BASF SE Management Discusses Q1 2013 Results - Earnings Call Transcript

Apr.26.13 | About: BASF SE (BASFY)

BASF SE (OTCQX:BASFY) Q1 2013 Earnings Call April 26, 2013 2:30 AM ET

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

Thomas Gilbert - UBS Investment Bank, Research Division

Martin Roediger - CA Cheuvreux, Research Division

Christian Faitz - Macquarie Research

Tony Jones - Redburn Partners LLP, Research Division

Norbert Barth - Baader Bank AG, Research Division

Laurent Favre - BofA Merrill Lynch, Research Division

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

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

Andreas Heine - Barclays Capital, Research Division

Markus Mayer - Kepler Capital Markets, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Peter Spengler - DZ Bank AG, Research Division

Andrew Benson - Citigroup Inc, Research Division

Rakesh Patel - Goldman Sachs Group Inc., Research Division

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

Peter Clark - Societe Generale Cross Asset Research

Ronald Koehler - MainFirst Bank AG, Research Division

Jaideep Pandya - Berenberg Bank, Research Division

Operator

Good morning, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF First Quarter Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] This presentation may contain forward-looking statements that are subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realized from the proposals described herein. Forward-looking statements may include, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, and supply and demand. BASF has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and financial performance may be better or worse than anticipated. Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice, and BASF does not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations.

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

Thank you so much. Good morning, ladies and gentlemen, and welcome to BASF's First Quarter 2013 Conference Call. BASF had a good start into the year. Sales and EBIT before special items increased by 5% and 10%, respectively. With me on the call today to explain the results are Hans-Ulrich Engel, our CFO, and Manfredo Rübens, President of the Finance division. Hans will explain the financial highlights and important milestones, as well as review the Q1 2013 segment results. Afterwards, Hans and Manfredo will be happy to take your questions.

As you know, that we have our Annual General Meeting today starting right after this call, today's conference call will be limited to 1 hour. For your information, we have posted the chart and the speech as well as the press documents on our website at basf.com/share. Now with this, I would like to hand over to Hans.

Hans-Ulrich Engel

Thank you very much, Maggie. Ladies and gentlemen, good morning, and thank you for joining us. BASF started into the year with a solid first quarter despite a rather moderate global economic development. Please let me remind you that the basis of comparison with prior year are the restated numbers we published end of March, reflecting the IFRS and IAS changes as well as our new segment structure. In Q1 2013, we increased sales by 5% to EUR 19.7 billion. This growth was mainly attributable to the excellent development of our Agricultural Solutions segment and higher volumes in Oil & Gas. Our chemical activities saw volumes and prices flat, reflecting the overall challenging market environment. In particular, growth in China following Chinese New Year has come in below expectations. We were able to increase EBIT before special items by 10% to EUR 2.2 billion. Special items amounted to minus EUR 45 million. In the prior year, we reported a positive special item of EUR 588 million due to a disposal gain of EUR 645 million for the sale of our fertilizer activities. As a consequence, EBIT for Q1 of this year came in 17% lower. EBITDA declined versus prior year quarter by EUR 450 million to EUR 2.9 billion for the same reasons just explained.

For the same reason, net income -- and the same reason being the gain from the fertilizer divestiture, net income came in 15% lower at EUR 1.4 billion. Net of this effect, adjusted earnings per share increased to EUR 1.67 in Q1 2013 after EUR 1.54 in Q1 2012. At EUR 2.0 billion, operating cash flow was strong and surpassed the level of the previous year's first quarter by about EUR 500 million. Free cash flow reached EUR 1.2 billion and was up by EUR 400 million.

Since our last reporting day, we continued to further optimize our portfolio. We are on track with the integration of our 2 recent acquisitions, Becker Underwood and Pronova BioPharma. Key work packages such as IT, finance and human resources systems are proceeding smoothly and we will conclude the integrations latest by the end of 2013. Furthermore, we plan to build together with PETRONAS an integrated aroma ingredients complex in Kuantan, Malaysia, as announced yesterday. The investment will strengthen our positioning in the citral value chain. The joint site expansion will be in the magnitude of USD 500 million and will create 110 new jobs. With this investment, we will meet the globally growing demand in the flavor and fragrance industry, especially in Asia.

In addition, we are implementing measures to strengthen the competitiveness of our Performance Products segment. Increased standardization and the entry of new competitors have changed the business environment for our Plastics Additives and Pigments as well as for our Water, Leather and Textile Chemicals activities. To adopt to these changed market conditions, BASF aims to streamline processes, invest in new technologies and adjust its portfolio and its organizational setup. The measures will lead in total to a reduction of about 500 positions worldwide by the end of 2015. Further measures are being analyzed.

Let me provide you with some more details. BASF aims to improve the efficiency and profitability of the Plastics Additives and Pigments & Resins business units in Europe. As announced on Tuesday of this week, the restructuring will encompass several Swiss production sites and the Research Center in Basel. It will lead to a reduction of up to 350 positions in the Basel area by the end of 2015. As already announced in early April, we merged the Water and the Oilfield & Mining activities into a new global business unit. We also intend to divest the industrial water management business.

