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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013, 8:30 a.m. (CEST), Mannheim
Analyst Conference Call Script
Hans-Ulrich Engel Manfredo Rübens The spoken word applies.
Solid 1st quarter of 2013 for BASF
First Quarter 2013Financial highlightsApril 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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 forward-looking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations.
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BASF with a solid start to 2013
Business performance Q1’13 Q1’12 vs. Q1’12 Sales €19.7 billion €18.8 billion +5% EBITDA €2.9 billion €3.3 billion (14%) EBIT before special items €2.2 billion €2.0 billion +10% EBIT €2.2 billion €2.6 billion (17%) Net income €1.4 billion €1.7 billion (15%) Reported EPS €1.57 €1.85 (15%) Adjusted EPS €1.67 €1.54 +8% Operating cash flow €2.0 billion €1.5 billion +33%
Sales developmentPeriod Volumes Prices Portfolio Currencies
Q1’13 vs. Q1’12 5% 1% 0% (1%)
3BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
Hans-Ulrich Engel Ladies and gentlemen, good morning and thank you for joining us.
[Chart 3: BASF with solid start to 2013] BASF started into the year with a solid first quarter despite a
rather moderate global economic development.
Please let me remind you that the basis of comparison with prior
year are the restated numbers we published end of March,
reflecting the IFRS and IAS changes as well as our new segment
structure.
In Q1, 2013 we increased sales by 5 percent to 19.7 billion euros.
This growth was mainly attributable to the excellent development
of our Agricultural Solutions segment and higher volumes in Oil &
Gas. Our chemical activities saw volumes and prices flat
reflecting the overall challenging market environment. In
particular, growth in China following Chinese New Year has come
in below expectations.
We were able to increase EBIT before special items by 10
percent to 2.2 billion euros.
Special items amounted to minus 45 million euros. In the prior
year we reported positive special items of 588 million euros due to
a disposal gain of 645 million euros for the sale of our fertilizer
activities. As a consequence, EBIT for Q1 of this year came in 17
percent lower.
EBITDA declined versus prior year quarter by 450 million euros to
2.9 billion. Last year’s EBITDA included the above mentioned
disposal gain.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
For the same reason, net income came in 15 percent lower at
1.4 billion euros.
Net of this effect adjusted earnings per share increased to 1.67
euros in Q1 2013 after 1.54 euros in Q1 2012.
At 2.0 billion euros, operating cash flow was strong and
surpassed the level of the previous year’s first quarter by about
500 million euros.
Free cash flow reached 1.2 billion euros and was up by 400
million euros.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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Integration activities on track
Key work packages (e.g. IT, finance, human resources) proceed smoothly
Integration expected to be completed by end of 2013
Integration of Becker Underwood and Pronova BioPharma
Water and oilfield & mining activities merged into new global business unit on April 1, 2013
Leather & textile chemicals: concentration of R&D activities at Shanghai Innovation Campus
Plastic additives and pigments businesses: downsizing of Swiss operations and R&D activities
Total net headcount reduction of about 500 positions by the end of 2015
Restructuring measures to strengthen competitiveness of Performance Products segment
BASF Q1 2013 Analyst Conference April 26, 2013
Portfolio optimization
Joint $500 million investment to build integrated aroma ingredient complex
110 new jobs will be created in Kuantan, Malaysia
Investment to meet globally growing demand in flavor and fragrance industry, especially in Asia
Expansion of the existing joint venture with PETRONAS in Kuantan, Malaysia
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 4: Portfolio optimization] Since our last reporting day, we continued to further optimize our
portfolio:
We are on track with the integration of our two recent acquisitions
Becker Underwood and Pronova BioPharma. Key work packages
such as IT, finance and human resources are proceeding
smoothly and we will conclude the integrations latest by the end of
2013.
Furthermore, we plan to build together with PETRONAS an
integrated aroma ingredients complex in Kuantan, Malaysia as
announced yesterday. The investment will strengthen our
positioning in the citral value chain. The joint site expansion will be
in the magnitude of 500 million US dollars and will create 110 new
jobs. With this investment, we will meet the globally growing
demand in the flavor and fragrance industry, especially in Asia.
In addition, we are implementing measures to strengthen the
competitiveness of our Performance Products segment.
