BASF SE Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.25.13 | About: BASF SE (BASFY)

BASF SE (OTCQX:BASFY) Q3 2013 Earnings Call October 25, 2013 5:00 AM ET

Executives

Magdalena Moll - Senior Vice President of Investor Relations

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

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

Analysts

Thomas Gilbert - UBS Investment Bank, Research Division

Tony Jones - Redburn Partners LLP, Research Division

James Knight - Exane BNP Paribas, Research Division

Andrew Stott - BofA Merrill Lynch, Research Division

Norbert Barth - Baader Bank AG, Research Division

Peter Spengler - DZ Bank AG, Research Division

Andreas Heine - Barclays Capital, Research Division

Jaideep Pandya - Berenberg, Research Division

Michael Rae - Goldman Sachs Group Inc., Research Division

Andrew Benson - Citigroup Inc, Research Division

Geoffery Haire - HSBC, Research Division

Markus Mayer - Kepler Capital Markets, Research Division

Lutz Grueten - Commerzbank AG, Research Division

Peter Clark - Societe Generale Cross Asset Research

Patrick Lambert - Nomura Securities Co. Ltd., Research Division

Laurence Alexander - Jefferies LLC, Research Division

Operator

Good morning, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF Interim Report Third Quarter Results 2013. [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 would 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 morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our third quarter 2013 analyst conference call.

While the global economic environment in the third quarter continued to be challenging, showing only moderate growth, BASF's performance remained robust. We were able to increase volumes in all segments, except Chemicals. However, at the same time, we also experienced significant negative currency effects. EBIT before special items considerably exceeded the level of the third quarter of the previous year.

With me on the call today to explain the results are Kurt Bock, our Chairman and Chief Executive Officer; and Hans-Ulrich Engel, our Chief Financial Officer. Kurt will summarize the key financials, highlight important corporate developments and conclude with the outlook for the full year 2013. Afterwards, both gentlemen will be happy to take your questions.

We have posted a longer version of the speech, together with the press documents, on our website under www.basf.com/share.

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

Kurt W. Bock

Thank you, Maggie. And also, good morning from my side, ladies and gentlemen. As Maggie said, we listened to your advice after last quarter's call. And to -- in order to have more time for Q&A, I will shorten my little speech so you don't get tortured by reading a very long one today.

Nevertheless, the global economic environment in the third quarter continued to be challenging, showing only moderate growth. Economies in the eurozone developed at different speeds, with Southern Europe still declining, western and Eastern Europe showing slight growth. North American GDP grew moderately, growth in China picked up in the third quarter. The ASEAN countries saw a slowdown in growth. The major Latin American economies continued to face headwinds with weaker-than-expected but improving GDP growth.

Despite these trends, BASF's performance remained robust. Sales increased by 1.5% to EUR 17.7 billion. This growth was mainly attributable to Oil & Gas, as well to a good performance in the Agricultural Solutions and Functional Materials & Solutions segments. It was partly offset by a weaker development in Chemicals. Moreover, all segments experienced significant negative currency effects.

EBITDA came in at EUR 2.5 billion, which is 16.5% higher. EBIT before special items increased by 15% to EUR 1.7 billion.

Functional Materials & Solutions contributed significantly, and earnings in Performance Products advanced. EBIT before special items in Other improved considerably. Amongst others, the main contributor to this improvement was a lower provision to our long-term incentive program in Q3.

BASF recognized special items in EBIT of minus EUR 10 million. A onetime gain in the amount of EUR 164 million resulted from the sale of an Oil & Gas asset to Statoil. This was offset by restructuring measures, impairment charges, as well as integration costs related to Pronova BioPharma and Becker Underwood.

EBIT amounted to EUR 1.7 billion, an increase of 20%. The tax rate was 23.1% in the third quarter. It was 20.8%. Net income strengthened by 18.5% to EUR 1.1 billion. Adjusted earnings per share increased to EUR 1.28 after EUR 1.16 last year.

Operating cash flow reached again EUR 2 billion, surpassing the previous year's level by more than EUR 300 million, mainly driven by improvements in net working capital. Free cash flow increased to almost EUR 800 million in Q3, totaling now EUR 2.9 billion in the first 9 months.

Some important corporate developments. On October 23, we announced the implementation of several measures to reduce capacities and to strengthen competitiveness of our pigments business. Plans include the closure of the Paisley plant in Scotland and the restructuring of the Huningue plant in France. In addition, we are examining a strategic option for the site in Maastricht, the Netherlands.

We plan to reduce around 650 positions globally by 2017. At the same time, we will invest about EUR 250 million in the next 4 years in our production network, as well as in research and development.

On October 18, BASF and Yara announced the evaluation of a joint investment into a world-scale ammonia plant at the U.S. Gulf Coast. With this investment, we intend to take advantage of the very competitive natural gas prices in the U.S. while further increasing our backward integration.

