BASF SE Q1 2010 Earnings Call Transcript

Apr.30.10 | About: BASF SE (BASFY)

BASF SE (OTCQX:BASFY) Q1 2010 Earnings Call April 29, 2010 9:00 AM ET

Executives

Magdalena Moll - Head of IR

Kurt Bock - CFO

Manfredo Ruebens - President, Finance Division

Analysts

Thomas Gilbert - UBS

Norbert Barth - WestLB

Tony Jones - Redburn Partners

Sophie Jourdier - Citi

Christian Faitz - Macquarie Securities

Jenny Barker - Nomura

Matthias Cornu - Exane

Paul Walsh - Morgan Stanley

Andreas Heine - UniCredit Group

Martin Evans - J.P. Morgan

Jaideep Pandya - Berenberg Bank

Mutlu Gundogan - Royal Bank of Scotland

Annett Weber - BHF-Bank Aktiengesellschaft

Martin Rödiger - CA Cheuvreux

Stephan Kippe - Commerzbank

Peter Clark - Société Générale

Lutz Grüten - Kepler Capital Markets

Operator

Ladies and gentlemen, this is the Chorus Call conference operator. Welcome to the BASF interim report first quarter results 2010 conference call. (Operator Instructions).

This presentation includes 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. This presentation contains a number of forward-looking statements including, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, and supply and demand.

BASF has based its forward-looking statements on its views with respect to future events and financial performance. The actual financial performance of the entities described herein 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. Forward-looking statements will present estimate and assumptions only as of the date that they were made. 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

Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our first quarter 2010 conference call. BASF had a very strong first quarter 2010 driven by improved performance of our industrial businesses as well as the favorable business development in crop protection.

With me on the call today to explain the results in more detail are Dr. Kurt Bock, our Chief Financial Officer and Manfredo Ruebens, President of BASF's Finance Division.

Following Dr. Bock's presentation, both gentlemen will be available to take your questions.

Just a usual reminder, since we have our annual general meeting today, the conference call will be limited to one hour. We have posted all the numbers, the charts and the speeches on our website today at basf.com/gr.

So now, I would like to hand over to Dr. Bock.

Kurt Bock

Good morning ladies and gentlemen, also from my side. Thanks again for joining us today. We already saw our numbers this morning and it looks right now like the global economy continues to gather pace on the back of a jump in demand.

BASF had a strong start to the year driven by volume recovery. Demand increased up essentially as a result of improved economic environment and some restocking by our customers. At the same time, supply of some chemical was tight.

Consequently, in Q1, sales rose by 26% to €15.5 billion, 6% of which resulted from our acquisition of Ciba. Earnings doubled to €2 billion. This is a comparison with the last year's first quarter, which as you all know was at bottom of the crisis. In order to gain a better understanding of the underlying business dynamics, we now compare Q1 with the first quarter 2009.

Sales increased by 17% over the previous quarter. Volumes increased by 9% and prices rose by 4%. EBITDA was up by 18% at €2.6 billion and we again achieved a strong EBITDA margin of 17%.

Cost reduction and efficiency improvement measures as well as synergy effects from the Ciba integration further strengthens our earnings. EBIT before special items increased by 32%. Net income more than doubled to just about €1 billion. This increase was driven by higher income from operations as well as a slightly lower tax rate of 34.7%.

Adjusted earnings per share amounted to €1.32.

We generated cash flow from operations of €1 billion slightly above Q4 of 2009 but down from €2.1 billion in Q1 2009. The decrease is solely attributable to the €2 billion swing in net working capital in particular higher accounts receivable, reflecting the recovery of volumes and sales year-on-year.

Now turning over to our segments. Chemicals increased sales by 20% and earnings by 46% compared with the previous quarter due to ongoing solid demand across all divisions and regions, especially in Asia.

Petrochemicals, planned and unplanned plant outages led to very tight product markets in all regions. We were able to pass on higher raw material costs and expand margins. In Q2, we expect ongoing healthy margins in petrochemicals.

Over the course of the year, however, product availability will improve due to the start of a plant in Asia and the Middle East.

In Inorganics sales increased especially in glues and resins as well as in metal systems. Earnings were up, which was due to significantly higher volumes. Intermediate strong demand from key customer industries, such as plastics, coatings, textiles and fibers as well as the seasonal peak in agro demand supported the sales and earnings improvement.

The availability of several amines as well as Butandiol and its derivatives has been tight due to plant outages at competitors.