In the Leather & Textile Chemicals business, BASF will increase its focus on the growing Asia-Pacific region and high value adding applications. The global R&D activities for Leather & Textile Chemicals will be concentrated in Shanghai, China. These steps will strengthen the competitiveness and the profitability of the Performance Products segment.

Let me now discuss the Q1 2013 business development by segment. The restated numbers for the first quarter 2012 serve as a basis for comparison. In Chemicals, sales in the first quarter 2013 decreased mainly due to lower volumes. Prices, in turn, increased slightly. Higher earnings, especially in Petrochemicals and Monomers, led to a considerable increase in EBIT before special items.

In Petrochemicals, sales declined, as volumes were lower due to the planned shutdowns as well as maintenance work. Sales prices increased slightly driven by ongoing high raw material costs. Cracker margins improved in Europe and North America. In Asia, they were unsatisfactory due to low demand. EBIT before special items was up significantly.

Please note that there will be a scheduled turnaround of our cracker in Antwerp in May-June 2013, which will impact EBIT before special items by a double-digit million euro amount in the second quarter. Sales in Monomers increased, due to higher volumes and prices in the isocyanates business in all regions. EBIT before special items was up significantly. Higher isocyanates and ammonia margins compensated for declines in caprolactam and polyamide margins. Sales in Intermediates increased, benefiting from higher demand. However, unfavorable supply-demand balances plus high costs for several key raw materials led to margin pressure in all regions. Nevertheless, EBIT before special items rose slightly due to higher volumes.

Now to Performance Products. Sales in Performance Products were slightly down. Volumes were stable, but prices softened and we faced negative currency effects. The Pronova BioPharma business, which we acquired in February, made a positive contribution to sales and earnings. EBIT before special items declined due to weaker margins and increased R&D expenses, but more than doubled compared to Q4 2012.

In Dispersions & Pigments, sales came in below prior year quarter. The European dispersions business suffered from the cold weather period. We experienced softer demand for pigments from key customers in all regions. Resins faced lower demand in North America and price pressure in Asia. Higher raw material costs could not be passed on to our customers, resulting in a significant drop in EBIT before special items.

In Care Chemicals, sales were stable. Volumes increased, thanks to higher demand for hygiene and personal care product ingredients. Prices decreased primarily due to the pass-through of lower raw material costs, especially for lauric oils. Higher margins for personal care ingredients lifted EBIT before special items.

In Nutrition & Health, sales increased because of the consolidation of Pronova. Volumes and prices were affected by weaker demand in animal and human nutrition. Pressure on vitamin prices continued. EBIT before special items came in significantly lower than a year ago. Special items of minus EUR 10 million mainly resulted from the depreciation of the inventory step up for the acquired Pronova business.

In Paper Chemicals, lower demand for paper products led to a significant sales decline in all regions. We experienced intense competition, particularly in Asia and North America. EBIT before special items decreased considerably due to lower volumes. Sales in Performance Chemicals were stable. A slight increase in volumes and prices was offset by negative currency effects. Fuel and lubricants, plastic additives and water solutions experienced a drop in sales. Oilfield & Mining solutions contributed positively to sales. EBIT before special items decreased compared to the previous year's first quarter.

Now to Functional Materials & Solutions. Functional Materials & Solutions sales were stable. Overall, volumes were up, especially in the newly created Performance Materials division. EBIT before special items declined mainly due to lower earnings in our Catalysts division. Sales in Catalysts were slightly down due to lower rare earth prices which were passed through. While demand grew for refinery and mobile emission catalysts, our business with chemical catalysts developed weaker than in the prior year. Demand growth for mobile emission catalysts in Asia and North America overcompensated lower demand in Europe. However, lower chemical catalyst sales as well as start-up and R&D costs incurred by the Battery Materials business led to a decline of EBIT before special items.

Sales in Construction Chemicals declined in this seasonally weak quarter. Demand in Europe and North America decreased significantly, mainly due to the long cold weather period. We saw continued structural weakness in Southern European markets. Margins improved, supported by selective price increases and lower raw material costs. Thanks to our global restructuring program, EBIT before special items came in slightly higher.

In Coatings, sales were slightly below the prior year quarter. OEM coatings demand grew strongly in the Americas and Asia. In Europe, it was stable due to our strong business relations with premium car manufacturers. Demand for refinish coatings was up in Asia and South America. Sales for decorative paints were impacted by weaker demand and negative currency effects in South America as well as the divestiture of the Relius business in Europe. EBIT before special items matched the level of the previous year.

Sales in the new Performance Materials division were up on higher volumes for polyurethane systems, engineering plastics and polyurethane solutions. Our business with premium automotive manufacturers in Europe continued to perform well. Volumes for Styropor and Neopor foams, which are mainly sold to the construction industry, were weak due to long cold weather period in Europe. Nevertheless, we were able to slightly increase EBIT before special items.

Now to Agricultural Solutions. Agricultural Solutions delivered an excellent quarter. Sales rose strongly, driven by high demand for our products in the northern hemisphere. Slightly higher prices were offset by currency effects. The integration of the former Becker Underwood business led to a positive portfolio effect. With an EBIT before special items of almost EUR 500 million, Q1 2013 marked an all-time record. Special items of minus EUR 6 million were mainly related to the depreciation of the inventory step-up for the former Becker Underwood business.

