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Executives

Magdalena Moll - Senior Vice President of Investor Relations

Kurt W. Bock - Chairman of The Board of Executive Directors and Chief Executive Officer

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

Oliver Schwarz - Warburg Research GmbH

Timothy Jones - Deutsche Bank AG, Research Division

Christian Faitz - Macquarie Research

Andrew Benson - Citigroup Inc, Research Division

Ronald Koehler - MainFirst Bank AG, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Andreas Heine - Barclays Capital, Research Division

Lutz Grueten - Commerzbank AG, Research Division

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

Norbert Barth - Baader Bank AG, Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

Tony Jones - Redburn Partners LLP, Research Division

Marcus Diebel - JP Morgan Chase & Co, Research Division

Markus Mayer - Kepler Capital Markets, Research Division

Peter Spengler - DZ Bank AG, Research Division

BASF SE (OTCQX:BASFY) Q4 2013 Earnings Call February 25, 2014 9:30 AM ET

Magdalena Moll

Yes, good afternoon, ladies and gentlemen, and welcome to the BASF 2013 full year results conference here today in Ludwigshafen. I would also like to welcome all those participants who are watching the webcast or who are listening in by phone.

Ladies and gentlemen, the macroeconomic environment in 2013 was demanding, and we have been facing significant headwind from negative currency effects. But despite this, we have been able to grow volumes, and we delivered on our promise to increase sales and EBIT before special items in 2013. And on top, we again propose to pay an attractive dividend to our shareholders.

So with me this afternoon are Kurt Bock, our Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, our Chief Financial Officer. Kurt will first highlight BASF's performance in the fourth quarter and then also look at the full year 2013. He will address major strategic achievements that we did in the year, and then he will conclude with the outlook for the year 2014. And then Hans will take over and discuss with you the segment performance in the fourth quarter, and he will also review key aspects of our financial statements. And then afterwards, both gentlemen will be very happy to take your questions.

For your information, we have posted a little bit of a longer version of the speech, together with the press documents, on our website, www.basf.com/share. I also would like to remind you that the webcast will finish after we have concluded the discussion of the financial statements. But for all of you who are here today in Ludwigshafen, there's one special feature that we have in addition, and that is following the discussion of the full year results, we will host a joint presentation of Adidas and BASF, focusing on our successful partnership. We all know the Adidas Group, and we know it is a leader in sporting goods, in the sporting goods industry, with brands built upon a passion for sports and a sporting lifestyle.

And do you know, ladies and gentlemen, Adidas sells approximately 250 million pairs of sports shoes per year. And on top of this impressive number, they are selling more than 300 million T-shirts, shorts and scarves and well above 50 million sports balls, bags and golf clubs. So this is quite impressive, and so we are very happy that we have as our special guests this afternoon, Gerd Manz, who's here in the back with us. He's Senior Innovation Director. And John-Paul O'Meara, he's Head of Investor Relations at Adidas. And from the BASF side, I'm very happy to introduce to you Christian Fischer. He's our President of Advanced Materials Research, also in the back; and Jurg Ulmar [ph], Head of Technology in the Performance Materials division of BASF. Now the 4 gentlemen will strive hard this afternoon to provide you with insights about the development of our innovative infinity technology. And you've seen the entire BASF team is champing already on this technology. And certainly, also the successful application in the Energy Boost running shoe, and then Adidas will elaborate on the successful market launch. In the meantime, the Energy Boost is already 1 year on the market and has proven very successful.

So before we start, ladies and gentlemen, I also wanted to ask you to please switch off your phones and your mobiles since they could interfere with our microphone system.

And now finally, I would like to ask you to take a look here at the screen to review the disclosure language. And with this, actually, we are ready to start. I would like to hand over to Kurt.

Kurt W. Bock

Yes, thank you, Maggie, and good afternoon also from my side. Welcome here in Ludwigshafen. We're glad to have you here. Before we went into the interesting world of sports shoes and polyurethanes, you have to pay attention to our strategy and finance topics today, and we try to make it as interesting as possible. And then the Adidas story should be the icing on the cake, hopefully, later on.