At present, the first and complete turnaround of our entire Nanjing site is running at full speed which will hurt the segment's EBIT in the second quarter.

In Plastics, we achieved significantly higher sales and earnings as business development rebounded further in Q1.

In Performance polymers prices, sales and earnings increased significantly as demand improved across all regions. Engineering plastics, polyamides and foams benefited from higher demand from the automotive and electrical and electronics industries.

Stock levels are expected to stay low. In light of sharply increasing raw material prices, however, margins are expected to come under some pressure.

Polyurethane sales continue to grow in the first quarter. Stronger volumes for basic products and specialties as well as currency effects lifted net sales. MDI was exposed to margin pressure due to the increase in benzene feedstock costs covered with the restart of idle capacities of major competitors. For the second quarter, we expect an unchanged market environment.

Following the Ciba acquisition, our Performance Product segment has a very different footprint than a year ago. Performance Product sales increased by 11% over the previous quarter due to a pickup in demand in all divisions. This was partly a result of restocking of our customers, especially in the Dispersions and Pigments and Performance Chemicals division.

All divisions contributed positively to earnings. We achieved a sustainable improvement in earnings, lower integration costs, and we continue to realize synergies.

Dispersions and Pigments sales rose by 15% due to the better economic environment and the seasonal upturn in the first quarter.

Demand from the automotive and the printing and packaging industry strengthened. Pigments were in short supply globally despite increasing raw material prices, divisional earnings continued to rebound.

In Care Chemicals, sales continued to grow, driven by strong upturn in demand in almost all business, especially in detergents and formulators and cosmetics. Earnings rose considerably supported by healthy demand.

Despite the difficult market situation in the paper industry, sales of Paper Chemicals increased by 6%. Price increases were implemented in order to pass on raw material costs. Divisional earnings turned positive supported by synergies and our successful restructuring efforts.

Performance Chemicals higher demand and partial restocking by our customers fueled sales development. Higher raw material costs were almost compensated by price increases. Earnings showed a substantial swing to profitability.

In Functional solutions, the seasonal sales decline in construction chemicals was offset by significantly higher sales to customers in the automotive industry. All divisions achieved higher earnings.

In Catalysts, sales increased considerably driven by further volume recovery of mobile emission catalysts and higher precious metal prices. Sales of refinery catalysts were lower. The recovery of chemical catalyst demand hasn’t happened yet. Earnings increased slightly compared to Q4.

Sales in the coatings division were flat while automotive OEM coatings remained at the same level as in the previous quarter. Automotive refinished coatings achieved higher sales. Earnings were about the level of previous quarter due to a favorable product mix at constant fixed costs.

In Construction Chemicals, a continuing difficult environment in the construction industry in the long and cold winter especially in Europe and in North America, had a negative impact on Q1 sales. The strongest decline occurred in Europe and in North America has mentioned before. In contrast, in South America and some markets in Asia and the Middle East, the development was positive.

Earnings were positive due to better pricing and considerably lower fixed costs.

In Agricultural Solutions, first quarter sales were in line with a strong first quarter of 2009, volume growth in North and South America compensated for the negative currency impact of the US dollar. Reduced selling prices of the plant health products in North America reflected lower commodity prices.

In North America we had an excellent start to the growing season. We generated strong volume growth, thanks to high demand for our herbicides. We successfully launched our new herbicide, Kixor, which contributed significantly to sales growth. Kixor is highly effective against all important broadleaf weeds, including those showing glyphosate resistance.

In Europe, positive currency effects partly offset decline in demand for fungicide due to a late start to the growing season. With weather conditions becoming more favorable since mid-March, demand for crop protection products has finally gained momentum.

In Asia, sales were slightly lower because customers were already pre-buying certain insecticides in Q4 2009.

In South America, the good business development from the fourth quarter continued into first quarter of 2010. Sales grew strongly which was attributable to a higher disease pressure as well as a recovery of the sugarcane market which boosted demand for fungicide and insecticide.

In 2010, Agricultural Solutions will strive to achieve a sales increase and maintain the higher earnings level reached in 2009.

Now coming to oil and gas. Compared with the first quarter now of 2009, sales in oil and gas decreased considerably mainly due to significantly lower gas prices. Sales in exploration and production were flat compared with the same period last year. The combination of higher oil prices with Brent averaging at $76 per barrel compared with $44 in Q1 of 2009 and then increase in gas production at Yuzhno Russkoye compensated for lower oil production in Libya and declining gas prices, earnings increased slightly.

