BASF Full Year 2011 Analyst ConferenceFebruary 24, 2012, 4 pm (CET)Ludwigshafen, GermanyAnalyst Conference ScriptDr. Kurt BockDr. Hans-Ulrich EngelThe spoken word applies.
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Page 3BASF Full Year 2011 Analyst Conference February 24, 2012Dr. Kurt BockLadies and Gentlemen,Good afternoon and thank you for joining us this afternoon at ourheadquarters in Ludwigshafen and via webcast.[Chart 4: Record year 2011] BASF achieved again new record sales in 2011: In the last 12 months, we reached sales of 73.5 billion euros, up 15 percent compared with the full year 2010. EBITDA at 12 billion euros and EBIT before special items at 8.4 billion euros also marked new record highs. We also delivered on our promise to significantly increase EBIT before special items adjusted for non-deductible oil taxes. We achieved 8 billion euros, which represents an increase of 12 percent. EBIT came in slightly higher than EBIT before special items due to the disposal gain from the formation of the Styrolution Joint Venture. Net income climbed to 6.2 billion euros, an increase of 36 percent. Adjusted EPS reached 6.26 euros, up 9 percent, and finally Operating cash flow was 7.1 billion euros, up by 10 percent and a new record as well.
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Page 5BASF Full Year 2011 Analyst Conference February 24, 2012 In the fourth quarter 2011, we saw – as expected – a slowdown in business activities but we continued to pursue our value before volume strategy. Moreover, customer orders were down due to slowing demand and tight inventory management. This resulted in lower volumes and margins across most of our chemical businesses. Sales in Q4 increased by 10 percent to 18.1 billion euros, primarily due to our successful price increases of 9 percent. BASF achieved again a record EBITDA in a fourth quarter of 2.9 billion euros, up 7 percent. EBITDA as well as EBIT of 1.9 billion euros were positively impacted by the disposal gain of Styrolution in the amount of 593 million euros. EBIT before special items declined by 14 percent mainly due to lower volumes and margins in several of our upstream businesses. In addition, EBIT before special items was down as the Styrenics activities were moved out of BASF into the Styrolution joint venture. Net income was 1.1 billion euros, up 3 percent, and adjusted earnings per share were at 1.05 euros in Q4 2011.
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Page 7BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 5: Major achievements in 2011]What did we achieve in 2011? We are on track with our announced investments for future growth. Just to name a few, we successfully started up the plants of the second phase of investments at our Verbund site in Nanjing, and commissioned Nord Stream and the OPAL pipeline. In 2011, we have completed the integration of Cognis and we are on track to realize synergies of 290 million euros. Our Styrolution joint venture with Ineos successfully commenced business in October. In September, we signed a contract with EuroChem to sell our fertilizer activities in Antwerp, Belgium. In January of this year, we announced that we signed a contract to also sell our 50 percent- share in PEC-Rhin in Ottmarsheim, France, to our joint venture partner GPN, a member of the French Total Group – thus completing our exit from the fertilizer business. We also delivered on operational excellence: We finalized our NEXT program, which will lead to more than 1 billion euros annual earnings contribution this year.
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Page 9BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 6: Strong and profitable growth in emerging markets] BASF already has leading positions and fast growing businesses in the emerging markets and we will continue to build on these. BASF’s sales in the emerging markets increased to 21.2 billion euros in 2011. This represents 34 percent of BASF’s total 2011 sales excluding Oil & Gas. Since 2001, we have generated a compound annual growth rate of 13 percent with our activities in the emerging markets. We will further spur organic growth in these countries by increasing our sales forces, strengthening regional R&D, and investing in new production capacities. We expect that in 2020, emerging markets will contribute around 45 percent to BASF’s sales excluding Oil & Gas.
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Page 11BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 7: €2.6 billion premium on cost of capital] In 2003, we set the goal of earning a premium on our cost of capital. Since then we earned a premium every year, with the exception of the crisis year 2009. In 2011, we again reached a significant premium of 2.6 billion euros on our cost of capital. We achieved this high premium despite a higher cost of capital rate: For 2011, the cost of capital rate increased from 9 to 11 percent, which explains the lower premium achieved. For 2012, we are also calculating with a cost of capital rate of 11 percent. In the coming years, we strive to earn an average premium on cost of capital of at least 2.5 billion euros per year.
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Page 13BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 8: Attractive shareholder returns]Ladies and Gentlemen,As you know shareholder return is of utmost importance to us! We stand by our dividend policy to increase our dividend each year, or at least maintain it at the previous year’s level. We will propose to the Annual General Meeting to pay out a dividend of 2.50 euros per share, an increase of 30 euro-cents or 13.6 percent. Over the past ten years, the compound annual dividend growth was 15.2 percent. This reflects an attractive dividend yield of 4.6 percent, based on the share price of 54 euros on December 30th, 2011.