In Europe, we realized considerable sales growth due to high demand for herbicides and fungicides. We saw strong sales in France, Germany and Eastern Europe despite the delayed spring season. North America delivered an excellent performance, thanks to strong herbicide demand and excellent sales of our Xemium fungicide. Sales rose by more than 30%, excluding the contribution of Becker Underwood.

Sales in Asia were up slightly. The strong growth of our Fungicide and Herbicide business in India and China was largely offset by negative currency effects.

South American sales decreased compared to the strong previous year quarter, as some product lines saw high competitive pressure towards the end of the season. Following the very positive first quarter development, we are confident to once again increase sales and earnings in 2013. Our optimism is backed by our innovative product portfolio, sound demand growth and the performance of the acquired Becker Underwood business.

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 came in slightly lower at EUR 630 million. Please note that due to the changes in IFRS 10 and 11, sales from our onshore production in Libya are no longer reported in the top line. Instead, the equity income is considered in the EBIT line since January 1, 2013. The significant sales increase in Exploration & Production was driven by higher volumes due to the start-up of additional wells of our Achimgaz joint venture late in 2012 and by higher offshore production in Libya. The higher volumes more than compensated for a lower oil price.

Overall, EBIT before special items in Exploration & Production increased, as the additional more than offset the negative impact from the lower oil price.

Sales in Natural Gas Trading grew strongly, mainly caused by significantly higher volumes. This was driven by an increase in demand due to long cold weather period as well as higher spot market sales in Europe. Margins, however, decreased due to stronger competition. Earnings came in below the very high level of the prior year's first quarter. Net income in Oil & Gas decreased slightly to EUR 397 million.

To Other, sales in other increased to EUR 1.1 billion, mainly due to higher sales of the Ellba joint venture. EBIT before special items came in at minus EUR 182 million. The improvement versus a year ago was also triggered by a swing in provisions for our long-term incentive program. Special items of minus EUR 28 million were mainly related to the relocation of our plant biotechnology activities to the U.S. and subsequent organizational measures. In the prior year first quarter, the EUR 645 million disposal gain from the sale of our fertilizer activities led to a positive special item in Other of EUR 578 million.

Cash provided by operating activities was EUR 2.0 billion in the first quarter of this year, an increase of about EUR 500 million versus Q1 2012. The rise in net working capital led to an outflow of more than EUR 700 million, mainly related to an increase of trade accounts receivables. However, this was mostly offset by an increase of liabilities in the magnitude of EUR 600 million related to the disposal group for the assets to be swapped with Gazprom. This is reported under miscellaneous items. Cash used in investing activities amounted to minus EUR 1.6 billion. This includes cash outflows for acquisitions of EUR 514 million, primarily for Pronova BioPharma. In Q1 2012, the divestiture of our fertilizer activities had led to a cash inflow of EUR 680 million. CapEx amounted to EUR 831 million compared to EUR 700 million in the previous year's quarter. Free cash flow came in at EUR 1.2 billion compared to EUR 800 million in Q1 2012.

Now I'll have a quick look at the balance sheet. Total assets compared to year end 2012 rose by EUR 4.0 billion to EUR 66.7 billion. The Pronova BioPharma acquisition resulted in a net increase in long-term assets by about EUR 550 million. This was due to an increase in both intangible assets as well as in property plant and equipment. Intangible assets contain goodwill of EUR 158 million related to Pronova.

BASF's inventories remained fairly constant. Accounts receivable, however, were up by EUR 1.5 billion, reflecting in particular the strong sales in Agricultural Solutions.

Our financial indebtedness increased from EUR 12.8 billion at year end 2012 to EUR 13.3 billion by the end of the first quarter 2013. Given favorable market conditions, we issued long-term bonds with a total amount of EUR 1.2 billion. Net debt amounted to EUR 10.9 billion, a decrease of roughly EUR 300 million versus year end 2012. At 41%, our equity ratio remained on a strong level.

Now let's turn to the outlook for 2013. We keep our macroeconomic assumptions for the year unchanged. However, uncertainties have increased during Q1, mainly because growth in China was below expectations and new concerns in the euro area came up. On the positive side, U.S. growth has been more robust than expected and sentiment in Japan is currently improving. We expect global chemical production to grow by about 3.6%. However, in Q1, growth still has been below. Today, we confirm our outlook 2013 for the BASF Group based on the restated figures we provided in March of this year. We strive to increase volumes in 2013, excluding the effects of acquisitions and divestitures. We want to exceed the 2012 levels in sales and EBIT before special items. Expected increase in demand, together with our measures to improve operational excellence and raise efficiency, will contribute to this. And last but not least, we aim to earn a high premium on our cost of capital once again in 2013.

With that, thank you for your attention. And Manfredo and I are now happy to take your questions.

Question-and-Answer Session

Magdalena Moll

Thank you, Hans, and I would now like to open the call for questions. [Operator Instructions] So we would like to start with the first question coming from Jean De Watteville, Nomura.