Volumes in natural gas trading increased significantly due to the long and cold winter. This higher volume, however, could not make up for the strong decline in sales prices. Earnings decreased significantly as a result of negative time lag effects.

A look at the income statement for oil and gas showed that the first quarter EBIT decreased by 13% compared with the same period of the last year. However, our net income after minority interest increased by 28% to €273 million.

I’m now coming to others. In other, sales increased by 46% compared to Q1 2009 mainly due to improve volumes in Styrenics. EBIT before special items of minus €266 million included the corporate research and group corporate costs, which was at the level of previous quarter.

In addition, earnings in other include higher accruals for BASF option program. EBIT before special items in Styrenics increased, driven by higher volumes. In total, EBIT and other was minus €300 million compared with minus €268 million last year.

Now let me turn to our balance sheet. Two effects led to an increase in total assets of €3.3 billion to €54.6 billion since beginning of 2010. First, a significant appreciation of many currencies against the euro inflated our asset base by about €1.4 billion. Second, working capital, in particular, accounts receivable rose by €2.4 billion on the back of a strong sales development.

At the same time, we reduced net debt for other by €500 million to €12.5 billion.

Now an update on our Ciba integration. We have largely completed the structural integration of Ciba within one year of the closing date. These means that we have set up all the organizational structures and integrated the maintenance systems and process of the former Ciba into BASF group. We have also already consolidated many company structures and production sites.

Majority of integration costs were already booked in 2009. In the first quarter of 2010, we incurred €70 million of integration costs related to restructuring methods and severance payment, which we have recorded as special items. For the full year, we expect total integration costs of about €200 million for Ciba.

The synergies on the other hand are now starting to gain momentum. The cost synergy run rate at the end of 2010 is projected at €350 million for 2010. Once we have fully completed the integration by 2012, we are confident that we will achieve more than €450 million of cost synergies per year.

23 out of 55 former Ciba production sites underwent strategic reviews. Up to now, we have announced the closure or divestiture of 14 of those 23 production sites.

Now, finally, let's turn to the outlook for 2010. For the remainder of 2010, we expect the economic recovery to be slower and increasingly uneven. There continue to be a risk regarding a self-sustaining lasting upturn from our point or view.

Plant shutdown for maintenance will have a negative impact on sales and earnings in the second quarter of 2010. As already mentioned, the entire Nanjing site will be shutdown for a general turnaround and expansion. The earnings impact of all of our turnaround in Q2 could be up to €100.

We expect our sales to grow again in 2010, not surprisingly and outpaced global chemical production. We anticipate that the income from operations before special items will improve considerably and that we will again earn a premium on our cost of capital.

We are also standing by our medium-term EBITDA margin target of 18%, as well as our dividend policy.

Thanks for your attention and we are now happy to take your questions.

Question-and-Answer Session

Magdalena Moll

Thank you very much. Dr. Bock and I would not like to open the call for questions and ask you to please limit your questions to only one at a time, so that we can take as many questions as possible.

The first question we have is from Thomas Gilbert from UBS.

Thomas Gilbert - UBS

I've got one question. Your M&A fire brigade team, is that done with the Ciba integration? And what's the next task for this task force? Or are you sending them on vacation for the rest of the year? I was just wondering what your plans are, given the headlines we've had in the news on BASF looking again at acquisitions. Thanks for taking that question.

Kurt Bock

As you can imagine, our entire M&A team is dead and tired and they are all looking forward to a long and enjoyable vacation and that's all I can say right now.

Thomas Gilbert - UBS

Just coming back to the serious part, the end markets you're looking to expand at BASF, the strategy remains intact. You want to go downstream away from cracker products, further downstream, closer to the end market and the consumer market is one that is interesting for you. Is that right?

Kurt Bock

We have always made a couple of explanations with regard to our M&A policy and one is that you really want to go further downstream in areas where technology really pays off. When you look at our overall portfolio, and Juergen Hambrecht will show this today at the General Meeting, we can demonstrate that the share of commodities has decreased considerably over the last couple of years. It continues to decrease and when you look at our earnings profile this quarter, it looks like this has served us very well.

Magdalena Moll

Our next question now comes from Norbert Barth from WestLB.

Norbert Barth - WestLB

One question, Mr. Bock. You spoke about some restocking effects. Can you be a little bit more specific in which area this is? And also of some tight situation in some segments, can you be a little bit more specific on that, please?

