News Release BASF Media Telephone Conference 2nd Quarter 2017, Ludwigshafen Considerable earnings growth in second quarter, 2017 outlook raised July 27, 2017 Juliana Ernst Phone: +49 621 60-99223 juliana.ernst@basf.com 2nd quarter 2017: Sales of 16.3 billion (up 12%) EBIT before special items of 2.3 billion (up 32%) Earnings per share of 1.63 (up 37%), adjusted earnings per share of 1.78 (up 37%) Cash provided by operating activities of 3.0 billion (up 29%), free cash flow of 2.1 billion (up 59%) Outlook for 2017: Considerable sales growth still forecast EBIT before special items now expected to considerably exceed previous year 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 67056 Ludwigshafen Phone: +49 621 60-0 http://www.basf.com Media Relations Phone: +49 621 60-20916 Fax: +49 621 60-92693 presse.kontakt@basf.com
Page 2 Ladies and Gentlemen, Welcome to our telephone conference. Let s first take a look at the development of our economic environment. In the first half of 2017, global gross domestic product rose by around 2.7% compared with the same period of the previous year; global industrial production grew at a similarly fast pace. Especially in Europe, China and Japan, growth was higher than we had anticipated at the beginning of the year. The automotive industry demonstrated solid growth in the first half. Demand in the construction industry also developed positively in Europe and Asia. The price of oil remained under pressure due to high inventories and additional production of shale oil in the United States. The uncertainties surrounding the upcoming Brexit and the new direction of U.S. economic and trade policy have so far not had any negative effects on economic indicators. Now, let s move on to the business development of the BASF Group in the second quarter and first half of 2017. The positive demand trend continued in the second quarter of 2017. We increased our year-onyear sales volumes for the fifth consecutive quarter. Compared with the same quarter of last year, we considerably improved our sales and earnings. Sales and earnings of the BASF Group BASF Group sales rose by 12% to 16.3 billion compared with the second quarter of 2016. This was largely attributable to higher prices and volumes. Amid higher raw material costs, we were able to raise our sales prices by 7%; this was mainly driven by higher prices in the Chemicals segment. We increased sales volumes by 3%. Currency effects had a positive impact on sales and, like portfolio effects, accounted for a 1% increase. Income from operations (EBIT) before special items in the second quarter rose by 32% year-on-year to 2.3 billion. The sharp rise was primarily a result of the substantially improved earnings in the
Page 3 Chemicals and Oil & Gas segments. This increase was dampened by lower earnings in the Performance Products, Functional Materials & Solutions and Agricultural Solutions segments. The earnings contained an insurance payment of 100 million for the accident at the North Harbor of the Ludwigshafen site in October 2016, an amount which was predominantly booked in the Chemicals segment. Compared to the first half of 2016, BASF Group sales rose by 15% to 33.1 billion. This development was largely driven by significantly higher sales prices, especially in the Chemicals segment, as well as by volumes increases in all segments. Sales were also supported by currency effects and by the Chemetall business acquired from Albemarle in December 2016. We raised EBIT before special items in the first half of 2017 by 30% to 4.7 billion, primarily as a result of the substantially improved contribution from the Chemicals segment. EBIT before special items was also considerably up in the Oil & Gas segment. In the Functional Materials & Solutions segment, EBIT before special items decreased slightly, while the Performance Products and Agricultural Solutions segments saw considerable declines. Continued implementation of the We create chemistry strategy In recent months we have continued to implement our We create chemistry strategy. One of the key drivers of this is leveraging innovations and technological leadership to help our customers become even more successful. This is why we are investing in the construction of an Automotive Application Center at our Innovation Campus Asia Pacific in Shanghai, China. These facilities are designed to enable customeroriented R&D activities and perform an accurate simulation of various vehicle paint shops. The new building will also contain process catalyst research and development laboratories. Furthermore, in mid-july, the Israeli plant genetics and technology company Kaiima Bio-Agritech and BASF announced their collaboration for the discovery of novel herbicide-resistance traits.
