BASF 1 st Quarter 2014 Analyst Conference Call May 2, 2014, 8:30 a.m. (CEST), Mannheim

Transcription

1 S BASF 1 st Quarter 2014 Analyst Conference Call May 2, 2014, 8:30 a.m. (CEST), Mannheim First Quarter 2014 Financial highlights May 2, 2014 Good start to the year in chemicals business, oil and gas business considerably down Analyst Conference Call Script Hans-Ulrich Engel Manfredo Rübens The spoken word applies.

2 Page 2 Cautionary note regarding forward-looking statements This presentation may contain forward-looking statements that are subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realized from the proposals described herein. Forward-looking statements may include, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation and supply and demand. BASF has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and financial performance may be better or worse than anticipated. Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice and BASF does not undertake any duty to update the forwardlooking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations. BASF Q Analyst Conference Call May 2, Good start to the year in chemicals business, Oil & Gas considerably down Business performance Q1 14 Q1 13 vs. Q1 13 Sales 19.5 billion 19.7 billion (1%) EBITDA 3.0 billion 2.9 billion +3% EBIT before special items 2.1 billion 2.2 billion (3%) EBIT 2.2 billion 2.2 billion +4% Net income 1.5 billion 1.4 billion +2% Reported EPS % Adjusted EPS (2%) Operating cash flow 1.7 billion 2.0 billion (17%) Sales development Period Volumes Prices Portfolio Currencies Q1 14 vs. Q1 13 4% (3%) 1% (3%) BASF Q Analyst Conference Call May 2,

3 Page 3 Hans-Ulrich Engel Ladies and gentlemen, good morning and thank you for joining us. [Chart 3: Good start to the year in chemicals business, Oil & Gas considerably down] The macroeconomic environment has not materially improved in the first quarter of 2014: Concerns about economic growth in emerging markets and somewhat softer macro data in the U.S. due to the harsh winter impacted economic activity. The ongoing crisis in the Ukraine is adding uncertainty. However, we expect that global economic growth remains on track and can gain momentum as the year progresses. In Q the euro appreciated against almost all currencies compared to the first quarter of last year. This negatively impacted both our top and bottom line. The positive volume trend reported for the last two quarters continued and led to a good start to the year in our chemicals business as well as in Agricultural Solutions. Our Oil & Gas business, however, came in lower than prior-year quarter. Let me now comment on the financial performance of BASF Group in Q1 2014: Sales in the first quarter declined slightly to 19.5 billion euros. Higher volumes were more than offset by lower prices and pronounced negative currency effects. EBITDA rose by 3 percent to 3.0 billion euros.

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5 Page 5 EBIT before special items declined by 3 percent to 2.1 billion euros. We were able to improve our earnings in the chemicals business and in Agricultural Solutions. However, we saw considerably lower earnings in Oil & Gas. The devaluation of almost all major currencies against the euro impacted earnings negatively by roughly 200 million euros compared to prior year. EBIT increased by 4 percent to 2.2 billion euros as a result of a swing in special items. While special items amounted to minus 45 million euros in the previous year s first quarter, we incurred positive special items of 109 million euros in the first quarter of These are primarily related to a gain from the divestiture of selected E&P assets on the UK Continental Shelf to the Hungarian MOL Group. Income taxes grew by 5 percent to 525 million euros and the tax rate slightly increased from 24.4 to 25.4 percent. At 1.5 billion euros, net income came in 2 percent higher than in the first quarter of last year. Adjusted earnings per share amounted to 1.64 euros in Q after 1.67 euros in Q At 1.7 billion euros, operating cash flow was again strong but stayed by about 300 million euros below the level of the previous year s first quarter due to a higher increase in net working capital. Free cash flow reached almost 800 million euros, compared to 1.2 billion euros in Q1 of 2013.