Kurt Bock

Certainly. It is very difficult for us to tell you exactly what is restocking and what is ultimate market demand in the ultimate end markets of our customers. We have lots of anecdotal evidence. When we talk about our business heads that some of our customers are running at very, very low stock level and they really came back now in Q1.

In some case they’ve really told us please just shift that stock, I need it, and they didn’t even want to talk about pricings anymore and that you could certainly take as an indication that stock levels have been a little bit too low at some of our customers' levels. It goes across the board certainly less so in the Chemicals segment because as you can imagine it's more difficult to store those products, but Performance Product Pigments, I mentioned, for instance, the supply chain is really empty as we saw a little bit of restocking happening in 2010.

If your question is, has this come to an end already, that's very hard to say. When we look at the April, let's say it's basically developing at the level of what we saw in March of 2010.

Magdalena Moll

The next question comes from Tony Jones of Redburn.

Tony Jones - Redburn Partners

In terms of pricing increases through Q2-Q3, previously quite a high proportion of your contracts were linked to or indexed to some other feedstock. Now I think you've guided over the recession that that proportion has eased slightly, because some customers prefer to change how they buy. How confident are you that you can get prices up over the year, and try and offset some of this input cost inflation? Because a lot of the strong demand is in Asia, but in Europe it's improving, but we don't now how further it's going to improve over the year. Could you give us a bit of color in how this might change over the year?

Kurt Bock

That’s actually a tricky one. I understand you refer to our selling prices being linked to some feedstock cost quotations. Yes, we have that in very limited cases. I would say that 95% plus of our portfolio of our sales is completely unrelated to feedstock cost in terms of contractual agreement. So it’s really up to us to bring up prices. When you look Q1, we have been successful in some areas. This is continuing. We are pushing wherever possible, because we also see slightly higher feedstock costs and we’re still sticking to our oil price forecast of $75, but currently we are slightly above that level so we feel certain cost pressures coming up. It’s very well in Q1. We were able to improve prices in some areas where there was really a need. For instance, also including the former Ciba businesses.

Tony Jones - Redburn Partners

If I may just ask a short follow-up? Is the price increase that you got in Q1, is that heavily related to, say, shortness of supply for some chemicals? As you're flagging that that's going to ease through the year, will that power that you have fade slightly?

Kurt Bock

The anecdotal evidence I provided earlier on, and I said some of our customers are just screaming for product, we shouldn’t overemphasize these issues. There is overcapacity within our industry, structural overcapacity. We have said that again and again. I alluded to the ethylene business, where we certainly will expect more capacity coming on stream in the second half of 2010. So we do whatever is possible under current market circumstances to bring our prices -- will it be temporary or sustainable from today’s point of view, and I can only talk about the next couple of months, because that is what we actually see in our books. It looks like we still have a pretty solid market environment with support of this strategy.

Magdalena Moll

The next question now comes from Sophie Jourdier

Sophie Jourdier - Citi

Just a question on Performance Products. Quite astonishing improvement in EBIT, sequentially as well, and very high margins now. I just wondered whether you could give a bit more detail as to what drove that. And I guess more importantly, how sustainable you see that level of profitability?

Kurt Bock

Actually we were not that much surprised, because you know that our integration and restructuring efforts are well under way and we’re already harvesting [utilities] effect. That is how we put our cost under control, very in important coming down further in the old Ciba unit. Margins have slightly improved. But in the general market saw only differences from product to product, but they have slightly improved and volumes had picked up, and in that situation was fixed cost under control. With fixed cost under control and volume demand picking up, you certainly have nice surge in earnings. And then on top of that you certainly also have the synergy, which as I said, highly pay off. When you look at the EBIT after special items, you also have to take into account that obviously integration costs have come down compared with 2009. I hope that is helpful.

Sophie Jourdier - Citi

Just sort of looking as far as you can, there's nothing that's particularly changing as you look into the second quarter for Performance Products?

Kurt Bock

No.

Magdalena Moll

Actually Sophie you will get more detailed update on Performance Products anyway on the 1st of June, where you can really go then through the individual divisions and get more detail there as well.

So the next question now comes from the new company now, Macquarie Capital.

Christian Faitz - Macquarie Securities

Just quickly, Dr. Bock, let me phase Thomas Gilbert's question a different way. Are chemical asset prices still attractive in your view? Because I remember that before the crisis you repeatedly said that chemical asset prices in the market weren't attractive in your view. So has that become attractive and are they still attractive after the re-rating?