Page 4 In the battery materials business, we signed a Memorandum of Understanding with Norilsk Nickel. The company will supply the raw materials, in particular cobalt, for the production of battery materials for lithium-ion batteries. We intend to initially invest up to 400 million in Europe in order to build industry-leading production plants for cathode materials. And, finally, we recently announced our plans to build a plant to produce ibuprofen in Ludwigshafen. You all have surely heard of ibuprofen, apharmaceutical ingredient that is used for treating pain, fever and inflammation. This will be the first world-scale production plant for ibuprofen in Europe and is scheduled to start up in 2021. As there are already supply gaps in the market, we are also expanding production capacity at our site in Bishop, Texas. We focus on customer-centric solutions for nearly all industrial sectors. New technologies and innovations are the driving forces that enable us to create value for BASF and our customers. Now, let s move on to our full-year outlook. Outlook for the year 2017 Because of the positive macroeconomic development in the first half of the year, we now take a somewhat more positive overall view of the underlying conditions for 2017. We now expect slightly higher growth in gross domestic product and industrial production. However, we foresee more pressure on the price of oil compared with our forecast at the beginning of the year. In addition, we now anticipate a weaker U.S. dollar. Our expectations for the global economic environment in 2017 are as follows (previous forecast in parentheses): Growth in gross domestic product: 2.5% (2.3%) Growth in industrial production: 2.5% (2.3%) Growth in chemical production: 3.4% (unchanged) Average euro/dollar exchange rate of $1.10 per euro ($1.05 per euro)
Page 5 Average Brent blend oil price for the year of $50 per barrel ($55 per barrel) As announced in April, we have reviewed our annual forecast based on the results of the first half of 2017. Following a 15% increase in sales and a 30% rise in EBIT before special items in the first six months of the year, we continue to expect a considerable increase in sales for the full year by at least 6%. For EBIT before special items, we now expect a considerable increase of at least 11% for 2017. For the second half of 2017, we expect a slight increase in EBIT before special items in comparison to the same period of 2016. This forecast takes into account the good development in the Chemicals segment in the first half of 2017, which will likely lose momentum, as well as the weaker than originally expected oil price and U.S. dollar. These factors have a negative impact on BASF s earnings. And now Hans-Ulrich Engel will give some details about the segments and financial data. [Presentation by Hans-Ulrich Engel] Development of the segments Sales in the Chemicals segment rose by 25% compared with the second quarter of 2016 to reach 4.0 billion. This was largely the result of significantly higher prices, especially in the Monomers division. Currency effects had a positive influence on sales, whereas volumes declined slightly. At 1.1 billion, EBIT before special items improved by 662 million compared with the second quarter of 2016, primarily through higher margins in the Monomers and Petrochemicals divisions. The negative impact on earnings resulting from the accident at the Ludwigshafen site s North Harbor in October 2016 was compensated for by an insurance payment. Fixed costs were slightly reduced overall. Sales in the first half of the year increased by 30% to 8.2 billion. We increased EBIT before special items by 1.2 billion to 2.1 billion, mainly driven by higher margins and volumes. This week we started
Page 6 commissioning the propylene pipeline at our Ludwigshafen site. We have thus achieved a key milestone in the repair work at the North Harbor, which we intend to complete by the end of the third quarter. In the Performance Products segment, sales of 4.1 billion exceeded the previous second quarter s level by 4% due to price increases as well as volumes growth in all divisions. Currency effects had a positive impact on sales; portfolio effects slowed sales development. Ongoing margin pressure, mostly from rising raw material prices and challenging market conditions in individual business areas, resulted in EBIT before special items declining by 107 million to 405 million. In the first half of the year, sales of 8.4 billion were 6% higher than in the prior-year period. EBIT before special items decreased by 147 million to 920 million. Second-quarter sales in the Functional Materials & Solutions segment grew by 12% to 5.3 billion. This development was largely attributable to an increase in sales volumes, the Chemetall business acquired from Albemarle in December 2016, and higher prices. Currency effects additionally supported sales. We were able to boost our sales volumes to the automotive industry. EBIT before special items fell by 113 million to 422 million. The earnings increase in the Catalysts division and the contribution from the Chemetall business could only partly compensate for overall lower margins and higher fixed costs. Sales in the first half of the year rose by 15% to 10.5 billion. Compared with the same period of the previous year, EBIT before special items declined by 38 million and amounted to 953 million. In the Agricultural Solutions segment, we were able to increase sales by 5% to 1.5 billion as compared with the previous second quarter. This was largely the result of higher volumes, especially in North America and eastern Europe, in addition to positive currency effects. Prices were slightly down versus the second quarter of 2016. Compared with the same quarter of 2016, EBIT before special items fell by 48 million to 272 million. Among other things, this was mainly the result of lower average margins brought about by a different
