News Release. BASF sales and earnings grow considerably in third quarter of Fall 2017 conference call, Ludwigshafen.

Transcription

1 News Release Fall 2017 conference call, Ludwigshafen BASF sales and earnings grow considerably in third quarter of 2017 October 24, 2017 P345e/17 Jens Fey Phone: rd Quarter 2017: Sales of 15.3 billion (up 9%) EBIT before special items of 1.8 billion (up 16%) Earnings per share of 1.45 (up 49%), adjusted earnings per share of 1.40 (up 27%) Cash provided by operating activities of 3.8 billion (up 52%), free cash flow of 2.8 billion Outlook for 2017: BASF continues to expect considerable growth in sales, EBIT before special items and EBIT Presentations by Dr. Kurt Bock, Chairman of the Board of Executive Directors, and Dr. Hans-Ulrich Engel, Chief Financial Officer of BASF SE The spoken word applies. BASF SE Ludwigshafen Phone: Media Relations Phone: Fax:

2 Page 2 Ladies and Gentlemen, Welcome to our conference call for Q3 2017, which proved to be a very exciting quarter for BASF. Over the past few weeks, we informed you of material acquisitions in the Performance Materials and Monomers divisions as well as in the Agricultural Solutions segment and we have high expectations of these for the future. These acquisitions go hand-in-hand with the ongoing implementation of our We create chemistry strategy. But let s start by taking a look at our encouraging figures for the third quarter. Overall, demand continued to develop positively in the third quarter, even compared with the strong prior-year quarter. We achieved robust volumes growth and there was no sign of a summer slowdown this year, either. Business development of BASF Group in the 3rd quarter of 2017 BASF Group sales rose by 9% compared with the prior-year quarter to 15.3 billion. This was primarily attributable to good volumes development as well as significantly higher sales prices in the Chemicals segment. Sales were also lifted by the Chemetall business, acquired in December All segments recorded slightly negative currency effects. The strong contribution from the Chemicals segment lifted income from operations (EBIT) before special items by 244 million to 1.8 billion. We recorded a slight decrease in EBIT before special items in the Oil & Gas segment and a considerable decline in the remaining segments and in Other, mainly as a result of higher raw materials prices. Third-quarter EBIT included net special items of 198 million, after minus 52 million in the prior-year quarter. This was mainly due to special income in the Performance Products segment from the transfer of BASF s leather chemicals business to the Stahl group. The figure for the third quarter of 2016 primarily related to expenses for

3 Page 3 restructuring measures. As a result, EBIT rose from 1.5 billion to 2 billion. Compared with the prior-year quarter, income from operations before depreciation, amortization and special items (EBITDA before special items) increased by 303 million to 2.8 billion and EBITDA by 570 million to 3 billion. Ladies and gentlemen, This encouraging performance aside, let s not forget the challenges we faced in the past quarter. We had to shut down production facilities at our sites in Texas (Freeport, Beaumont, Bishop and Pasadena) and Manatí, Puerto Rico, because of hurricanes Harvey, Maria and Irma. In addition, a significantly higher concentration of dichlorobenzene was detected in TDI produced in Ludwigshafen. This was due to a technical defect in production, the cause of which has been eliminated. BASF experts conducted tests as part of a risk assessment. Based on the findings and further assessments, the foams are not expected to pose any health risk. We continued to address the consequences of the accident on October 17, Another insurance payment of 60 million largely compensated for the economic damage in the third quarter. More importantly, we commemorated the event last week together with relatives, firefighters, employees, residents and representatives from local and state government, which reminded us all of what is really important. Continued implementation of the We create chemistry strategy Turning now to the two acquisition agreements we signed in September and October: With these, we are systematically driving forward our strategy of focusing BASF s portfolio on high-growth, innovative businesses. As you know, we concentrate on business fields that offer a specific customer benefit, that grow above market

4 Page 4 average and that make our portfolio even more economically robust. Both of the intended acquisitions perfectly meet these criteria. We signed an agreement with Solvay on the acquisition of Solvay s integrated polyamide business. We aim to close the transaction in the third quarter of 2018 after regulatory approvals have been obtained and the consent of a joint venture partner has been received. The purchase price is 1.6 billion. With around 2,400 employees, Solvay generated sales of 1.3 billion and EBITDA of approximately 200 million in 2016 in this business. BASF plans to integrate this business into the Performance Materials and Monomers divisions. The acquisition would complement BASF s engineering plastics portfolio and expand the company s position as a solutions provider for the transportation, construction and consumer goods industries as well as for other industrial applications. The aim is to further expand BASF s access to key growth markets in Asia and South America. It would also strengthen our Polyamide 6.6 value chain by increasing production capacities for polymers and ensuring backward integration in Adiponitrile, a core raw material. We also announced a much larger acquisition for the Agricultural Solutions segment. We have signed an agreement with Bayer on the acquisition of significant parts of its seed and non-selective herbicide businesses. The purchase price amounts to 5.9 billion. Bayer intends to divest these assets in connection with the planned acquisition of Monsanto. The acquisition includes Bayer s global glufosinate-ammonium non-selective herbicide business and its seed businesses for key row crops in select markets such as canola hybrids in North America, oilseed rape in Europe in particular, cotton in the Americas and Europe as well as soybean in the Americas. The transaction also includes Bayer s trait research and breeding capabilities for these crops and the LibertyLink trait and trademark. The businesses to be acquired from Bayer generated sales of approximately 1.3 billion and EBITDA of approximately 385 million in full-year This

