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Executives

Magdalena Moll - Senior Vice President of Investor Relations

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

Manfredo Rübens

Analysts

Tony Jones - Redburn Partners LLP, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Andrew Benson - Citigroup Inc, Research Division

Rhian O'Connor - Crédit Suisse AG, Research Division

Jaideep Pandya - Berenberg Bank, Research Division

Andreas Heine - Barclays Capital, Research Division

Norbert Barth - Baader Bank AG, Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

BASF (OTCQX:BASFY) New Segment Structure and IFRS Changes Conference March 22, 2013 8:00 AM ET

Operator

Good afternoon, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF conference call. [Operator Instructions] And the conference is being recorded. [Operator Instructions].

This presentation may contain forward-looking statements subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realized from the proposals described herein. Forward-looking statements may include in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation and supply and demand. BASF has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and financial performance may be better or worse than anticipated.

Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice, and BASF does not undertake any duty to update the forward-looking statements and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations.

Ladies and gentlemen, at this time, I'd like to turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead, madam.

Magdalena Moll

Yes. Thank you very much, and good afternoon, ladies and gentlemen. I would like to welcome you to our conference call on BASF's new segment structure and IFRS reporting changes. With me on the call today are Hans-Ulrich Engel, our Chief Financial Officer; and Manfredo Rübens, our President of Finance.

As you all know, BASF implemented its new segment structure as of January 1, 2013. It is designed to optimize BASF's organization in order to better serve its customer industries and enhance its operational and technology excellence. Also since the 1st of January 2013, BASF applies the new IFRS 10 and 11 standards, as well as IAS 19 revised. For your information, we have posted the charts, the speech and the press documents on our website at basf.com/share. In addition, you will find a short report outlining the BASF Group and segment figures 2012 adjusted to changes in IFRS 10 and 11 and the new segment structure.

And with this, I would like to already hand it over to Hans.

Hans-Ulrich Engel

Yes. Thank you very much, Maggie, and good afternoon, ladies and gentlemen. Also from my side, thank you for joining us today. Let me start with an overview on the topics we would like to discuss today. First, in November 2012, we announced changes to BASF's segment structure, which came into effect on January 1, 2013. Today, I will explain these changes and how the former Plastics segment has been split between the Chemicals segment and Functional Materials & Solutions segment. Also from January 1, 2013 on, we have applied the new accounting rules IFRS 10 and 11 and IAS 19 revised. We will give you an overview of these new requirements and their impact on BASF Group. Third, we will show you the impact of BASF's new segment structure and the accounting changes on BASF group reporting. Fourth, we will also address the impact of these changes on our 2015/2020 "We create chemistry" strategy targets.

Now let me say the following at the outset. Unfortunately, most of what we will cover is old news as we had covered it already in our annual report 2012. And to a large extent, it is very, very technical. But we thought it might make sense to provide you with some more details to help you with your work.

So with that, let's get into the new organization. An important part of BASF's "We create chemistry" strategy is to focus more on our customer industries and to adjust our business models accordingly. With the new segment organization, we are doing just that. We are bundling units close to our customer industries on the one hand, and the classical chemicals backbone of Verbund on the other hand.

What did we actually do? We split the Plastics segment between the Chemicals segment and the renamed Functional Materials & Solutions segment. At the same time, we have aligned the products within the Chemicals segment even more closely along the value chains. We now have 5 instead of 6 segments and 14 instead of 15 operating divisions. The Chemicals segment now consists of the following 3 divisions: Petrochemicals, Monomers, Intermediates. In the segment Functional Materials & Solutions, we established a new division, Performance Materials.

BASF develops its organization along the 3 basic business models of its strategy, which are classical chemicals, customized products and the functionalized materials and solutions. A separation of businesses with distinct business models helps to enhance the management focus. With this approach, we bring together competencies, technology and operational excellence in the upstream part of our portfolio and a materials platform, application know-how and customer proximity in the downstream part. The key success factors of the models are described on the chart.

To leverage the potential of our broad portfolio, it is important to work on an interdisciplinary basis and to have a deep understanding of customers and value chains. Let me characterize the differences. The classical chemicals business is the part of our portfolio that forms the core of our production Verbund and the starting point for most of our value chains, encompassing basic chemicals such as cracker products or ethylene oxide. Customized products comprise industry-oriented, differentiated offerings, which are usually linked and backward-integrated to the value chains of our production Verbund. In functional materials and solutions, we integrate more closely our R&D expertise, our technological know-how and our global access to key industries across disciplines. In this way, we aim to develop specific business areas in which know-how and chemistry plays a crucial role in developing innovative solutions. With a new segment structure, we have made a further visible step in order to separate the more customer-focused units from the Verbund backbone units.

What does this look like? Here you see our segment structure as of January 1, 2013. The Plastics segment was dissolved, some parts have been integrated into the Chemicals segment and some into the Functional Materials & Solutions segment. The large-volume monomers, like MDI, TDI, caprolactam, as well as basic polyamide polymers, have been transferred to the Monomers division in the Chemicals segment. The businesses that are developing tailored solution for customers, for example, PU, Polyurethane systems and engineering plastics are now combined in the new division, Performance Materials, which bundles our materials competency.

