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BASF FY2011 results speech

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BASF

Speech accompanying the FY2011 Analyst Conference for investors and analysts on February 24, 2012

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BASF Full Year 2011 Analyst Conference
February 24, 2012, 4 pm (CET)
Ludwigshafen, Germany




Analyst Conference Script
Dr. Kurt Bock
Dr. Hans-Ulrich Engel




The spoken word applies.
Page 2
BASF Full Year 2011 Analyst Conference            February 24, 2012
Page 3
BASF Full Year 2011 Analyst Conference                   February 24, 2012



Dr. Kurt Bock

Ladies and Gentlemen,
Good afternoon and thank you for joining us this afternoon at our
headquarters 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.
Page 4
BASF Full Year 2011 Analyst Conference            February 24, 2012
Page 5
BASF 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.
Page 6
BASF Full Year 2011 Analyst Conference            February 24, 2012

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BASF FY2011 results speech

  • 1. BASF Full Year 2011 Analyst Conference February 24, 2012, 4 pm (CET) Ludwigshafen, Germany Analyst Conference Script Dr. Kurt Bock Dr. Hans-Ulrich Engel The spoken word applies.
  • 2. Page 2 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 3. Page 3 BASF Full Year 2011 Analyst Conference February 24, 2012 Dr. Kurt Bock Ladies and Gentlemen, Good afternoon and thank you for joining us this afternoon at our headquarters 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.
  • 4. Page 4 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 5. Page 5 BASF 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.
  • 6. Page 6 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 7. Page 7 BASF 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.
  • 8. Page 8 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 9. Page 9 BASF 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.
  • 10. Page 10 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 11. Page 11 BASF 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.
  • 12. Page 12 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 13. Page 13 BASF 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.
  • 14. Page 14 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 15. Page 15 BASF 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 our shareholders:  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.
  • 16. Page 16 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 17. Page 17 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 11: Outlook 2012 Expectations for global economy] Let’s turn to the future. Obviously today the uncertainty about the development of the next 12 to 24 months is much higher than expected a year ago. Our plan for 2012 is based on the following assumptions:  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.
  • 18. Page 18 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 19. Page 19 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 12: Outlook 2012 by region Chemical 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.
  • 20. Page 20 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 21. Page 21 BASF 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 as follows:  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.
  • 22. Page 22 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 23. Page 23 BASF Full Year 2011 Analyst Conference February 24, 2012 Dr. Hans-Ulrich Engel Ladies and Gentlemen, I will focus in my presentation on the business development in the fourth quarter of 2011 in comparison to the fourth quarter of 2010. [Chart 15: Chemicals] In Chemicals, successful price increases in all divisions led to higher sales. In addition, the start-up of the Styrolution joint venture contributed positively to the top line because feedstock sales to the joint venture are now reported as third party sales. Due to weakening demand and ongoing high raw material prices, EBIT before special items came in significantly lower. In Inorganics, sales grew by 9 percent mainly as a result of higher prices and slightly higher volumes. EBIT before special items was significantly up driven by higher margins. Following excellent results in the first three quarters of 2011, we saw a softening of demand in Petrochemicals. However, sales grew by 9 percent. We increased product prices due to higher feedstock cost. Volumes were considerably down since customers speculated on falling prices and consequently delayed their orders. EBIT before special items came in substantially lower given reduced volumes in many product lines and lower margins particularly for cracker products in all regions.
  • 24. Page 24 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 25. Page 25 BASF Full Year 2011 Analyst Conference February 24, 2012 Sales in Intermediates decreased by 4 percent due to customers’ destocking at year-end. Accordingly, we adjusted our global capacity utilization and reduced our inventories. EBIT before special items declined. For the full year 2011, sales in Chemicals rose by 14 percent and EBIT before special items reached a new high of 2.4 billion euros.