6 Page 6 Portfolio optimization & development Strengthening Verbund sites in Asia Strengthen competitiveness of Performance Products Portfolio optimization in Oil & Gas Increasing backward integration in the US BASF Q Analyst Conference Call May 2,

7 Page 7 [Chart 4: Portfolio optimization and development] Ladies and gentlemen, we continued to further optimize our positioning and portfolio: As announced earlier this month, we had groundbreaking of our integrated aroma ingredients complex at the Verbund site in Kuantan, Malaysia. We also inaugurated our new plant for superabsorbent polymers in Nanjing, China, including a backward integration into acrylic acid. In Oil & Gas, our strategic portfolio optimization continued: We will divest our shares in the VNG gas transport business in Germany, and we sold selected E&P assets in the North Sea to MOL, as already mentioned. Furthermore, we are continuing our measures to further strengthen the competitiveness of our Performance Products segment, as announced last Friday. In the Nutrition & Health division, we adjust our product portfolio and business models to market needs. Due to the planned measures about 260 positions in production, marketing and administration will be reduced globally by end of Finally, we announced today, that we are evaluating an investment in a world-scale methane-to-propylene complex at the U.S. Gulf Coast. This would be our largest single-plant investment not only in the US, but also globally so far. The on-purpose production of propylene would be used for captive demand and substitute purchases from third parties in North America. We would, thus, take further advantage of the very competitive gas prices in the US due to shale gas and significantly improve our cost position.

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9 Page 9 This investment would be based on the same strategic rationale as the ammonia project planned together with Yara.

10 Page 10 Chemicals Continued volume increase, but lower prices Q1 14 segment sales (million ) vs. Q1 13 Intermediates % 4,398 0% Monomers 1,590 (5)% Petrochemicals 2,097 +4% EBIT before special items (million ) Q1 Q2 Q3 Q4 Q Sales development Period Volumes Prices Portfolio Currencies Q1 14 vs. Q1 13 8% (6%) (0%) (2%) BASF Q Analyst Conference Call May 2,

11 Page 11 [Chart 5: Chemicals Continued volume increase, but lower prices] Sales in Chemicals were at the level of the prior-year quarter. Higher volumes in all three divisions were offset by lower prices and negative currency effects. EBIT before special items declined due to margin pressure as well as project and start-up costs related to our ongoing investments, primarily in the isocyanates and acrylic acid value chains. In Petrochemicals, sales rose slightly driven by significantly higher volumes in North America. Lower prices and currency headwinds had a negative impact on sales. Higher margins in cracker products in North America could not fully compensate for lower margins in other product areas. As a consequence, EBIT before special items came in lower than in the previous year s first quarter. Sales in Monomers decreased as softer prices and adverse currency effects were only partly offset by increased volumes. Weaker margins, particularly for isocyanates in Asia as well as for ammonia in Europe, led to a considerably lower EBIT before special items. Project and start-up costs additionally impacted earnings. In Intermediates, sales were slightly above the first quarter of 2013 despite lower prices and negative currency effects. Volumes increased, especially in amines and polyalcohols. EBIT before special items rose significantly due to higher volumes and improved margins.

12 Page 12 Performance Products Continued strong volume growth Q1 14 segment sales (million ) vs. Q1 13 Care Chemicals 1,264 (1)% Nutrition & Health 495 3,872 0% Performance Chemicals 818 0% 0% Dispersions & Pigments Paper Chemicals % (5%) Sales development EBIT before special items (million ) Q1 Q2 Q3 Q4 Q1 Period Volumes Prices Portfolio Currencies Q1 14 vs. Q1 13 5% (1%) 0% (4%) BASF Q Analyst Conference Call May 2,

13 Page 13 [Chart 6: Performance Products Continued strong volume growth] Sales in Performance Products came in on prior-year level. Higher volumes compensated for strong adverse currency effects. Prices were almost stable. EBIT before special items increased considerably, supported by strict fixed cost management. Restructuring measures led to special items of 13 million euros. In Dispersions & Pigments, sales were slightly up. Good volume growth was mostly offset by negative currency effects and lower prices. In Europe, we experienced higher demand mainly from the construction and coatings industries. In the US, the cold weather negatively impacted our business. EBIT before special items increased slightly due to higher volumes. Sales in Care Chemicals decreased slightly. We experienced a positive volume development for personal and home care products as well as formulation technologies. In hygiene, volumes went down compared with the strong prior-year quarter, which had benefitted from temporarily lower capacities in the market. Prices were almost stable, but we faced strong currency headwinds. EBIT before special items increased significantly driven by higher volumes and better margins. In Nutrition & Health, sales were flat. Prices were overall stable, and volumes increased due to a good business development in human nutrition, pharma as well as aroma chemicals. In animal nutrition, however, we experienced ongoing competitive pressure in our vitamins business, which led to a volume decline. Adverse currency effects had a negative effect on sales.