Increased standardization and the entry of new competitors have
changed the business environment for our Plastic Additives and
Pigments as well as for our Water, Leather and Textile Chemicals
activities. To adopt to these changed market conditions, BASF
aims to streamline processes, invest in new technologies and
adjust its portfolio and its organizational setup. The measures will
lead in total to a reduction of about 500 positions worldwide by the
end of 2015. Further measures are being analyzed.
Let me provide you with some more details: BASF aims to
improve the efficiency and profitability of the Plastic Additives and
Pigments & Resins business units in Europe. As announced on
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
Tuesday of this week, the restructuring will encompass several
Swiss production sites and the Research Center in Basel. It will
lead to a reduction of up to 350 positions in the Basel area by the
end of 2015.
As already announced in early April, we merged the Water and
the Oilfield & Mining activities into a new global business unit. We
also intend to divest the industrial water management business.
In the Leather & Textile Chemicals business, BASF will increase
its focus on the growing Asia Pacific region and high value adding
applications. The global R&D activities for leather and textile
chemicals will be concentrated in Shanghai, China.
These steps will strengthen the competitiveness and the
profitability of the Performance Products segment.
Let me now discuss the Q1 2013 business development by
segment. The restated numbers for the first quarter 2012 serve as
a basis for comparison.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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ChemicalsEarnings increase due to higher margins
Intermediates700
+4%
Monomers 1,680
+4%
Petrochemicals2,016
(9%)
€4,396-3%
556 601 569445
650
0
200
400
600
800
Q1 Q2 Q3 Q4 Q1
EBIT before special items (million €)
20132012
Q1’13 segment sales (million €) vs. Q1’12
Sales development Period Volumes Prices Portfolio Currencies
Q1’13 vs. Q1’12 (2%) 1% (1%) (1%)
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 5: Earnings increase due to higher margins]
In Chemicals, sales in the first quarter 2013 decreased mainly due
to lower volumes. Prices, in turn, increased slightly. Higher earnings
especially in Petrochemicals and Monomers led to a considerable
increase in EBIT before special items.
In Petrochemicals, sales declined, as volumes were lower due to
the planned shutdowns as well as maintenance work. Sales
prices increased slightly driven by ongoing high raw material
costs. Cracker margins improved in Europe and North America. In
Asia, they were unsatisfactory due to low demand. EBIT before
special items was up significantly.
Please note that there will be a scheduled turnaround of our
cracker in Antwerp in May/June 2013, which will impact EBIT
before special items by a double digit million euro amount in the
second quarter.
Sales in Monomers increased, due to higher volumes and prices
in the isocyanates business in all regions. EBIT before special
items was up significantly. Higher isocyanates and ammonia
margins compensated for declines in caprolactam and polyamide
margins.
Sales in Intermediates increased, benefitting from higher
demand. However, unfavorable supply/demand balances plus
high costs for several key raw materials led to margin pressure in
all regions. Nevertheless, EBIT before special items rose slightly
due to higher volumes.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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Performance ProductsStable volumes but lower earnings
PerformanceChemicals
891
0%
Care Chemicals1,275
0%
€3,880-2%
Paper Chemicals362
(8%)
Q1’13 segment sales (million €) vs. Q1’12
Nutrition & Health493
+4% Dispersions& Pigments
859
(7%)
452 442
344
183
379
0
200
400
600
Q1 Q2 Q3 Q4 Q1
EBIT before special items (million €)
20132012
Sales development Period Volumes Prices Portfolio Currencies
Q1’13 vs. Q1’12 0% (2%) 1% (1%)
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 6: Stable volumes but lower earnings]
Sales in Performance Products were slightly down. Volumes were
stable but prices softened and we faced negative currency effects.
The Pronova BioPharma business which we acquired in February
made a positive contribution to sales and earnings. EBIT before
special items declined due to weaker margins and increased R&D
expenses, but more than doubled compared to Q4, 2012.
In Dispersions & Pigments, sales came in below prior year
quarter. The European dispersions business suffered from the
cold weather period. We experienced softer demand for pigments
from key customers in all regions. Resins faced lower demand in
North America and price pressure in Asia. Higher raw material
costs could not be passed on to our customers resulting in a
significant drop in EBIT before special items.
In Care Chemicals, sales were stable. Volumes increased thanks
to higher demand for hygiene and personal care product
ingredients. Prices decreased primarily due to the pass-through of
lower raw material costs especially for lauric oils. Higher margins
for personal care ingredients lifted EBIT before special items.