And on September 20, BASF announced a cash offer to acquire Verenium, a U.S.-based enzyme biotechnology company, for $4 per share. Based on all outstanding shares and including all net financial liabilities, the enterprise value would be approximately USD 62 million. The offer period is scheduled to expire on October 31. This acquisition should strengthen BASF's footprint in the enzyme growth market.

In Oil & Gas, we completed the transaction with Statoil on July 31. With the transfer of shares in the Brage, Vega and Gjøa fields, Wintershall's daily production in Norway has risen from approximately 3,000 barrels to nearly 40,000 barrels. As part of the transaction, Statoil received from Wintershall a 15% share in the Edvard Grieg development project, as well as a financial consideration in the amount of USD 1.35 billion. The transaction was concluded with retroactive commercial effect as of January 1 of this year. Taking into account our earnings from shares in the production of the fields, as well as investments made in the fields affected by the swap since January 1 of this year, this resulted in a net cash outflow of USD 781 million, which is approximately EUR 600 million.

I now want to give you some highlights on our segment performance.

Sales in the Chemicals segment declined, caused by a combination of lower volumes, prices and negative currency effects. EBIT before special items came in lower, as the higher contributions of olefins could not fully compensate for lower earnings in the ammonia as well as in the Asian isocyanates businesses. We booked special items of EUR 85 million due to an impairment charge on a production plant.

Sales in Performance Products segment were almost stable despite adverse currency effects. Volumes were up, prices decreased, as we partly passed-on lower raw material costs. EBIT before special items came in higher, driven by Care Chemicals and Dispersions & Pigments. Our fixed cost management contributed as well. We incurred special items of EUR 54 million related to our ongoing restructuring program.

In our Functional Materials & Solutions segment, sales were up, mainly supported by continued good overall demand from the automotive industry. We were able to increase volumes and prices in all 4 divisions, which was partially offset by negative currency effects. EBIT before special items increased substantially.

Our ag business or ag segment delivered a good performance in this seasonally slow third quarter. High demand led to a strong volume increase across all indications, at higher prices. We were able to increase sales by 5% despite significant negative currency effects. The consolidation of the former Becker Underwood business led to a positive structural effect. Despite pronounced negative currency effects, we were able to keep EBIT before special items on the level of the prior third quarter. For the full year, we expect to achieve new sales and earnings records.

In the Oil & Gas segment, sales grew significantly. This was due to the transfer of the shares in Brage, Vega and the Gjøa fields, as well as higher volumes in Natural Gas Trading. EBIT before special items came in lower, primarily related to lower margins in Natural Gas Trading, higher costs for the abandonment of an oil platform, as well as lower contributions from Libya. We recognized a onetime gain of EUR 164 million for the sale of a 15% stake in the Edvard Grieg field in the North Sea. Since the disposal gain was tax free, net income increased significantly to EUR 451 million.

Let me turn to our cash flow, which continued to improve in Q3. Please be reminded that we will summarize the first 9 months of 2013.

At EUR 6 billion, cash provided by operating activities was again excellent, exceeding the prior year number by almost EUR 1 billion. Net working capital decreased due to higher accounts payable and provisions. Cash used in the investing activities amounted to EUR 4.6 billion. CapEx increased to EUR 3 billion compared to EUR 2.7 billion in the prior year.

For the transaction with Statoil, as well as for the acquisition of Pronova BioPharma, we incurred cash payments of EUR 1.1 billion in the first 9 months of 2013. In the prior year, we recorded a cash inflow primarily from the divestiture of the fertilizer business.

Free cash flow amounted to EUR 2.9 billion, an increase of approximately EUR 600 million. Cash inflow resulting from the change in financial liabilities amounted to EUR 1.3 billion. This was mainly the result of the issuance of several bonds. Overall, financing activities led to a cash outflow of EUR 1.3 billion.

Net debt amounted to 13 -- 1 -- EUR 13 billion, representing an increase of EUR 1.8 billion since the start of this year. Our equity ratio remained at 41%.

I will now come to the outlook. As I said before, business was robust in the third quarter. However, we do not anticipate an acceleration of global GDP growth in the fourth quarter of this year. We assume ongoing economic volatility and uncertainty in the markets we operate, and we expect continuing negative currency effect on sales and earnings.

For 2013, we continue to expect global GDP to expand by 2%. For industrial production, we see 2.7%. Chemical production is expected to remain at about 3%.

Our projections for the average oil price and the dollar-euro exchange rate haven't really changed.

For the full year 2013, BASF confirms its outlook. We strive to exceed record levels in sales and EBIT before special items generated last year.

So thank you for your attention, and we are now happy to take your questions.

Magdalena Moll

Sue, repeat the procedure, please?