Kurt Bock

That certainly depends on our view on certain businesses whether we can make a business which we could acquire better than in the past. That is really the question. If you look at Ciba and what we are trying to achieve there, so it’s very difficult to give a general answer. We have been looking at M&A targets. Before the crisis we stopped frankly looking at M&A targets during the financial crisis, because we had other things to do, as you can imagine. That’s all what I can say right now.

Magdalena Moll

The next question comes from Jenny Barker from Nomura.

Jenny Barker - Nomura

I wonder if you could just talk about the issue of spot gas prices being low relative to the thermal equivalent oil price. Obviously this touches you in two areas, your Oil & Gas area and as a feedstock to your Chemical businesses. Could you just talk about what you see as the prospect for a potential shift towards more spot-related pricing in gases? How do you see that going and what do you think the outlook for that is, and what are your own intentions and desires with regard to that issue?

Kurt Bock

That’s certainly a complicated one, which goes beyond just Q1 or 2010. First of all, in Q1 we had a considerable decrease of natural gas prices. That is predominantly 95% plus just an effect of the (inaudible) time lag effect.

Jenny Barker - Nomura

Yes, I think that's understood. My question's more --

Kurt Bock

I know, but I just want to clarify that. So we haven’t really seen any major effect in 2010 so far. What is happening right now is that natural gas demand has been a little bit weak in 2009 due to the economic crisis. It’s now picking up and we notice this already in Q1. Demand was higher, not just because the winter was cold, but because also the underlying industrial demand was picking up.

At the same time, there is more supply available. There are spot volumes coming in at LNG, and that has developed a certain spot market also here in Europe and has certainly changed some price expectations of customers who are now looking at the price difference between spot and contract prices. The contract price, as you said, has historically been linked to the oil price. We think and we are convinced that the link will continue to be in place for many, many years to come.

The demand/supply balance will change again in Europe as economic activity is picking up and natural gas reserve come down. In Western Europe there is a natural tendency that we have to rely on imports and those imports can only -- the large volumes can only come from Russia and the Norwegian region predominantly. So what I’ve said here is that the underlying scheme will not change. We will see a slightly higher spot piece in the future, but we doubt that this will fundamentally change the nature of the natural gas market.

Jenny Barker - Nomura

So you're not pushing -- as Germany's largest industrial gas buyer, the BASF chemical operations, you're not pushing to have your gas contract basis changed?

Kurt Bock

We always had contract prices based on this famous formula. We always had certain percentages of spot volumes as well. But you have to take into consideration, Jenny, that in this market you really have to have stable and secure supply. I think it’s almost naïve to believe that you could secure the demand of BASF in the spot market. We need long-term contracts and those we have in place and that hasn’t really changed.

Magdalena Moll

The next question now comes from Matthias Cornu from Exane.

Matthias Cornu - Exane

Just a question specifically on pigments. You mentioned some restocking, very tight market situation in Q1. Going forward, you have announced a few plant shutdowns, as your main competitor did. Do you think this lower supply will compensate, or even more than compensate for a possible lower demand after the restocking is done? Could we expect further margin improvement in this business going forward structurally?

Kurt Bock

That’s very hard for me to say. It’s certainly our intention to achieve a situation like that, and frankly pigment is a challenging business environment and that’s the reason why we announced a couple of capacity adjustments which will continue. The ultimate goal is certainly to make this very viable and also help the unprofitable business again. We’ve seen frankly -- you've seen in the past also businesses where we’ve been able to turn situations around. Some business have been difficult for many, many years and all of a sudden you saw again a very healthy supply/demand situation, and also a very strong BASF performing very well.

Magdalena Moll

The next question is coming from Paul Walsh, Morgan Stanley.

Paul Walsh - Morgan Stanley

A question on Styrenics. Very quickly, any closer to the potential disposal of that business?

Kurt Bock

Nothing really I could add at this point in time. We are simply working on this situation. The good news is certainly that business is performing very well; good cash contributor, also good earnings contributor. Coming back again to what I just said about businesses which are difficult or have been difficult historically. Styrenics is just a good example where situation has changed. Also because we have taken drastic structural measures to improve that business.

Paul Walsh - Morgan Stanley

Given that one was so quick, could I just ask, in Q2 even with the EBIT effect from the plant maintenance, do you think you can match the first quarter levels?

Kurt Bock

We don’t know. We don’t really guide Q2. We gave guidance for 2010 and total. The only thing I can say looking at what has happened so far in April, business activity is basically at the level of what we saw in March of 2010.