  • 26. Page 26 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 27. Page 27 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 16: Plastics] Despite lower volumes in major product lines, sales in Plastics increased due to higher prices primarily in the Performance Polymers division. EBIT before special items declined considerably due to lower margins as a result of weak demand and increased raw material costs. In Performance Polymers, sales went up by 8 percent. Polyamide & Intermediates sales rose driven by price increases. In Engineering Plastics, higher demand in North America compensated for lower volumes in Europe and Asia. EBIT before special items was however, significantly lower due to receding margins, especially in intermediates. Sales in Polyurethanes rose by 2 percent. We realized higher prices in all businesses, with the exception of TDI. TDI prices and margins remained under pressure since sizable new capacities came on stream during the year and higher raw material costs could not be passed on to our customers. EBIT before special items was substantially down mainly due to lower TDI margins. For the full year 2011, sales in Plastics rose by 12 percent and EBIT before special items came in below the high level of the previous year.
  • 28. Page 28 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 29. Page 29 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 17: Performance Products] The Performance Products segment posted a 19 percent rise in sales. The inclusion of the Cognis businesses as well as strong price increases across all divisions contributed to this growth. Volumes, however, declined by 6 percent, with a relatively strong volume decrease in Paper Chemicals and Performance Chemicals. EBIT before special items declined by 25 percent due to higher raw material costs, margin pressure, and higher fixed costs partly related to the integration of Cognis. Special items amounted to 125 million euros mainly related to the restructuring charges in Paper Chemicals and the Cognis integration. In Dispersions & Pigments, we posted higher sales in all regions and in all product lines except in pigments. The sales growth was driven by price increases and the inclusion of Cognis. Higher raw material cost could partially be passed on to the market. EBIT before special items declined substantially as a result of reduced pigment volumes and lower margins. Sales in Care Chemicals increased by more than 50 percent thanks to the inclusion of Cognis. Price competition as well as tight inventory management by our customers resulted in a slight volume decline. However, ongoing price increases, especially for detergents and formulators, compensated for the decline in volumes. Integration costs related to Cognis negatively impacted EBIT before special items.
  • 30. Page 30 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 31. Page 31 BASF Full Year 2011 Analyst Conference February 24, 2012 In Nutrition & Health, the inclusion of the Cognis businesses and slightly higher prices contributed to good sales growth. Higher fixed and raw material costs as well as product mix effects outweighed price gains. Consequently, EBIT before special items declined substantially. In Paper Chemicals demand was down because paper producers ordered less given the weaker economic environment. Volume losses could not be offset by higher selling prices. Despite these challenges, EBIT before special items improved benefitting from ongoing restructuring measures and stringent fixed cost reduction. In Performance Chemicals, price increases and the inclusion of Cognis lifted sales. However, volumes declined significantly due to destocking activities at our customers. EBIT before special items was lower due to reduced volumes and higher fixed costs. For the full year 2011, sales of the Performance Products segment increased by 28 percent to 15.7 billion euros. EBIT before special items reached 1.7 billion euros, an increase of 11 percent.
  • 32. Page 32 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 33. Page 33 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 18: Functional Solutions] Volumes in the Functional Solutions segment were up 6 percent driven by growing demand from the automotive industry for mobile emissions catalysts and automotive coatings. Demand from the construction industry increased slightly, primarily owing to improved building activity in North America and Asia. EBIT before special items more than doubled. Catalysts’ sales increased by 17 percent, mainly due to higher sales volumes of mobile emissions catalysts particularly in Asia and North America. With 676 million euros, the sales contribution from precious metal trading was up by 3.4 percent driven by higher prices. EBIT before special items improved strongly. In Construction Chemicals, sales were up 4 percent. The business environment in Southern Europe remained challenging. However, we experienced a positive development in demand in North America and Asia Pacific. EBIT before special items declined mainly due to higher fixed costs. We implemented restructuring measures to streamline our structures in Europe and Asia. Sales in Coatings increased by 8 percent reflecting continued high worldwide demand for automotive OEM and refinish. EBIT before special items came in significantly above prior year. Coatings incurred high special items primarily in preparation of the planned divestment of Relius Decorative Paints. For the full year 2011, sales in Functional Solutions rose by 17 percent to 11.4 billion euros and EBIT before special items was up 20 percent at 559 million euros.