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15 Page 15 The inclusion of Pronova BioPharma, which we acquired in Q1 2013, contributed positively, both to sales and earnings. EBIT before special items rose strongly. In Paper Chemicals, sales decreased mainly due to negative currency effects and lower prices. Volumes were stable as the decline in graphical paper applications was offset by higher volumes in our Kaolin business. EBIT before special items decreased because of a less favorable product mix. Sales in Performance Chemicals were stable. The strong volume growth was offset by adverse currency effects and slightly lower prices. The positive volume trend in water, oilfield and mining solutions continued. Demand for fuel & lubricant solutions, plastic additives and textile & leather chemicals was strong as well. Fixed cost reduction measures and lower raw material costs also contributed to a substantial increase of EBIT before special items.

16 Page 16 Functional Materials & Solutions Strong demand from automotive industry Q1 14 segment sales (million ) vs. Q1 13 Performance Materials 1,614 +3% Catalysts 1,458 0% 4,236 +1% Construction Chemicals 443 (3%) Coatings % EBIT before special items (million ) Q1 Q2 Q3 Q4 Q Sales development Period Volumes Prices Portfolio Currencies Q1 14 vs. Q1 13 7% (1%) 0% (5%) BASF Q Analyst Conference Call May 2,

17 Page 17 [Chart 7: Functional Materials & Solutions Strong demand from automotive industry] Sales in Functional Materials & Solutions were slightly higher. We saw good demand globally, especially from the automotive industry. Our business with the construction industry suffered from the harsh weather conditions in North America. This was offset, however, by higher demand in Europe due to the mild winter. Adverse currency effects as well as slightly lower prices negatively impacted sales. EBIT before special items increased strongly, driven by higher earnings in all divisions. Sales in Catalysts were stable. Currency headwinds and lower prices were offset by higher volumes. Demand for mobile emissions catalysts grew strongly especially in North America, and heavy duty catalysts sold well in Asia. Volumes in refinery catalysts were up, but demand for chemical catalysts decreased. In precious and base metal trading, sales grew slightly. EBIT before special items rose substantially due to the positive volume development and improved margins. Sales in Construction Chemicals declined slightly in this seasonally weak quarter. Volumes grew, and we were able to increase prices. However, currency effects, especially in North America and Asia, as well as portfolio measures in Europe negatively impacted sales. Our successful restructuring measures led to lower fixed costs and contributed to a strong increase of EBIT before special items.

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19 Page 19 In Coatings, sales were slightly up. We increased volumes and were able to raise prices. This was, however, partly offset by strong currency headwinds. We saw very good demand for OEM coatings, especially in Asia and Europe. Volumes in refinish coatings grew particularly in Asia. Our decorative paints business developed quite well despite the negative impact from the devaluation of the Brazilian real. EBIT before special items increased strongly, supported by lower fixed costs. Sales in Performance Materials were slightly up, driven by higher demand for engineering plastics, TPU and Cellasto. Prices were stable, but we faced currency headwinds. Our sales to the automotive industry grew in all regions. Demand from the construction industry was strong in Europe. Fixed costs increased due to capacity expansions. EBIT before special items rose considerably.