So let me start with the business development in the fourth quarter of 2013. Despite some first indications of recovery towards the end of last year, the global economic environment remained challenging in Q4, as Maggie already alluded to. While important markets, such as China and the U.S., showed good volume growth and Europe stabilized, we faced strong currency headwinds in various countries, impacting both the top and the bottom line.

Sales in Q4 increased slightly to EUR 18.1 billion. Higher volumes and portfolio effects were almost offset by lower prices and negative currency effects.

EBITDA rose strongly to EUR 2.6 billion, up 26%, primarily due to a sharp increase in Oil & Gas. EBIT before special items increased by 18% to EUR 1.5 billion due to better performance of all of our 5 business segments. EBIT went up sharply to EUR 1.6 billion as a result of higher earnings and a swing in special items year-over-year. While we incurred negative special items of EUR 164 million in the fourth quarter of 2012, we recorded positive special items of almost EUR 200 million in the fourth quarter of last year. The 2 main factors were: following a change of control of our joint venture, GASCADE Transport GmbH; the subsequent deconsolidation led to a special gain of EUR 429 million in Oil & Gas. This was lowered by negative special items due to the restructuring measures in Performance Products.

At EUR 1.1 billion, net income came in 16% higher than the prior year quarter. Adjusted earnings per share were EUR 1.02 compared to EUR 1.35 in Q4 of 2012. The prior year figure included a reversal of a tax provision.

Before I highlight some of the major milestones we achieved last year, let me briefly review our full year 2013 results. Last year, sales and earnings improved despite weaker global economic development and lower industrial production than in 2012. Sales increased 3% to EUR 74 billion, primarily driven by higher volumes in Oil & Gas and Agricultural Solutions. In our Chemicals business, sales decreased by 2% because volume growth of 2% was more than offset by negative currency effects.

EBITDA improved by more than EUR 400 million and amounted to EUR 10.4 billion. EBIT before special items rose by 8% to EUR 7.2 billion. This was primarily attributable to an excellent performance of our crop protection business, a higher contribution of Functional Materials & Solutions, as well as an earnings improvement in Other.

The devaluation of almost all major currencies against the euro had a negative earnings impact of roughly EUR 300 million, most pronounced in our Performance Products business. Special items in EBIT amounted to plus EUR 83 million, almost flat year-on-year. EBIT came in at EUR 7.3 billion, an increase of more than EUR 500 million compared with 2012.

Income taxes grew by EUR 630 million to EUR 1.5 billion. The tax rate increased significantly from 15.2% to almost 23%. 2012 included tax credits from impairment charges on a Norwegian oilfield development project, as well as the reversal of tax provisions. As a result, net income remained at the prior year level of EUR 4.8 billion.

Adjusted EPS was EUR 5.73 (sic) [EUR 5.37], 5% lower than a year ago. Operating cash flow reached a record high of EUR 7.9 billion, up EUR 1.3 billion versus 2012. At EUR 3.2 billion, free cash flow exceeded the prior year figure despite a significant increase in CapEx.

In 2013, we continued to shape our portfolio for future growth. We strengthened our downstream business through the acquisition of Pronova BioPharma and became a leading player in the attractive growth market of highly concentrated omega-3 fatty acids. We made a series of smaller transactions in enzymes to build a technology platform in our strategic growth field. This included the acquisition of Henkel's detergent enzyme technology, a research and licensing agreement with Dyadic International, as well as the R&D collaboration agreement with Direvo Industrial Biotechnology for the development of highly efficient feed enzymes for animal nutrition. In October, we successfully completed the acquisition of Verenium, which further strengthened our R&D capabilities in enzymes. We also made progress in the development of our Oil & Gas business. We completed the transaction with Statoil, leading to a rise in Wintershall’s daily production in Norway from roughly 3,000 barrels to almost 40,000 barrels per day. In December, we signed the swap agreement with Gazprom through which Wintershall will further expand its production of oil and gas and exit the gas trading and storage business. We expect to close this transaction in mid-2014. It will take retroactive financial effect as of April 1, 2013. Sales and earnings of BASF's Natural Gas Trading business will continue to be reported in the Oil & Gas segment until closing.