Let's turn first to the new division of our Chemicals segment, which we have aligned according to the chemical building blocks and value chains: the Petrochemicals division to the ethylene, propylene and butadiene value chains; the Monomers division with major building blocks for our polymers, mainly based on aromatics; the Intermediate division with the methane value chain.

In Petrochemicals, the changes are limited. The propylene oxide production from Polyurethanes, which is cracker-based, has been added to the activities of Petrochemicals. Thus, all derivatives of propylene are now bundled in Petrochemicals. We want to create technological synergies, thus supporting the growth of downstream businesses. With this allocation, we strengthened our C3 value chain integration and Verbund structures.

Now onto Monomers. The new division Monomers combines the core of the former Inorganics division, such as sulfuric acid, nitric acid, chlorine activities and the ammonia value chain, with the building blocks from the former Performance Polymers and Polyurethanes divisions, such as MDI, TDI, caprolactam, adipic acid, to name only a few. It also includes ammonia and sulfuric acid, which are required to produce caprolactam from cyclohexanone. Nitric acid is used in the production of nitrobenzene, a precursor for isocyanate. Chlorine is also part of the division. In this way, we've brought the main activities related to the benzene value chain up to the 2 Polyurethane precursors, TDI and MDI, together into 1 division, reduce interfaces and will benefit from a more integrated technology steering. Electronic Materials is set up as a separate business unit in the Monomers division, where it has a strong raw material integration.

The Intermediates division comprises all methane-based Chemicals in our Verbund, with the exception of the ammonia value chain, which is part of our Monomers division. The value chain from acetylene off-gas to methanol, formaldehyde and methylamine is now part of Intermediates. The acetylene value chain will remain in Intermediates, as well as the formamide and formic acid value chains. Because the acetylene value chain includes butanediol, which serves as a monomer in the production of PBT plastics, we also transferred the production of PBT resins, previously within Performance Polymers, to the Intermediates division.

The benefits for the C1 value chain are that all products and byproducts of the butanediol value chain are in one division; we reduce cross-divisional interfaces; and we can offer a broader portfolio of inorganic Intermediates for the pharmaceutical industry, complemented by other products from BASF's portfolio.

Now to Functional Materials & Solutions. In Functional Materials & Solutions segment, the new division Performance Materials combines the polymer materials platform for chemistry-enabled customer solutions. We allocated to this new division the following businesses: the downstream businesses of engineering plastics and specialty polymers of the former Performance Polymers division and the Polyurethanes division's Polyurethane systems, TPU, Cellasto and Polyol businesses; the epoxy systems business from the former Intermediates division; and styrenic foams from the former Performance Polymers division. The focus of the new division Performance Materials is on strengthening our "one face to the customer" approach and intensifying our approach to key industries, for example, automotive, construction, electrics and electronics. All other segments and operating divisions remained unchanged. And with this, I hand it over to Manfredo Rübens, who will give you more insights into IFRS 10 and 11 and IAS 19 revised. Your turn, Manfredo.

Manfredo Rübens

Thank you. Good afternoon, ladies and gentlemen. Now to the new reporting standards, IFRS 10 and IFRS 11, which need to be applied mandatorily in the EU from 2014 onwards but which we have adopted early already for the fiscal year 2013.

Let me first briefly explain the 3 consolidation methods before I get into the new IFRS requirements and their impact on BASF Group's reporting. The full consolidation method is applied for companies where we control the entity. This means that we consolidate 100% of all financial figures, assets, liabilities and sales down to income before minority interests. All intragroup transactions are eliminated. In cases where we hold, for example, 60% of the shares and control the company, we still include 100% but show third-party interests after taxes in the income statement as a separate line item.

For jointly controlled entities where we hold, for example, 50% in a joint venture, we have elected to use pro rata consolidation in the past. This means we consolidated the financial figures in the income statement and balance sheet proportionally according to our holding. And finally, we account for associated companies, where we have a significant influence, using the equity method. This means that we show our proportion of net income in the financial result. In the balance sheet, we report a financial asset which changes according to the equity changes of the respective company. The net income increases the value of the financial asset, while net losses and dividends decrease it.

IFRS 10 on Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements and requires an entity to consolidate the other entities that it controls. The most important change is the definition of control since it now focuses more on the actual power over an investee's relevant activities rather than who has the majority of the voting rights. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. I apologize for the technical language. An entity can only fully consolidate the financial statements of another entity if it has such a control over this entity.

The new IFRS 11 on Joint Arrangements also brings a change. IFRS 11 outlines the accounting by entities that jointly control an arrangement. Joint control is the contractually agreed sharing of control. Arrangements, subject to joint control, are classified either as a joint operation or as a joint venture. Joint ventures, where the investor has the rights to net assets, are to be consolidated as equity. The option to apply the pro rata consolidation also for joint ventures, which BASF has used in the past, was removed with this new standard. This means that a number of joint ventures, which we have consolidated pro rata in the past, now have to be accounted for at equity. Joint operations, where the investor has the rights to assets and the obligations to liabilities, will continue to be consolidated pro rata.