[Technical Difficulty]

Magdalena Moll

Let's move on to the next question from Thomas Gilbert from UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

[indiscernible] maybe for the year, you talked about the shutdown in Antwerp. But as things stand, if you look at the global cracker side [indiscernible]

Hans-Ulrich Engel

Thomas, just -- this is Hans. Can you start from the beginning because we didn't get the first part of your question.

Thomas Gilbert - UBS Investment Bank, Research Division

I'll keep it short. I just would like to know, everything else being equal and looking at your schedule for the year for plant shutdowns, whether you expect an improvement in operating rates for the Verbund sites this year or not. Looking at the schedule, the maintenance shutdowns, '13 over '12, does it look like you have fewer of those year-over-year or more of those? Just to get an idea about the plant performance and the operating rates in the upstream?

Hans-Ulrich Engel

Thomas, plant shutdowns, plant turnarounds, less than what we had in the year 2012, in 2013. What this will mean for operating rates, everything being equal, means slightly higher operating rates. But then you know that in the end, the operating rates will completely depend on the demand situation. But the impact from the plant shutdowns that we expect in the year 2013 compared to 2012 will be lower.

Thomas Gilbert - UBS Investment Bank, Research Division

The Port Arthur -- the 3 gas-fed lines are running flawlessly now?

Hans-Ulrich Engel

That's a very specific question, which I can answer with a very specific yes.

Magdalena Moll

So thank you very much, and now we move on to Martin Roediger from Cheuvreux.

Martin Roediger - CA Cheuvreux, Research Division

You said that the business after Chinese New Year was below your expectations. So my understanding, based on the conference call for Q4, was that January was obviously a very strong month and then your business worsened. Is it correct and what do you see for the business in April?

Hans-Ulrich Engel

Are you referring to the business in Asia or to the business in general, i.e., globally?

Martin Roediger - CA Cheuvreux, Research Division

In general, that means globally.

Hans-Ulrich Engel

Okay, good. So what do we see -- did we see on a global basis? We came out of a rather weak or very weak second half and this was weakness beyond what you would expect due to the fact that you have the holidays in the end of the year. We went into January and had a -- what I would call a catch-up effect there. So a very strong development in January. With respect to Asia, what we said at that point in time, it's difficult to read because what's really going on January and February because you had the shift there in Chinese New Year from January in 2012 to February in 2013. Business in March, I would say pretty much on a comparable level to what we had seen in February. And this is also true for now going into the months -- or in the month of April. No major developments to report there in either direction so not a significant strengthening of the business but also not a weakening in our business, if I look at it from a global perspective and across the entire portfolio.

Magdalena Moll

Yes, now we are coming to Christian Faitz from Macquarie.

Christian Faitz - Macquarie Research

My Asia question was just answered. Automotive OEM, you mentioned that in your direct OEM business is catalyst and paints, automotive OEM was relatively flat in Q1. Do you see any impact from these automotive volumes in Germany, for example, as of late and how do you see that end market developing?

Hans-Ulrich Engel

If we look at automotive and think about the assets portfolio, what comes to mind is obviously OEM Coatings but also our mobile emission Catalysts business as well then as businesses such as Engineering Plastics, Polyurethane systems. If I look at that whole universe there, overall, in sales to the automotive industry, we see a slight increase. That is driven by the developments that we have in North America with continued strong figures there, both on the sales and the production side and by the growth that we have in the automotive industry in Asia Pacific. Europe is relatively weak. We don't expect that to change during the year 2013. But when I say relatively weak, our business in particular in Coatings focused on the Premium segment is doing, I would say, okay. No significant increase there but also not a significant loss in volumes. So overall, business with the automotive industry okay, with the caveat that there is weakness, obviously, in the European part of the business, which in general is overcompensated by the developments in North America and Asia Pacific.

Magdalena Moll

The next question now comes from Tony Jones from Redburn.

Tony Jones - Redburn Partners LLP, Research Division

Tony Jones, Redburn in London. I just wanted to ask about downstream profitability. So in the last couple of quarters, we've seen BASF reorganize to focus the businesses on -- going to market in a different manner and we've also heard more about restructuring in Performance Products, Functional Materials. And if I look at my model, I'm forecasting very little or practically no improvement to EBIT margin certainly in the second half and very little in 2014. So I'm wondering whether you can help us in terms of when we should start to see some of the positives from these measures start to come through in terms of improved margins. So anything you can help there would be good aside from it just being the positive effects from higher organic growth.

Hans-Ulrich Engel

Okay, Tony. I hope we will be able to disappoint you and your model there. If I look at our downstream businesses and you alluded to the change that we made in the segment structure and also the new operating division that we have in Performance Materials. What you see in Performance Materials is improvement -- slight improvement in sales but also improvement in EBIT in the Q1-Q1 comparison. So better business there than what we had in Q1 of last year. Downstream Construction Chemicals, despite the fact that Q1 is seasonally weak, obviously, you see improved earnings in Construction Chemicals. And I -- my expectation is that once season kicks in -- we all know, long winter in Europe, long winter in North America, that we will see further benefits from that. We have improved results in our Care Chemicals division compared to where we were in Q1 of last year. So this, you all have on the positive side. Then you're seeing what we're doing in the Performance Products segment. We've announced early in the week a number of significant restructuring measures. And also said that further analysis is under way, pretty clear what that's supposed to mean. And I think once we've had the necessary discussions there with the employee representatives, we can then probably by the end of Q2 or in our Q2 earnings conference, we can give you more specifics on that. And all of that will lead to the -- or support the margin improvement that you are looking for.