Ladies and gentlemen, last year, we spent a total of EUR 1.5 billion for acquisitions, well below our long-term average spending. At the same time, we have significantly increased our CapEx spending. In 2013, we invested EUR 4.4 billion in property, plant and equipment. For 2014, we plan capital expenditures in the same ballpark.

For the next 5-year period, 2014 to 2018, we have earmarked total investments of EUR 20 billion, thereof 20% for Oil & Gas and 1/3 each for the Chemicals segment and our downstream activities. The remainder is for R&D and infrastructure. This level of CapEx reflects our major investments such as TDI here in Ludwigshafen, MDI in Chongqing, acrylics in Nanjing and Camaçari, as well as aroma chemicals in Kuantan and ammonia on the U.S. Gulf Coast. In Oil & Gas, we are investing in the development of our gas and oilfields in Russia, Norway and Argentina, as well as in the exploration of new oil and gas reserves.

Innovations, as you know, are an important success factor for BASF's long-term profitable growth. We, therefore, have increased R&D spending again year-over-year. Last year, we stepped up our investments in R&D by roughly EUR 100 million to EUR 1.8 billion. For 2014, we plan a similar increase.

To illustrate that this money is well spent, I will give you an example of crop protection. The success of our crop protection business is based on highly innovative solutions. Last year, we spent about EUR 470 million on R&D, roughly 1/4 of our total R&D spending. We have continually increased the value of our crop protection innovation pipeline in recent years. For products launched between 2010 and 2020, we now foresee a peak sales potential of EUR 2.1 billion, an increase of EUR 400 million compared to 1 year ago. Main drivers were our blockbusters Xemium and Kixor. For our broadband fungicide, Xemium, we now expect peak sales of more than EUR 600 million, up EUR 200 million versus the prior year. We were also able to raise the peak sales potential for our herbicide, Kixor, to more than EUR 300 million, an increase of EUR 100 million.

As you know, BASF continuously work on our cost base and see how we can become leaner, more efficient and more productive. Our operational excellence program, STEP, is well on track to deliver the targeted EUR 1 billion earnings contribution by 2015. We already achieved a total of roughly EUR 600 million by the end of 2013, more than originally forecasted.

In addition to the group-wide operational excellence program, we are restructuring the Performance Products segment. In the last 12 months, we have announced a number of measures to strengthen the competitiveness of this segment. We are improving the setup of our businesses with plastic additives, pigments, water, leather and textile chemicals, leading to a reduction of about 500 positions worldwide by 2015, primarily in Switzerland and the U.K.

In pigments, we have optimized our global production network. This includes the closure, restructuring and evaluation of strategic options for production assets in Europe. As a result, approximately 650 positions will be reduced globally by 2017 latest. At the same time, we will invest EUR 250 million to strengthen our production network, with a particular focus on Asia-Pacific.

In Paper Chemicals, we are adjusting production capacities, as well as marketing and sales, in response to decreasing market demand. As a consequence, approximately 250 positions will be reduced by the end of 2015.

As you can see, we have taken significant actions to improve the profitability of this segment. All in all, the announced measures will lead to a reduction of 1,400 positions globally, of which the lion's share will be in Europe. And we will continue to analyze further measures to enhance the competitiveness of this segment.

Let's talk about financials. We stand to our dividend policy to increase each -- our dividend each year or at least to maintain it at last year's level. As announced last Thursday, we will propose to the Annual Shareholders Meeting to pay out a dividend of EUR 2.70 per share, an increase of EUR 0.10 or approximately 4%. Over the last 10 years, we have raised our dividend by an average of almost 14% per year. Based on the share price at the end of 2013, we're once again offering an attractive dividend yield of about 3.5%.