Let me now show you how the new requirements of IFRS 10 and 11 result in the reclassification of companies within BASF Group. At the top of this chart, you see the different classifications of BASF holdings and companies according to the old accounting standards. We distinguish between 308 fully consolidated subsidiaries, where we have control and generally a shareholding of more than 50%; 22 pro rata consolidated joint operations and joint ventures; and finally, 14 at equity consolidated associated companies. As of January 1, 2013, we applied the new IFRS 10 and 11 accounting standards. This leads to a reclassification of 4 fully consolidated and 14 pro rata consolidated companies, which are now accounted for using the equity method.

What does this mean for the financial reporting of BASF Group? Under the new rules, we will report significantly lower sales, EBITDA, EBIT and also taxes. IFRS 10 and 11 will, however, have no influence on net income. The main impact results from equity consolidating the formerly fully consolidated Wintershall AG, holding BASF's 51% share in our Libyan onshore oil activities and the 50-50 joint venture BASF-YPC with our Nanjing Verbund site in China, which was previously consolidated pro rata.

Starting in the first quarter 2013, we will report the line item, income from companies accounted for using the equity method, as part of EBIT. This line will also include the equity results of the associated companies, which were previously reported as financial result below EBIT. On the chart, you find for your reference some more explanations of the impact on the income statement, the balance sheet and the statement of cash flow. All major KP -- key performance indicators will be impacted, as well as personnel expenses and the number of employees.

But before I walk you through the numbers, let me first highlight some changes due to the revision of IAS 19 revised. In comparison to IFRS 10 and 11, it has only limited influence on BASF reporting. IAS 19 revised on employee benefits is applicable as of January 1, 2013. The revision affects BASF as follows. Asset returns on plan assets recognized in other financial income will no longer be calculated on the basis of return expectations. Instead, they will be calculated by applying the typically lower discount rate for pension obligations. For the avoidance of doubt, the difference between these standardized asset returns and the actual asset performance will, as in the past, be recognized as other comprehensive income in equity. Overall, IAS 19 revised reduces BASF's 2012 financial result by around EUR 80 million, net income by EUR 60 million and BASF's EPS by EUR 0.06 per share. In 2013, the negative impact on the financial result is expected to be around EUR 100 million.

Let us now look at the combined impact of the new segment structure, IFRS 10/11 and IAS 19 revised. I will explain this by highlighting some key figures of the full year restated statement of income, balance sheet and statement of cash flows for 2012. In the brochure we have posted on our website, you're also getting many more details and also on all quarters of 2012.

As mentioned earlier, the overall changes to income statement figures are substantial but have almost no impact on net income. Sales are reduced by EUR 6.6 billion predominantly due to the mentioned equity consolidation of Wintershall AG and BASF-YPC Nanjing. Mainly due to the reclassification of Wintershall AG and consequently, the elimination of oil taxes, EBITDA is reduced by EUR 2.5 billion. EBIT before special items and EBIT are both reduced by EUR 2.2 billion. As explained earlier, the equity income will now be reported in EBIT.

Based on 2012 restated figures, equity income amounts to EUR 361 million. Of this, EUR 171 million relates to the equity income of associated companies, which were also previously reported under the equity method but as financial income. The financial result is reduced by EUR 225 million, mainly due to the just-mentioned reclassification of the income from associated companies, as well as the mentioned negative effect in the amount of EUR 80 million of IAS 19 revised.

Income before taxes and minority interests is reduced by EUR 2.5 billion. Income taxes are EUR 2.3 billion lower since Libyan oil taxes are no longer reported. The net income reduction of EUR 60 million is due to the IAS 19 revision, leading to the EPS reduction of EUR 0.06 a share in 2012. The lower EBIT after cost of capital is predominantly the result of the accounting for compensable Libyan oil taxes. Non-compensable oil taxes have already in the past been eliminated in this calculation.

The balance sheet total is reduced by EUR 1.6 billion. Property, plant and equipment, as well as working capital, decreased while financial assets increased. These effects result from the 18 companies which were previously consolidated fully or pro rata, and are now accounted for at equity. The reduction in equity is also a consequence of IFRS 10 and 11, as the minority interests of joint ventures are no longer reported.

In the cash flow statement, we see a slightly lower operational cash flow since the income from the companies is now accounted for under the equity method will only be included when dividends are paid. Furthermore, cash used in investing activities and cash used in financing activities declined slightly as a result of the elimination of investing and financing cash flows of companies previously consolidated fully or pro rata. Free cash flow remains unchanged.

In the Chemicals segment, we have significant changes. The added businesses of the former Plastics segment increased sales, EBITDA, EBIT before special items and EBIT, as well as EBIT after cost of capital. However, the change from pro rata consolidation to the equity method for BASF-YPC Company, our Verbund site in Nanjing, reduces these increases. The integration of the new division Performance Materials into the Functional Materials & Solutions segment leads to an increase in all line items of the segment. Catalysts sales figures decreased due to effects from IFRS 10 and 11.