20 Page 20 Agricultural Solutions Good start to the year Q1 14 segment sales vs. Q1 13 (million ) Q1 14 EBIT before special items vs. Q1 13 (million ) ,556 1, Q1 Q1 0 Q1 Q Sales development Period Volumes Prices Portfolio Currencies Q1 14 vs. Q1 13 9% 3% 0% (6%) BASF Q Analyst Conference Call May 2,

21 Page 21 [Chart 8: Agricultural Solutions Good start to the year] Agricultural Solutions had a good start to the year. Sales rose thanks to high demand for our products, especially in the Northern Hemisphere. We were able to increase volumes and prices. However, this was partly offset by negative currency effects. EBIT before special items increased slightly to more than 500 million euros, despite significant currency headwinds. In Europe, we realized considerable sales growth. Supported by mild and partially wet weather conditions, we saw strong business in most parts of Western, Central and Eastern Europe. Especially cereal fungicides sold well. Successful price increases compensated for negative currency effects. Sales in North America were up despite the cold winter and the weak US dollar. We saw high herbicide and fungicide orders from US distribution channels. Due to the delayed start of the season, less product than usual has been applied at this point. However, we currently do not expect atypical inventory levels at the end of the season. Business in Asia grew as well, however, was impacted by strong negative exchange rate effects. We enjoyed good demand in China, Japan and India, particularly for fungicides. South American sales decreased compared to previous year quarter mostly because of currency effects. In Brazil, adverse weather conditions impacted our business. We expect sustained underlying demand growth for our innovative product portfolio. Despite increased uncertainties related to currency and crop price volatility, we remain confident to increase sales and earnings in 2014.

22 Page 22 Oil & Gas Lower sales and earnings, net income increased Q1 14 segment sales (million ) vs. Q1 13 EBIT bsi/net income (million ) Natural Gas Trading 3,484 (10%) 4,276-8% Exploration & Production 792 0% Q1/2013 Net Income Q1/2014 Net Income Exploration & Production Natural Gas Trading Net income Sales development Period Volumes Prices/Currencies Portfolio Q1 14 vs. Q1 13 (7%) (4%) 3% BASF Q Analyst Conference Call May 2,

23 Page 23 [Chart 9: Oil & Gas Lower sales and earnings, net income increased] Sales in Oil & Gas decreased considerably. This was due to lower sales in Natural Gas Trading as a result of lower volumes and prices. Sales in Exploration & Production were stable despite a decrease in the average Brent crude oil price of 6 euros to 79 euros per barrel. EBIT before special items declined significantly, mainly driven by lower earnings in Natural Gas Trading. In addition, there was no contribution from our Exploration & Production activities in Libya in Q Net income, however, rose considerably to 442 million euros due to a disposal gain of around 130 million euros from the sale of selected E&P assets on the UK Continental Shelf which are not operated by Wintershall to MOL. Sales in Exploration & Production were stable despite a lower oil price. Different to prior year there was no offshore lifting in Libya this quarter. However, we realized higher sales in Norway. The average price for Brent crude oil decreased by 6 euros to 79 euros per barrel. EBIT before special items came in slightly lower. The missing contribution from Libya and the lower oil price could not be compensated by our activities in Norway. Sales in Natural Gas Trading were significantly down. The mild temperatures in Europe led to a considerable decrease in trading volumes as well as to lower prices. The deconsolidation of our GASCADE transport business, which is reported at-equity since the beginning of this year, further impacted sales negatively. EBIT before special items dropped substantially.

24 Page 24 Review of Other Million Q1 14 Q1 13 Sales 1,077 1,065 EBIT before special items (203) (182) thereof Corporate research Group corporate costs Currency results, hedges and other valuation effects Styrenics, fertilizers, other businesses (102) (49) (95) (98) (56) Special items (8) (28) EBIT (211) (210) BASF Q Analyst Conference Call May 2,

25 Page 25 [Chart 10: Review of Other ] Sales in Other increased slightly to 1.1 billion euros mainly due to higher volumes in raw material trading. EBIT before special items declined by 21 million euros to minus 203 million euros. Negative currency effects as well as valuation effects for our long-term incentive program were partly compensated by overall lower expenses. While the prior-year quarter benefitted from the reversal of a provision, we incurred charges in Q for recognized provisions due to the positive share price development. There were only minor special items; EBIT in Other was stable.

