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Executives

Florian Greger

Kurt W. Bock - Chairman of the Board of Executive Directors

Hans-Ulrich Engel - Chief Financial Officer, Member of Board of Executive Directors, Chairman of BASF Corporation and Chief Executive Officer of BASF Corporation

Manfredo Rübens

Analysts

Martin Roediger - CA Cheuvreux, Research Division

Peter Spengler - DZ Bank AG, Research Division

Timothy Jones - Deutsche Bank AG, Research Division

Markus Mayer - Kepler Capital Markets, Research Division

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

Norbert Barth - Baader Bank AG, Research Division

Rakesh Patel - Goldman Sachs Group Inc., Research Division

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Andrew Benson - Citigroup Inc, Research Division

Andreas Heine - Barclays Capital, Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

Christian Faitz - Macquarie Research

William Cross

Lutz Grueten - Commerzbank AG, Research Division

Oliver Schwarz - Warburg Research GmbH

Ronald Koehler - MainFirst Bank AG, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

BASF SE (OTCQX:BASFY) 2012 Earnings Call February 26, 2013 10:00 AM ET

Florian Greger

Good afternoon, ladies and gentlemen, and welcome to the BASF 2012 Annual Results Conference here in Ludwigshafen. I would also like to welcome those of you who are following via webcast or phone. I will be moderating today's conference as Magdalena Moll is unfortunately sick today. With me today are Kurt Bock, Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, our Chief Financial Officer. Kurt Bock will highlight BASF's performance in 2012 and talk about the key strategic achievements of last year, before he will conclude with the outlook for 2013. Hans Engel will then review the Q4 2012 segment results and explain the financial statements. Afterwards, both gentlemen will be happy to take your questions.

Let me remind you that we are webcasting this event. We already posted the charts and the speech, as well as the press documents on our website at basf.com/share. Before we start, I would like to ask you to please switch off your mobiles and smartphones as they might cause problems with our microphone system. Furthermore, I would like to refer you to the disclosure language, which is currently shown on the screen. With this, I would like to hand over to Kurt Bock.

Kurt W. Bock

Yes, thank you, Florian, and also welcome from my side. A pleasure having you here in Ludwigshafen. Obviously, Maggie Moll is not here today. She cannot be with us because she got hit by the influenza, as many people have been hit, and she sends her best regards and I'm sure she will follow us now on the Internet. Everything else will be very surprising, frankly.

So thanks for joining us here again in Ludwigshafen. Let me start with a short overview of our full year 2012 results. Last year, we increased sales and earnings despite a significantly weaker economic development in 2011 and then expected by us at the beginning of last year.

Sales improved to EUR 78.7 billion, up more than EUR 5 billion compared to 2011. The main drivers were an excellent development of all our Agricultural Solutions business and higher volumes in Oil & Gas.

Currency tailwinds also contributed to the top line. By contrast, our Chemicals business stayed behind expectations. Volumes in the Chemicals business declined 3% compared to 2011, reflecting the overall weaker economic development.

At EUR 12.5 billion, EBITDA rose by more than EUR 500 million versus the strong prior year result. EBIT before special items increased by 5% to EUR 8.9 billion. Special items were positive but slightly below the previous year. EBIT came in at EUR 9 billion, up 5%. EBIT after cost of capital was EUR 1.5 billion after EUR 2.6 billion in the previous year.

Net income decreased by 21% to EUR 4.9 billion, mainly due to a higher tax rate resulting from a larger share of the highly taxed Oil & Gas business and a lower contribution from the Chemical business. Moreover, the 2011 results included a capital gain of almost EUR 900 million from the sale of our K+S stake, which to a large extent was, as you know, tax-free.

Adjusted EPS was EUR 5.71, 9% lower than a year ago. At EUR 6.7 billion, operating cash flow was once again very strong. The decline of almost EUR 400 million compared with 2011 was primarily driven by the reduced net income.

Let's now have a look at the business development in the fourth quarter of last year. Sales in Q4 increased by 9% to EUR 19.6 billion, primarily driven by higher volumes. Slightly higher prices and positive currency effects also contributed to sales growth. The main driver for the strong volume growth was Oil & Gas. In the Chemical business, we were also able to grow volumes by about 1%.

At EUR 2.7 billion, EBITDA was some EUR 200 million below Q4 of 2011. The prior year quarter, however, was positively impacted by the disposal gain of Styrolution in the amount of almost EUR 600 million. EBIT before special items rose to EUR 1.8 billion, up 18% compared to the weak fourth quarter 2011.

In special items, we have seen a big swing year-on-year. While in Q4 2011, we had positive special items in EBIT of more than EUR 400 million, heavily influenced by the aforementioned disposal gain, we incurred negative special items of about EUR 160 million in Q4 of last year. As a consequence, EBIT came in at EUR 1.6 billion, a decrease of roughly EUR 300 million.

Net income was EUR 1.0 billion, a decline of 13% versus Q4 of 2011. The prior year quarter was positively impacted by the disposal gain of Styrolution, while Q4 of 2012 benefited from the reversal of a tax provision. Adjusted earnings per share were EUR 1.35, up 29%.

In 2012, we continued to shape our portfolio for future growth. At the beginning of the year, BASF announced the creation of a new Battery Materials unit focused on developing value-adding solutions to propel the evolution of batteries for electromobility. This comprised a couple of acquisitions: an equity ownership position in Sion Power, a global leader in the development of lithium-sulfur batteries; followed by the acquisition of Ovonic Battery Company, a global leader in nickel-metalhydride battery technology; Merck's battery electrolyte technologies business; and Novolyte Technologies, a global leader in electrolyte formulations for lithium-ion batteries. Three months ago, we started up our cathode material plant in Elyria, Ohio, which is in the United States.

In the fourth quarter of 2012, we acquired Becker Underwood, a leading global player in biological seed treatment and biological crop protection. Another important step in further strengthening our downstream activities was the acquisition of Pronova BioPharma in January of this year. With this acquisition, BASF will achieve a leading position in the fast-growing and attractive market for omega-3 fatty acids. It complements a prior acquisition of Equateq in May of 2012 and offers significant expansion opportunities for BASF's existing dietary supplements business.

We also keep building our upstream activities in Oil & Gas for further growth. In October, we announced a transition -- a transaction with Statoil, substantially expanding our production and reserves of Oil & Gas in the North Sea. Please note that this transaction is expected to close in the middle of this year with economic effect as of January 1, 2013. You will see volumes, sales and earnings from this transaction only from closing onwards. Earnings, which are generated between the beginning of this year and closing, we will book against the financial compensation of USD 1.35 billion. This means that the actual payment for Statoil will be reduced.

And last but not least, in November, we announced an asset swap with Gazprom. As part of this deal, we will get access to blocks IV and V of the [indiscernible] formation in Western Siberia and transfer our 50% stake in the gas trading and storage business to our partner Gazprom. Closing of this transaction is expected by end of this year.

During last year, we divested noncore businesses like our fertilizer activities and announced the sale of smaller nonstrategic businesses such as RELIUS COATINGS and MEYCO Equipment for tunneling and mining. In addition, we implemented restructuring measures in Paper Chemicals, Construction Chemicals and Performance Polymers, where we closed EPS plants in India and Malaysia.

As you know, our growth plan is based on our innovation pipeline. We continued to increase our R&D spending, up by 9% to EUR 1.7 billion last year. We keep increasing our budget based on very good ideas and our excellent R&D Verbund. We will also continue to deepen our collaboration with customers around the world. And one of the most recent examples of innovation is a brand-new midsole technology developed by BASF and by Adidas, and I have to step aside quickly to get this product now. This is the shoe I'm talking about. Please have a look at the cushioning material of Adidas' newest creation. You can see that it consists of thousands of small energy capsules. Now these capsules are the secret to the highest energy return in the running industry, a new development process turn solid granular material, a thermoplastic polyurethane, into these capsules which make the shoe distinctive midsole. These capsules store and unleash energy more effectively in every stride. Actually, I tested it. This is not my shoe. This is a bit too small, but I tested it. It's a completely different way of running, and it really brings back the energy when you move up again with every stride. So this shoe was presented by Adidas in New York just 2 weeks ago. It will be available in stores as of tomorrow, February 27, and I think it will be a good buy.

Ladies and gentlemen, as you know, shareholders return's of utmost important to us. We stand by our dividend policy to increase our dividend each year, or at least maintain it at the previous year's level. As announced this morning, we will propose to the Annual Shareholders' Meeting to pay out a dividend of EUR 2.60 per share, an increase of EUR 0.10 or 4%. Over the past 10 years, we have raised our dividend on average for almost 16% per year.

Based on the share price of EUR 71 at the end of 2012, we are offering once again an attractive dividend yield of around 3.7%. We continue to deliver a long-term value for our shareholders. Over the last 10 years, the average annual return on BASF stock was 19%, clearly outperforming the German and European stock markets as well as the MSCI World Chemicals Index.

This leads us directly to our outlook for 2013. Even if many of us feel a reduced level of uncertainty heading into 2013, at least until last night, I think we should be prepared for a continuous high volatility and unpleasant surprises. What is our baseline for 2013?