The Oil & Gas segment is not influenced by the changes of the segment structure. The changes are solely due to IFRS 10 and 11. Sales decreased by approximately EUR 4 billion, mainly in Exploration & Production, due to the deconsolidation of Wintershall AG but also in Natural Gas Trading as a number of jointly controlled gas trading houses are now being equity consolidated. EBIT before special items and EBIT more than halve due to reporting changes on Libyan oil taxes. Net income remains unchanged. EBIT after cost of capital declined by roughly EUR 350 million as a result of the accounting of compensable Libyan oil taxes.

Regional sales split is affected primarily for Europe and Asia-Pacific. In Europe, the effect is again mainly due to the Wintershall companies. The biggest negative impact in Asia-Pacific is due to BASF-YPC Company Ltd. Nanjing. Furthermore, 2 jointly controlled companies in our Catalysts division are now equity consolidated.

Restated CapEx is lower by EUR 134 million as investments of our equity consolidated joint ventures are no longer reported. The changes within the segments are due to the dissolution of our Plastics segment. Therefore, you see percentage increases for Chemicals and Functional Materials & Solutions.

The currency impact on BASF Group figures changes due to 2 major factors. The crude oil sales of Wintershall AG are mainly denominated in U.S. dollars and the sales of BASF-YPC Company in renminbi are in renminbi. As you know, the RMB is based on a currency basket, where the U.S. dollar plays a major role. Due to the now equity consolidating these companies, the EBIT U.S. dollar sensitivity of BASF Group on sales and EBIT decreases. The oil price sensitivity of the Oil & Gas segment is also reduced.

And with that, I hand back to Hans, who will talk about the impact on BASF's outlook for 2013, as well as on our "We create chemistry" strategy targets.

Hans-Ulrich Engel

Yes. Thanks, Manfredo. And let me start with the outlook for 2013. The adjustments made have no impact on the guidance we gave 4 weeks ago, now considering the restated figures. We strive to increase volumes in 2013, excluding the effects of acquisitions and divestitures. We want to exceed the 2012 levels in sales and EBIT before special items. The expected increase in demand together with our measures to improve operational excellence and raise efficiency will contribute to this. And last but not least, we aim to earn a higher premium on our cost of capital once again in 2013.

With that, ladies and gentlemen, to the "We create chemistry" financial targets. As you know in November 2011, we presented our "We create chemistry" strategy and outlined our mid- and long-term targets. Those targets, however, did not consider the changes in IFRS 10 and 11 discussed today. Due to the fact that the impact on sales and EBITDA is significant, we will adjust our financial targets accordingly.

Based on the technical changes of IFRS 10 and 11, we have a sales reduction in 2012 of EUR 6.6 billion. Therefore, we will adapt our current 2015 sales target from EUR 85 billion to EUR 80 billion, and accordingly, also the 2020 sales equally by EUR 5 billion, from EUR 115 billion to EUR 110 billion. When we developed the "We create chemistry" strategy targets for 2015 and 2020, we assumed that we would have changes with respect to the Libyan oil taxes as a result of moving from a so-called concession agreement to an EPSA, Exploration and Production Sharing type Agreement. Based on that, we used significantly lower oil taxes for the Libyan business for the period up to 2020.

Full adjustment of the IFRS 10 and 11 accounting effect of EUR 2.5 billion on the EBITDA would thus not be appropriate as the major part of this effect is based on the Libyan oil taxes. Consequently, we only adjust the EBITDA target for the assumed EPSA, Exploration and Production Sharing Agreement tax effect and the missing EBITDA contribution from the companies consolidated at equity. Again, please keep in mind that we will report only the net income for the 18 companies as equity income but no longer their EBITDA. The adjustment for 2015 is EUR 1 billion to a total of EUR 14 billion. And then the same amount, in other words EUR 1 billion, also for the year 2020 from EUR 23 billion to EUR 22 billion.

Finally, an adjustment of the EBIT after cost of capital goal is also necessary. As you have heard from Manfredo, the IFRS effect in 2012 on this important KPI is about EUR 400 million. Since this difference would have increased over time, we adjust our target for the EBIT after cost of capital by EUR 500 million to EUR 2.0 billion, which we want to earn on average per year based on a pretax cost of capital rate of 11%.

The accounting changes will have only a slight impact of EUR 60 million on net income. And this is the accounting effect that comes from IAS 19 revised, as you've heard. So in other words, of less than EUR 0.10 on the EPS. It was already stated during the analyst conference in the end of February, we do not adjust our 2015 EPS target of EUR 7.50 per share. What we have not included in our adjustments, and this is important to note, so what we have not included in our adjustments at this point in time is the asset swap with Gazprom, a transaction which is expected to close by the end of this year. The swap will lead to the divestiture of our Natural Gas Trading and storage business, as well as part of our E&P activities in the North Sea. Together, these activities contributed about EUR 10 billion to sales in 2012 and roughly EUR 500 million in EBITDA in the year 2012, so significant impact there.