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Page 15BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 9: Delivering consistent, long-term value]Moreover, we continue to deliver consistent long-term value for ourshareholders: Over the past ten years, the average annual return on BASF stock was 14 percent, clearly outperforming the German and European stock markets as well as the MSCI World Chemicals index. In the last five years, which were impacted by the economic crisis, the outperformance was even better.
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Page 17BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 11: Outlook 2012Expectations for global economy]Let’s turn to the future. Obviously today the uncertainty about thedevelopment of the next 12 to 24 months is much higher thanexpected a year ago. Our plan for 2012 is based on the followingassumptions: In 2012, we expect GDP growth of 2.7 percent, the level achieved in 2011. We expect global chemical production (without pharmaceuticals) and industrial production to grow by 4.1 percent, respectively, which is below 2011, and We assume an average oil price of 110 dollars per barrel as well as an average exchange rate of 1.30 dollars per euro.
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Page 19BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 12: Outlook 2012 by regionChemical production (excl. pharma)] In 2012, global chemical production (excluding pharmaceuticals) will continue to grow in all regions. While the current uncertainties in financial markets will dampen growth perspectives, the chemical sector will benefit from positive impulses from emerging markets. In Europe, we expect growth at a lower rate. However, please keep in mind that we saw a significant surge in demand in Europe in 2011. In Asia (excluding Japan), growth continues to be strong at approximately 8 percent. Despite an anticipated slowdown in growth due to lower export demand, China is expected to still grow strongly with nearly 9 percent in 2012.
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Page 21BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 13: Outlook BASF Group 2012]Based on these assumptions, our outlook for the year 2012 is asfollows: We strive to increase volumes in 2012 excluding the impact from acquisitions and divestitures. We aim to exceed the record levels of sales and EBIT before special items achieved by BASF Group in 2011. In the first half of 2012, we will most likely not achieve the excep- tionally high results of the comparable period in 2011. However, we expect to outperform the second half year results of 2011. More specifically, we plan to increase sales and earnings in all our business segments with the exception of the segment Chemicals, where we expect sales to be above the level of 2011 but earnings to decline due to margin pressure in petrochemicals and intermediates. Sales and EBIT before special items in “Other” will be lower than in 2011 due to the formation of Styrolution, now accounted for at equity. Looking at 2012 and beyond – we announced at our Strategy Day last November – that BASF wants to deliver an EBITDA of 15 billion euros by 2015, compared with 12 billion euros in 2011.
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Page 23BASF Full Year 2011 Analyst Conference February 24, 2012Dr. Hans-Ulrich EngelLadies and Gentlemen,I will focus in my presentation on the business development in thefourth quarter of 2011 in comparison to the fourth quarter of 2010.[Chart 15: Chemicals]In Chemicals, successful price increases in all divisions led tohigher sales. In addition, the start-up of the Styrolution joint venturecontributed positively to the top line because feedstock sales to thejoint venture are now reported as third party sales. Due toweakening demand and ongoing high raw material prices, EBITbefore special items came in significantly lower.In Inorganics, sales grew by 9 percent mainly as a result of higherprices and slightly higher volumes. EBIT before special items wassignificantly up driven by higher margins.Following excellent results in the first three quarters of 2011, wesaw a softening of demand in Petrochemicals. However, salesgrew by 9 percent. We increased product prices due to higherfeedstock cost. Volumes were considerably down since customersspeculated on falling prices and consequently delayed their orders.EBIT before special items came in substantially lower givenreduced volumes in many product lines and lower marginsparticularly for cracker products in all regions.
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Page 25BASF Full Year 2011 Analyst Conference February 24, 2012Sales in Intermediates decreased by 4 percent due to customers’destocking at year-end. Accordingly, we adjusted our globalcapacity utilization and reduced our inventories. EBIT before specialitems declined.For the full year 2011, sales in Chemicals rose by 14 percent andEBIT before special items reached a new high of 2.4 billion euros.
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Page 27BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 16: Plastics]Despite lower volumes in major product lines, sales in Plasticsincreased due to higher prices primarily in the PerformancePolymers division. EBIT before special items declined considerablydue to lower margins as a result of weak demand and increasedraw material costs.In Performance Polymers, sales went up by 8 percent. Polyamide& Intermediates sales rose driven by price increases. In EngineeringPlastics, higher demand in North America compensated for lowervolumes in Europe and Asia. EBIT before special items washowever, significantly lower due to receding margins, especially inintermediates.Sales in Polyurethanes rose by 2 percent. We realized higherprices in all businesses, with the exception of TDI. TDI prices andmargins remained under pressure since sizable new capacitiescame on stream during the year and higher raw material costs couldnot be passed on to our customers. EBIT before special items wassubstantially down mainly due to lower TDI margins.For the full year 2011, sales in Plastics rose by 12 percent andEBIT before special items came in below the high level of theprevious year.