In Nutrition & Health, sales increased because of the
consolidation of Pronova. Volumes and prices were affected by
weaker demand in animal and human nutrition. Pressure on
vitamin prices continued. EBIT before special items came in
significantly lower than a year ago. Special items of minus 10
million euros mainly resulted from the depreciation of the
inventory step-up for the acquired Pronova business.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
In Paper Chemicals, lower demand for paper products led to a
significant sales decline in all regions. We experienced intense
competition, particularly in Asia and North America. EBIT before
special items decreased considerably due to lower volumes.
Sales in Performance Chemicals were stable. A slight increase
in volumes and prices was offset by negative currency effects.
Fuel and lubricants, plastic additives and water solutions
experienced a drop in sales. Oilfield and mining solutions
contributed positively to sales. EBIT before special items
decreased compared to the previous year’s first quarter.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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Functional Materials & SolutionsIncreased demand in Performance Materials
Catalysts1,453
(1%)
ConstructionChemicals
458
(9%)
Coatings698
(2%)
€4,181+0%
Q1’13 segment sales (million €) vs. Q1’12
257216 231 228 239
0
50
100
150
200
250
300
Q1 Q2 Q3 Q4 Q1
EBIT before special items (million €)
20132012
Sales development Period Volumes Prices Portfolio Currencies
Q1’13 vs. Q1’12 2% 0% 0% (2%)
BASF Q1 2013 Analyst Conference April 26, 2013
Performance Materials 1,572
+6%
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 7: Increased demand in Performance Materials]
In Functional Materials & Solutions, sales were stable. Overall
volumes were up especially in the newly created Performance
Materials division. EBIT before special items declined mainly due to
lower earnings in our Catalysts division.
Sales in Catalysts were slightly down due to lower rare earth
prices which were passed through. While demand grew for
refinery and mobile emission catalysts, our business with
chemical catalysts developed weaker than in the prior year.
Demand growth for mobile emission catalysts in Asia and North
America overcompensated lower demand in Europe. However,
lower chemical catalyst sales as well as start-up and R&D costs
incurred by the battery materials business led to a decline of EBIT
before special items.
Sales in Construction Chemicals declined in this seasonally
weak quarter. Demand in Europe and North America decreased
significantly mainly due to the long cold weather period. We saw
continued structural weakness in Southern European markets.
Margins improved supported by selective price increases and
lower raw material costs. Thanks to our global restructuring
program, EBIT before special items came in slightly higher.
In Coatings, sales were slightly below the prior-year quarter.
OEM coatings demand grew strongly in the Americas and Asia. In
Europe it was stable due to our strong business relations with
premium car manufacturers. Demand for refinish coatings was up
in Asia and South America.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
Sales for decorative paints were impacted by weaker demand and
negative currency effects in South America as well as the
divestiture of the Relius business in Europe. EBIT before special
items matched the level of the previous year.
Sales in the new Performance Materials division were up on
higher volumes for polyurethane systems, engineering plastics
and polyurethane solutions. Our business with premium
automotive manufacturers in Europe continued to perform well.
Volumes for Styropor and Neopor foams which are mainly sold to
the construction industry were weak due to the long cold weather
period in Europe. Nevertheless, we were able to slightly increase
EBIT before special items.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
8
Agricultural SolutionsExcellent start into the year, record sales and earnings
Q1’13 segment sales (million €) vs. Q1’12 EBIT before special items (million €)
20132012
0
200
400
Q1 Q1
20132012
0
500
1.000
1.500
Q1 Q1
1,556 4984191,327
Sales development Period Volumes Prices Portfolio Currencies
Q1’13 vs. Q1’12 13% 1% 4% (1%)
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 8: Agricultural Solutions – Excellent start into the year]
Agricultural Solutions delivered an excellent quarter. Sales rose
strongly, driven by high demand for our products in the Northern
Hemisphere. Slightly higher prices were offset by currency effects.
The integration of the former Becker Underwood business led to a
positive portfolio effect. With an EBIT before special items of almost
500 million euros, Q1 2013 marked an all-time record. Special items
of minus six million euros were mainly related to the depreciation of
the inventory step-up for the former Becker Underwood business.