We expect global GDP to grow by 2.4%, only slightly higher than in 2012. Significant economic risks will remain, as we all know. Austerity measures to improve public finances will continue to dampen demand in the Eurozone and in the United States. However, worldwide economic growth will be bolstered by low interest rates and by government stimuli measures in the emerging markets.

At 3.4%, global industrial production is expected to grow slightly faster than last year, driven by both the industrialized countries as well as the emerging markets. We assume an average oil price of $110 per barrel Brent as well as an average exchange rate of $1.0 -- $1.30 per euro.

Now based on those assumptions, what does it mean for the chemical industry? At 3.6%, we predict global chemical production to recover slightly in 2013. After a contraction in 2012, we expect Europe to grow at a very low rate of 0.3% this year. Growth in the United States is likely to come down a little due to lower growth in automotive and construction. For 2013, we anticipate growth of 1.9%. In Asia, excluding Japan, growth will probably somewhat exceed the previous year pace and reach 8.1%, while Japan is likely to see another contraction. After a slower-than-projected growth in China in 2012, we expect additional stimuli from sectors like construction, automotive, electronics and consumer products.

Chemical production in South America is expected to grow faster than last year. We expect 3.7%, mainly driven by an economic recovery, hopefully, in Brazil.

Based on these assumptions, our outlook for the year 2013 is as follows: we strive not surprisingly, 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. The NEXT program has been completed successfully and delivered EUR 1 billion by the end of 2012. Our current efficiency program, STEP, which strives for an additional earnings contribution of EUR 1 billion by the end of 2015, is well on track. For 2013, we expect the program to deliver about EUR 300 million.

We also continue to invest for future profitable growth. In 2013, we plan capital expenditures of EUR 4.5 billion. And last but not least, we aim to earn a high premium on our cost of capital once again in 2013.

I will now hand over to Hans, who will give you some more details regarding the business development of our segments. Thank you. And, Hans?

Hans-Ulrich Engel

Good afternoon also from my side. Let me highlight the financial performance of each segment in more detail. I will focus on the respective business development in comparison to the fourth quarter of 2011. Let's start with Chemicals.

In Chemicals, sales in the fourth quarter 2012 increased, equally driven by price and portfolio effects, the latter resulting from feedstock sales to the new owner of the divested fertilizer business. Volume growth and currency tailwinds also contributed to top line growth. EBIT before special items declined, mainly due to lower margins and shutdowns. Sales in Petrochemicals increased. Higher selling prices and a favorable exchange rate development more than offset a slight decrease in volumes due to weaker demand. Higher raw material costs could not be fully passed on. And cracker margins came under pressure, especially in Asia and the United States. Planned and unplanned shutdowns at our sites in Ludwisgshafen and Port Arthur, Texas also negatively impacted earnings. Thus, EBIT before special items was lower.

In Inorganics, sales increased. The main driver was feedstock sales to the new owner of the divested fertilizer business which are now reported as third-party sales. Slightly higher prices and the startup of our new sodium methylate plain -- plant in Brazil also contributed to growth. EBIT before special items, however, was below Q4 2011, which had benefited from the dissolution of provisions.

Improved demand in Q4 2012 led to an increase in sales in Intermediates, continuing the positive trend of the previous quarters. Despite higher fixed costs mainly related to schedule turnarounds, EBIT before special items came in above the previous year.

Sales in Plastics increased due to stronger volumes, higher prices and positive currency effects. EBIT before special items rose substantially due to a significant improvement in polyurethanes.

In Performance Polymers, sales increased due to slightly higher volumes, prices and currency effects. Demand for polyamide precursors remained weak, and margins continued to be under pressure.

Our Engineering Plastics business developed positively due to continuing strong demand from the automotive industry, particularly in North America and Asia. However, EBIT before special items declined considerably, primarily as a result of weaker margins for polyamide precursors.

Sales in polyurethanes grew strongly, driven by higher volumes and prices. Demand from the automotive industry was again on a high level, particularly in North America and Asia, while demand from the construction industry remained subdued. Compared to the very weak fourth quarter of 2011, the supply-demand balance for polyurethane basic products improved significantly, and we were able to raise prices. System houses and PU specialties contributed to a good performance. As a consequence, EBIT before special items rose sharply.

Now to Performance Products. Sales in Performance Products came in above the prior year quarter, mainly driven by higher volumes. Price declines were offset by positive currency effects. EBIT before special items decreased. We continued to optimize our asset base and business models, which resulted in special items of minus EUR 33 million.

In Dispersions & Pigments, sales were flat. Higher volumes and favorable currency effects compensated for lower prices. We were able to significantly grow volumes in additives. Demand across the other businesses remained stable. EBIT before special items declined significantly due to lower margins as a result of increased raw material cost.

Sales in Care Chemicals rose slightly. Higher volumes more than offset lower prices. The hygiene business experienced strong volume growth, benefiting from product tightness. The market environment for formulation technologies, as well as personal care, however, remained challenging and margins declined. Consequently, EBIT before special items was lower.

In Nutrition & Health, sales grew compared to the weak prior year level, primarily due to higher volumes in all businesses. Prices declined mainly as a result of lower vitamin prices in animal nutrition. Continuing margin pressure and higher fixed costs kept EBIT before special items below the level of last year's fourth quarter.

In Paper Chemicals, sales almost reached the prior year level. Favorable currency effects nearly compensated for lower volumes and prices. We continued to implement restructuring measures, which negatively affected volumes. Volumes of the continued business, however, rose slightly. EBIT before special items decreased due to lower margins and higher fixed cost, mainly as a result of the startup of 2 new plants in China.

In Performance Chemicals, sales increased, thanks to higher volumes and a positive currency impact. While demand for fuel and lubricants was slightly lower, we were able to increase volumes for Oil field and Mining Chemicals, as well as plastic additives. As a result, EBIT before special items went up.

Now to Functional Solutions. Sales in Functional Solutions decreased slightly. Overall volumes were down, especially due to lower precious metal trading. A small decrease in pricing was compensated for by currency tailwinds. We saw healthy demand in catalysts and coatings, driven by automotive. Our strict fixed cost management led to a substantial increase in EBIT before special items. Special charges of EUR 147 million mainly resulted from restructuring measures in the Construction Chemicals division.

Sales in catalysts were down. Precious metal trading decreased by EUR 35 million to EUR 640 million. We saw double-digit unit growth in mobile emission catalysts. This was driven by strong OEM business in Asia and North America, which more than offset the weaker demand in Europe. An improved product mix and lower manufacturing costs led to an increase of EBIT before special items.

Construction Chemicals sales rose, driven by significantly improved demand in North America and Middle East. Weaker admixture sales in China were the main cause for a business decline in Asia. European sales were lower due to the continued weakness in the southern part of the region. EBIT before special items increased strongly because we were able to raise prices and improve margins. On top, we realized the first benefits from the implementation of restructuring measures.

Sales in Coatings increased slightly. OEM Coatings demand grew strongly in the Americas and with European premium manufacturers, while Refinish Coatings performed well in Asia. However, demand for decorative paints in Brazil was lower compared to a very strong previous year quarter. Due to better margins, EBIT before special items was up.

With that, to Agricultural Solutions. Sales in Agricultural Solutions were up in the fourth quarter. Growth was driven by higher volumes, the consolidation of the Becker Underwood acquisition and the favorable currency impact. Prices were almost at the same level as in the prior year quarter. The season in South America is in full swing. Our products were in high demand, and we increased sales significantly despite dry weather conditions in Brazil.

North American business was slightly lower, as royalties have been already reported in Q3 2012. Last year, they were booked in Q4. Business in Europe did not fully match last year's level, due to a timing effect, as sales in Germany and France are expected to materialize closer to application date in Q1 of 2013.

Business in Asia developed very positively, as the season in Japan and Australia caught up from a late start. In China, fungicide sales developed well. This positive impact was partly offset by unfavorable weather conditions in India. EBIT before special items in Q4 was below prior year's level due to the timing effects, higher R&D spendings and investments in growth markets.

On a full-year level, 2012 was another record year. Sales rose by 12% to EUR 4.7 billion. EBIT before special items grew by 28% to more than EUR 1 billion, and we delivered on our EBITDA margin target of 25%.

Now to Oil & Gas. 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 grew substantially. Special charges amounted to EUR 120 million and were related to an impairment of the Yme[ph] development project in Norway. Non-compensable taxes on oil production amounted to EUR 492 million. Net income decreased by 9% and was EUR 250 million.

Sales in Exploration & Production increased. Oil production in Libya was an average of about 85,000 barrels of oil per day in the fourth quarter of 2012 compared to roughly 40,000 barrels of oil per day in Q4 2011. The startup of additional wells in the Achimgaz joint venture also contributed to top line growth. EBIT before special items was significantly up due to higher volumes and a higher oil price in euro terms.

In Natural Gas Trading, sales grew considerably, driven by higher volumes. Earnings, however, declined, mainly as a result of lower trading margins, given a competitive -- given the competitive market environment.

Now to Other. Sales of EUR 1.2 billion reported in Other, mainly comprised the sale of raw materials, engineering and other services, rental income and leases. EBIT before special items declined by EUR 91 million, mainly due to lower earnings of other businesses. As a result of the share price increase in the fourth quarter, we incurred a sizable provision for the long-term incentive program.