5 Page 5 investment enables us to secure highly attractive assets in key row crops and markets. It strategically complements BASF s wellestablished and successful crop protection business as well as our biotechnology activities. The acquisition expands BASF s crop protection business, strengthens the herbicide portfolio and marks the company s entry into its own seed business in key agricultural markets. Our more than 1,800 new employees and enhanced portfolio will enable us to offer farmers a wider range of solutions and better meet their needs for high-quality seeds and chemical and biological crop protection. Outlook for full-year 2017 We have raised our expectations slightly for the global economic environment in 2017 (forecast from the Half-Year Financial Report 2017 in parentheses): Growth of gross domestic product: 2.8% (2.5%) Growth in industrial production: 3.1% (2.5%) Growth in chemical production: 3.4% (3.4%) Average euro/dollar exchange rate of $1.10 per euro ($1.10 per euro) Average Brent blend oil price for the year of $50 per barrel ($50 per barrel) Sales and earnings development in the Chemicals segment in the third quarter of 2017 exceeded our expectations. As a result, we now expect the BASF Group s EBIT before special items for the second half of 2017 to considerably exceed the level of the second half of We are maintaining our forecast for sales, EBIT before special items and EBIT for full-year 2017: We expect them to increase considerably. The same now also applies to EBIT after cost of capital, for which we previously anticipated a slight increase. Hans Engel will now look at the segments and our financials in more detail.

6 Page 6 [Presentation by Hans-Ulrich Engel] Development of the segments in the third quarter Sales in the Chemicals segment rose by 25% compared with the prior-year quarter to approximately 4 billion. This was largely due to higher prices in all divisions, especially in Monomers. We also significantly increased sales volumes. Currency effects slightly dampened sales in all divisions. EBIT before special items rose by over 600 million to 1.1 billion. This was mainly a result of higher margins, especially in the Monomers division. The negative impact on earnings in the third quarter of 2017 caused by the North Harbor accident at the Ludwigshafen site was compensated by insurance payments. Fixed costs rose slightly. In the Performance Products segment, sales increased by 2% compared with the third quarter of 2016 to just under 4 billion as a result of volumes growth in all divisions. Sales prices were on a level with the prior-year quarter. Price increases in the Dispersions & Pigments and Care Chemicals divisions were largely offset by significant price declines in the Nutrition & Health division. Currency effects, particularly from the U.S. dollar, and portfolio effects dampened sales growth. EBIT before special items declined by 88 million to 385 million. This was largely attributable to a further drop in vitamin prices as well as ongoing pressure on margins in a number of business areas due to higher raw materials prices. EBIT included special income in the Performance Chemicals division from the transfer of the leather chemicals business to Stahl Group. Sales in the Functional Materials & Solutions segment were up 7% on the third quarter of 2016, at around 5 billion. This was attributable to higher prices as well as the Chemetall business, which was acquired from Albemarle in December Sales volumes rose in every division except Catalysts, where we posted a considerable decline in precious metal trading volumes. Compared with the third quarter of 2016, we were able to further expand our sales volumes to the automotive and construction industries. Sales were slightly weighed down by currency effects. At 397 million, EBIT before

7 Page 7 special items was down 100 million on the prior-year quarter. Earnings were dampened primarily by lower margins resulting from higher raw materials prices. In the Agricultural Solutions segment, sales were down 6% on the third quarter of 2016, at 987 million. This was mainly the result of declining prices and volumes in Brazil. Negative currency effects put additional pressure on sales development. We were able to slightly increase overall volumes. EBIT before special items decreased by 76 million to 21 million. This was primarily due to the difficult market situation in Brazil. Earnings were also negatively impacted by the shutdowns of our production facilities in Beaumont, Texas, and Manatí, Puerto Rico, because of the hurricanes. Fixed costs were on a level with the prior-year quarter. Sales in the Oil & Gas segment rose by 20% year-on-year to 739 million on the back of higher prices and volumes. The average price of a barrel of Brent blend crude oil in the third quarter of 2017 was $52 (prior-year quarter: $46). Gas prices on the European spot markets also rose compared with the prior-year quarter. Volumes growth was mainly driven by higher gas sales volumes. Production volumes also increased slightly. EBIT before special items decreased by 14 million to 180 million. The prior-year figure included compensation payments from contract renegotiations. Net income nevertheless grew considerably, from 33 million to 139 million. This was mainly due to special income from the sale of shares in a natural gas field concession in Argentina. At 548 million, sales in Other were up 2% on the prior-year quarter, mostly due to higher sales from services. EBIT before special items declined by 92 million to minus 325 million, partly as a result of valuation effects for our long-term incentive program. Development of BASF Group earnings and cash flow Net income rose by 448 million to 1.3 billion. Earnings per share were 1.45 in the third quarter of 2017, compared with 0.97 in the prior-year period. Adjusted for special items and amortization of

8 Page 8 intangible assets, earnings per share amounted to 1.40 (prior-year quarter: 1.10). In the first three quarters of 2017, cash provided by operating activities rose by 1.8 billion year-on-year to 7.6 billion. This is mainly due to the rise in net income. Free cash flow rose from 2.9 billion to 5 billion in the first nine months of At 3.4 billion, cash used in investing activities was 637 million higher than in the first nine months of This was due in part to higher financing receivables. Moreover, fewer payments were received from the disposal of assets and divestitures. Payments made for property, plant and equipment and intangible assets decreased by 11% to 2.6 billion. Our financing activities led to a cash outflow of 1.5 billion, compared with an outflow of 1.9 billion in the prior-year period. Net debt declined by 2.1 billion as against December 31, 2016, to 12.3 billion. The BASF Group s equity ratio was approximately 44% as of September 30, Ladies and gentlemen, Kurt Bock and I now look forward to taking your questions.