Tony Jones - Redburn Partners LLP, Research Division

That's really helpful. Can I just ask one very quick follow-up on the last comment you made about Performance Products. Presumably if this is something that you're going to implement in this quarter, maybe Q3 also, we should start to see the benefit coming through pretty early from 2014, maybe Q1, Q2 next year, or will it even be faster than that?

Hans-Ulrich Engel

We'll strive to implement as quickly as possible. But understand that at this point in time and I already alluded to the fact that we still have to have, for some of these restructuring measures, in particular in Europe, discussions with employee representatives. I need to be rather cautious in answering your question.

Magdalena Moll

So the next question is now coming from Norbert Barth from Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

A question regarding the Agrochemicals business. Despite this hard winter, you had a volume increase of 13%, outstanding, I believe. Nevertheless, do you have any guidance feeling what is hard winter was then a delay from -- in the Q1 to Q2 season? And perhaps also why was, especially in South -- in Latin America the Agrochemicals weak? Can you explain a little bit, by products, what happened there?

Hans-Ulrich Engel

Yes. Sure, Norbert. And since, overall, Agricultural Solutions had such great performance, we decided prior to the call that Manfredo can answer all these questions.

Manfredo Rübens

Norbert, well, first of all, crop protection market is growing strongly. Fundamentals are intact, and crop prices are high. So we believe that we are, despite the slight slowdown that we saw at the end of the first quarter, which was weather related in the U.S. Corn Belt and Europe, that we're going to see strong growth. As always, in this business, it is only after the summer that we can have a clear picture about this. So we have to wait until then. On your South America question, we saw also at the end of the first quarter some increasing competitive pressure. And this led to a slightly reduced sales number for the first quarter compared to the very strong prior year quarter. But if that helps, we ended the season in South America at low in-field inventories.

Norbert Barth - Baader Bank AG, Research Division

Was it in the special product in South America, the weakness? Or was it overall?

Manfredo Rübens

We saw some pressure in insecticides and fungicides.

Hans-Ulrich Engel

And on the -- maybe one additional comment on the insecticide side, there is simply additional pressure coming now from generic materials.

Magdalena Moll

So our next question now come from Laurent Favre from Bank of America.

Laurent Favre - BofA Merrill Lynch, Research Division

My question is on the investment announced yesterday with PETRONAS. $500 million looks like a pretty big number. So I was wondering if you could dimensionalize in terms of capacity what this new site is going to bring versus what you currently have in places like Ludwigshafen.

Hans-Ulrich Engel

Now first of all, $500 million looks like a big number, yes, sure. But then to look at what this is, this is really what I would put as highly complex chemistry that needs to be put in place there. And if will form the basis for aroma chemicals, vitamin E and A, for L-menthol and a number of other products. So it will become, let's say, the new -- how do I put that, the new hub for our aroma chemicals in Asia, for our vitamin A and E production in Asia and for L-menthol. And investments in these type of fine chemicals, typically, if you think about the synthesis that needs to happen there, come with significant cost. But they also will generate very nice returns. Now you're asking me, with respect to putting this in perspective with the production that we have in Ludwigshafen, I will have to come back to you on that one and provide you there with the figure. I don't have that handy currently.

Magdalena Moll

The next question then comes from Jeremy Redenius, Sanford Bernstein.

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

This is Jeremy Redenius from Sanford Bernstein. I was noticing on the personnel costs in employee headcount. It looks like employee headcount is up a couple of percent, but personnel costs are about -- down about 4%. I'm wondering if you could talk through the drivers in the reduced personnel costs. I'm trying to understand how much of that is actually sustainable versus how much is related to changes in things like the long-term incentive program.

Hans-Ulrich Engel

Jeremy, what you're seeing there is a significant impact that we have in -- as a result of the development of our long-term incentive program. We had to build a reserve there for -- in Q1 of last year while we were able to reduce the reserve in Q1 of this year due to development of the BASF share price in Q1. That is actually driving reduction in personnel cost that you see, which is significant and, as you say, not in line with the increase that we have in our personnel figures. I think it is safe to assume that you would see the usual cost increases on the personnel side net of the LTI impact. And when I say the usual increases, I would put this in a range of 2% to 3%.

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

I'm sorry. You broke up a little bit there. You said usual increase of 2% to 3%?

Hans-Ulrich Engel

The usual increase of 2% to 3%, maybe more on the 3% side, yes.

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

Great. Wage inflation, effectively?

Hans-Ulrich Engel

Correct.

Magdalena Moll

Now we're moving on to the next question from Laurence Alexander from Jefferies.

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

Two things we've heard from other companies this earnings season has been caution on naphtha cracker -- naphtha derivative demand in Q2 and in the personal care markets, a lot of customers seeing downshifting away from high-end product lines. Can you comment about your perspective on those trends and how that might affect your business over the next couple of quarters?