26 Page 26 Strong operating cash flow Million Q1 14 Q1 13 Cash provided by operating activities 1,704 2,041 thereof Changes in net working capital Miscellaneous items (1,052) 578 (713) 615 Cash used in investing activities (770) (1,637) thereof Payments related to tangible / intangible assets (936) (831) Acquisitions / divestitures 263 (514) Cash provided by financing activities thereof Changes in financial liabilities Dividends 413 (24) 429 (66) BASF Q Analyst Conference Call May 2,

27 Page 27 [Chart 11: Strong operating cash flow] Cash provided by operating activities was 1.7 billion euros in the first quarter of this year, a decrease of about 300 million euros versus Q The rise in net working capital led to an outflow of more than 1 billion euros compared to 0.7 billion euros in Q This was mainly related to an increase in inventories and other receivables. At 770 million euros, cash used in investing activities was significantly less than a year ago. Capex increased to 936 million euros compared to 831 million euros in the previous year s quarter. We realized a cash inflow from the divestiture of selected E & P assets to MOL. In Q the acquisition of Pronova BioPharma had caused a cash outflow of 526 million euros. Free cash flow came in at 0.8 billion euros compared to 1.2 billion euros in Q

28 Page 28 Balance sheet remains strong Balance sheet March 31, 2014 vs. December 31, 2013 (billion ) Long-term assets Disposal group Inventories Accounts receivable Other assets Liquid funds Dec Mar Dec Mar Stockholders equity Financial debt Disposal group Other liabilities Highlights March 31, 2014 Short-term assets increased by 3.2 billion Inventories rose slightly by 0.3 billion Accounts receivables grew seasonally by 1.4 billion Liquid funds up by 1.3 billion Financial indebtedness rose by 0.6 billion to 15.1 billion Net debt reduced to 11.9 billion Equity ratio: 42% BASF Q Analyst Conference Call May 2,

29 Page 29 [Chart 12: Balance sheet remains strong ] And now to the balance sheet. Compared to the end of 2013 total assets grew by 3.6 billion euros to 67.9 billion euros, primarily driven by a rise in short-term assets. While inventories were largely stable, we experienced an increase in accounts receivables of 1.4 billion euros, driven by the seasonally strong business in Agricultural Solutions. Cash and cash equivalents increased by 1.3 billion to 3.1 billion euros. Total liabilities increased by almost 3 billion to 39.6 billion euros. This was mainly attributable to two factors: Liabilities in the disposal group natural gas trading increased by around 700 million euros to 2 billion euros due to a seasonal increase in accounts payable. Over the course of the quarter BASF issued three bonds to refinance expiring debt, increasing long-term debt by 1.6 billion euros. Our financial indebtedness rose from 14.4 billion euros to 15.1 billion euros. Net debt decreased by roughly 650 million euros to 11.9 billion euros. At 42 percent, our equity ratio remained at a healthy level.

30 Page 30 Outlook 2014 confirmed Outlook 2014 We aim to increase our sales volumes excluding the effects of acquisitions and divestitures. Nonetheless, sales will decline slightly compared with 2013 due to the divestiture of the gas trading and storage business planned for mid We expect a slight increase in EBIT before special items, especially as a result of considerably higher contributions from the Performance Products and Functional Materials & Solutions segments. We aim to earn a high premium on our cost of capital once again in Assumptions 2014 GDP: +2.8% Industrial production: +3.7% Chemical production: +4.4% US$ / Euro: 1.30 Oil price (US$ / bbl): 110 BASF Q Analyst Conference Call May 2,

31 Page 31 [Chart 13: Outlook 2014 confirmed] Let me now come to our outlook for Overall, we expect to perform well in a market environment that remains challenging. We keep our macroeconomic assumptions for the year unchanged. However, uncertainties have increased especially with respect to the further development of the situation in the Ukraine. We continue to expect global chemical production to grow by about 4.4 percent. Today we confirm our outlook 2014 for BASF Group, despite the fact that we are experiencing stronger than expected negative currency impacts resulting from the appreciation of the euro against almost all other currencies: We aim to increase our sales volumes excluding the effects of acquisitions and divestitures. Nonetheless, sales will decline slightly compared with 2013 due to the divestiture of the gas trading and storage business planned for mid Last year, the business to be divested generated sales of 11.7 billion euros for the full-year We expect a slight increase in EBIT before special items, especially as a result of considerably higher contributions from the Performance Products and Functional Materials & Solutions segments. We aim to earn a high premium on our cost of capital once again in Thank you for your attention. We are now happy to take your questions.