Page 7 product mix. In the first half of the year, we were able to increase our sales by 4% year-on-year to 3.4 billion. EBIT before special items decreased by 106 million to 805 million. Compared with the second quarter of 2016, the Oil & Gas segment saw considerable sales growth of 32% to 814 million, driven by increased volumes and prices. The rise in volumes came mainly from higher sales volumes of gas in addition to an offshore lifting in Libya in June. The price of a barrel of Brent blend crude oil in the second quarter of 2017 was $50 on average (second quarter of 2016: $46 per barrel). Gas prices on European spot markets also rose compared with the previous second quarter. Our production volumes matched prior second-quarter levels. We improved EBIT before special items by 89 million to 183 million. This was largely attributable to the higher prices and sales volumes. Net income grew significantly. In the first half of the year, sales in the segment grew by 34% year-on-year to 1.6 billion. EBIT before special items rose by 193 million to 353 million. At 476 million, sales in Other were 2% below the previous secondquarter level, as a result of lower raw materials trading. EBIT before special items rose by 61 million to minus 151 million, primarily due to valuation effects for our long-term incentive program. In the first half of the year, sales of 1.1 billion in Other were 13% higher than in the same period of the previous year. EBIT before special items improved by 30 million to minus 401 million. You can read about our business development in the regions on page 17 of the half-year financial report published today. BASF Group earnings development Special items in EBIT amounted to minus 70 million in the second quarter of 2017, compared with plus 11 million in the same quarter of the previous year. These largely comprised expenses from restructuring measures and divestitures. EBIT increased by 463 million to 2.2 billion compared with the second quarter of 2016. EBITDA grew by 443 million to 3.2 billion.
Page 8 At minus 174 million, the financial result was on the level of the previous second quarter. Income before taxes and minority interests was up by 466 million to 2 billion. At 22.1%, the tax rate was below that of the previous second quarter (26.9%) due in part to currencyrelated deferred tax income in Norway. At 1.5 billion, net income exceeded the previous second-quarter level by 404 million. Earnings per share were 1.63 in the second quarter of 2017, compared with 1.19 in the same quarter of the previous year. Adjusted for special items and amortization of intangible assets, earnings per share amounted to 1.78 (same period of 2016: 1.30). Development of cash flow Cash provided by operating activities improved from 2.3 billion in the second quarter of 2016 to 3.0 billion in the second quarter of 2017. Free cash flow amounted to 2.1 billion, compared with 1.3 billion in the same quarter of the previous year. Cash provided by operating activities was 3.8 billion in the first half of 2017, 463 million above the level of the previous first half. This improvement was largely the result of higher net income. In the first half of 2017, cash used in investing activities amounted to 2.4 billion; in the same period of 2016, 2.0 billion had been used in investing activities. One factor here was an increase in tied-down cash resulting from the steeper rise in financing-related receivables. Moreover, lower payments were received for the disposal of property, plant and equipment and intangible assets. By contrast, 1.6 billion was paid for property, plant and equipment and intangible assets, representing a decrease of 337 million compared with the previous first half. In the first half of 2017, cash used in financing activities amounted to minus 886 million, compared with minus 1.8 billion used in the first half of 2016. Increased cash inflows from financial indebtedness were largely responsible for the improvement.
Page 9 Free cash flow amounted to 2.2 billion, compared with 1.4 billion in the same period of the previous year. Both the higher level of cash provided by operating activities and the lower level of payments made for property, plant and equipment and intangible assets contributed to this increase. Net debt rose by 1.2 billion compared with December 31, 2016 and amounted to 15.6 billion. The equity ratio at the end of the quarter was 43%. Ladies and gentlemen, Kurt Bock and I now look forward to taking your questions.