Despite a below-share-price performance in 2013, we continue to deliver consistent long-term value for our shareholders. Over the past 10 years, the average annual return on BASF stock was almost 18%, clearly outperforming the German and European stock markets, as well as the MSCI World Chemicals Index.

Let's now talk about the outlook for 2014. First, the conditions we expect. At 2.8%, we expect the global economy to grow somewhat faster than the previous year. The recent stabilization in the Eurozone is most likely to continue. At 3.7%, we anticipate higher global industrial production, primarily driven by strong growth in the emerging economies. We assume an average oil price of $110 per barrel of Brent, as well as an average exchange rate of $1.30 per euro, and expect exchange rate volatility in emerging markets to continue, as we have seen in January and February already.

Our assumptions for the chemical industry are as follows. Stronger growth in key customer industries will presumably lead to solid demand for chemical products. We expect global chemical production, excluding pharma, to grow at 4.4% and thus, remain roughly at the level of last year. In Europe, we do not anticipate a significant upturn and predict growth of only 1.1% this year. While production in Southern Europe will likely stagnate, we foresee slight growth in Germany, France and the U.K. Due to robust growth in the automotive industry, the construction sector and other key industries, we estimate the United States to grow at 2.8%, a bit slower than last year. In Asia, excluding Japan, solid demand growth from our key customer industries will lead to good growth for the chemical industry in 2014. Nonetheless, we anticipate growth that is somewhat weaker than in 2013 as a consequence of the consolidation expected in China. In Japan, we expect higher growth in the chemical industry as a result of an increase in industrial production.

Chemical production in South America is predicted to grow somewhat faster than last year, which we've seen. However, Brazil, the largest market in the region, will grow only slightly and continue at a rate below the country's long-term average.

Based on these assumptions, our outlook for 2014 is as follows. We aim to increase our sales volumes, excluding the effects of acquisitions and divestitures. Nonetheless, sales will decline slightly compared with 2013 due to the divestiture of the gas trading and storage business planned for the mid of this year. Last year, the business to be divested generated sales of almost EUR 12 billion.

We expect a slight increase in EBIT before special items, especially as a result of considerably higher contribution from the Performance Products and Functional Materials & Solutions segments. And we aim to earn again a high premium on cost of capital in 2014.

Now let me give you some color on our outlook for the individual 5 segments. In Chemicals, EBIT before special items is expected to be slightly below the current or 2013 level due to startup costs for several new plants that will begin operations during this year. As a result of our restructuring efforts and improved demand, we anticipate EBIT before special items in Performance Products to be considerably higher than in 2013. We strive to increase earnings in Functional Materials & Solutions considerably, mainly driven by higher volumes for our specialties and system solutions. In Ag, we expect a slight increase in EBIT before special items despite lower crop prices and an increase in R&D costs. Despite the missing earning contributions from our gas trading and storage business in the second half of this year due to the planned asset swap with Gazprom, we expect EBIT before special items for our Oil & Gas business to improve slightly. The first full year inclusion of the Norwegian activities acquired from Statoil and the further expansion of our Achimgaz production will support these increases.

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

Hans-Ulrich Engel

Yes, good afternoon, ladies and gentlemen, also from my side. I will quickly highlight for you the development of our segments, and I will focus there on the fourth quarter of last year.

So let me get started with Chemicals. In Chemicals, fourth quarter sales decreased as higher sales volumes in all divisions could not compensate for lower prices and adverse currency effects. Fixed costs came down. EBIT before special items rose by 15% to EUR 510 million primarily as a result of substantially higher earnings in Petrochemicals.

Sales in Performance Products were stable as higher volumes could compensate for lower prices and strong adverse currency effects. EBIT before special items increased by 18% to EUR 216 million due to higher volumes and better margins. We incurred special items of around EUR 150 million primarily related to our ongoing restructuring program.