Question-and-Answer Session

Operator

[Operator Instructions]

Magdalena Moll

The first question comes from Thomas Gilbert from UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

I'll try to be efficient as well with one question. The announcement with Yara on the ammonia plant, can I just check whether that's just merely an upstream investment, or whether you're going to expand capacity in organic nitrogen chemistry downstream in caprolactam, technical nitrogen products, resins, polyamide? Or is it just mainly a function of more backwards integration? If you can talk around the investment in North America and any further plans for CapEx in North America, that'd be helpful.

Kurt W. Bock

Thomas, thanks for the questions. First of all, details have to be sorted out with Yara, but our intention is quite clearly to go upstream, so it's -- for BASF, it's backward integration. We do not intend to go into the emerging market for ammonia, that is quite clear. And we certainly then also have a better cost base to grow downstream, but I think that is too early to speculate about. And that also holds true with regard to further shale-gas-induced investments in North America. You know that we have done a little bit over the last few years. This ammonia plant is now a -- let's say, a bigger step, and we are evaluating further options for BASF.

Magdalena Moll

So the next question is coming from Tony Jones from Redburn.

Tony Jones - Redburn Partners LLP, Research Division

Just one question for me, too. Operating costs looked like they sequentially declined around about EUR 100 million to drop down closer to EUR 2 billion, which is a good result. And it looks like the lowest cost result since early 2012. Now on the prior call, we talked about the fact that the cost-saving plans are mainly to keep inflation at bay. This result sort of suggest that you're doing better than that. My question really is, are we at a new phase of more encouraging earnings leverage as you get sequential improvements on your cost base?

Hans-Ulrich Engel

Yes, Tony, this is Hans. On our operating costs, a number of factors there. One, as emphasized during the course of, I would say, the last 2 years, a strong focus overall on our fixed cost management, that we see paying off. Second, our STEP program, that delivers as expected. You may recall roughly EUR 100 million in the year 2012, an additional roughly EUR 300 million expected for the year 2013. And then in Q3, we certainly have an impact that you see, in particular in the results in Other, and that has to do with lower cost of our long-term incentive plan. So if you look at these 3 elements, I think that explains what is going on. And you can expect us to keep a strong focus on our operating costs and our fixed cost development.

Tony Jones - Redburn Partners LLP, Research Division

If I may, can I just ask a very small follow-up? So just to sort of get a sense of how the next couple of quarters will move, should we think then that there will be further downward movement to the operating cost in the P&L? Or is it that, that EUR 300 million that you plan over this year, the net impact is broadly neutral? I'm just trying to sort of get a sense of which way the costs might go.

Hans-Ulrich Engel

I think you can look at it that way, that the effect of the EUR 300 million that we're expecting in from STEP, that will be fairly neutral to slightly positive, but you can expect us to move forward with the program as expected, with its full impact then by the end of the year 2015, as announced, with EUR 1 billion.

Magdalena Moll

So now we are coming to the next question from James Knight from Exane.

James Knight - Exane BNP Paribas, Research Division

A question on the -- what I believe, the upcoming collective wage bargaining in Germany. Can you give BASF's perspective on this? Do you think the industry will concede the 4.5% again going forward?

Kurt W. Bock

That's difficult to address, James. I mean, the union for our industry in Germany made a statement about 5.5%, explained that everything is just fine in our industry and there is good growth and excellent earnings. You will not be surprised if I say that we see this slightly differently, especially in view of the energy price situation which we are facing in Europe, and in Germany especially. The discussion will start in 2014. The goal is certainly to achieve a, let's say, realistic wage increase. What I can say, in the past, these talks were always, let's say, tough, but at the end of the day, we always achieved an agreement where both sides could live with, and I hope that is going to be the case next year as well.

James Knight - Exane BNP Paribas, Research Division

And if I asked you what's realistic, you wouldn't tell me.

Kurt W. Bock

No, I can't, frankly. It's certainly not the 5.5%, yes.

Magdalena Moll

So the next question now comes from Andrew Stott from Bank of America Merrill Lynch.

Andrew Stott - BofA Merrill Lynch, Research Division

Just really on Oil & Gas. When I look at the margin drop in Q3, and I get your points on your introductory comments around the additional cost load. How do I think about it going forward? So I'm just wondering if you can spell out the specific one-off costs in the quarter for E&P.

Hans-Ulrich Engel

Yes, Andrew, this is Hans. A number of things happening in Q3 that will make it actually difficult for you to understand what's going on, I fully appreciate that. What did we actually experience in Q3? One, we had a shut-in of our onshore activities in Libya. Due to the situation, the strikes at the export terminals, we were not able to export anymore and had to shut-in our onshore activities. That happened in the month of July, so 2 month without production in Libya in the third quarter. Offsetting that and positively compensating, obviously, is that since the beginning of August, we have the benefits from the asset transaction that we did with Statoil, so we have the production in Norway. What we also had was abandonment cost, additional abandonment cost that we had to build a provision for during the third quarter, which negatively impacted results. And the fourth key element that you see in Q3 is the lower margin that we have in our Natural Gas Trading business. So taking all of these components into consideration, plus then the fact that we have positive income from our natural gas exploration activities in Argentina, that explains what's happening in Q3 in Oil & Gas. Now going forward, the unknown at this point in time is what's going to happen with our onshore activities in Libya. At this point in time, as I said, shut-in, strike at the export terminals. We cannot say what is going to happen there, and that may have an impact on our Q4 results in Oil & Gas.