In Q4 2012, the allocation of special items to the operating divisions resulted in a positive contribution of approximately EUR 150 million to Other. In the previous year's fourth quarter, we reported special items of roughly plus EUR 600 million, which primarily came from the disposal gain of Styrolution.

Let's now come to the cash flow. We started the year 2012 with a cash position of about EUR 2 billion. With EUR 6.7 billion from operations in 2012, thereof EUR 1.6 billion in Q4. In 2012, we stepped up capital expenditures. We spent EUR 4.1 billion, an increase of more than EUR 700 million -- free cash flow reach EUR 2.6 billion. It decreased EUR 1.1 billion versus 2011, mainly as a result of a rise in CapEx. And we paid EUR 2.6 billion in dividends to our shareholders and minority interest holders. Thus, we ended last year with a cash position of EUR 1.8 billion.

Let's now have a look at our balance sheet. Total assets rose by EUR 3.1 billion to EUR 64.3 billion. Long-term assets increased by EUR 1.5 billion, mainly as a result of acquisitions in 2012. Due to the agreed-upon asset swap with Gazprom, we put our Natural Gas Trading and storage business into a disposal group. This led to the reclassification of long- and short-term assets. In total, long-term assets of EUR 1.1 billion and short-term assets of EUR 2.3 billion were transferred to assets of the disposal group.

Our financial indebtedness rose by approximately EUR 350 million to EUR 13.4 billion. Net debt amounted to EUR 11.6 billion, an increase of roughly EUR 600 million versus the end of 2011. Our net debt-to-EBITDA ratio stayed below 1.

Liabilities of the disposal group for Natural Gas Trading amounted to EUR 2.2 billion. As this reclassification of liabilities was in the same magnitude as the increase of provisions for pension obligations, other liabilities remained fairly stable. Provisions for pension obligations rose primarily as a result of reduced discount rates. At 40%, our equity ratio remained on a healthy level.

Ladies and gentlemen, before we go into the Q&A session, just a few words on the upcoming IFRS changes. As of January this year, we are following IFRS 10 and 11, which leads to reporting changes, especially for some of our joint ventures. Overall, the application of IFRS 10 and 11 will lead to lower reported sales and income from operations, in particular, in the Oil & Gas segment, where we will also eliminate the effect of deductible and nondeductible oil taxes in Libya. Net income will only be slightly influenced by the changes in accounting standards. The qualitative statements in our 2013 outlook, given by Kurt earlier, remain valid. We will explain to you in detail the impacts of these changes that they will have on our financial statements in a separate event on March 22. We will then also provide you with restated figures for 2012, reflecting our new segment structure.

Thank you very much for your attention. And we are now happy to take your questions.

Question-and-Answer Session

Florian Greger

Ladies and gentlemen, we would now like to move your questions. First of all, I want to inform you that you should take the cards, which I attached to your nametags. On the right-hand side of your microphone, you find a small slot. Please insert the cards into the slot now. When you want to ask a question, press the speak button. This automatically puts you into the queue. Please limit your questions to only 2 at a time so that we can take as many questions as possible. Of course, you are always allowed to rejoin the queue for a follow-up question.

The first question comes from Martin Roediger, Cheuvreux.

Martin Roediger - CA Cheuvreux, Research Division

Two questions. First is on the reversal of the tax provisions, which looks to be a tax relief of roughly EUR 360 million. Can you explain the details behind that reversal of tax provision? Second question is on your -- actually, your performance in the full year 2012. You said that your target for the chemical industry growth rate of 3.6% in 2013 after the chemical industry grew by 2.6%. When I make the math for BASF and exclude the Oil & Gas division and exclude the others, so -- for chemical activities plus Agro then the organic growth rate of BASF was minus 2.7%. So you have massively underperformed the chemical industry in 2012. When do you intend to outperform the chemical industry? Because you have the target that you want to grow 2% above the chemical industry.

Kurt W. Bock

Okay, I think Hans will start with the tax question, where we don't give all the details, by the way.

Hans-Ulrich Engel

Yes, Kurt is absolutely right. We don't give all the details on tax provisions and the like. But if you go to the notes, you get a really good view on what we actually did in the year 2012. It's not quite your EUR 360 million, but it is a sizable amount. And that relates to the tax years 2006 through -- sorry, 2002 through 2006, where the audit is now concluded. And that leads to the situation that we had booked certain reserves for certain situations, which we now do not use anymore. So again, time frame is 2006 -- 2002 through 2006.

Kurt W. Bock

Yes, with regard to growth, I think you hit the nail on the head, so to say. And we made this very clear in our little speech that we underperformed in terms of growth in 2012. We did not achieve our volume targets last year, but let me explain why. First of all, we had a very slow first half in Asia. And we clearly stated this back then that we were really surprised about the low growth in Asia. This has partially been compensated in the second half. We still don't know yet whether we really lost market share in Asia in the first half, in China in particular, or whether that was the overall market development. This is still a very hard picture from our point of view. Then secondly, we have restructured businesses. You have to keep that in mind as well. We gave up certain activities, for instance, in Construction Chemicals. We shut down our EPS, expanded polystyrene activities in Asia. There are couple of other businesses where we slimmed down. This all takes growth away. You are also right when you say that our medium-term goal is to outperform the market and we have done this in the past, as you know, and I would say also very consistently. So no, this year, we expect that the market -- chemical market will grow slightly faster than last year, 3.5% approximately, up 1 percentage point. That seems to be feasible from today's point of view. I don't see any reason why BASF should not get back on track with regard to its past performance and growing slightly above the market. We have done this in the past. We will make this in the future as well, but what I can assure you for certain is that we will not go for volume at every price. And I think that is very, very important. We gave up so market positions in 2012 simply because pricing from our point of view was not attractive, which is a short-term hit also to the bottom line, but it can help to restore market profitability in some cases. We have seen this in the past as well.

Florian Greger

Okay, the next question comes from Peter Spengler, DZ Bank.

Peter Spengler - DZ Bank AG, Research Division

First on Performance Products. I guess the performance of this segment was also not satisfying. So do you plan further restructuring, especially for this segment? And my second question is on Styrolutions. Do you have plans to change the joint venture? Are you satisfied with the performance so far? Do you have an option to go out? So questions like that.

Kurt W. Bock

Let me take the last question first, Styrolution. Actually, we are very happy with the development so far. I can't really comment specifically on the performance in Styrolution. It's an independent company, so to say. They are also in the capital markets and they will have their own reporting, as we all know. But I think the team has done an excellent job in bringing the former INEOS and the former BASF activities together to create the synergies, which we envisioned, and to form a very, very strong market player. And you're also right, we have an exit option. We have a put option. We have not yet made up our mind what we are going to do, and we have that option. For the time being, we are, let's say, a happy shareholder of Styrolution. Performance Products. It's not performing as it's supposed to perform, I fully agree. And I think we made that statement as well in our own description of our business development. We are not satisfied. There are various reasons why the performance is not where it's supposed to be. We have a mixed bag of activities here. We have to be very specific when we talk about performance within Performance Products, within that segment. Let's take Care Chemicals, which was a hugely profitable business in 2011 and saw a decline of profitability in 2012 to a level which is still very good one, but where we say we can do better. And we proved in the past that we can do better. Again, there are specific reasons why there was a decline in profitability. We gave up certain volumes. We saw a decline in margins in, for instance, surfactants, but that is something we can restore over time. Then we have Nutrition & Health. This is also partially a former Cognis business, as you all know, where we, by the way, just made the acquisition of Pronova of omega 3 fatty acids. There, we have essentially one topic, which is vitamin pricing, which has been weak over the second half of last year and the question certainly will be what is our expectation for future pricing. The margins are not from our point of view, are not satisfactory. Again, we have seen this in the past already. These are kind of slightly cyclical products as well, and we try to restore better pricing in that market. But that needs also good timing and sometimes you have to be a little bit patient for the right point in time to induce certain matter. But that is essentially what we are talking about when we look at Nutrition & Health. Then we have Paper Chemicals. We all know about Paper Chemicals. It's a difficult custom industry. It's essentially a shrinking industry in the mature markets, in Europe and in North America. We have reacted to that by dramatically shutting down capacity over the last couple of years here in Europe and in the United States. At the same time, we have expanded our capacities in Asia. We just brought on stream 2 new major plants for Paper Chemicals in China, which starts to deliver in Q3 and Q4. We are shifting that portfolio away from printing paper, which is declining, as we know, at least in the mature markets, more into the direction of packaging material, which is a growing market. I don't have to explain why. And everything we hear from our customer base, which is very important when you talk about long-term competitiveness, how is BASF being perceived as a player, as a supplier in that industry, is very, very positive. However, the restructuring of the industry itself is an ongoing exercise. And I would also foresee further consolidation of capacities in the paper chemical industry, which will bring this business to

an acceptable level of profitability. Will it, at any time, in the future be the star performer of BASF's portfolio? That is not very likely, given the, let's say, underlying industry attractiveness of paper. But it can come to a level where we are satisfied, and we have seen progress actually in 2012. And we see how the performance improvement measures were implemented. Then we have Performance Chemicals. Again, partially being acquired over the last couple of years, where we essentially have one topic, which we are addressing very aggressively and that is water chemicals. Water chemicals by definition should be a growth story. It is a growth market globally but it's under intense margin pressure. And we are acting in that regard, looking at our production footprint and our setup. And we already had a couple of restructuring measures last year being implemented. And then there's one final division. As I said, it's a complex segment or it needs a little bit more time to discuss, which is Performance Polymers. And there is essentially one part of that business, which is pigments. Pigments always have been challenging, they are still challenging. There is intense competition from Asian companies. We are streamlining that business quite drastically. And I would also foresee that the performance will improve over the next 1 to 2 years. While there are lots of things being implemented, you saw already some of the special items, which we booked in 2012. Some of that goes to the Performance Product segment, and I would foresee that the business will improve over the next 18 to 24 months.