Now to Functional Materials & Solutions. Sales in this segment decreased slightly. Higher volumes were offset by negative currency effects. Healthy demand from the automotive industry led to volume growth. Demand from the construction industry remained sluggish, particularly in Southern Europe. EBIT before special items went up 4% to EUR 238 million.

Now to Agricultural Solutions. Despite significant adverse currency effects, we were able to increase sales in Agricultural Solutions in the seasonally slow fourth quarter. This was driven by the contribution from last year's Becker Underwood acquisition, as well as slightly higher volumes and prices. EBIT before special items doubled. 2013 was another record year for Agricultural Solutions. Sales rose by 12% to EUR 5.2 billion. EBIT before special items grew by 18% to more than EUR 1.2 billion. At 26.6%, our long-term average EBITDA margin target of 25% was clearly surpassed.

In the Oil & Gas segment, sales grew significantly. This was mainly due to increased volumes in Norway, Russia and Natural Gas Trading. EBIT before special items grew by 31% to EUR 535 million. Better volumes, a higher contribution from Argentina due to the new gas price scheme, as well as price revisions in Natural Gas Trading, lifted earnings. Net income grew substantially from EUR 260 million to EUR 652 million.

With that, to cash flow. At EUR 7.9 billion, we once again generated strong cash flow from operations in 2013, EUR 1.9 billion of which in the fourth quarter. We stepped up capital expenditure. In 2013, we spent EUR 4.7 billion, an increase of more than EUR 600 million versus 2012. At EUR 3.2 billion, free cash flow generation was again excellent. The net amount of acquisitions and divestments resulted in a use of cash of EUR 1.1 billion. The issuance of several bonds, as well as the EUR 1.25 billion U.S. private placement in October 2013, led to changes in financial liabilities of approximately EUR 800 million. Dividends paid to our shareholders and minority interest holders amounted to EUR 2.7 billion.

Finally, let's now have a look at our balance sheet. Total assets rose by EUR 1.7 billion to EUR 64.4 billion. Long-term assets increased by EUR 1.9 billion mainly as a result of capital expenditures and acquisitions. Short-term assets declined by roughly EUR 200 million, mainly attributable to lower assets of the disposal group, Natural Gas Trading. Provisions for pension obligations declined by EUR 1.7 billion as a result of increased discount rates. Our financial indebtedness rose by approximately EUR 1.6 billion to EUR 14.4 billion, reflecting the issuance of several bonds and private placements in the U.S. and Europe.

Net debt amounted to EUR 12.6 million, an increase of roughly EUR 1.4 billion compared to the end of 2012. Our net debt-to-EBITDA ratio was at 1.2.

Equity grew by EUR 2.2 billion. Net income amounted to EUR 4.8 billion, which exceeded dividend payments by EUR 2.5 billion. Our equity ratio remained at a healthy level and increased from 40.8% to 43.2% at the end of 2013.

I thank you for your attention, and we will now be happy to take your questions.

Magdalena Moll

Yes, ladies and gentlemen, I would like to thank Kurt and Hans-Ulrich for their presentations, and we are now moving to your questions. As you know from last year already, we have a new microphone system. And first of all, I would like to ask you to take the cards that are attached to your name tags. And on the right-hand side of your microphone, you find a small slot. Now it is important that you firmly insert the cards into the slot in the direction of the arrow, then please immediately press the speak button. And this automatically puts you in the queue, and I see you here on the screen, and actually, we can get going. [Operator Instructions]

Question-and-Answer Session

Magdalena Moll

With this, actually, we are starting with the first request from Oliver Schwarz, Warburg Research.

Oliver Schwarz - Warburg Research GmbH

My 2 questions are related to the Oil & Gas business. You gave us the number of revenues for the deconsolidated business. Would you be prepared to give the earnings -- or EBIT contribution as well that's going to be divested on, let's say, on an annual basis? Secondly, as GASCADE Gastransport GmbH was deconsolidated and is now showing up in the equity result, would you be prepared to give us an impact in Q4 on sales and EBIT, please?