Now let me close with the overview of our 2015 and 2020 adjusted financial targets, which you can see on this slide. So first of all, with respect to our growth targets, which is to grow at least 2 percentage points above chemical production, there is no change. With respect to the premium on the cost of capital, as explained already, that due to the IFRS 10 and 11 changes, we'll adjust that target from the prior EUR 2.5 billion on average per year to EUR 2.0 billion on average per year. Our sales target for 2015 goes from EUR 85 billion to EUR 80 billion. The sales target for 2020 goes to EUR 110 billion. With respect to EBITDA for the year 2015, a reduction of EUR 1 billion from EUR 15 billion to EUR 14 billion. We leave, as explained, the EPS target unchanged at EUR 7.50. And the EBITDA target for the year 2020, also reduced as the one for the year 2015 by EUR 1 billion from EUR 23 billion to EUR 22 billion.

And with that, first of all, thank you for your attention. Apologies again for the very technical information that we are providing here. And we are now happy to take your questions.

Question-and-Answer Session

Magdalena Moll

Thank you very much, Hans. And we, ladies and gentlemen, we are now moving on to your questions. [Operator Instructions] And so we are currently starting with 3 questions: one from Tony Jones, Redburn; then comes Paul Walsh, Morgan Stanley; and the third one is Andrew Benson from Citi. Go ahead, please, Tony.

Tony Jones - Redburn Partners LLP, Research Division

Good afternoon, everybody. Just one question for me and it's on the reorganization. Aside from changing the structure between classical and functionalized materials, is there anything practically changing from the behavioral sense? So is there any change to metrics or incentives or employee targets? Because presumably, things like tailored products and customized services, presumably, that kind of thing already happened. So I'm just interested to see if you're doing anything further deeper down in the organization.

Hans-Ulrich Engel

Tony, this is Hans. Thanks for your question. Now is there anything changing with respect to metrics or anything deeper down in the organization? I'd say the key change that we have is the even stronger focus on the respective industries and customers, working even more closely together with them in line with the industry targets that we have, with the industry focus groups that we have built over the last years. But a change in metrics, no. But again, an even stronger focus on the way how we are collaborating and cooperating with our respective customers.

Magdalena Moll

Our next question comes from Paul Walsh, Morgan Stanley.

Paul Richard Walsh - Morgan Stanley, Research Division

It was relating to the cash flow effect of the accounting changes. Hans-Ulrich, you talked about the dividends that you need to get in order for the cash flow effect to be consistent with what you had in the past. Are there mechanisms in place for you guys to ensure that you can get the repatriation of those cash flows so that you can actually book them given the accounting changes, particularly thinking about Oil & Gas in Libya?

Hans-Ulrich Engel

Now, Paul, with respect to that question, is there anything changing with respect to what we do with dividends, where we decide on, what we leave in the respective countries to fuel growth or what we repatriate? There is no change really as a result of the accounting standards because if you think it through, ask yourself the question, is there anything really changing in practical terms? There isn't a whole lot changing. It's really technical adjustments due to the respective IFRS changes that are reflected in our figures, but will not have an impact on the way how we're running our business.

Paul Richard Walsh - Morgan Stanley, Research Division

Okay. So the bottom line is you feel comfortable that you can actually get the cash out from some of those JVs given the accounting changes?

Hans-Ulrich Engel

Exactly, where we have to. But again, the way we run it typically is -- and that always depends on the amount of CapEx that's required in the respective country to use it and invest in our activities there.

Magdalena Moll

We're now moving on to the next question from Andrew Benson from Citi.

Andrew Benson - Citigroup Inc, Research Division

On slide, I think, 24 of...

Magdalena Moll

Can you speak up a little bit, Andrew, it's hard to hear you.

Andrew Benson - Citigroup Inc, Research Division

The Slide 24, just on your projections, the impact because of Libya, et cetera, was a EUR 2.5 billion reduction at the EBITDA level. But projecting forward, you're only -- it's only EUR 1 billion. I wanted to understand why the delta in 2015 and '20 had only been reduced by EUR 1 billion?

Hans-Ulrich Engel

Yes. Let me take that, Andrew. The reason there is that when we did our "We create chemistry" strategy, we assumed that we would have an EPSA-type arrangement, so exploration production sharing agreement, which would have already reduced the amount of non-compensable oil taxes significantly, simply a different contract regime. You may remember that prior to the year 2011, in Libya, we were at a point in time where we had completely renegotiated the contract regime there. It was the concession agreement which we still have today due to the situation in Libya that unfolded in the year 2011. But we had, by the end of 2010, a fully negotiated and actually initialed, subject to approval of the relevant authorities in Libya, a so-called EPSA 4 agreement. That would have reduced the -- because it's a completely different setup there, that would have reduced the oil taxes in Libya significantly. And what we are showing here, the reason why we are adjusting by only EUR 1 billion the EBITDA, what we are showing here now is the delta between the scenario that we had assumed for our "We create chemistry" strategy, and what's now currently happening as a result of the IFRS 10 and 11 changes. In other words, it would have been an opportunity, let me put it this way, to take our targets further down. But the way we operate it there is that we're looking at the assumptions that we used when we put the strategy together and there, we have this delta of compared to the EUR 2.5 billion in the year 2012 of just EUR 1 billion.