Florian Greger

The next question comes from Tim Jones, Deutsche Bank.

Timothy Jones - Deutsche Bank AG, Research Division

Because Maggie's away, does that mean we're allowed to ask as many questions as we like, or are we still stuck to 2 questions?

Florian Greger

Well I said earlier 2 at a time.

Timothy Jones - Deutsche Bank AG, Research Division

Sorry, Florian. Okay. Let me go for 2 questions then. First one, Dr. Bock about 18 months ago, maybe a bit less, you gave us 2015 targets for EBITDA. Now I know that things will change with accounting. But assuming no changes with accounting, do you think the group still has the potential to deliver what you targeted 18 months ago by 2015? That's my first question. And my second question is around polyurethanes. 2012 obviously showed recovery in polyurethanes at the margin level. And we are now at a level in TDI and MDI that you're happy with the performance of the business or should we see this as year 1 into a recovery and still expect further improvement in '13, '14 as well?

Kurt W. Bock

Yes, we don't really report or talk about individual products. So we saw a recovery in polyurethanes in 2012, that's correct, which was an uphill battle, frankly. It started about a year ago. And the price increases which we announced finally were accepted. Are we happy? Not yet. No, we are never happy. It's an ongoing task. And as you know, there's also new capacity coming onstream, including our investments in Chongqing for MDI and our TDI investment here in Europe. And it's certainly also our task to face those new capacities into the markets in an intelligent way, which also makes sure that margins and profitability are maintained. Our 2015 targets, actually, Hans will -- I think on the 22nd of March, he will talk about the specific effects of our change in accounting IFRS 10 and 11. To make a long story short, we get rid of the oil taxes. We have tried to get rid of those taxes for many, many years by negotiating with the Libyans, which was not possible finally anymore by talking with our auditors can we change our accounting, no, we cannot. Obviously, now we can based on new accounting rules, and we will then book Libya at equity, which means we get rid of all this noise and clutter, which we have in our numbers, which we always have to explain when you look at our overall earnings here. So that I think is good news. The one number which is not affected is EPS or net income because it's a clean figure. Essentially, there might be a very slight impact but essentially, it's a clean number. And your question is, are our targets achievable? And, frankly, what did we say? We target for 2015 EUR 7.50 earnings per share. If you look at our current earnings, is this something we can achieve? Yes, I do think so. Yes, absolutely. There's no reason why that shouldn't be possible. There's always, as we all know, in our business, in our industry, a kind of a cyclical factor. A year ago, we were at a better point in this cycle, so to say, than today, obviously, with regard to many products. But overall, I don't know -- mainly we don't with one -- for one specific quarter or year, but overall I think the pattern is intact. And we will also then explain what the effects will be on the EBITDA numbers, which we also published in the targets report because those numbers are affected by the IFRS changes and that Hans will do then later on this year.

Florian Greger

Okay. The next question is from Markus Mayer, Kepler Capital Markets.

Markus Mayer - Kepler Capital Markets, Research Division

Most of these question -- first, again on Performance Products and in particular on Care Chemicals. Are there structural problems in this business as well? For example, are you losing market share because Croda highlighted several times they are quite happy that they gained one of your former customers. And then secondly on this business [ph] distribution as well, you highlighted there will be an asset base optimization. This is just with paper or also -- paper and water, or are there other assets where you're unhappy as well? And then thirdly, you said this is chief refinancing. Do you see that this will be an important trigger for the chemical industry to drive the consolidation of this industry and therefore, then to increase pricing power in certain markets?

Kurt W. Bock

Hans will answer the question with regard to financing, whether that should drive another wave of consolidation. A difficult question to answer actually. Maybe there should be a business logic for consolidation, not just money being available. Actually, what you just said with regard to a competitor, one of our many competitors was already mentioned this morning at our press conference. So I went back again and asked our people what happened, did we miss something? And I'm sorry to say, they say, "No, we did not lose any market share at all." It can be that one or the other customer, there is a share shift that happens all the time in our business, but we don't -- actually, we don't come here then and brag about we just got a new customer or more volume at an existing customer. So specifically in that customer care business, sorry, we cannot see any market share loss. And then when you look at the overall volume growth, which had been published today, it doesn't look like a huge market share gain, not to me. No. The numbers are a little bit difficult to fully understand. But again, we are competing here on a very small part of our business, which is highly, highly competitive, which has an excellent profitability, which is part of a larger division. And we hate to talk about that particular business in more detail because you always have some jewels you want to develop and protect. And asset optimization, I prefer to the paper industry, where we thought we will see a further adaptation of capacity in the mature markets and that certainly also has effects on the paper chemical industry, yes. And I think BASF already over the last couple of years has contributed tremendously to the adjustment of capacity in our industry.

Hans-Ulrich Engel

On your question, chief financing and will that lead to a new M&A spree in the chemical industry? I can basically build on what Kurt just said. First of all, if you look at the data for the year 2012 and now going into 2013, what you see is what I will describe as an uptick in M&A activity but not any type of significant increase. And I'd say that the jury's still out on that. Let's see what's going to happen, but I think that the respective decisions will be driven by the financials and by reasonable businessmen making these decisions. Consolidation is a topic in the chemical industry that I'm hearing about as long as I'm in the industry, and that's now for 25 years. And when I look at it, it doesn't look to me like the number of players in the chemical industry has really significantly reduced over the years.

Florian Greger

This leads us to the next question, Jeremy Redenius, Sanford Bernstein.

Jeremy Redenius - Sanford C. Bernstein & Co., LLC., Research Division

First of all, if I look at the shale oil production in the U.S., not the gas but the oil, what would you have to believe for that to have a material impact on your business? And would it be positive or negative? I'm thinking about a scenario in which there's a local oversupply of shale oil, creating lower naphtha prices locally, therefore lowering the price of naphtha cracking or the cost of naphtha cracking, if that would create a meaningful advantage for chemical producers there. And then second, more specifically on wages and personnel costs, I see your wages and salaries were up a little over 7% this year, and I think personnel costs were up 6%. I think this year last time, you said it was -- you probably expected something more like 4%, if I remember correctly. Can you describe what's happened there or where the strong inflation has come from and some expectations for the next couple of years, please?

Kurt W. Bock

Sorry, shale oil so the liquids, part of the shale gas story. It's hard for me to say whether we really will have an independent pricing of shale oil, so to say. Right now, what we see is that the shale gas companies make money by selling liquids. And for oil, you have global pricing today in place. So to expect that we will have an independent pricing for shale oil in North America and completely decoupled from the global price for oil, I don't see it happening right now because oil is easily transportable, which is not the progress, this natural gas obviously, where the transportation costs are much higher and the logistics requirements are much higher as well. Let me say, overall, we see opportunity here for BASF in North America. We already implemented a couple of investments based on shale gas. Others might follow as well. We are a pretty big chemical company in the United States, as well as you know. We have a slightly -- as you also know, we have a slightly different portfolio than other companies. We are less C2-based, and that you might perceive as a competitive disadvantage in the shale gas world but, frankly, that was a very conscious decision to move away from that value chain or to lessen the impact of that value chain on BASF's bottom line. If we had not opted to do that, we would have invested, for instance, in the Middle East, where you always had access to cheap gas over the last 10, 15 years, for sure. So again, I cannot give you a perfect answer but completely independent local pricing for shale oil. I don't have any evidence on that, frankly. Personnel costs?

Hans-Ulrich Engel

Jeremy, on the personnel costs, if I recall it correctly, 2012 personnel costs in the BASF Group, EUR 9.1 billion. If you look at that, the increase is resulting from 2 things. One, you have an increase in personnel. If that's -- if I recall that correctly, from roughly 111,000 to 113,600. And I recall what you just mentioned quoting about 4%. And if I recall that correctly, that was in the context of the expectations for the negotiations taking place -- that took place in the year 2012 in Germany. And that was actually pretty close to the outcome of what we've been seeing for an 18 months contract.

Florian Greger

Before we come to the next question, I just wanted to remind you, if you want to ask a question, you need to insert your card and need to also press the speak button now. That will put you into the queue. The next question comes from Norbert Barth, Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

Yes, I'll stick to the 2-question rule. First question on the Chemicals segment. Can you give us a figure for the negative impact of the unplanned shutdown in Port Arthur then it looked -- because it looks to me that the impact was higher than expected? Also, if I see the regional result of North America, so it looks to be a quite significant number or not so small one. And the second question's -- I know, Mr. Bock, you don't like to talk about products. But as you mentioned also, Performance Polymers and polyamide precursors a couple ton [ph] has a major impact also on that. And as it is not so unimportant also for the group, can you give us a little bit your thinking about than perhaps supply-demand could be more in balance and about volume and price developments there, what you expect in a time frame?