Magdalena Moll

So and the last one from the first group of 5 is Norbert Barth from Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

A question concerning the currency impact. We saw the high volatility overall. Can you give us a figure how operating profit means on the EBIT line? And we had the negative impact of this currency fluctuation perhaps before and after hedging. And if I could add only, on the gas, if you can give us a feeling of the number of this provision for the abandonment of the platform and if that is a one-off or it will continue into next quarters.

Kurt W. Bock

Norbert, it is a one-off, the abandonment. What actually happened, we had provision not enough over the last couple of quarters, so we had to catch up here. That was a sizable double-digit number, put it that way. And then the currency impact on EBIT, that is approximately EUR 150 million to EUR 200 million, so it's sizable, actually.

Magdalena Moll

So we are quickly moving on with Mr. Spengler from DZ Bank.

Peter Spengler - DZ Bank AG, Research Division

Peter Spengler. I have a question on the consideration of your Libyan production proceeds. Is it all considered in the EBIT line, under Oil & Gas? Or is a part considered in the financial income? And secondly, is -- or part of this question is whether there are nondeductible oil taxes on the offshore activities or not.

Hans-Ulrich Engel

So Peter, this is Hans. I'll start with the second part of your question. And that is no, there are not. There are no nondeductible oil taxes because the offshore activities are under what's called an EPSA agreement and we're not under the same type of concession agreement that we had onshore. Your first question was with respect to, where are the -- where is the income from our Libyan activities reflected? It is equity income but equity income that is shown in the EBIT of the Oil & Gas business. If you refer back to the explanation that we gave when we moved from -- to IFRS 10 and 11 earlier in the year and go back to the brochure that we distributed, the details, I explained in there.

Magdalena Moll

So the next question comes from Andreas Heine from Barclays.

Andreas Heine - Barclays Capital, Research Division

I have a question regarding the volume, which was also strong. But looking on the comments you have given, you are not really happy with the overall environment. Looking forward to the coming quarters and maybe years, if there is an improvement in the overall economy, would you expect to grow even faster than the 6% we have seen in the third quarter? That's the first. And related to this, in Chemicals, the volume was down, whereas it was, in 2 other segments, up. What was the reason that Chemicals was here lagging compared to the 2 other industrial segments?

Kurt W. Bock

Andreas, thank you for the question. I'll try to go into a little bit more detail here to -- in order to give you some more flavor what is really happening. Yes, we had a good volume growth in Q3, but if you take out RM [ph] for Oil & Gas, we are approximately at 1% to 2%, you have to keep that in mind as well, overall. And we had a relatively difficult situation in the Chemicals segment, where volumes were, compared to last year, down by 2%. In order to give you more explanation, I think it also makes sense to look at this consecutively. And there, we had a -- in Chemicals, I'm now talking Chemicals, which is not Oil & Gas, which is not ag, we had a volume increase, Q3 compared to Q2, of 2%. And that is what I would describe as a flat development, frankly. And when we talked about the development going into the second half a couple of months ago, we said we see a flat development. For me, 2% is kind of [indiscernible], especially when you keep in mind that, for instance, in Q2, in Petrochemicals, we had a turnaround situation which also reduced volumes. So we haven't really seen this big volume pickup everybody is expecting and talking about. That is the reason why we remain so cautious going into the fourth quarter. And on top of that, we see the currency headwinds, obviously. So I don't think that volume development overall is something to write home about.

Magdalena Moll

So then the next question, we are taking from Jaideep Pandya from Berenberg.

Jaideep Pandya - Berenberg, Research Division

My question is kind of related to Andreas's, but it's more in on pricing. I mean, historically, volume growth tends -- or rather pricing tends to follow volume growth, but you are clearly sort of in more price negative territory. So can you tell us how much of the price decline within the Chemicals basket is related to raw materials? And that's the first part of my question. The second part is, do you actually see any improvement or increase in raw material development? And can you -- when can you think that prices will start moving up?

Kurt W. Bock

In Chemicals, we have seen a price decline compared to last year in the Chemicals. I'm now talking the Chemicals segment. Compared to last year, it's minus 3%. Compared to Q2, it's again about minus 3%. We were able, overall, for BASF to maintain margins, more or less, which means there was no margin expansion, but there also was no major decline. We described a couple of businesses where we had margin pressure. Capro remained at very low levels. We also mentioned the isocyanates in Asia, which came a little bit under pressure, and ammonia. So to come to your second point, we haven't really seen major changes on the raw material side, and so far under the current market circumstances, we weren't really able to expand our margins.