Andrew Benson - Citigroup Inc, Research Division

No, I understand. I'm not sure I understand the changing contractual arrangement, but I understand the delta.

Manfredo Rübens

I mean, if there is a requirement there, Andrew, to provide more color on the difference between current concession and EPSA agreement, I'm sure we can do that.

Magdalena Moll

We're now moving onto the next question. Rhian O'Connor from Credit Suisse.

Rhian O'Connor - Crédit Suisse AG, Research Division

It's to do with Wintershall and the de-consolidation of that business. On Slide 12, you mentioned the 4 companies which were fully consolidated and are now going to equity method consolidation. I assume that from what one you said, Wintershall is one of those. So I'm kind of confused about on Slide 16, you said decrease in sales and decrease in EBITDA mainly due to Wintershall AG. I thought Wintershall was a wholly-owned subsidiary. So why have you the de-consolidated some of the sales and profits of that business? Can you take me through that a bit, please?

Manfredo Rübens

Yes, sure. And the reason for that is, Wintershall AG is not the holding company for our oil and gas activities. Wintershall AG is the subsidiary that has the right for exploration and production in Libya. So in other words, it is a subsidiary in the Wintershall group of companies, and it is that company that is affected. It is not the entire Wintershall group or Wintershall holding company. And then please keep in mind that Wintershall AG, the company that has the activities in Libya is a joint venture between BASF and Gazprom, with about equal participation rights between BASF and Gazprom. So not the top company, one company having, in the Wintershall group, having activities in Libya.

Magdalena Moll

So our next question comes from Jaideep Pandya from Berenberg Bank.

Jaideep Pandya - Berenberg Bank, Research Division

Could you give us some color of what would be the future tax rate? Because your restated tax rate is fairly low, so should we expect this level to continue?

Hans-Ulrich Engel

Don't expect the level to continue that you see in the year 2012. Keep in mind that in the year 2012, we had a reversal of a tax provision. We explained that in the last analyst conference already. Expect a tax rate, going forward, in the mid-20s which is in line with what we've said in the past with respect to our underlying tax rate without the non-compensable oil tax.

Magdalena Moll

Now we're moving on to the next question...

Operator

[Operator Instructions]

[Technical Difficulty]

Magdalena Moll

Okay. So we move on to Andreas Heine.

Andreas Heine - Barclays Capital, Research Division

Yes, I have a question regarding the profitability of the Chinese joint ventures. The difference in the EBIT is mainly explained by your oil business and not by the Chinese joint venture. So either they don't -- have not earned anything in 2012 or the EBIT and net earnings are basically the same as you don't pay interest and taxes those. Could explain this to me, why that is?

Hans-Ulrich Engel

Yes, Andreas, this is Hans. The overwhelming effect that you have in the restated figures is obviously coming from the Oil & Gas business, for the reasons already stated. When you take a look at the brochure that was just published a few minutes ago and is available on -- all the information on the Internet, we'll also walk you through there region by region through the respective accounting changes. Also quarter-by-quarter, you can see there the kind of impact that we have in Asia Pacific. And there, it is predominantly the YPC joint venture that we have. You see that there is an impact, but this is much smaller, obviously, than what we have as an impact in the Oil & Gas business. And when you look at the impact there, just keep in mind that this is actually lower than what you would expect because we're moving now the equity income that we would show for the de-consolidated companies, we're moving that into EBIT. So that's actually a mitigating effect that you see there. And that way, you have a pretty good idea on what happened with the respective Asian joint ventures in the year 2012.

Andreas Heine - Barclays Capital, Research Division

Is the difference also lower because you pay lower tax? Because effectively then, the difference between EBIT and net earnings pro rata is not that big anymore?

Hans-Ulrich Engel

There is -- as you know, there is certain tax incentives, tax exemptions that are playing a role in China for the new activities there over a certain period of time, and yes, that also has an impact.

Magdalena Moll

And now since we had a cutoff in our line to the operator, I would like to ask the operator now to continue with the questions because we can't see it electronically anymore. Could you please call the next question?

Operator

The next question is from Mr. Norbert Barth with Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

Perhaps more a kind of statement, and also perhaps a question for if we can get some voluntary information only to -- I don't know what you are thinking about, this new consolidation spend that is, but I think from an analyst point of view, we are losing some transparency about sales and even more important, on operating earnings level. So one question would be, if you had in mind, perhaps provide this figure voluntarily on -- at least on sales a, EBITDA, EBIT level. And I want to explain also why because analysts always are often comparing also for peer group comparison, multiples like EV/EBITDA, EV/EBIT. So if we have not this information anymore, it looks perhaps that there's something missing and makes the peer group comparison even more difficult. So it would help if you could give us these figures which are not consolidated anymore on a voluntarily basis.