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Page 29BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 17: Performance Products]The Performance Products segment posted a 19 percent rise insales. The inclusion of the Cognis businesses as well as strongprice increases across all divisions contributed to this growth.Volumes, however, declined by 6 percent, with a relatively strongvolume decrease in Paper Chemicals and Performance Chemicals.EBIT before special items declined by 25 percent due to higher rawmaterial costs, margin pressure, and higher fixed costs partlyrelated to the integration of Cognis. Special items amounted to125 million euros mainly related to the restructuring charges inPaper Chemicals and the Cognis integration.In Dispersions & Pigments, we posted higher sales in all regionsand in all product lines except in pigments. The sales growth wasdriven by price increases and the inclusion of Cognis. Higher rawmaterial cost could partially be passed on to the market. EBITbefore special items declined substantially as a result of reducedpigment volumes and lower margins.Sales in Care Chemicals increased by more than 50 percentthanks to the inclusion of Cognis. Price competition as well as tightinventory management by our customers resulted in a slight volumedecline. However, ongoing price increases, especially fordetergents and formulators, compensated for the decline involumes. Integration costs related to Cognis negatively impactedEBIT before special items.
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Page 31BASF Full Year 2011 Analyst Conference February 24, 2012In Nutrition & Health, the inclusion of the Cognis businesses andslightly higher prices contributed to good sales growth. Higher fixedand raw material costs as well as product mix effects outweighedprice gains. Consequently, EBIT before special items declinedsubstantially.In Paper Chemicals demand was down because paper producersordered less given the weaker economic environment. Volumelosses could not be offset by higher selling prices. Despite thesechallenges, EBIT before special items improved benefitting fromongoing restructuring measures and stringent fixed cost reduction.In Performance Chemicals, price increases and the inclusion ofCognis lifted sales. However, volumes declined significantly due todestocking activities at our customers. EBIT before special itemswas lower due to reduced volumes and higher fixed costs.For the full year 2011, sales of the Performance Productssegment increased by 28 percent to 15.7 billion euros. EBIT beforespecial items reached 1.7 billion euros, an increase of 11 percent.
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Page 33BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 18: Functional Solutions]Volumes in the Functional Solutions segment were up 6 percentdriven by growing demand from the automotive industry for mobileemissions catalysts and automotive coatings. Demand from theconstruction industry increased slightly, primarily owing to improvedbuilding activity in North America and Asia. EBIT before specialitems more than doubled.Catalysts’ sales increased by 17 percent, mainly due to highersales volumes of mobile emissions catalysts particularly in Asia andNorth America. With 676 million euros, the sales contribution fromprecious metal trading was up by 3.4 percent driven by higherprices. EBIT before special items improved strongly.In Construction Chemicals, sales were up 4 percent. Thebusiness environment in Southern Europe remained challenging.However, we experienced a positive development in demand inNorth America and Asia Pacific. EBIT before special items declinedmainly due to higher fixed costs. We implemented restructuringmeasures to streamline our structures in Europe and Asia.Sales in Coatings increased by 8 percent reflecting continued highworldwide demand for automotive OEM and refinish. EBIT beforespecial items came in significantly above prior year. Coatingsincurred high special items primarily in preparation of the planneddivestment of Relius Decorative Paints.For the full year 2011, sales in Functional Solutions rose by17 percent to 11.4 billion euros and EBIT before special items wasup 20 percent at 559 million euros.
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Page 35BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 19: Agricultural Solutions]While reaching new records in both sales and earnings for the fullyear 2011, Agricultural Solutions saw a slight sales decline in Q4due to pre-buying of our customers in Q3 in South America andportfolio optimization measures.In Q4, price increases of 2 percent were achieved, confirmingguidance.Regionally, sales in Europe were driven by positive year-endbusiness in France. In North America, sales were up due to higherfungicide sales.BASF’s growing success in South America and other emergingmarkets has driven rapid growth of second half year CropProtection sales over the past years, surging from 1.3 billion eurosin 2009 to 1.7 billion euros in 2011. This corresponds to an increaseof 31 percent in only two years.EBIT before special items in the fourth quarter almost matched theprior year’s level, despite an increase in R&D spending and sellingcosts.The investments for our future growth are reflected in thesignificantly increased peak sales potential of our R&D pipeline,which amounts to 2.8 billion euros.For the full year 2011, sales in Agricultural Solutions rose by3 percent to 4.2 billion euros and EBIT before special items was up8 percent at 810 million euros.