Jaideep Pandya - Berenberg, Research Division

Just a short follow-up is on your nutrition business. I mean, is just as an example, are you thinking about taking any strategic steps in the nutrition piece, which is sort of it -- a bit troublesome? I'm mainly referring to the vitamins piece, where you have flagged now, for a few quarters, there is pricing pressure and also volume weakness.

Kurt W. Bock

I mean, you know that we have expanded our Nutrition & Health business considerably after the acquisition of Cognis. And it has lots of very well-performing businesses, including, by the way, Pronova, which we just acquired. They have done a great job integrating the business, and it's running at very high levels in terms of sales, growth and earnings. Where we got hit, absolutely correct, is what we call internally animal nutrition, and that is essentially vitamins. I think this has been communicated by other market participants as well, a relatively slow volume development, and prices and therefore also margins declining. Your question's about strategic consequences: We have seen this in the past as well. This is not the first time that we have seen fluctuations in the margin development of vitamin E, for instance. And we have a what we think a pretty efficient and competitive cost base. We continue to stay in that business, that is for sure. And I'm also certain that fluctuations will not only go one direction over time. But for the time being, and you're absolutely correct, for a couple of quarters now, it went south.

Magdalena Moll

So the next question comes from Michael Rae from Goldman.

Michael Rae - Goldman Sachs Group Inc., Research Division

Just a simple one from me. It looks like the depreciation charge in the Chemicals segment increased quite markedly year-over-year and quarter-on-quarter. Can you just give us a bit more detail on what that related to? Was there something exceptional? Or is this the new run rate as we approach 2014?

Hans-Ulrich Engel

This is Hans, Michael. I think, if you look at the figures and keep in mind that we had an impairment of one chemical plant in the Chemicals segment, that is the answer to your question.

Michael Rae - Goldman Sachs Group Inc., Research Division

Okay. And can you provide us a bit of color as to what that was, though?

Hans-Ulrich Engel

As I said, that was in the Chemicals segment, a plant that we impaired.

Magdalena Moll

So the next question is coming from Andrew Benson from Citigroup.

Andrew Benson - Citigroup Inc, Research Division

Can you just, on the Chemicals division, share with us what the turnaround there, and also the Americas result, which I guess is related to that? Because you had the shutdown in the third quarter of last year, which I presume is a significant factor depressing results, and this time around, you've got the benefits of ethane gas. And can you let us know the degree to which you can use cheap feedstocks now? What's the proportion of that? I'm just trying to get the scale of the actual incremental benefit, as well as the total turnaround because of the difference in that maintenance. So just a bit more flesh on the Chemicals division.

Kurt W. Bock

Okay, I can do it, Andrew. Compared with last year, in Chemicals, we had a slightly higher turnaround effect this year, which is about EUR 20 million compared with Q3 of 2012. And then when you compare it with Q2, and I alluded to that early on because we had the big turnaround of the Antwerp cracker in Q2, that number is a little bit bigger than the EUR 20 million I just mentioned. So that is the order of magnitude we are talking about here.

Andrew Benson - Citigroup Inc, Research Division

And then on the use of light feedstocks, how much are you able to exploit that?

Kurt W. Bock

We do. We have changed the raw material composition of our cracker in Port Arthur. As you know, we have added furnaces. And the cracker is much more, what we call, feed flexible today, and that had a positive impact. The olefins business in North America, as we said in our quarterly report, did quite well. I don't think that we gave a specific number for that earnings improvement, but it helped then EBIT, yes.

Andrew Benson - Citigroup Inc, Research Division

And can I go just -- I do apologize, Maggie, just one. On the volume growth, to a previous question, you're talking about, I think, was it, 1% or 2%, but if you just -- on the front page of your reporting fact sheet, if you just do a sort of mechanical average, it looks like the volumes were up 4%. Is -- or did I just not hear you correctly, or...

Magdalena Moll

The difference between the Chemicals segment, Andrew, and the chemical activities in total, the chemical activities are Chemicals, Performance Products and Functional Materials & Solutions. And in the chemical activities here, the volume effect was plus 4%. And in the Chemicals segment alone, it was minus 2%, just the volume effect. And this is Q3 over Q3, yes? So the next question is now coming from Geoff Haire, HSBC.

Geoffery Haire - HSBC, Research Division

Just can I ask a quick question about the functional solutions business? The auto cats business obviously had a very good quarter. Could you just go into a little bit more detail on what's driving that? And also, how much of the increase that you saw is down to better metal trading? If you could split that out, that would be helpful.