Kurt W. Bock

I would try to give you an answer on the shutdowns in Care Pro and then Hans has to explain the -- his North American [indiscernible], so I should say.

Hans-Ulrich Engel

This is what happens to you when you underperform.

Kurt W. Bock

And, first of all, shutdowns. The effect year-over-year for the entire year of shutdowns, planned and unplanned, is a negative EUR 100 million, essentially. And that negative EUR 100 million is almost entirely within the chemical segment. And a good part of that was in Q4. So this explains at least partially the decline in earnings we saw in chemicals. And this is a very clear statement here. The number of unplanned shutdowns last year was too high. So we are not satisfied with what we call our asset effectiveness, the run rate of our plants, and this is a major exercise right now to improve in that regard as well. And certainly, we strive to see a major improvement in 2013. You don't want to have any unplanned shutdowns, but we saw an increase last year, and this was more than unwelcome. Care Pro, steep decline in profitability in 2012, no doubt about it. We think it's bottoming out right now. At least, we tried to become a little bit more aggressive in pricing. Again, the background is, and you know the numbers and new capacity has come onstream over the last couple of years, especially in Asia. In China, that needs to be absorbed by the markets. I think we were all aware that in 2011, we had historic record margins, which were unsustainable. When you're in the midst of that period, you want to believe that it is sustainable, but we knew it would not be sustainable. So the decline in 2012 did not come as a surprise, but certainly we want to restore prices to a level which is satisfactory from our point of view because right now it is not the case. And you have seen this, not just not in our numbers, but when you look at our competitors as well. Hans?

Hans-Ulrich Engel

If you look at the results in the region North America, and there on the EBIT, there are 3 things that we have to keep in mind. Number one is chemical business performance was weaker than what we had in the record year 2011. So what we're seeing on group level, we see also in the North American business. Second effect that we have is the shutdowns that we had in 2012, a 6 weeks planned shutdown of our Verbund site in Geismar, a 2 months shutdown of our -- planned shutdown of our cracker in Port Arthur. And then coming out of that shutdown, the cracker of -- in Port Arthur, had several hiccups. We've taken care of that now. We had them down again for 2 weeks in January, fixed all the problems. And since then, knock on wood, the cracker is running as the big machine is supposed to run. So there are 2 effects. And the third effect that we have is we had a number of positive special items in our results in 2011, which we don't have in the year 2012. To name just 2, which both have a significant order of magnitude, one is the regional impact of the Styrolution's divestiture gains that we had that were booked in the region North America. And the second one is a settlement of a long dispute that we had with Lyondell, which was after a period of 6 years settled out of court. So these are the 3 key drivers for the lower result in North America in the year 2012.

Kurt W. Bock

So in case there is confusion, regionally, we report booked EBIT, not EBIT before special items. That's very important. Therefore, you see differences [ph] from special items here.

Florian Greger

The next 3 questions are from Rakesh Patel, Goldman Sachs; Jean De Watteville, Nomura; and Andrew Benson, Citi. We start with Rakesh Patel.

Rakesh Patel - Goldman Sachs Group Inc., Research Division

Just a couple of questions, if I may. First of all, I wondered if you could talk a little bit about the restructuring that you've been doing in Construction Chemicals, especially in Europe. Is it fair to say that that's now been completed and we should see the benefit of that in 2013?

And then secondly, just on the more longer-term questions, I wondered if you could talk a little bit about what the impact of a stable-to-falling oil price would be on BASF in the midterm? Would it be fair to say you would benefit from a low feedstock price but you might have to give some revenue away in terms of pricing?

Kurt W. Bock

Yes, thanks for the questions. Construction Chemicals. As you know, we have not been -- we were not happy with the performance of Construction Chemicals. Part of the problem was obviously the underlying weakness of the major markets, Europe, North America but also parts of Asia. Part of the problem was the complexity of our product portfolio. And this last factor we could influence. And that is essentially what has happened over the last 18 months. So we took essentially 2 measures. One is we slimmed down the product portfolio quite dramatically, really focusing on the, let's say, most profitable products. This is a very, let's say, textbook case like exercise ABC analysis. You just look at your portfolio regionally customer-wise, and you find out where you make money, where you don't make money and then you draw the conclusions adapt capacities, adapt sales force, et cetera. So there was a real reduction in business, focusing on those parts which are profitable. And they are major parts, which are very profitable. The second -- which, by the way, also means we exited certain markets. We made conscious decisions to leave certain countries completely because we said it doesn't make any sense to try to be in that market as well because the long-term perspective is not there and we don't make money today. Most probably, we won't make any money in the future. That is one piece of the restructuring. The other piece were then the sale and divestiture of some of those businesses, which I mentioned in my little speech. This was an exercise which was essentially done in 2012. We found, what I would say, good homes for those activities. In most cases, medium-sized companies acquired those businesses, which fits very much the structure and the nature of the businesses we sold. So there was a company for tunnel equipment. And you might ask, "What is BASF doing in tunnel equipment?" And I think the question is rightfully asked, some other niche businesses, which we gave up. The improvement measures will continue, that is quite clear because the market is not forgiving. We see a little bit of an improvement in North America. It looks like it's bottoming out. So we might get a little bit more tailwind in 2013 than we had over the last couple of years. But nevertheless, it's a constant pressure on that business to reduce its cost and to improve its competitiveness. And I think we have the tools in place to have a continuous improvement process in that regard. Stable or falling oil price, I think this is kind of a loaded question because we essentially said we see oil price at current levels. And actually, you're right, now it's slightly above. And you obviously have to ask the question, "Why is the oil price then coming down falling?" If this is a reflection of a weaker underlying global economy, it would be bad for BASF, no doubt about it. If it's the case that just the -- let's say, political [ph] risk premium is taken out of the equation, that might have a positive effect on BASF. Again, in Oil & Gas, you have to be very specific because the schemes we have in place with our hosts, so to say, sometimes do not mean that every additional cent of oil price will directly go into our coffers. Sometimes, it's kept. Sometimes, there is a different price formula in place that we do not really participate if the oil price is growing very fast and very high, which also means if the oil price comes down, the volatility of our earnings is kind of buffered as well. And we have said this before. Essentially for BASF, a high oil price is not a negative, if this reflects a strong underlying economy because then we make good money on Oil & Gas. And over time, we are also able to pass on higher feedstock costs to our customers and have better margins in chemicals. So the correlation actually between chemical earnings and Oil & Gas earnings is a slightly positive one. I hope that answers your questions.

Florian Greger

Now to Jean De Watteville, Nomura.

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Jean De Watteville from Nomura. First question, just broadly on specialties. Mr. Bock, I'm curious about your view. I mean, clearly what we've seen in Care Chemicals is performance is -- seems, to us, to be below some of the pure plays. It's the same in Construction Chemicals. If you compare to Sika, it's the same attrition, when you compare it with GSM.

So the broad question, I'm interested by your view, is it more difficult to manage specialties within a large corporation or a conglomerate like BASF -- is it fair to draft this question and what is your view on that specific matter? The second question is more an update on Oil & Gas. You've realized 2 important swaps in Q4, one with Statoil and one with Gazprom. Just wondering if you're ready to share with us an update on 2 figures that are important that you shared with us back a little more than a year ago. 2P reserves, it was EUR 2.8 billion BOE. My forecast is that you're probably going to go up around EUR 3 billion, EUR 3.3 billion. An update here will be useful. And production, you guided us for EUR 160 million BOE in 2015. I know it's probably more relevant to talk about a target in 2020, given the maturity of [ph] 4 and 5. If you can share your thoughts about where you can bring production to -- in E&P under, obviously, the current reporting basis.

Kurt W. Bock

You can do Oil & Gas, and I will talk about relative competitiveness of BASF. I think this is the call of your question. I think it's a very, very, relative question because it's the exactly the question we ask ourselves. Are we competing at the levels of what we call, our pure play peers, so to say? So internally, what we do is we segment our business in a much more narrow sense and what we see here. Here, we talk about segments and divisions. We run our business and you know this based on about 80 strategic business units. And for essentially every business unit, we have identified who are the most competent competitors. And what we do is we monitor them very close, as you can imagine, in terms of growth, profitability, innovation, capacity, investment, strategy, et cetera. And we asked that same question you are asking our business heads. Are you performing at the maximum level the market permits -- and in some cases, we do -- or in many cases, we do. We have very many good examples, where we have excellent market positions, great R&D capabilities. And it really translates into excellent growth and earnings. In other cases, we are not happy. I'm not sure those are the cases you just mentioned exactly. But we are very, very self-critical. And we -- when I talk about performance improvement measures in Construction Chemicals. This is certainly based, on the one hand, on the, let's say, absolute performance of Construction Chemicals. At the same time, it's also based on our peer review. Where do we stand in terms of relative competitiveness and can we do better? And the answer is yes, we can do better. And there are lots of things we can improve internally as well. So the question is, can a large company run a specialty business? Yes, I do think so. We have many, many businesses which are running at best-in-class levels. We have other businesses where we have to improve. And it would be a surprise, given the size of BASF's portfolio, if all of our businesses, at the same point in time, all perform at a very high level. You have a certain volatility. Sometimes, you have a nasty surprise and you find out, "Oops!" something happened in the market, which you did not recognize early enough. This also happens to BASF. But essentially, I think we have proven over the last 20 years that we are able to run a specialty chemicals business, even very bizarre businesses, you might say. We run a high-class, first-class decorative paints business in Brazil. That's the only place in the world where we run this business. It's highly, highly profitable to be a market leader for decorative paints. It's a consumer-driven business, but you would say, BASF and the consumer business that cannot really work. It works great. We have great team in place. And they gain market share, they make good money and they are very, very innovative. So, I think we have many good examples how to run those businesses, but we will also always have construction sites where we have to improve. And we are very self-critical in that respect. And we take exactly your position. We look at our relevant peers, competitors and try to find out where are we within that range and what could we do differently in order to outperform them.