Paul Walsh - Morgan Stanley

And was March better than January and February?

Kurt Bock

There was a gradual improvement of business over the course of few months. That I can add, yeah.

Magdalena Moll

So now we come to the next question from Andreas Heine.

Andreas Heine - UniCredit Group

Good morning. I'd like to understand a little bit on the others line. Is there anything we have to have in mind looking on the weakness of the euro in this line for hedging losses in the coming quarters? Or could you give even a guidance for this line, including these one-offs you can expect for the total year?

Kurt Bock

I would like to turn over this question to Manfredo Ruebens.

Manfredo Ruebens

We do have currency effects in the others line, or in the others segment. In the €136 million that you see there, there is a portion of currency results which are hedging related. Difficult to predict how this is going to continue over the year. But if you look at our hedging strategy, all the booked positions we hedge at a very level, so there is very little impact on that end.

The other piece that we do is that we hedge future sales in foreign currency. So depending on how the currency goes, we may see some negative currency effects. It’s basically option premia that we paid, and with the dollar going stronger, value of the option premia is lower. This is the effect that you see in the second half. Difficult to predict how this is going to continue.

Kurt Bock

But, Andreas, talking about the underlying competitive situation, as we all know, a weaker euro, at least temporarily, is benefitting European base production. However, as a German-based company, we are basically interested in the strong currency, as we all know.

Andreas Heine - UniCredit Group

Could you maybe add also one word on net working capital. That was quite an outflow in the first quarter, as much as you had an inflow last year in the first quarter. Is it only a temporary effect on the receivables? Or do you expect also on the full year line that net working capital will require even more what we have seen in the first quarter?

Kurt Bock

One effect which we cannot really influence is accounts receivable, because with higher sales we have higher accounts receivables obviously in our book. Inventory increase was very, very low in Q1. It’s just couple of hundred million, which again underlines relatively strong business development in Q1. As we all know, we have very tight control of our inventory levels and we certainly try to see those levels not to go up over the course of the year. What is hard to predict frankly is the price effect. If, for instance, fixed cost go up further, that certainly has a nominal effect on our inventory level. Something difficult to avoid.

Magdalena Moll

So we are moving on. Now the next question comes from Martin Evans of J.P. Morgan.

Martin Evans - J.P. Morgan

One of the issues a few months ago, I think at your Asia Day, was what would happen if and when governments' stimuli --

Magdalena Moll

Martin, you have to speak up a little bit. It’s impossible to hear.

Martin Evans - J.P. Morgan

Can you hear me now?

Magdalena Moll

Much better.

Martin Evans - J.P. Morgan

No, what it was -- several months back at your Asia Day, I think one of the concerns for the Group as a whole was what if -- or what happens when the various governments' stimuli packages around the world finish and whether the demand could be taken up from that. Particularly in Asia, where I think you were slightly concerned that when the Chinese government stopped spending on infrastructure, that could have a negative effect generally for your businesses. Are you finding now that the potential absence of those government packages is not an issue, because genuine demand is coming through quite strongly? Or is there still an issue for you that if later in the year government support is withdrawn, that could affect some of your own markets?

Kurt Bock

I think it’s fair to say that in Europe and North America we haven’t really seen tangible effect of those stimuli programs. It’s starting now in public construction, infrastructural project. But that effect is coming at BASF only partially because it would only effect our constructions business, which is important. But again there the share of public infrastructural construction is relatively low. In Europe, we’re little bit concerned with this Cash for Clunkers program, especially in Germany, that the demand would fall off the cliff in 2010. That hasn’t happened yet in Europe so far.

Coming to Asia, we look at China and simply amazed to tell you the truth. The growth has continued, still looking at something like 10% GDP growth. That’s really astonishing and that is certainly one question mark we always have, how long is it possible to continue at that pace, because we are already in a situation where our capacities are fully loaded as you know. We are expanding our facilities. Especially in Asia we have announced a couple of major investment projects, which I think are all well timed for phasing into the market. But again, right now the demand in Asia is really amazing.

Magdalena Moll

The next question is coming from Mr. Jaideep Pandya from Berenberg Bank.

Jaideep Pandya - Berenberg Bank

My question is, basically if you look at the demand level across your business in Q1 this year and if you now compare it to the pre-crisis levels, so let's say Q1 in '08, how would you rate it? So would you say it is there? Would you say it is over Q1 '08? Or would you say it is still way, way below Q1 '08 despite the tailwind you have from the restocking effect?