Hans-Ulrich Engel

Yes, Geoff, this is Hans. I mean, the numbers on the precious metal trading, the increase that you see there in the sales, we provide that in the interim report. It's sizable, as you can see there. On the automotive Catalysts, yes, we are enjoying an environment in which, in particular in North America but also in Asia Pacific, and there in China, we are seeing, well, I would put this as very solid growth, and we're participating in that. And that provides the basis for good volume development but also good profitability in our automotive Catalysts business. Overall, we're looking at an environment in which light vehicle production, according to our estimates, in the year 2013 will grow by right around 2% globally.

Geoffery Haire - HSBC, Research Division

And how much of the profit increase was down to metal trading, if any?

Hans-Ulrich Engel

As you know, we don't go to that level of detail and don't comment on that level of detail in our particular divisions.

Kurt W. Bock

But I mean, Geoff, it was immaterial to the results[ph] [indiscernible].

Magdalena Moll

So let's come to Markus Mayer from Kepler.

Markus Mayer - Kepler Capital Markets, Research Division

In your opening remarks, you said that China picked up in Q3, and particularly at the end of. Can you give us a flavor in which products and what kind of end markets here higher demand?

Kurt W. Bock

That is very specific, Markus. Actually, we don't really comment on at product level. I already talked about isocyanates and capro will be relatively weak in Asia and in China. What is more important, from our point of view, that we finally saw a -- at least from our point of view, a pickup in demand and volume in China. While -- to give you some flavor here again, while in Asia overall, we had a 6% volume growth year-over-year, in China, it was double digit. And that was, from our point of view, quite positive, frankly. But I said earlier on, there is not just a higher demand. There is also additional capacity available in some areas in China and there is a little bit of a mismatch in some parts, and therefore, margins are a little bit depressed for the time being. This will change over time, but certainly not immediately. And then we got hit in Asia overall by a, I would say, severe currency effect, which was almost double digit, and that can be understood if you look at Japan, for instance, or India as well.

Magdalena Moll

We're now moving on to Lutz Grueten from Commerzbank.

Lutz Grueten - Commerzbank AG, Research Division

Back to oil and gas. Gazprom stated that they are looking for compensation for higher reserves, they admitted, in the Yuzhno-Russkoe field. Could you give us any comment on that? I think they've mentioned a number of EUR 1 billion for all the partners here.

Hans-Ulrich Engel

Yes, Lutz, this is Hans. It relates to the Yuzhno-Russkoe field. What's happening there is what's very typical in the E&P industry. You're acquiring activities, you're farming-in, you're agreeing on a number for the reserves that the valuation for the purchasing price or farming price is based on. And then after running the activities for a number of years, you do the true-up. You look at how the field has developed and what the reserve expectations are going forward. That is currently happening. Now it is too early to tell what the outcome of the analysis is, at least from our point of view, but I can assure you of one thing, which is, in case there are more reserves, we are certainly happy to participate in that.

Magdalena Moll

Yes. Next comes Peter Clark from Société Générale.

Peter Clark - Societe Generale Cross Asset Research

So on the Performance Products division, an encouraging turn in the segment, but obviously there, that volume growth at 6%, you have to go back way to about, I think, Q3 '10, where you saw stronger. And in the commentary, you do point to some areas where it seems to be coming through, including things like plastic additives. And I'm just wondering, what's driving this? Is there some inventory rebuild? I mean, obviously, the growth you infer in plastic additives would be at least with the segment average, I suspect. Also Care Chemicals, your sense of what's going on in the dynamics there. Because, obviously, it's quite important for the turn in that division if the volume growth is supportive.

Kurt W. Bock

It is, Peter. And thanks for the question. We had a pretty solid volume growth across the entire segment, with one big exception, which was really paper. Paper is facing difficulties in its markets because the paper market is declining and our volumes are declining as well. As part -- apart from that, we saw sometimes even higher growth rates than the 6%, which is the average for the entire segment. What's behind that? There is a little bit pickup of demand, obviously. But again, I would not describe this as the customers coming back to our gates and yelling and screaming for product. That is certainly not the case. There is still a lot of caution and uncertainty out there, and we haven't really seen any refilling of the pipeline, for instance. So that is again the reason why we remain so cautious for Q4. And frankly, the way we see it, it's now 1 quarter where we see a little bit of volumes coming back, but that is far too early then to declare this a sustainable development.

Peter Clark - Societe Generale Cross Asset Research

Would it come with the obvious regional connotations with that? Or is there anything surprising with the regional pool in the division? Or is it pretty universal, primarily Asia and the Americas?

Kurt W. Bock

I'll give you -- again, I'll try to be a little bit more specific here. In Europe, it's kind of flattish. Again, I'm comparing Q3 with Q3 of last year in terms of volume. In North America, it's also pretty flat out there. And then we see good growth in Asia and also in South America. So again, it's more the emerging economies, it's less the developed countries, which tells you there is no immediate big turnaround in the developed economies, from our point of view.