In Europe, we realized considerable sales growth due to high
demand for herbicides and fungicides. We saw strong sales in
France, Germany and Eastern Europe despite the delayed spring
season.
North America delivered an excellent performance, thanks to
strong herbicide demand and excellent sales of our Xemium
fungicide. Sales rose by more than thirty percent, excluding the
contribution of Becker Underwood.
Sales in Asia were up slightly. The strong growth of our fungicide
and herbicide business in India and China was largely offset by
negative currency effects.
South American sales decreased compared to the strong
previous year quarter, as some product lines saw high
competitive pressure towards the end of the season.
Following the very positive first quarter development we are
confident to once again increase sales and earnings in 2013. Our
optimism is backed by our innovative product portfolio, sound
demand growth and the performance of the acquired Becker
Underwood business.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
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Oil & GasSales growth due to higher production
Exploration &Production
789
+14%
Natural GasTrading 3,871
+21% €4,660+20%
Q1’13 segment sales (million €) vs. Q1’12 EBIT bSI/Net income (million €)
201415
162397
0
200
400
600
800
Q1/2012 Net Income Q1/2013 Net Income
Natural Gas Trading
Exploration & Production
Net income
640
Sales development Period Volumes Prices/Currencies Portfolio
Q1’13 vs. Q1’12 19% 1% 0%
BASF Q1 2013 Analyst Conference April 26, 2013
439 468
630
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 9: Oil & Gas – Increased oil and gas production]
Sales in Oil & Gas grew strongly mainly due to higher volumes in
Exploration & Production as well as in Natural Gas Trading. EBIT
before special items came in slightly lower at 630 million euros.
Please note that due to changes in IFRS 10 & 11 sales from our
onshore production in Libya are no longer reported in the top line.
Instead, the equity income is considered in the EBIT line since
January 1, 2013.
The significant sales increase in Exploration & Production was
driven by higher volumes due to the start-up of additional wells of
our Achimgaz joint venture late in 2012 and by higher offshore
production in Libya. The higher volumes more than compensated
for a lower oil price.
Overall, EBIT before special items in Exploration & Production
increased, as the additional more than offset the negative impact
from the lower oil price.
Sales in Natural Gas Trading grew strongly, mainly caused by
significantly higher volumes. This was driven by an increase in
demand due to the long cold weather period as well as higher
spot market sales in Europe. Margins, however, decreased due to
stronger competition. Earnings came in below the very high level
of the prior year’s first quarter.
Net income in Oil & Gas decreased slightly to 397 million euros.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
10
Review of “Other”
Million € Q1’13 Q1’12Sales 1,065 976EBIT before special items (182) (314)thereof Corporate research
Group corporate costs Currency results, hedges and other valuation effectsStyrenics, fertilizers,other businesses
(97)(56)
56
59
(97)(58)
(206)
145
Special items (28) 578
EBIT (210) 264
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 10: Review of ‘Other’]
Sales in ‘Other’ increased to 1.1 billion euros mainly due to higher
sales of the Ellba joint venture.
EBIT before special items came in at minus 182 million euros. The
improvement versus a year ago was also triggered by a large swing
in provisions for our long-term incentive program.
Special items of minus 28 million euros were mainly related to the
relocation of our plant biotechnology activities to the US and
subsequent organizational measures. In the prior year first quarter,
the 645 million euro disposal gain from the sale of our fertilizer
activities led to positive special items of 578 million euros.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
11
Strong operating cash flow of €2 billionMillion € Q1’13 Q1’12Cash provided by operating activities 2,041 1,539thereof Changes in net working capital
Miscellaneous items(713)
615(310)(560)
Cash provided by investing activities (1,637) 176thereof Payments related to tangible / intangible assets (831) (697)
Acquisitions / divestitures (514) 683Cash used in financing activities 363 (44)thereof Changes in financial liabilities
Dividends 429(66)
33(72)
Net working capital increased by €713 million mainly as a result of higher trade accounts receivable Cash outflows in acquisitions/divestitures of -€514 million primarily as a result of the
Pronova BioPharma acquisition Free cash flow amounted to €1.2 billion, an increase of €368 million vs. Q1 2012
First quarter 2013
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 11: Strong operating cash flow of €2.0 billion]
Cash provided by operating activities was 2.0 billion euros in the first
quarter of this year, an increase of about 500 million euros versus
Q1 2012.
