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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.
2BASF Q3 2014 Analyst Conference Call October 24, 2014
Q3 2014: BASF with higher sales and earnings despite declining demand
In Agricultural Solutions we experienced a disappointing business
in this seasonally slow quarter. Excellent crop conditions led to good
harvests for key crops globally, strongly pushing down crop
commodity prices. Our sales decreased by 3 percent versus the
very strong prior-year quarter, mainly due to lower volumes in North
America and Europe. Nevertheless, we were able to increase prices
in all regions.
Business in Europe declined considerably. Lower prices for
oilseed rape led to reduced acreage and consequently demand
for oilseed herbicides declined.
In North America sales dropped significantly, as excellent crop
conditions and low commodity prices adversely impacted demand
especially for our yield-boosting Plant Health products.
Sales in South America were slightly up, supported by higher
volumes and prices. Our recent launches Kixor® and Xemium®
developed well, while there was tough competition in insecticides.
In Asia Pacific sales slightly increased, thanks to higher prices
across the region.
EBIT before special items in Q3 2014 fell considerably on lower
volumes, a less favorable product mix and higher fixed costs. For
the remainder of the year we see business momentum building up in
South America and we currently experience no significant negative
exchange rate impact on earnings. Market response to our
Xemium®-based fungicide solutions is positive. With our positioning
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
and strong product pipeline we are optimistic that we are able
to continue our success story in Agricultural Solutions.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
62
451*
194
265
0
100
200
300
400
500
Q3/2013 Net Income Q3/2014 Net Income
Exploration &Production
611
(19%)
Gas
€3,670+17%
Natural Gas Trading
Exploration & Production
Net income
development Volumes Prices/Currencies Portfolio
s. Q3’13 43% (26%) 0%
422
360
310
504
10
4 Analyst Conference Call October 24, 2014
* Incl. one-time disposal gain of 164 million euros from the divestment of a 15% stake in Edvard Grieg field
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
[Chart 10: Oil & Gas – Considerably higher sales and earnings]
In the Oil & Gas segment, sales grew considerably. This was driven
by higher volumes in Natural Gas Trading. EBIT before special
items significantly exceeded prior-year results attributable to higher
contributions from Natural Gas Trading. Net income came in at 265
million euros, a decrease of 186 million euros. In Q3 2013, we had
recognized a disposal gain of 164 million euros from the divestment
of a 15 percent stake in the Edvard Grieg field in the North Sea.
Sales in Exploration & Production decreased considerably due
to lower volumes as well as lower oil and gas prices. The average
price for Brent crude oil decreased by 8 percent to 102 US$ per
barrel. In euro terms it was also 8 percent lower. Volume was
about 10 percent lower. EBIT before special items declined by 14
percent to 310 million euros on lower volumes and prices.
Contrary to prior year we did not have an offshore lifting in Libya.
These missing contributions could not be compensated by higher
earnings in Norway.
Sales in the Natural Gas Trading business grew considerably
due to higher volumes especially on the European spot markets.
EBIT before special items recovered strongly after a relatively
weak first half 2014.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
Review of “Other”
Million € Q3’14 Q3’13Sales 977 947EBIT before special items (7) (105)Thereof Corporate research
Group corporate costsCurrency result, hedges and othervaluation effectsOther business
(96)(53)100
23
(90)(57)(74)
59
Special items (20) (24)
EBIT (27) (129)
11BASF Q3 2014 Analyst Conference Call October 24, 2014
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
[Chart 11: Review of „Other“]
EBIT before special items in Other improved strongly from minus
105 million euros to minus 7 million euros, driven by a better
currency result and the recent share price development which led to
the dissolution of provisions for our long-term incentive program.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
Cash Flow Solid cash flow in Q1-Q3 2014
Million € Q1-Q3’14 Q1-Q3’13Cash provided by operating activities 4,765 5,982Thereof Changes in net working capital
Miscellaneous items(739)(425)
374(327)
Cash provided by investing activities (3,625) (4,629)thereof Payments related to tangible / intangible assets (3,426) (3,038)
Acquisitions / divestitures 355 (1,093)Cash used in financing activities (995) (1,300)thereof Changes in financial liabilities
Dividends 1,661
(2,656)1,304
(2,604)
12BASF Q3 2014 Analyst Conference Call October 24, 2014
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
[Chart 12: Solid cash flow in Q1-Q3 2014 ] Let me turn to our cash flow. Please be reminded, that we will
summarize the first nine months of 2014.
At 4.8 billion euros cash provided by operating activities was
down by 1.2 billion euros. This was due to a cash outflow in net
working capital of 0.7 billion euros related to the reduction of trade
accounts payable as well as a planned build-up in inventories to
prepare for maintenance shutdowns.
Cash used in investing activities declined by 1 billion euros to 3.6
billion euros. While capex increased by 0.4 billion euros to 3.4
billion euros, cash payments for acquisitions decreased
considerably. In the same period of 2013, we had incurred cash
outflows of 1.1 billion euros for the acquisition of assets from
Statoil as well as the acquisition of Pronova BioPharma.
Free cash flow amounted to 1.3 billion euros in Q1-Q3 2014.
On a sequential basis we recognized a positive trend in cash flow:
While in H1 2014 free cash flow amounted to about 0.5 billion
euros, we generated 820 million euros of free cash flow in Q3
alone.