Magdalena Moll

So now we come to Patrick Lambert from Nomura.

Patrick Lambert - Nomura Securities Co. Ltd., Research Division

A quick one on ag. Plus 4% price increases, I think that's also a very strong showing, I haven't seen that for quite a while at BASF and the industry. Everybody else has also pretty good price increases. Do you think, first, that it's mostly the new products that are driving that? And second, looking at 2014, do you think the price index will also show some price increases, movements?

Hans-Ulrich Engel

Yes, Patrick, this is Hans. And I mean, the 4% that we see, you are exactly right. If you look at the other participants in the industry that have shown their Q3 figures, they are right in that range, let's say, right around 3% to 4%. The environment is positive, has been very positive during the course of this year, even in the face of soft commodity prices, which have come down in 2013, but are still significantly higher than when you look at historic averages. I'd say, at this point in time, too early to talk about what we'll see once the season in the northern part of the hemisphere starts in 2014. What I can say is that the start of the season in the southern hemisphere, which is, for us, predominantly the business in South America, was very good, and that's reflected in what you're seeing in the Q3 figures.

Magdalena Moll

So the next question is now coming from Laurence Alexander from Jefferies.

Laurence Alexander - Jefferies LLC, Research Division

Two quick questions. First, you spoke earlier about your North American exposure to cheaper feedstocks. Can you discuss a little bit what you're seeing in terms of the impact on European feedstock prices in terms of exports from U.S. cheaper NGLs or condensates, and how you think that will evolve over time? And secondly, on ag, what -- can you -- what's your longer-term view on row crop acreage and how that will tie into your ag volumes over the next 3, 4 years?

Kurt W. Bock

With regard to ag, Laurence, I can't give you a precise number, but we are expecting that the acreage is going to continue to grow. Our ag folks are quite optimistic about the next couple of years. And as we already announced a -- the intention to have, again, record sales and earnings 2013. I wouldn't be surprised if these guys, who are just starting the budgetings talks right now, would not come back to us and tell us, "We can do even better in 2014." And that is certainly based on the underlying assumption that the acreage is going to grow again. Your first question is a complex one, actually, cheaper and lighter feedstock in North America, what is the effect here in Europe? The trend towards lighter feedstock obviously had the consequence that the heavier products are less available. We have some -- seen some fluctuation here as well in butadiene, for instance. So far, I would say we haven't really seen a major impact here in Europe, at least I'm not aware of anything significant. And all the announcements which we've seen now, that maybe it's even possible to import, for instance, relatively at -- cheap LNG to Europe as a feedstock, this needs also logistics behind that. And then we have to talk about landed cost. Obviously, if you want to ship natural gas as LNG, it adds $5 to $4 per million BTU, and then you are at roughly $8 to $10 again, which is not the U.S. price level, obviously.

Laurence Alexander - Jefferies LLC, Research Division

Now I guess, in terms of quick follow-up, are you seeing a -- as you look at your Catalysts business, are you looking at adding capacity in sync with your peers? Or how do you see capacity additions in Catalysts over the next couple of years?

Kurt W. Bock

In Catalysts, as we speak, we are expanding. We are building capacity in China. We are building a big new plant, factory in Poland. We are expanding in India. So we have quite a few expansion plans underway, and that is all built on our growth expectations. And as Hans said before, we have had a very good run in Asia especially, and we have to localize even more production there, following many of our European or international customers.

Magdalena Moll

So now we're coming to the second round of questions. Thomas Gilbert from UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

One from Friday lunchtime. The Performance Products segment announcement the other day for the restructuring, I mean, can you describe why you think that one will do the trick relative to the one that was done after the Ciba integration? Because it looks like it's again moving, it's still -- I'm still surprised that the asset network still needs so much reorganization, whereas I think, to make it sustainable, you would need to work on the product mix. So in other words, once this is done, do you think that the asset network is in place? And what will the product mix in pigments, dispersions look like, sort of percentage, specialties versus commodities? And why is this restructuring will do it, the trick, sustainably for the margins in these product areas?