Kurt Bock

In terms of total demand volume and also capacity utilization, we are still below the level of Q1 of 2008, which obviously was pre-crisis and probably one of the best quarters we ever had.

Jaideep Pandya - Berenberg Bank

Just as a small follow-up about overall raw materials. Obviously you have said that raw material prices are increasing, but not so much going forward. Would you think that they would increase, i.e. that's for Q2, Q3 more than Q1, or you think they're going to be more or less flattish?

Kurt Bock

It’s very hard for us to say. As we all know, the majority of our feedstock cost is somehow linked to the oil price. So far, as I said, we stick to our oil price average of $75. Again, it’s slightly above that level. It needs to be seen. And then if feedstock costs if they really go up, but you don’t know yet. It all depends on demand and supply in those Chemical segments which we operate. Obviously in the further downstream businesses we have sometimes also special situations. Automotive demands has picked up very nicely, which really helped us across our business. We will continue. I think that’s important. We will continue with what we call value over volume strategy. That is what is really important to protect our margins and not to go for volume at any cost. Again that strategy has (inaudible) over the last couple of quarter.

Magdalena Moll

The next question now comes from Mr. Gundogan from Royal Bank of Scotland

Mutlu Gundogan - Royal Bank of Scotland

Also a question on your operating rate. I know you're not a big fan of disclosing that on a Group level. But could you indicate which businesses are still significantly below the pre-recession level and which businesses are back at or even higher than that level?

Kurt Bock

Yes, you are right. We’re not really happy to talk about the specific operating rate or capacity utilization rate, because sometimes you really compare apples and oranges, especially across companies. I would say that on [January] mark we’re in all businesses still below the levels we have seen in 2008 and early 2008. There is no particular business that we are above that level.

Magdalena Moll

The next question now comes from Annett Weber from BHF-Bank.

Annett Weber - BHF-Bank Aktiengesellschaft

Just coming back on the pricing and raw materials questions again. When I look at the quarterly development of your prices quarter-on-quarter, i.e. versus Q4, and for the individual divisions, were you able to pass on more than the raw material cost increases you have seen temporarily in Q1?

Kurt Bock

Again a general statement. We have been able to protect our margins pretty much across the board, and that was our intention and that is what we achieved. We don’t really go into margin discussions for individual businesses or divisions.

Magdalena Moll

The next question now comes from Martin Rödiger from Cheuvreux.

Martin Rödiger - CA Cheuvreux

It's on the segment others, in particular on page 11 in your slides. You show, and you mentioned already, that here the line Styrenics, Fertilizer and other business has reduced earnings, although for example, the Styrenics business performed extremely well with strong top line growth and also increase in earnings. So I would like to get an understanding what was the reason why this business or this line was down in earnings? Because I thought from -- reading from your competitors, that also the Fertilizer business should have performed well in Q1.

Manfredo Ruebens

You’re right. We have offsetting effects. As Kurt mentioned earlier, we had a strong volume driven increase in Styrenics and increase in results. But offsetting we had the Fertilizer business, which compensated those increases. So we have, compared to first quarter of 2009, a lower result contribution from the Fertilizer business and a higher in Styrenics.

Kurt Bock

If I may add here. That is a little big counterintuitive, as you mentioned. What happens here, we don’t market our fertilizer ourselves. We have a company doing this for us, and the contract basically specifies that the earnings are then distributed to BASF with a certain time lag. So the lower earnings in Fertilizer in 2010, which we now had in Q1, basically reflects situation in the market in 2009.

Magdalena Moll

The next question now comes from Stephan Kippe from Commerzbank.

Stephan Kippe - Commerzbank

I have a question on the regional side of things. You had some very, very impressive sales increases, especially in Asia-Pacific. However, you did not provide any information of how much of that is the impact from the first time Ciba integration. I understand that that might be a complex thing to do. But can you give us a feeling in which region the Ciba impact was the most pronounced?

Kurt Bock

I think if I remember correctly, the Ciba effect was 6 percentage point about last year, and that number holds true across regions actually. The Ciba portfolio had a regional distribution, which was pretty much in line with the BASF portfolio, maybe slightly higher share of business in Asia. But again if you look at relative size the old Ciba and the legacy BASF, that is all sorted out and basically the Ciba effect all in all the same all over the world.

Magdalena Moll

The next question comes from Peter Clark from Société Générale.