Hans-Ulrich Engel

Yes, Norbert, thanks for your comment and the implicit question therein. First of all, certainly, and there we agree with what you're saying, is this helping really the transparency, these type of accounting changes? Probably not really. But then, what alternative do we actually have than following them? There is none. With respect to transparency, I think, once you have the time to go through the information that we are providing in the comparison, what I refer to as the little booklet or brochure, that should help to understand. Do we understand better? And again, it is very, very technical at this point in time. And frankly, even internally, it takes us a bit of time to get used to the new figures. Will we provide more information voluntarily? I am not 100% sure that we will do that. But here's what we'll do, we'll take this into consideration.

Operator

The next question will be from Jaideep Pandya of Berenberg Bank. [Operator Instructions]

Jaideep Pandya - Berenberg Bank, Research Division

It's just on your premium to cost of capital that you have. In your annual report, you have a target of EUR 2.5 billion to be achieved per annum or as an average, but you've reduced that to EUR 2 billion. And likewise for 2012, it was EUR 1.5 billion. So could you give us a reason why you have reduced it and what is the restated figure for 2012?

Hans-Ulrich Engel

Yes, certainly. Manfredo, do you want to take that?

Manfredo Rübens

Yes, I'll take that. You can see in the brochure that restated figure, let me just see where I find it, has also dropped. The reason it dropped for almost EUR 400 million, the premium, is related to not the non-compensable but the compensable oil taxes that we had for Libyan operations in the year. So now, remember that we had, in the past, fully consolidated Wintershall AG, and now we are moving to the after-tax proportional net income or the net income of our proportion, which is now included in EBIT. So this is a technical change that we have, which, previously, was part of the premium calculation. And now we take that out and adjust, therefore, by about EUR 500 million.

Operator

The next question is from Andreas Heine of Barclays.

Andreas Heine - Barclays Capital, Research Division

Again, one question regarding the gas trading. You put gas trading on the discontinued line in the balance sheet, so I would like to know how you will report this gas trading in 2013? Will we get still sales EBIT and so forth or will it only show as earnings from discontinued operation? That's one. And related to this, if you have sold gas trading, I think the pipelines are still with BASF, so will you in the future, so after the swap is closed, still have the division gas trading showing then income from the pipelines or will that be skipped?

Hans-Ulrich Engel

Okay. First part of your question, we'll show for the year 2013 the result of the gas trading business unchanged. So we show it as part of our operating division, Oil & Gas or the segment Oil & Gas, so there won't be a change there. You'll get the same type of information for 2013 as you get it in the past for the Oil & Gas segment. Second part, yes, the pipeline is not included in the transaction now, Andreas. What we'll do with that on whether or not we'll show that separately under gas trading in the future is not yet finally decided. But if I look at it at this point in time, I'd say high likelihood of that business being included in the Oil & Gas business as part of E&P because it doesn't have really a major impact. And if everything else goes and we alluded to roughly EUR 10 billion in sales and roughly EUR 500 million in EBITDA based on the 2012 impact of that business, it probably doesn't make an awful lot of sense to show the remaining pipeline business separately.

Operator

We have a question from Mr. Thomas Gilbert of UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

The question is regarding in the tangible fixed assets, would you be able to share with us, either over the phone or via e-mail, the assets at cost restated as well, so a gross of depreciation? So that the net went down EUR 1.56 billion, I'm just wondering what the assets at cost are restated, please?

Hans-Ulrich Engel

Manfredo, you want to address that?

Manfredo Rübens

Sorry, I didn't get that question. Could you repeat that, Thomas?

Thomas Gilbert - UBS Investment Bank, Research Division

I'm just looking for the gross tangible fixed assets restated rather than that net tangible fixed assets restated, so before accumulated depreciation, please.

Manfredo Rübens

I think we never provided gross assets.

Thomas Gilbert - UBS Investment Bank, Research Division

You do in the annual report, every company does that, in the annex to the Annual Report.

Manfredo Rübens

Yes. We don't have that in this -- in the printout or in the brochure. We have to think how we can get this information across.

Operator

The next question is from Mr. Norbert Barth with Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

A question regarding the joint operations which will continue to be consolidated pro-rata, that are 8 companies. Can you name that 8 companies and perhaps give feeling what sales, and perhaps, EBIT volume that is?

Hans-Ulrich Engel

Yes, we can, Norbert. Let me start out by just giving you some of the companies so that you'll have an idea. We have the HPPO activities in there together with Dow. We have the Elba joint ventures in there, that's together with Shell. We have, as another major activity, the joint venture with Gazprom Achimgaz in Western Siberia in there, so that gives you an idea on the type of joint ventures. Maybe, Manfredo, you can provide the information on the sales there in a second. And as we had explained, these are arrangements where both parties have rights to the production, typically here, in all of these, on a 50-50 basis. And they will be reported in a very similar fashion, I would say to the pro-rata consolidation that we've done in the past.

Manfredo Rübens

Yes. And Norbert, in fact, there is no change to the reporting of these companies before. So those joint operations are basically -- continue to be consolidated pro-rata. So no change to those companies.

Norbert Barth - Baader Bank AG, Research Division

But no idea on the overall level, like EBIT level?

Hans-Ulrich Engel

Sure, we have an idea [indiscernible], Manfredo?

Manfredo Rübens

We have a good idea but we don't report on them in that level of detail.