  • 34. Page 34 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 35. Page 35 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 19: Agricultural Solutions] While reaching new records in both sales and earnings for the full year 2011, Agricultural Solutions saw a slight sales decline in Q4 due to pre-buying of our customers in Q3 in South America and portfolio optimization measures. In Q4, price increases of 2 percent were achieved, confirming guidance. Regionally, sales in Europe were driven by positive year-end business in France. In North America, sales were up due to higher fungicide sales. BASF’s growing success in South America and other emerging markets has driven rapid growth of second half year Crop Protection sales over the past years, surging from 1.3 billion euros in 2009 to 1.7 billion euros in 2011. This corresponds to an increase of 31 percent in only two years. EBIT before special items in the fourth quarter almost matched the prior year’s level, despite an increase in R&D spending and selling costs. The investments for our future growth are reflected in the significantly 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 by 3 percent to 4.2 billion euros and EBIT before special items was up 8 percent at 810 million euros.
  • 36. Page 36 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 37. Page 37 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 20: Oil & Gas] In Oil & Gas, sales increased by 33 percent driven by higher sales volumes and prices in Natural Gas Trading. In Libya, the onshore oil production restarted mid-October with 20,000 barrels per day, and reached 60,000 barrels per day at the end of December 2011 compared to a production capacity of 100,000 barrels per day. EBIT before special items for the entire Oil & Gas segment declined by 4 percent in Q4 2011 due to lower production levels in Libya. Reported EBIT, however, came in 11 percent higher due to lower special items. Net income after minority interests went up by 20 percent to 276 million euros. Exploration & Production, volumes were below previous year’s level as a result of the curtailed oil production in Libya. However, higher oil prices partly compensated for the lower production volumes. Consequently, sales declined by only 4 percent. Sales in Natural Gas Trading rose strongly thanks to higher gas prices and volumes. Margins, however, continued to be under pressure by the relatively low price level on the spot market. This effect was more than compensated by additional earnings from the start-up of the OPAL pipeline. For the full year 2011, the Oil & Gas segment reported sales of 12.1 billion euros, up 12 percent. EBIT before special items decreased by 13 percent to 2.1 billion euros. Adjusted for non- deductible oil taxes, EBIT before special items came in 16 percent higher at 1.7 billion euros. Net income rose by 15 percent to 1.1 billion euros.
  • 38. Page 38 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 39. Page 39 BASF Full Year 2011 Analyst Conference February 24, 2012 [Chart 21: Review of “Other”] In “Other”, sales decreased by 30 percent due to the deconsolidation of Styrenics following the formation of the Styrolution joint venture with Ineos on October 1st, 2011. EBIT before special items, increased by 128 million euros due to both, lower hedging losses as well as a lower provision for the long- term incentive program. Positive special items of 623 million euros resulted primarily from the disposal gain of Styrolution. For further details please refer to the Annual Report 2011, page 161.
  • 40. Page 40 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 41. Page 41 BASF 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.
  • 42. Page 42 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 43. Page 43 BASF 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.
  • 44. Page 44 BASF Full Year 2011 Analyst Conference February 24, 2012
  • 45. Page 45 BASF Full Year 2011 Analyst Conference February 24, 2012 Now, to help you with your projections for 2012, I would like to give you 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 your questions.
  • 46. Page 46 BASF Full Year 2011 Analyst Conference February 24, 2012 [Backup: Financial Highlights Agricultural Solutions]
  • 47. Page 47 BASF Full Year 2011 Analyst Conference February 24, 2012