Coming back to the first nine months of 2014, financing activities
led to a cash outflow of 995 million euros, compared with an
outflow of 1.3 billion euros in the first three quarters of 2013. The
cash inflow resulting from the change in financial liabilities
amounted to 1.7 billion euros. This was mainly attributable to
BASF issuing several bonds with a principal amount of around 1.6
billion euros as well as taking out bank loans. The repayment of a
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
bond with a principal amount of 1.25 billion euros had a
counterbalancing effect.
Net debt amounted to 13.9 billion euros, representing an increase
of 1.3 billion euros in comparison to prior year. At 39 percent, our
equity ratio remained at a healthy level.
Kurt, now back to you for the outlook.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 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 autumn 2014 and negative currency effects.
Despite the challenging environment, we strive for a slight increase in EBIT before special items.
Outlook 2014
GDP: 2.3% (previous: 2.5%)
Industrial production: 3.4% (previous: 3.7%)
Chemical production: 4.0% (previous: 4.4%)
US$ / Euro: 1.35 (previous: 1.35)
Oil price (US$ / bbl): 105 (previous: 110)
Assumptions 2014
Outlook 2014
13BASF Q3 2014 Analyst Conference Call October 24, 2014
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
[Chart 13: Outlook 2014]
Coming to the outlook for 2014:
While BASF’s business in the third quarter was solid, we remain
cautious regarding the development of the macroeconomic
environment in the fourth quarter of 2014. We don’t expect an
increase of demand, assume ongoing economic volatility, and a
more modest global GDP growth for the remainder of the year.
Compared to Q2 reporting, we reduce some of our macroeconomic
assumptions for 2014 as follows:
- Global GDP growth is seen slightly lower now, at 2.3 percent
- Industrial production is expected to grow by about 3.4 percent
- We have reduced the growth expectation for the chemical
production by almost half a percent, to 4.0 percent
- We continue to see the average US$/€ exchange rate at 1.35
for the full year
- Regarding the oil price, we now forecast US$105 per barrel of
Brent oil, down from US$110 per barrel.
Despite the challenging environment, BASF strives to slightly
increase EBIT before special items for the full year 2014.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
Update on key assumptions of the “We create chemistry” strategy
Growth 2010 – 2015(today‘s view)
Global GDP 2.6% p.a.
Chemical production
(excl. pharma)4.0% p.a.
Industrial production 3.4% p.a.
Growth 2010 – 2015(‘We create chemistry’ *)
3.4% p.a.
4.9% p.a.
4.6% p.a.
* Rebased figures, new base year 2010
BASF Q3 2014 Analyst Conference Call October 24, 2014 14
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
[Chart 14: Update on key assumptions of the ‘We create chemistry’ strategy]
Now I would like to update you on our “We create chemistry”-
strategy and the respective financial targets, which we published in
2011.
Our strategy is based on long-term trends – growth of emerging
markets and certain customer industries, the growing relevance of
innovation, shifts in feedstock costs and industry dynamics – to
name just a few. We increased our investments in selected growth
markets, intensified and globalized R&D, accelerated the pruning of
our portfolio and sharpened the meaning of sustainability for BASF.
We also laid out our operational excellence program STEP, which
aims to achieve savings of 1 billion euros by the end of 2015.
And we announced specific financial targets for 2015 and 2020 in
terms of sales and earnings. We felt this to be necessary, also to
allow you to hold us accountable.
Today, well before starting the year 2015, we want to update you
where we stand.
With regard to our strategy, we are pretty much on track. The
decision to further globalize our R&D platforms mentioned earlier is
just one example of a series of initiatives and changes. Our portfolio
optimization is ongoing, resulting in more than 20 divestitures since
2011, which we balance with selected smaller acquisitions, many of
them technology-driven.
Our operational excellence program STEP is ahead of schedule. By
the end of 2015, we will most likely achieve improvements of 1.3
billion euros, 300 million euros more than planned.
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
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BASF 3rd Quarter 2014 Analyst Conference Call October 24, 2014
And yet, it looks like we will achieve not all of our ambitious financial
targets by 2015. We worked very hard to reach them. However,
early this year we told you that hitting these targets would require an
economic recovery in major markets, especially in Europe, and a
margin improvement for some of our major basic products. It is
pretty obvious that this has not happened; we have seen a further
weakening.
Comparing the previously expected GDP, industry and chemical
production growth rates 2010 to 2015 with what we see today
underlines this growing gap.
The average annual growth of global GDP we now see about 0.8
percentage points lower than expected. Even more importantly, we
now assume growth of chemical production to be 4 percent instead
of 4.9 percent per year. This is still well above GDP and industrial
production. We all know the reasons for this development: Reduced
growth dynamics of emerging markets and a delayed recovery in
Europe.
Aside from lower demand growth which has adversely impacted our
business, we have experienced margin pressure in some of our
major product lines especially in China. To give you just one
example: The margin of caprolactam in Asia today is more than 50
percent lower than in 2011. We did not project such peak margins
into the future. However, the current margin squeeze is beyond of
what we had anticipated.
In Performance Products we have seen a typical commoditization in
selected product lines. This is why we initiated an additional
restructuring program, which will deliver about 500 million euros to
earnings from 2017 onwards.
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BASF Q3 2014 Analyst Conference Call October 24, 2014