Norbert Barth - Baader Bank AG, Research Division

Okay. And perhaps only additionally, these 4 companies, can you name the 4 completely which changed from full consolidation to the equity method? Who?

Hans-Ulrich Engel

Wintershall AG, BASF Heesung Trading, BASF Neopentylgycol and BASF Sonatrach PropanChem.

Norbert Barth - Baader Bank AG, Research Division

Okay. So these are the 4?

Hans-Ulrich Engel

And the biggest -- Norbert, the biggest impact that you have there is obviously Wintershall AG, that dominates everything.

Magdalena Moll

So now, Norbert, we are curious what your next estimates will look like.

Norbert Barth - Baader Bank AG, Research Division

You will see then.

Operator

The next question is from Mr. Andrew Benson of Citi.

Andrew Benson - Citigroup Inc, Research Division

The post-tax net income of the equity contributions, those are -- I'm looking at the -- what you've done in terms of restatement. You've just included those in the divisional line without defining them. Is that correct? So that there'll be a, if you will, the margins will look slightly better than they are on an underlying business because you'll only include that lump and you -- or do you intend to split that out in any way?

Hans-Ulrich Engel

Now, what we'll -- Andrew, what we'll do is -- what's going to happen is we move current equity income in a separate line in EBIT and we move from 2013 on the new IFRS 10-, 11-related equity income into EBIT. You see this in the restated figures in the little brochure that I already referred to. And as I've said, we're showing that as a separate income line under EBIT. So that should give you then the opportunity -- and you also have the historic comparison, what was in there in 2012, under the old accounting regime, and that should give you a pretty good idea. A lot of -- and I apologize for that. A lot of this stuff is, frankly, it is a bit confusing in the beginning. But as I said in the beginning, we're trying to provide as much information as possible to help you. It takes a little while to digest, also us, internally. But I think we'll -- from -- when we have the Q1 figures which we will release on April 26, I think that should give...

Andrew Benson - Citigroup Inc, Research Division

If I just -- if you just -- you got -- the first quarter 2012, the restated income from operations was EUR 2.598 billion. And you -- on the group income statement Page 6, you've stripped out EUR 140 million within the income by division. Now you've just incorporated that on a pro rata basis, that -- down into the division. So we know what it is, we don't know which division it goes into. Is that correct?

Hans-Ulrich Engel

We are actually -- let me quickly look at this. We are actually...

Manfredo Rübens

Maybe I can jump in here. The pro rata equity net income that we have from the equity consolidation of the previously fully all pro-rata consolidated companies is allocated to the respective business doing business in those entities. So you will find those results in the EBITs of the various segments. We won't report on them separately. You see, also, if you look at the 2012 numbers, in total and including the associated companies, we report equity income of EUR 361 million. So the -- due to the size of the number, it's not going to be a separate reporting line if you go to segments, but you get an idea of what this number is for the overall BASF group results.

Andrew Benson - Citigroup Inc, Research Division

Yes. And the majority that, though, is Oil & Gas, is that right?

Manfredo Rübens

Say that again?

Andrew Benson - Citigroup Inc, Research Division

The majority of that equity accounted net income is Oil & Gas, is that right?

Hans-Ulrich Engel

That's a big part of it. Yes.

Magdalena Moll

So right now we're coming to our final...

Hans-Ulrich Engel

And on that, Andrew, maybe one more information. For Oil & Gas, we've provided in the Annex to the Annual Report, you have the information for the year 2012 per region to net profit, and you see what's coming there, so that should also help you.

Operator

The last question is from Jaideep Pandya from Berenberg Bank.

Jaideep Pandya - Berenberg Bank, Research Division

It's basically on your slide where you show impact for USD 1 change in oil price. And obviously, it has gone down both in sales terms and in EBIT terms. Could you tell us whether you have taken the new acreage of Statoil that you have just got into account? And basically, the sort of sub-question here is what is the net change in the total barrels per day production that you are taking into account because of this change?

Hans-Ulrich Engel

Yes. Have we taken the Statoil swap into account here? No, we've not yet done that, for the reason that, that transaction has is not yet closed. It's expected to close by midyear. And your second question was with respect to the production and the changes there. And here, I have to admit that is still a bit of a loose end. We're still having discussions on that on how that needs to be reflected going forward. There could be an impact there on the production, but it doesn't have to be. And we're still in the process of really clarifying the answer to that. What it should not have, in the end, is an impact on the production reserve ratio.

Magdalena Moll

So ladies and gentlemen, this concludes now our conference call. I would like to thank you for participating. I know this has been a lot of new information today for you, and I'm sure you will be busy adjusting all these numbers in your spreadsheets and models. But I would also like to say that the members of the IR department are fully on board and are happy to help you if there are any further questions. I would also like to remind you that we will have our next reporting date for the first quarter, 2013 results, this will be a conference call on April 26. It will already start pretty early, at 8:30 in the morning, because this is also the day of our annual shareholders meeting. With this, I would like to thank you again, say goodbye and wish you all a very nice day. Bye-bye.

Hans-Ulrich Engel

All right.

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