Kurt W. Bock

I think that's a very fair question to ask, frankly. Yes, you are completely right, Thomas, after the Ciba acquisition, we did some heavy restructuring, including, and quite aggressively, adjusting the production footprint and product portfolio of the pigments business. The pigments business is a highly complex business. It has, as you said, commodity-type products, ags also [ph]. And it has what we call specialties like effect pigments, which have, from our point of view, very good growth prospects and margins. We are, by far, the largest pigment producer globally. We have the largest production footprint. But we also have to realize there are emerging competitors from Asia who partially have a lower cost base. They are focusing sometimes on one product only. It's a very interesting approach, where we have to defend a pretty broad-based portfolio. Which leads to the conclusion, as you alluded to, first of all, we have to adjust our product portfolio. This has happened over the last couple of years. This is nothing really we advertise very much. It's just happening as you prune your portfolio, but it leads also to a situation then where, from time to time, we have to adjust the production footprint, which, in pigments, is not that easy because pigment production is a highly specialized and very specific production. The products are being approved by our customers. So if you want to move product from one side to another side, it takes a little bit of time. And therefore, for instance, also the shutdown of now the Paisley plant in Scotland will take a little bit of time. We cannot just say it, and tomorrow, we will deliver out of another production site. So the handover has to be done in a very reliable and predictable way. Is this sustainable? Is this, so to say, enough forever? No, certainly not. I mean, we will always continue to work on improvement measures in our respective businesses, as we have done in the past. We are sure that we can bring the pigments business to a level of profitability based on the measures we have taken so far, which is attractive from our point of view. Again, it's quite a mix of products which are also interrelated, so our products are not completely independent from each other production-wise and footprint-wise. But we are very sure that we can bring it to a level where we have a profitability, which from our point of view, makes this a sustainable business.

Magdalena Moll

Next question, from James Knight, Exane.

James Knight - Exane BNP Paribas, Research Division

In Care Chemicals, in the statement, you talk about a difficult market environment. Could you just clarify which bit or bits of Care Chemicals that refers to?

Kurt W. Bock

Did I -- did we really say a difficult market, market environment? Let's look at the facts very quickly. We saw actually quite good volume growth. We had negative currency and price effects. Again, we got hit pretty heavy by currency. The price effect partially reflects raw material development. If I try to become more specific, personal care, specialties, so all your surfactants, alcohols, formulations did pretty well. We had some weaknesses in what we call standard or volume products, which obviously sees price and margin fluctuations from time to time. And we got hit again by the dollar or currency development. This is not just a sales effect, it also has an earnings evolution[ph] .

James Knight - Exane BNP Paribas, Research Division

It looked slightly...

Kurt W. Bock

But by the way, I mean, if you look at the EBIT number, it really went up. So it's not a huge increase, it's kind of a 10% increase, which is not at less -- at least not too bad.

Magdalena Moll

So then Andrew Stott, Bank of America Merrill Lynch.

Andrew Stott - BofA Merrill Lynch, Research Division

Back to ag solutions. So the lack of leverage in the third quarter is explained adequately in the release. I'm just thinking about going forward into next season and the whole of the calendar '14. Have we got more of the extra R&D and distribution costs to come? Or do you see sort of Q3 as particularly bad in that sense?

Hans-Ulrich Engel

Andrew, it's Hans. So if you look at ag, you're looking at Q3 and you're looking at obviously one of the weaker quarters. If you look at ag and ag's performance over the first 3 quarters of this year, I think what you see there is outstanding performance. And what we're doing is, absolutely yes, we are supporting that business with our R&D work and we're supporting that business also in order to grow it profitably with, to a certain extent, increased distribution cost. That obviously hits in one of the quarters where you have overall lower sales and lower profitability due to the seasonality in that business. But still, despite the increase in the costs, despite a significant impact that we have from currencies, look at the development of the Brazilian real, that has a strong impact on our business in Q3. And then we'll also have a strong business in Q4. You see the profitability of the business on the level of the excellent third quarter of last year. So I would not speak about a lack of leverage. And you also have to keep in mind that, with Tixo and Xemium, we have 2 new actives which we have just registered for this season in South America, and I think they will be strong contributors also going forward.

Magdalena Moll

So and we come now to question number 20, and this will also be our last one for today, and this comes from Peter Spengler.

Peter Spengler - DZ Bank AG, Research Division

Can you update us on the filing process of the Gazprom asset swap with the European Union antitrust authorities, and the timeline?

Kurt W. Bock

Actually, Peter, that is a decision which has to be made by Gazprom. We are not really part of that regulatory process. As -- I think, as we speak, they continue to prepare the documents, and there hasn't been a decision yet to file. However, I would assume this is going to happen within the next couple of weeks or months, latest, yes.

Peter Spengler - DZ Bank AG, Research Division

So is there a delay, then?

Kurt W. Bock

There is certainly a delay in the procedure. In terms of economics, there won't be a delay because whatever we do here is then executed retroactively as of, I think, April 1 of 2013. So it doesn't have an economic effect, but certainly, procedure-wise, we would be happy if this now comes at -- to a conclusion as soon as possible, because it has taken quite some time.

Magdalena Moll

So ladies and gentlemen, this brings us now to the end of our Q3 Conference Call. Our full year reporting will then be on February 25, 2014.

I would like to thank all of you for joining us this morning. Should there be any further questions, please contact us, and any member of the IR team will be happy to help you.

We are looking forward, actually, to seeing you soon during one of our road shows that are upcoming. And insofar today, I wish you all a good day and a nice weekend.

Thank you, again, and goodbye.

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