Hans-Ulrich Engel

All right, with that, Jean, to your questions on Oil & Gas, first of all, on production targets, 2015, 2020, if I recall it correctly, we produced 143 million, 144 million barrel of oil equivalent in the year 2012. Significant increase over the year 2011 for the well-known reason, in short, Libya back onstream. Target for 2015, 160 barrel of oil equivalent -- EUR 160 million of barrel of oil equivalent. The growth paths that we have for our Exploration & Production business is in the range of 3% to 4% per year. So if you look at that, if you look at it historically how we've grown that business and what we're doing now, where we are in 2012 and using that as a basis, I think that you will see stable development in that order of magnitude.

We've entered into the 2 transactions, the one with Statoil on which we, as well as Statoil, have disclosed the 2P reserves, which are in the neighborhood of 100 million barrel of oil equivalent. If I recall that correctly, for [indiscernible] IV and V, due to the very early stages that these 2 fields are in, we have not given a firm figure, if I recall that correctly. But I'm happy to go back for you and check for you and then would come back with that figure, if that's okay.

Florian Greger

Now to Andrew Benson, Citi.

Andrew Benson - Citigroup Inc, Research Division

You're looking for EUR 300 million of restructuring gains this year. And there are, within the chemical sector, companies with EBITDA of somewhere between 20% and 40% of the level you do that are planning on delivering those -- that's the magnitude of savings. Just wondering whether that's and -- obviously, not that target -- whether you could push that further, whether there's a plan to perhaps drive that activity disappointed in the scope there is to accelerate a restructuring? And the second question, can you -- we've talked a lot about where there's a perception of challenge, the businesses where you've got a high degree of confidence that you're going to deliver improved profitability and EBITDA in 2013?

Kurt W. Bock

So the question is, Andrew, is the EUR 300 million really everything we can achieve as BASF in terms of savings this year? Certainly not. This is just the piece which is part of this program, what we have labeled STEP, EUR 1 billion savings until 2015. A couple of additional measures and I talked about Construction Chemicals, all the improvement measure there, which are very much portfolio-related, not pure cost-saving productivity improvement measures are not part of STEP. And we certainly strive for further improvements on top of what we have told you here. So yes, more could be done.

But if your question is, is there a need for drastically revamping, restructuring major parts of our portfolio, then I would say no, we have -- and I talked about this, we have certain businesses where we are not performing at the level where we need to be. And we are taking this in a very consistent way. We have done this in the past as well. Sometimes, it takes a little bit of time, but we are getting there and in almost all cases. And we have a book where we wrote down what we want to do over the next couple of quarters. And we will deliver on those measures for sure. I hope this answers your question essentially.

And you talked about which businesses are we most very confident. Very confident sounds almost like overconfidence, and I would refrain from giving you specific answers here. We have a couple of businesses which are developing very nicely into 2013. They had a good start into the new year, but I think it's -- actually, it's premature now to talk about this. We have some good ideas, which are being implemented, but giving you specifics business by business is a little bit difficult here.

Florian Greger

The next 3 questions come from Andreas Heine of Barclays; Thomas Gilbert, UBS; and Christian Faitz, Macquarie. We start with Andreas.

Andreas Heine - Barclays Capital, Research Division

Yes, I'd like to know whether the CapEx budget will be a little bit lower as the growth rate is lower than might be expected some years ago? And does it have an impact to your midterm plans in the -- specifically, in the chemicals business? And could you a little bit elaborate what you see from the days point of view how 2013 started and how volume and pricing trends compares in this quarter compared to the last quarter? So to Q4, is there anything more than a little bit seasonal uptick? What do you see here?

Kurt W. Bock

Let's start with CapEx. We announced that we intend to spend about EUR 4.5 billion this year. This is about EUR 400 million more than we spent last year. And it's, I would say, conservatively more than what BASF has spent over the course of the last 10 years on average. It reflects, first of all, the bigger size of the company. BASF has grown bigger over the last 10 years. Obviously, though there is a bigger underlying need to support our growth. It also reflects, I would say, a certain cyclical uptick in CapEx because we see growth opportunities and we have major projects underway. We are aware that we have a big polyurethane investments here in Ludwigshafen, but also in China. We have big acrylic asset investments in China and in South America. We have shale gas base investments in North America. This all adds up to a bigger investment budget.

This budget is not based, and to make this very clear, on the growth rate of 2012 or 2013. This is based on medium and long-term volume market forecast, demand-supply balances, which we see developing over time. And that we have no reason to change our CapEx budget at this point in time. And I think you know BASF very well. Also in the past, we have not done this. We -- if the market really slows down, you sometimes can slow down an investment as well. But as soon as an investment is being approved and is being built, we will complete it on time and on budget. This is the most economical way to deal with such a situation, but frankly we don't see the situation right now. We see still underlying demand for chemicals, in the 3.5%, which we kind of forecast for 2013, that number is slightly below the 4%, which we discussed with you about 18 months ago, when we talked about our longer-term strategy, though this is not completely disaligned from long-term market developments.

And then the final remark. Many of the investments also go to emerging markets, where we mentioned China and Brazil, where we expect higher growth rates, and they will materialize for sure.

2013, how did we start into the year? Let me start by talking about December because December was kind of a remarkable month since essentially on December 20, our customers stopped buying. It was a remarkable month in that respect. They just stopped sending orders and the business came pretty much to a full stop and then they came back on January 1. That now seems to develop into a pattern. We have seen this now for a couple of quarters. So we are -- at the end of a quarter, customers seem to be managing their inventory levels very, very professionally.

So we had a little bit of a restocking effect in January. But even if you take that restocking effect out, I would say that in most markets, Europe, North America, South America is kind of theoretically small and off-season. The business came back in a very nice way. So from today's point of view, we have no reason at all to become skeptical with regard to the growth numbers, which we have explained to you here for 2013. There's a certain -- uncertainty on our side with regard to Asia and China because, as you know, Chinese New Year just came to a conclusion. It's simply too early to say how Chinese economy now got into the new year that we will see in a couple of weeks from now. But everything we have seen so far in January and February, I think, were also okay in terms of order entries and ongoing sales.

Manfredo Rübens

Now to Thomas Gilbert, UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

Two questions, one on security of feedstock supply and one on politics. The first one, when you talk to Total and Shell and the integrated oil companies, they're all getting sick and tired of the downstream volatility in butadiene and benzene and they're not building any refinery plants. Their refinery CapEx is 1%, which basically means we're going to go right into a shortage of benzene on a 10-year basis. How does BASF respond to that? Are you worried? And if so, what are you doing against it? If you're not worried, can you let us know why not? And the second question, what is your impression of the new Chinese government in terms of the long term? Is this a business as before? Is this more protectionist of a government? Is this open to foreign investment? What are your sort of your first impressions there?

Kurt W. Bock

Second question first, the Chinese. My first impressions are very limited because -- actually, I haven't had any real first impressions. I will be in Beijing in March. There will be a conference with the Chinese government, where they essentially brief the international business community about their plans and their intentions. What we normally would expect is that a new government coming in would also provide growth stimuli that at least have been the case in the past. And you saw a little bit of slowdown over the course of 2012. And some people think that was already a reflection of the change in government in China, but that is essentially everything I can tell you right now. With regard to macroeconomics, on a more business level, our relationships are very fruitful and very friendly and very professional. And there hasn't been any changes negative at all over the last couple of years. We have to explain what we want to do in China. We have to explain how we benefit China by investing, but I think we, overall, made good strides. And we just recently announced, for instance, an investment for a plasticizer-free product, INA, together with SINOPEC. It's a new joint venture we are forming. And we are very positive for the development of that particular business in Asia. Security of supply. Yes, you're right. We are heavily dependent on the refineries and on the big oil companies. Being in that business, as we all know, benzene is a byproduct to a very large degree. There has been a lack of refinery investments, but there also has been in mature markets a reduction in demand for gasoline, because cars become more fuel efficient, obviously. So for the time being, I can only tell you we haven't seen real shortages. Product always has been available. We have -- what we have seen price variations and volatility in pricing. And pricing obviously reflects sometimes shortage or perceived shortage of product. C4 is a very good example for that, obviously. What you also can say then is that, over time, markets react to that. They normally find a new equilibrium, that is our experience. Even if a shortage develops in the short period of time, there will be a counter reaction. I cannot talk about the long-term investment plans of the oil companies, obviously, but we are not particularly now concerned that all of a sudden, our major feedstocks would not be available anymore. It might become a question of pricing, but right now we don't see this. But maybe Hans, you want to... No?

Manfredo Rübens

Now to Christian Faitz, Macquarie.