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Page 37BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 20: Oil & Gas]In Oil & Gas, sales increased by 33 percent driven by higher salesvolumes and prices in Natural Gas Trading. In Libya, the onshore oilproduction restarted mid-October with 20,000 barrels per day, andreached 60,000 barrels per day at the end of December 2011compared to a production capacity of 100,000 barrels per day. EBITbefore special items for the entire Oil & Gas segment declined by4 percent in Q4 2011 due to lower production levels in Libya.Reported EBIT, however, came in 11 percent higher due to lowerspecial items.Net income after minority interests went up by 20 percent to276 million euros.Exploration & Production, volumes were below previous year’slevel as a result of the curtailed oil production in Libya. However,higher oil prices partly compensated for the lower productionvolumes. Consequently, sales declined by only 4 percent.Sales in Natural Gas Trading rose strongly thanks to higher gasprices and volumes. Margins, however, continued to be underpressure by the relatively low price level on the spot market. Thiseffect was more than compensated by additional earnings from thestart-up of the OPAL pipeline.For the full year 2011, the Oil & Gas segment reported sales of12.1 billion euros, up 12 percent. EBIT before special itemsdecreased by 13 percent to 2.1 billion euros. Adjusted for non-deductible oil taxes, EBIT before special items came in 16 percenthigher at 1.7 billion euros. Net income rose by 15 percent to1.1 billion euros.
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Page 39BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 21: Review of “Other”]In “Other”, sales decreased by 30 percent due to thedeconsolidation of Styrenics following the formation of theStyrolution joint venture with Ineos on October 1st, 2011.EBIT before special items, increased by 128 million euros due toboth, lower hedging losses as well as a lower provision for the long-term incentive program.Positive special items of 623 million euros resulted primarily fromthe disposal gain of Styrolution. For further details please refer tothe Annual Report 2011, page 161.
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Page 41BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 22: Excellent operating cash flow in 2011] We started the year 2011 with a cash position of 1.5 billion euros. With 7.1 billion euros, we again generated an excellent cash flow from operations in 2011 thereof 2.1 billion euros in Q4. Free cash flow reached 3.7 billion euros, thereof 768 million euros generated in the fourth quarter. In 2011, we stuck to our priorities with regard to the use of cash: – We spent 3.4 billion euros for capital expenditures, which was significantly up from previous years’ levels. Major projects which started operations in 2011 included the expansion of the Nanjing Verbund site in China and the construction of a methylamine plant in Geismar, Louisiana. In addition, we completed the new oleum plant in Antwerp, Belgium, and extended our natural gas pipeline grid with the OPAL and NEL pipelines in Germany. – Net cash-in mainly related to the formation of the Styrolution joint venture amounted to 0.5 billion euros. – We paid 2.5 billion euros in dividends to our shareholders and minority interest holders. – And we used 2.4 billion euros for the repayment of debt. – Other cash inflows include mainly the proceeds of the K+S disposal. At the end of 2011, we had a cash position of 2 billion euros.
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Page 43BASF Full Year 2011 Analyst Conference February 24, 2012[Chart 23: Balance sheet remains strong] Let me finally turn to our balance sheet. Compared with 2010, total assets rose by 1.8 billion euros to 61 billion euros. Long-term assets declined by 445 million euros. Due to the sale of K+S, financial assets declined by 1.1 billion euros. The Styrenics net assets in the amount of 734 million euros which were reported as assets of the disposal group were deconsolidated with the start-up of the Styrolution joint venture. BASF’s 50 percent stake in the Styrolution joint venture will from now on be reported at equity. Our equity ratio improved from 38.1 percent to 41.5 percent. In 2011, we repaid two bonds in the amount of 1.2 billion euros. We reduced net debt by 2.6 billion to 11 billion euros, a reduction of 650 million euros in Q4. With this, our net debt EBITDA ratio is now below one [0.9]. With our A1 / A+ rating and a well-balanced maturity profile of financial debt, BASF has an excellent financial position.
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Page 45BASF Full Year 2011 Analyst Conference February 24, 2012Now, to help you with your projections for 2012, I would like to giveyou some additional numbers: Literally, we are now taking the next STEP in operational excellence: Key focus areas of the recently announced STEP program are fixed cost reductions and margin improvements across the entire Group. We expect the program to result in annual earnings contributions of about 1 billion euros by the end of 2015. Generating a strong cash flow will remain a key priority for 2012 and we will continue to keep tight control on our working capital. Our priorities for the use of cash remain clearly set: We continue to put great emphasis on organic growth through innovations. Therefore, we plan to increase our global R&D expenditures from 1.6 billion euros to 1.7 billion euros in 2012. We project CAPEX spending of about 3.5 billion euros. As demonstrated again this year, we remain committed to our dividend policy.In conclusion, BASF continues to be fit for 2012 and beyond!Thank you for your attention. We are now happy to take yourquestions.
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