Hans-Ulrich Engel

The second part of your question was on personal care. The first part, you broke up there. What was that?

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

Sorry, it was on naphtha derivatives. A lot of companies have been flagging caution on naphtha derivatives in Q2.

Hans-Ulrich Engel

Okay. Now on the naphtha derivatives in Q2, I'd say it remains to be seen. We're not unhappy with the start that we've seen here going into Q2, i.e., in the month of April. Europe and North America looking okay, similar to end of the first quarter; Asia still a demand lower than what we had actually expected. And on the margin side and you're seeing that in our Chemicals segment and then also in the comment that we made with respect to our operating division, Petrochemicals, that actually looked good in Q1. And depending on how the naphtha price develops, let's see what Q2 actually will bring. I'd say, overall, we are cautiously optimistic for Q2 with respect to Petrochemicals, i.e. naphtha derivatives. If I recall correctly, when I checked the naphtha price this morning, it was right around 800. So let's see how that develops. As we all know, that will depend on oil price development, which has also come up slightly compared to the low that we've seen in the last week, so I'd say pretty much a question on what naphtha price is doing there. The second part of your question was on Care Chemicals, what are we seeing there. Care Chemicals actually in Q1 at BASF, better results than in Q1 of the year 2012. Is there a downshifting? Our customers are looking very closely at their formulations and what they can do. Certainly, that is a trend that we're seeing not only in 2013. We've also experienced that in 2011 and in 2012. And I think that's something that we have to deal with, dealing with that industry. Can that continue to the extent we've seen that in 2012 in particular? Not clear to me.

Magdalena Moll

We are moving on with the next question from Andreas Heine.

Andreas Heine - Barclays Capital, Research Division

I have a question on Nutrition. We hear now for a number of quarters that there is a year-on-year decline in margins and pressure. Could you refer a little bit how you see this sequentially as you have increased prices for important vitamins in the first quarter? Do they come through? And can we expect sequentially an improvement?

Hans-Ulrich Engel

Andreas, unfortunately not, if you look at the vitamin price development. And here, you have to see that the biggest impact is actually coming from vitamin E in our portfolio. You see vitamin E in Q1 of this year hitting a new low. If I recall that correctly, the average price for vitamin E in Q1 was somewhere around EUR 9.40 or EUR 9.50 per kilogram. And you see this decline quarter-over-quarter in 2012 and going into 2013. We have announced price increases, in particular for E. Whether or not they will stick remains to be seen.

Magdalena Moll

We are now moving on to Markus Mayer from Kepler Capital Markets.

Markus Mayer - Kepler Capital Markets, Research Division

As Andreas already asked the nutrition question, I have to ask a question on catalysts. So you stated that emission catalysts, they're good, and you elevated how you see it then what is the outlook for the year. On the refinery and chemical catalysts, you said chemical catalysts were weak. Can you elaborate on the reason, what is the outlook for chemical and refinery catalysts throughout the year?

Hans-Ulrich Engel

Okay. On the refinery catalysts, we actually have seen an improvement compared to Q1 of 2012. On the chemical catalysts, the business there was weaker. And when I say weaker, this is on the sales side, not on the margin side. Now with respect to chemical catalysts, there is a high dependency on turnaround season. This is when chemical catalysts get exchanged. And based on what my catalyst folks tell me, less turnarounds in the first quarter 2013 compared to 2012, where we had an absolute stellar performance of the chemical catalysts business. That was a record quarter for chemical catalysts that we are comparing to. And this quarter, I would call a rather normal quarter, with respect to Catalysts, maybe slightly lower than normal. But as I want to say, no indication there that, that business will be weaker in 2013 on a full year basis than it was in 2012.

Magdalena Moll

Our next question now comes from Paul Walsh.

Paul Richard Walsh - Morgan Stanley, Research Division

My question really related to some of the geographical developments that you've seen sequentially. You talked about China being somewhat disappointing. But I see that your Asian margins have actually come up quite significantly versus the sort of run rate that we've been seeing now for the last 4 or 5 quarters. And we've also seen significant margin improvements in your North American business, which, I take it, that comes down to the Port Arthur cracker. But I wondered if you could just talk around specifically those 2 geographies, in light of the margin improvement specifically. I know that the volumes might not be coming back but just at the margin, please.

Hans-Ulrich Engel

Yes, okay. When you look at margin, and I'll start with North America, I'd say there are 2 key drivers for the significant improvement. Driver #1 is that we had, in Q1 of last year, the big turnaround. This was not the cracker. That was the big turnaround 6 weeks that we had at our Geismar Verbund site in Louisiana, so a lot of fixed cost that had an impact on our margin and they weren't the sales that you would normally expect. So that's driver #1. Driver #2 is overall margin improvement in Petrochemicals in Q1 2013 in North America. Driver #3 is an extremely strong North American Agricultural Solutions business, which is a high-margin business. So there are the 3 reasons that you have for North America. With respect to Asia, the comment is more one that relates to the improvement in economic environment that we had expected to see. If I have my numbers down correctly, I think we've seen a 5% volume increase in our Asian business. And we actually had expected this to be slightly higher than that, China not being quite where we thought it would be. You've seen the GDP figures being announced for Q1 for China, which were a bit of a disappointment, lower than what the consensus was. You've seen that exports from China are lower than what expectations were. And this is something that, in the end, you then also see in our business. Let's see what Q2 will bring. At this point in time, our comment with respect to China is we didn't see the uptick in the business or the improvement in business that we had expected after Chinese New Year. In other words, the strong improvement that we had expected, we do not yet see that. But let's see what Q2 will bring.