Christian Faitz - Macquarie Research

Two quick questions. First of all, can you comment on agro chemical conditions going into 2013? Related also to the U.S. fungicides, do you see any channel inventories? If not, why not? Second of all, in your automotive OEM Coatings business, it was -- one of your major competitors had an ownership change. Do you see any change in the competitive landscape in terms of pricing, et cetera?

Kurt W. Bock

Sorry, the second question you're referring to is the sale of DuPont's business to Carlyle. I'm not aware of any change in market behavior for the time being. Certainly, a change in ownership always creates a little bit of uncertainty on the customer side. And we have to see how this works out over time. Agro, I think Hans talked about this. Agro for us was a very -- Agrochemical business was a very good business in 2012. We once again achieved our EBITDA target of 25%. We had good solid growth. Some of you commented earlier today that the Q4 numbers look kind of disappointing. But please keep in -- really keep in mind that Q4 is kind of a special quarter for agriculture chemicals. And when you look at the second half of the year, actually I think we did very well and we always prefer to not just look at one single quarter. So I'll look the data up here. In the second half, we had an EBIT of EUR 205 million compared with EUR 136 million in the second half of 2011. So I think this is a major improvement. We also had a nice increase in sales. And just referring to the 25%, it's also interesting, we always refer to the relative number, 25%. This means essentially that today, our Ag business has EUR 200 million higher EBITDA than just 2 years ago, and I think that is a major, major achievement in that business -- it's based, as you're referring to, on a very solid pipeline. We have good products in the market. We are cautiously optimistic for 2013. We think we will be able to once again deliver growth and better earnings, which would make, then, 2013 another record year for Agricultural Solutions. And so far, we have seen nothing which should prevent us from achieving those objectives. Field inventories, I'm not aware of any lingering danger in that respect, frankly. Yes, and Hans just added -- our business had a very good start in January and February -- took off very nicely, yes.

Hans-Ulrich Engel

[indiscernible]

Kurt W. Bock

Yes.

Manfredo Rübens

The next questions are from Bill Cross, Eaton Vance ; Lutz Grueten, Commerzbank; and Oliver Schwarz, Warburg Research. First, Bill.

William Cross

The first question is just a factual one. The second question is a bit longer. So maybe I'll give you the first now. The question really is following on Thomas' question about feedstock. Can you just tell us which key feedstocks you are short on and in what regions?

Kurt W. Bock

Feedstocks, we were short on -- you mean, where we have a net buyer position?

William Cross

It sounds like that's the case. It's benzene, in some regions.

Kurt W. Bock

It's benzene. Obviously, we are short on naphtha, not so sure on natural gas as well. We are short on C4 in North America, and we are pretty balanced in C3, and we have a slight positive position in C2. That essentially describes our world. And in methanol, we are also short here. We're a big buyer of methanol, for instance, there.

William Cross

So the notable ones are C4 in North America. Methanol, globally or?

Kurt W. Bock

Globally, yes, globally.

William Cross

And then nat gas in North America?

Kurt W. Bock

Yes.

William Cross

And benzene globally?

Kurt W. Bock

Nope. No nat gas production in North America.

William Cross

Okay. And then the longer question is really prompted by the graceful but lamentably upside down graph at the very end of the handout on Page 10 of the fact sheet, with respect to the free cash flow development. And I wondered if you could just give us a primer on your use of return on invested capital in your compensation system and in your management of the businesses, including the decisions as to whether to divest of subsegments. You referred to returns on capital but not in great detail. And to the best of my knowledge, you don't disclose it by segment. Should we infer from that, that returns on capital are not so critical in terms of your management of the businesses? Or are they important? But if so, why not disclose them at least by segment, if not by subsegment?

Kurt W. Bock

We have had several ways of looking at our businesses. I already talked about the, let's say, competitive landscape. And there, we essentially look at growth rates, EBITDA margins, what you also would do as an analyst or investor. When we talk with our business heads how to run their businesses, this is based certainly on agreements, medium-term agreements with regard to sales development, business development and earnings development. But the underlying yardstick is earning a premium cost of capital. That is very, very important. And cost of capital implies, obviously, the usage of capital. So we are very cognizant that capital is a very scarce resource in our industry. It's a very expensive resource and we try to have out this message home as often as possible. I can assure you for our businesses to make it, to earn a premium cost of capital is really an important yardstick. Again, then you have to be very specific for them -- for some of them, it's relatively easy to overcome that hurdle because the underlying industry profitability, competitive situation allows it to achieve. And then we really have to look at what is the best-in-class, performance worth, it should be the underlying performance target of that business. For others, and I talked about a few of our, let's say, restructuring businesses. It's a challenge to earn that premium cost of capital, but I can tell you, it really drives management behavior in terms of investments and working capital, which in terms of cash out is certainly equally important than as investment, CapEx. Does this answer your question?

William Cross

[indiscernible] this gives us the sense the most critical measure of performance, if it is the most critical measure of performance? As it sounds to be from your answer. Why not disclose it at least by segments?

Kurt W. Bock

Actually, you could do the math pretty easily yourself because we published the cost of capital rate and we published the numbers capital employed by segments. And then you can clearly see where we deliver and where we not yet deliver. In general terms, we don't make our cost of capitals in those segments where we have heavily invested in acquisitions, which is I think easy to understand because you acquire assets essentially at fair market value. You cannot write off goodwill anymore. And you have elevated asset values, but still, our target is then to earn a premium on those capital employed as well.

Manfredo Rübens

Now to Lutz Grueten, Commerzbank.

Lutz Grueten - Commerzbank AG, Research Division

One final question from my side, on Performance Product, follow-up here. In your earlier statement, you said that you're not satisfied with the current performance and also margin by that division. And you said that within the next 12 to 18 month, you expect an improvement here. What's the potential target? What's the aim to achieve in that division on a clean EBIT base? Do you want to come back to the double digit? Is this what we should expect in the longer run? Or is it just stopping the erosion of margin here for the next 12 to 18 month? What's your aim here, please?

Kurt W. Bock

Frankly, I don't think we have any erosion of margin in the business in general. We have a slight cyclical business downturn in that business. And you have seen this in other companies as well, frankly. We have some -- and I mentioned this, we have some businesses where we have structural issues and we have to resolve them. And we will do this over the next, as I've said, 18, 24 months. And you'll see the results of that exercise, for sure. We refrain from giving individual profitability return targets for our segments, with one exception, that is, agricultural products, because agricultural products is a clearly defined business, which can easily be compared with its peers in its industry. And I think that makes a lot of sense when we talk about the 25% EBITDA on sales number. In other businesses, in Performance Products in particular, we have a mixture of many different businesses. And I don't think providing 1 relative number would help you very much. And frankly, when you remember what we did with our strategy, we talked about an absolute EBITDA number, which we try to achieve and in 2015, that is still valid.

Manfredo Rübens

Next question is from Oliver Schwarz, Warburg Research.

Oliver Schwarz - Warburg Research GmbH

Coming back to Jean De Watteville's question, if I didn't make a mistake, I assume that the 160 million production target in 2015 BOE, that is for BASF, is maybe aiming a bit too low, given that the Statoil deal alone plus the increase in oil production in Libya to 100,000 barrels a day should supply you with another 18.5 million BOE per year. So without any other projects coming to fruition, you should easily exceed that target already in 2014. Is that a fair assumption? And secondly, I heard you say, Mr. Bock, that -- or it seems to me, at least, I got the impression that you are calculating further increases in the oil price in the mid-term and the gas prices, well, it seems. Could you please disclose your assumptions you made when you -- in regard to gas and oil prices, when you -- those are agreed to the 2 asset swaps with Gazprom and Statoil you made, because I think that is a highly critical input into the calculation before we come up with the fair value of the assets you get in return of the assets you supplied to the respective parties.

Hans-Ulrich Engel

On your first question, we would be more than happy to increase production as quickly as we can in Libya, but with the 85,000 barrel that we are currently producing, we are fully utilizing the existing infrastructure. The key issue is the shortfall in export capacity. And based on the current situation, we do not see that this will change in the year 2013. So our forecast for this year is to produce, if everything goes well, at the level of 85,000 barrels per day in Libya, fully taken into consideration there that, as I say -- this means export from the field. So from the pipelines on to the terminal is still very, very weak.

Oliver Schwarz - Warburg Research GmbH

[indiscernible] building an additional pipeline to get this bottleneck out of the way?

Hans-Ulrich Engel

Yes, that is true, but we are currently in a situation where the existing pipeline that has some issues is solely used by us and not by the neighboring fields. The pipeline that's in the process of being built will also be used by others. And as I've said, there are overall restrictions in the infrastructure at this point in time, which we do not see going away in the year 2013. And the question is do they go away in 2014?

Kurt W. Bock

And I think your question was also, do we need to increase our production targets based on the recent yield Statoil and Gazprom. And that is something we have to look into. There is a certain likelihood that, that might happen, yes. What is the oil price we apply for calculating or evaluating our projects? Actually, that is a number we do not talk about, no surprise here. But I can assure you that number is definitely much lower than the current oil price. I mean, that is a standard procedure in our industry. You have a medium, long-term forecasts for oil prices, which are -- which do not reflect the 110 we see today. We do think -- or actually, I think we know that the deals we have, concluded last year, are beneficial for our shareholders. That is for sure.

