, largely as a result of thedivestiture of our Styrenics business, which was contributed to theStyrolution joint venture as of October 1, 2011.EBIT before special items declined significantly. In addition to themissing contribution from Styrenics, higher provisions for the long-term incentive program – which resulted from the significant shareprice increase – negatively impacted earnings. For your reference,in the third quarter of 2011, we had reported a reversal of provisionsfor the long-term incentive program, which led to an earningsincrease.
Page 31 rdBASF 3 Quarter 2012 Analyst Conference Call October 25, 2012[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 yourquestions.