Peter Clark - Société Générale

I apologize for being a bit impatient and not waiting till June, but just interested on the plastic additives business, which of course was Ciba's real core business. Just wondering how fundamentally that is performing? Whether you're happy with it of course if you try and take out some of the [profit effect] that might have been in Q1 towards the end of March anyway?

Kurt Bock

I’d try to make a comment here. Although we don’t really talk about -- as I said before about individual businesses now. Plastic additives certainly also benefitted from higher demand for plastic. That’s easy to understand and we are in the midst of restructuring that business. You also have to take into account, we are taking out cost and we are now the number one supplier globally for plastic additives, and we believe that we can make this quite a strong earnings contributor to BASF. Sorry for being so general, but we don’t really go into detail.

Peter Clark - Société Générale

I'll try again in June, obviously when there'll be more information.

Kurt Bock

In June you’ll get tons of data.

Magdalena Moll

Lutz Grüten from Kepler Capital.

Lutz Grüten - Kepler Capital Markets

One question on your cost-saving program NEXT. Could you give us an update what was achieved so far from the scheduled €1 billion? And perhaps also break down by division?

Kurt Bock

You’re right. We try to achieve a total savings number of about €1 billion latest by 2012. So far we have achieved €300 million of that program, and it’s not accelerating over the course of 2010.

Lutz Grüten - Kepler Capital Markets

€300 million you said?

Kurt Bock

Yeah.

Lutz Grüten - Kepler Capital Markets

And the breakdown by division?

Kurt Bock

We don’t do that.

Magdalena Moll

So now we come to the final question -- final two questions actually. One comes from Thomas Gilbert and then Martin Evans, and then we have to stop.

Thomas Gilbert - UBS

I reckon you're not going to answer it, but I give ourselves a shot. You said that petrochemical, the cracker products were very strong the first quarter, but there is -- the outlook is more mixed into the second half. Is there a chance you can give a color on C1, C2, C3 and C6? Whether that's uniform across the chain or whether you're specifically bullish or bearish on one of those? I'm specifically interested in all the comments from your U.S. competitors that the C3 chain, propylene and propylene derivatives, acrylic acid, are expected to remain tight. So any color on that would be helpful. If not, bad luck for me.

Kurt Bock

I think they are the expert, so we would probably go along with that line. As you know, the entire business for us has a certain importance, but it’s not that important frankly. It’s basically for captive demand. And yes, C3 certainly is probably better protected against emerging competition from Middle East, as we all know. And finally, butadiene is just tied as it can be in extremely difficult market situation right now.

Thomas Gilbert - UBS Investment Bank

Propylene, acrylic acid, butadiene, were those driving the results in the first quarter? Or also the ethylene site?

Kurt Bock

It was across the board.

Magdalena Moll

So now final question Martin Evan.

Martin Evans - J.P. Morgan

Just a very quick one on the Catalysts performance in Q1, which obviously as you say in the press release benefited from improved demand --

Magdalena Moll

Martin, you have to speak up again. This is impossible to hear, I’m sorry. Can you repeat it? Hello?

Kurt Bock

He is gone. I think he was asking about Catalysts. So Catalysts business was much better in Q1 supported by recovery of demand in automotive, also higher precious metal prices, which have a certain affect on our bottom line, and continuing cost saving and restructuring efforts within that particular division.

One business which hasn’t picked up and I mentioned that before is really our chemical catalyst business. That is probably a late cycle indicator because it remained relatively healthy even after the economy and chemical industry fell off the cliff in late 2008, continued to have good demand for a couple of month, and then it basically disappeared. That hasn’t really recovered, because obviously now many kind of companies are still in the mode of producing and getting up their production, and they will later over the course of the year start a maintenance programs and turnaround program, as we recently did in Nanjing, for instance.

Magdalena Moll

Thank you, Dr. Bock and Mr. Ruebens. Ladies and gentlemen, this brings us to the end of our conference call. Before we close I would like to mention again that we will have our next event, namely the BASF Investor Day on Performance Products. It will take place on June 1 in London and on June 2 in New York.

We will also bring our division head along, in addition to top management actually, so you can really have in-depth discussion. We will next report on our second quarter 2010 results on July 29, 2010. At this point in time I would like to thank you for joining us this morning. Should you have any further questions, you’re more than welcome to contact myself or my colleagues at the IR team and we will be happy to help you on any further questions. So with this, we’ll wish you a good day and say goodbye.

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