Paul Richard Walsh - Morgan Stanley, Research Division

And just sort of a follow-up on that, the margins were ahead, though, in Asia versus the sort of run rate that we've seen for previous quarters. Is that just a case of raw material costs coming down, therefore, and selling prices not down by as much?

Hans-Ulrich Engel

Well, that is also -- that is part of the explanation. Another part of the explanation is a very strong and attractive isocyanates business that we have in Asia, MDI and TDI generating nice margins. So that's also, obviously, one of the contributors.

Magdalena Moll

Now we're moving on with Peter Spengler from DZ Bank.

Peter Spengler - DZ Bank AG, Research Division

Could you provide us on -- with an update on the Statoil deal, especially on the time line? When can we expect the first proceeds this year?

Hans-Ulrich Engel

Okay. Statoil contract signed in the fourth quarter of last year with an expectation to close the transition mid-2013. And at this point in time, we see ourselves and Statoil being on track. The regulatory approval process runs as expected. Preparations for closing the discussions that we have with the employees running the broader platform, all of that, as I say, running as expected. We had a review earlier this week together with Statoil management and came away from that with a clear understanding that we will close as we had expected. Keep in mind, though, that -- and that's maybe one of the drivers of your question, the economic results of the transactions, in other words sales and EBIT and profit, you will only see from the point in time on where we close even though the transaction will be retroactive to January 1, 2012. But everything that we have prior to closing will lead to a purchase price adjustment. And only from the point in time on where we close, you will see the contributions from the Statoil transactions in our P&L.

Magdalena Moll

Our next question now comes from Andrew Benson.

Andrew Benson - Citigroup Inc, Research Division

Most of the questions have been answered that I had, but the one that hasn't is perhaps a peculiarity of assets, the D&A charges. We had expected them to go up. You've got a few acquisitions in there. We'd expected some step-up charges as well. But the depreciation charge is down, and that's despite a fairly substantial addition to assets as well. Can you just talk through how the D&A charges are likely to develop this year?

Hans-Ulrich Engel

Sure. Manfredo will do that.

Manfredo Rübens

We saw in the first quarter a slight decline in D&A, which has to do also with the disposal group that we created on the Gazprom asset swap because you no longer report depreciation on that. Other than that, you will see depreciation go up, maybe slightly, due to the acquisitions and the capital expenditure that we have, but no major changes, I would assume.

Andrew Benson - Citigroup Inc, Research Division

How big is the Gazprom factor?

Manfredo Rübens

Excuse me?

Andrew Benson - Citigroup Inc, Research Division

How big is the Gazprom factor?

Manfredo Rübens

That's a low 2-digit number. In total, we expect around EUR 3.5 billion.

Magdalena Moll

So the next question comes from Rakesh Patel from Goldman Sachs.

Rakesh Patel - Goldman Sachs Group Inc., Research Division

Just a quick question, if I may. You talked a bit about the macro environment in Q1 being somewhat lower than your expectations, that you've managed to deliver quite a significant EBIT growth of around 10% before special items. So I wondered if actually -- if we're, all being equal, and we assume your assumptions to be right, that we should expect quite a significant acceleration in EBIT in coming quarters bearing in mind the cracker shutdown in Q2.

Hans-Ulrich Engel

Maybe I'll answer that question by way of simply pointing to the outlook that we've given for the full year 2013. In this, we are striving for an increase in sales and increase in earnings. And if you look at our outlook across the entire portfolio, this is, I have to say, ambitious and a challenge for the organization in the environment -- economic environment that we're in. But if I take Q1, we have, at least on a quarterly basis, delivered on what we intend to do in the year 2013. And we see no reason to deviate from the outlook and from the guidance that we've given.

Magdalena Moll

Okay. Now we are trying Jean De Watteville again from Nomura. Maybe it works now.

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

Can I exceptionally try 2 questions?

Hans-Ulrich Engel

I mean, sure, you can try.

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

All right. Okay, I'll try. So the first question is very, very, very simple. The new -- hopefully. The new citral plant in Malaysia, how much of that will be incremental vitamin E and A capacity or precursors? That's the first question. And the second question is on the restructuring initiative that you've announced in the Performance Products division. There's a lot of different steps about refocusing textile business, reducing cost and R&D, the Basel side, et cetera. Can you just indicate to us how much restructuring charge you intend to book and how much CapEx you intend to invest as you refocus the business and if there will be any reduction of capacity or the size of business as you focus on higher-margin businesses? These are my questions.