Manfredo Rübens

The next questions are from Ronald Koehler, MainFirst Bank; Paul Walsh, Morgan Stanley; and Laurence Alexander, Jefferies. We'll start with Ronald Koehler.

Ronald Koehler - MainFirst Bank AG, Research Division

Yes, I have a question once again on the outlook. You, obviously, state you would like to exceed the 2012 clean EBITDA level, or EBIT before special items. We heard already that you had a good start into the year. The question is a little bit, do you see here any kind of phasing? Might it be, let's say, more end-related or do you think there will be steady path as, put it that way, for the chemical industry, the first quarter might be potentially a more challenging quarter as a comparison basis? So can you put that a bit into perspective. The second point to CapEx, EUR 4.5 billion. I still remembered you had a EUR 16.5 billion 5-year CapEx plan. Is that still valid, which means, will you then reduce CapEx in the years to come? Or is it now an upgrade of that EUR 16.5 billion CapEx program? And another question, if I may, on Agro pricing. It was slightly negative in Q4 with minus 1%, obviously, might be just a blip in a quarter, whatever. But can you bit elaborate on the current pricing development and how you see that in 2013 in Agro?

Kurt W. Bock

Yes. Actually Agro pricing is a statistical artifact that happens only, because in Brazil we have prices based on U.S. dollar but the invoicing is in Real. And then currency changes can lead to a situation where -- then translated into euro the prices are going downward. This is really a statistical artifact. In the market itself, you saw a positive price development. 2013 business development so far -- and you'll remember that last year we had that expectation that the second half of 2012 should be better than the second half of 2011 or probably also a little bit better than the first half of 2012. We don't think that, that is the case this year. What we need is a pretty steady development starting on January 1 going into the year. And if we don't make it into the first 6 months, I don't think that's a very high likelihood that then we would make it in the second half of 2013. So far, as I've said before, the start was a good one. You also saw the E4 business expectation indicators for the chemical industry, which was positive again in February, which indicated maybe, at least for the German or European business, there is some improvement possible, and that is what we try to describe right now. CapEx, yes, we do have the 5-year plan, the famous 5-year plan. The famous 5-year plan always sees a certain decline of investments in year 4 of 5, because we are then running out of ideas. Most likely, we will not be running out of ideas 3 years down the road, but this is nothing we can decide today. Today, we are focusing actually on 2013 and 2014 in terms of investments. I don't think that we will have this level of investment, which we have seen over the last 18 months for the foreseeable future. On the other hand, if there are additional opportunities in the marketplace, then we will also be able to grab them if they have long-term liability for BASF.

Manfredo Rübens

Next question is from Paul Walsh [Morgan Stanley].

Paul Richard Walsh - Morgan Stanley, Research Division

My first question relates to in parts what Bill was asking earlier on returns. To what extent do you think you can grow returns this year, following some pressure in 2012 due to cyclical weakness, particularly in light of the rising CapEx burden? Or do you think we're going to go through a period where returns fundamentally are a bit under pressure as you're spending more? That's my first question. And secondly, a sort of balance sheet/cash flow question. We saw some pretty big work in capital outflows last year, but net debt-to-EBITDA is below 1x. Can you talk a bit about what you can do to generate more cash in '13 and what you might do with your balance sheet?

Kurt W. Bock

Hans, do you want to start talking about cash and working capital?

Hans-Ulrich Engel

Yes. On the cash flow and your question on 2013, I think one of the signals for 2013, we already set with our dividend proposal that we'll make to the AGM. You'll see us increasing dividend from EUR 2. 50 to EUR 2.60. As Kurt has alluded to, the plan is clearly to improve performance across all businesses in the year 2013. That should lead, obviously, then also to higher cash flow in the year 2013, operating cash flow -- higher operating cash flow in 2013. If your question is also then about what do you do with respect to share buyback program, is there anything immediate and coming? The answer to that is no, as you're well aware. We have the approval of the AGM from last year to buy back shares. But at this point in time, we don't have any current plans with respect to share buyback programs, other means to use the cash, already mentioned the dividend but also the CapEx program.

Kurt W. Bock

Margin management. I think we are going to have to be very specific here. Look at our chemicals segment, we have seen oil price increase recently. We have seen that natural prices have gone up slightly. This certainly means that margins in our petrochemical business are slightly under pressure, and we have to work very hard to bring margins up again. I think this is something, which is ongoing. We talked about caprolactam earlier on. That is a good example, where we need to restore better margins. I think we talked about vitamins as well, where we see a little bit of softness recently. So again, we have to be very, very specific. We will not -- if that is your question, we'll refer to CapEx as well. We will not give up on our return expectations as we go to investments. We have not changed our metrics. We have stayed the same. So if we invest a little bit more today than in the past, this is based on markets expectations, market opportunities and I would say, sound economics and very solid return or very challenging return expectations with regard to our investment. And the bigger budget also reflects the bigger size of BASF. And certainly also the fact that, let's say, 7, 8 years ago, we were coming out of a phase where the entire industry had invested heavily and there was excess capacity available and it was simply possible for quite some time to invest far less. This was a period in time in BASF also invested for a couple of years below depreciation levels. That is not the case right now. But frankly, continuously spending below depreciation, even taking technological achievements and advancements into account does not create organic growth from my point of view. So there's this slight increase in CapEx. At the same time, we're a little bit more hesitant to do acquisitions, as you also noticed.

Manfredo Rübens

Next is Laurence Alexander, Jefferies.

Laurence Alexander - Jefferies & Company, Inc., Research Division

Two quick questions, one just a clarification. You've alluded to a few restructuring productivity opportunities. If you take those impacts in 2013 and balance them against your planned maintenance turnaround schedule, is the net impact neutral compared to 2012 or are you expecting a slight tailwind? And secondly, longer term, a lot of your larger cap here is midstream and downstream, have been ratcheting down their GDP multiplier assumptions and also their GDP forecasts. Not in the near term, but 5 to 7 years out. To the extent that they're becoming too cautious and just reacting to near-term data points and exaggerating the impacts, does that create opportunities for you in some areas where therefore you should be ratcheting your CapEx up faster to take share in the medium term?

Kurt W. Bock

The first question was a difficult one, a complex one. So the question was the improvement in unplanned shutdowns in 2012, will this balance the additional burden from restructuring happening in 2013, right? That is the question? That's hard to answer, actually. First, we don't know how many actual shutdowns we would have. But if you just look at our budgeted runs, there should be an improvement over 2013 and that number, that improvement, is pretty much in line with what we will invest. I think, therefore, your question is a smart one. It's pretty much in line with what we plan to invest in additional restructuring going forward. GDP multiplier. I can only talk about BASF. We have said, as part of our long-term strategy, we do think that the chemical industry can grow faster than GDP, and the reasons I think are well understood. Higher share of emerging markets and rate of innovation in existing markets. For instance, you talk about solar and wind energy. It is all based on better chemistry at the end of the day. If now some other companies might become a little bit more skeptic about the future outlook doesn't mean that we can capture market share. It's difficult to answer that question in such a generic way. Again, we have to be very specific looking at individual businesses, whether we really do see opportunities for BASF to grow. I can only tell you our investment projects are based on 10, 15-year market growth projections. And that does not change overnight simply because one of our competitors adapts his GDP multiplier. And I think we have 5 more minutes to go, right?

Manfredo Rübens

Yes, I think maybe -- we already at almost at 6:00. Final question, please just only ask one question. This is from Martin Roediger, Cheuvreux.

Martin Roediger - CA Cheuvreux, Research Division

Only one question, it's on the financial result. It appears to me that this was very low compared to estimates. And this is primarily because of the mark-to-market valuation of your put options for your stake in Styrolutions, which was minus EUR 88 million. Can you explain why you treat this minus EUR 88 million as special item for your adjusted EPS calculation?

Hans-Ulrich Engel

For the same reason that we showed the positive result last year as a special item and adjusted for it. We're adjusting also for the minus EUR 88 million that's coming from the Styrolution options. So we showed the profit last year of roughly EUR 600 million. Now we do the mark-to-market for -- or the ongoing evaluations of the options. And since we showed the gain last year, as a special item, we showed the same way, the special item, the negative minus EUR 88 million.

Kurt W. Bock

And again, this is pure accounting. IFRS at its best. It doesn't tell you anything about what's going to happen, if at some point in time, we might put our stake on the block.

Hans-Ulrich Engel

[indiscernible] it up would also be special item.

Manfredo Rübens

Okay, ladies and gentlemen, this concludes our conference this afternoon. I would like to thank you for joining us here in Ludwigshafen or via web or phone. Before I let you go, please let me remind you on our next reporting date. We will have our first quarter 2013 conference call on April 26 already at 8:30 in the morning, because this is also the day of our annual shareholders meeting. Prior to that, we will hopefully see you at our event in London on March 22, where we will provide you with restated figures for 2012, according to the new segment structure, and discuss in detail the impact of the IFRS changes on our financial statements.

With this, I would like to say goodbye to all who have joined us online. And for those who are here, I would like to invite you now to our dinner at the BASF Casino. The buses will be leaving downstairs. Should you have any further questions, the entire IR team will be very happy to help you. Thank you again, and have a good day.

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