The rise in net working capital led to an outflow of more than 700
million euros, mainly related to an increase of trade accounts
receivables. However, this was mostly offset by an increase of
liabilities in the magnitude of 600 million euros related to the
disposal group for the assets to be swapped with Gazprom. This is
reported under miscellaneous items.
Cash used in investing activities amounted to minus 1.6 billion
euros. This included cash outflows for acquisitions of 514 million
euros, primarily for Pronova BioPharma. In Q1 2012, the divestiture
of our fertilizer activities had led to a cash inflow of 680 million
euros. Capex amounted to 831 million euros compared to 700
million euros in the previous year’s quarter.
Free cash flow came in at 1.2 billion euros compared to 0.8 billion
euros in Q1 2012.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
Balance sheet remains strongBalance sheet March 31, 2013 vs. Dec. 31, 2012 (billion €)
Liquid funds
Accountsreceivable
Long-termassets
27.7
13.3
23.2
35.3
9.5
1.6
Otherliabilities
Financialdebt
Stockholders’equity
Dec 312012
Dec 312012
March 312013
March 312013
62.7
25.6
12.8
22.3
Inventories
Other assets
9.6
3.4
62.7
Highlights March 31, 2013 Long term assets increased
mainly due to consolidation offormer Pronova BioPharmabusiness
Short term assets up due toincrease in accounts receivable
Increase in financial debt due toissuance of long-term bonds
Net debt: €10.9 billion
Equity ratio: 41%
36.5
11.1
2.4
9.9
3.7
66.7
3.1
66.7
Disposal group
2.5
Disposalgroup
12
3.3 2.0
BASF Q1 2013 Analyst Conference April 26, 2013
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 12: “Balance sheet remains strong”]
Let’s now have a look at our balance sheet.
Total assets compared to year-end 2012 rose by 4.0 billion euros
to 66.7 billion euros.
The Pronova BioPharma acquisition resulted in a net increase in
long-term assets by about 550 million euros. This was due to an
increase in both intangible assets as well as in property, plant and
equipment. Intangible assets contain goodwill of 158 million euros
related to Pronova BioPharma.
BASF’s inventories remained fairly constant. Accounts receivable,
however, were up by 1.5 billion euros reflecting in particular the
strong sales in Agricultural Solutions.
Our financial indebtedness increased from 12.8 billion euros at
year-end 2012 to 13.3 billion euros by the end of the first quarter
2013. Given favorable market conditions, we issued long-term
bonds with a total amount of 1.2 billion euros.
Net debt amounted to 10.9 billion euros, a decrease of roughly
300 million euros versus the end of 2012.
At 41 percent, our equity ratio remained on a strong level.
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
13
Excluding the effects of acquisitions and divestitures, we strive to increase our sales volumes in 2013
We aim to exceed the 2012 restated levels in sales and EBIT before special items
The expected increase in demand, together with our measures to improve operational excellence and raise efficiency, will contribute to this
We aim to earn a high premium on cost of capital once again in 2013
Outlook 2013
GDP: +2.4%
Industrial production: +3.4%
Chemical production: +3.6%
US$ / Euro: 1.30
Oil price (US$ / bbl): 110
Assumptions 2013
BASF Q1 2013 Analyst Conference April 26, 2013
Outlook 2013 confirmed
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BASF 1st Quarter 2013 Analyst Conference Call April 26, 2013
[Chart 13: Outlook 2013 confirmed]
Let me now come to our outlook for 2013.
We keep our macroeconomic assumptions for the year unchanged.
However, uncertainties have increased during Q1 mainly because
growth in China was below expectations and new concerns in the
Euro area came up. On the positive side, US growth has been more
robust than expected and sentiment in Japan is currently improving.
We expect global chemical production to grow by about 3.6 percent.
However, in Q1 growth still has been below.
Today we confirm our outlook 2013 for BASF Group, based on the
restated figures we provided in March of this year:
We strive to increase volumes in 2013, excluding the effects of
acquisitions and divestitures.
We want to exceed the 2012 levels in sales and EBIT before
special items.
The expected increase in demand, together with our measures to
improve operational excellence and raise efficiency, will
contribute to this.
And last but not least, we aim to earn a high premium on our cost
of capital once again in 2013.
Thank you for your attention. We are now happy to take your
questions.