Hans-Ulrich Engel

Question number one is actually a very clear question and a thought question, but please understand that for -- how do I put that, competitive reasons, I will refrain from giving you an answer. So sorry for that. On your second question, at this point in time, what we've done, Jean, is we've said that here are the restructuring steps that we are taking. Giving you, at this point in time, the answers to your questions, which are fully justified, is difficult for the reason that I've alluded to earlier, which is we're still in discussions with the works councils in the various countries that are affected by these restructuring measures. And only once we've done that will we be in a position to talk about what are the actual restructuring charges, what are the expected improvements as a result of these restructuring measures. At this point in time, we said, between now and 2015, there will be 500 positions that will be reduced as part of what we've announced so far. But we've also said we are still in the phase of analyzing. So in other words, expect that there will be additional measures to come. And once we've had our discussions at the way we handle things like that at BASF with the employee representatives, we will then talk about the full picture.

Magdalena Moll

Now we have 3 more questions, one from Peter Clark from Societe Generale.

Peter Clark - Societe Generale Cross Asset Research

It's a follow-on from that question actually. It's on the restructuring in Performance Products. I mean, it looks, again, obviously, a lot of it is focused on the old Ciba business, where you'd already taken out sort of a lot of cost, I seem to remember EUR 450 million or something over the years. And again, it's focused really on the plastics additives side of that, which was probably the key franchise within Ciba. And you mentioned the increased competition. I just wondered if you can give a bit of color what's happening in that plastics additives business, in particular, within the Performance Products restructuring?

Hans-Ulrich Engel

Yes, on that question, in particular, there's a lot of competitive pressure, in particular, from Asian competitors that we simply have to react to. But let me also say that the restructuring measures go beyond the plastics additives business. There is restructuring measures in our dispersions business, in the resins business, in the water business, so, as I say, significantly beyond just plastic additives.

Magdalena Moll

Okay. So we have quick questions. I'll move on to Ronald Koehler from MainFirst.

Ronald Koehler - MainFirst Bank AG, Research Division

Yes. My question is actually on miscellaneous items in the cash flow statement, obviously was a big swing factor. Until you mentioned something before with Gazprom, I have honestly not fully understand that, how much of that is kind of operation, how much is one-off. Can you please explain that a bit more in detail?

Hans-Ulrich Engel

Okay. Manfredo?

Manfredo Rübens

Yes, last year, we had in this miscellaneous line the reclassification of the divestiture income from fertilizers into the cash flow from investments. So this is a big part of the swing. And the second part this quarter is related to higher liability that we have in the disposal group, and those have a positive cash effect. So from that standpoint, that explains to the -- yes, this miscellaneous topic.

Ronald Koehler - MainFirst Bank AG, Research Division

If I would like to look for an operational cash flow, should I just rip out that miscellaneous and take it as a kind of one-off? Or how should I treat it?

Hans-Ulrich Engel

If you take last year's item that we actually deduct in the operating cash flow, which is the gain, take that out. And for 2013 Q1 that is all happening in the operating business, so leave that in. And it shows you that we've used less -- significantly less cash for our net working capital than we did last year.

Magdalena Moll

So and the last question now comes from Jaideep Pandya.

Jaideep Pandya - Berenberg Bank, Research Division

Yes. Actually, a question on your 2015 targets. If I look at your EBITDA margin currently, it's about 14.5%. And your new 2015 targets imply an EBITDA margin of roughly 17.5%. Could you just give us a little bit more color? I mean, do you count on fundamental improvement in some of your downstream businesses? Or is it the restructuring? I mean, could you provide us some kind of a bridge? How do I bridge that?

Hans-Ulrich Engel

Great question as the last question. And you're absolutely right. If you look at where we were year end 2012, there is a way to go to achieve our 2015 targets. It will come from various measures. And yes, the restructuring measures that we are taking will help look at the investments that we are doing, the planned start-ups that we are expecting in 2014, be it MDI in China, be it TDI in Europe, just to name 2 there. Look at the transactions that we've entered into with Statoil and with Gazprom. I mentioned the restructuring measures already, a general improvement in the economic environment because if you look at our 2015 targets and the assumptions, they are above the economic environment that we're finding ourselves in right now. But overall, I see us being on the right track to achieve our 2015 targets. But admittedly, this requires rolling up our sleeves and doing what we need to do. But I assure you we'll do that.

Magdalena Moll

That was a wonderful final statement, ladies and gentlemen. And before we close, I would like to say one thing. We would all like if you could join us at our Investor Day in Asia-Pacific, which will take place pretty soon, namely on June 5 to 6 in Shanghai and Nanjing. Martin Brudermüller, our Vice Chairman, and his senior executive team, they will discuss the Asia-Pacific strategy 2020 with you. On the second day of our visit, we will go by train to our Verbund site in Nanjing and visit the Verbund, as well as our specialty chemicals site. And there you will get further insight into BASF's activities and positioning in China per se. So we will send out a reminder of the invitation this coming Monday, but please use the opportunity and register for the event on our special website. So with this, this brings us at the -- to the end of our conference call today. We will next report on our second quarter 2013 on July 25, 2013. And the team here, Hans Engel, Manfredo Rübens and I, we thank you very much for joining us. Should you have any further questions, then please contact any member of the IR team and we will be happy to help you. Have a good day, and goodbye.

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