Hans-Ulrich Engel

Happy to take these 2 questions. First of all, EUR 12 billion in sales for the businesses that we have currently in the disposal group that will be part of the swap and EBIT range of roughly EUR 400 million that goes with that business, which translates then into an EBITDA in the order of magnitude of roughly EUR 500 million. From the GASCADE deconsolidation, since that took effect on December 31 of the year 2013, there is no effect in Q4 other than the special item that you've seen of roughly EUR 430 million.

Oliver Schwarz - Warburg Research GmbH

If I may, could you specify how much that will be in the future, perhaps, if there is no impact in 2013?

Hans-Ulrich Engel

On an EBIT level figure, less than EUR 50 million on an annual basis.

Magdalena Moll

So we are now moving to the next question of Timothy Jones, Deutsche Bank.

Timothy Jones - Deutsche Bank AG, Research Division

Two questions, if I may. Firstly, while we started on the theme of numbers, if you look at your Libyan business, if it was running at a normal rate and wasn't experiencing the problems that it's experiencing, what would be the rough EBIT that, that business will be generating at current oil prices? That's the first question. Second question, can I ask you a question about cash return? Your payout ratio on dividend is around 50% now. Is that a level we should mark you up to going forward for the next few years? And if I can ask a third link to that, can you just update us on your thoughts on buybacks, particularly given some of your global peers are a bit more aggressive on cash return to shareholders? Any thoughts you have on whether BASF would look to do buybacks this year?

Kurt W. Bock

Yes. Thank you, Tim. Libya is about EUR 100 million-plus EBIT effect, and there is no production going on as we speak onshore. This is important to keep in mind, and we cannot foresee at this point in time when production will be resumed. Cash returns, I think we have a pretty aggressive dividend policy to grow the dividend year-over-year, which we have achieved quite nicely overall. We don't have a payout ratio. We don't look at payout ratios. That's more, let's say, secondary aspect to look at and find out what the payout ratio is. So it continues to be the policy to grow the dividend year-over-year. I cannot tell you today what the size of STEP will be for 2014. In terms of cash returns, buybacks, we have stopped in 2008 after we had bought back more than 20% of our stock, and we rebalanced, really, our balance sheet and our leverage ratio. And since then, we have refrained from doing it. We have the possibility to do buybacks. At this point in time, if you look at the use of capital, we have increased CapEx. We do a little bit of M&A. We have a very healthy free cash flow, again, a nice improvement in 2013. Looking at our overall balance sheet, but this is actually going to the CFO, at least my impression is there is not a big room for a substantial buyback, a meaningful buyback, and doing something symbolic doesn't make any sense at all. So just to buy back a few hundred million, I don't think this makes any sense at all. Hans just reminded me to talk about offshore Libya as well. That is important when you look at your models because there are these famous lifting, what you call offshore lifting, which is also a major EBIT impact for the Oil & Gas business, for the E&P business. That happened last year in Q1. It's supposed to happen this year in Q2. That is a shift of earnings of roughly EUR 100 million. And I'm not sure if you already considered this when you built your models for the Oil & Gas business.

Magdalena Moll

So we're moving on to the next question from Christian Faitz from Macquarie Capital.

Christian Faitz - Macquarie Research

First of all, in the U.S. Port Arthur, can you remind us of what percentage of the crackers run with lighter feed at present? Because you mentioned the enhanced profitability there. Then second of all, related to that, in your European crackers [indiscernible] Ludwigshafen, can you talk about current profitability, overall profitability for the crackers? And then thirdly, why do you expect significant sales growth in Agricultural Solutions in 2014, while you only expect a slight increase in EBIT? What's the rationale behind that outlook?

Kurt W. Bock

I'll start with the Ag question. We have pretty strong currency headwinds in Ag, and we feel this quite clearly, especially in South America. And you witnessed what happened there with the growth in currency, for instance, in Argentina. That has to be factored in when you think about Ag. Underlying the earnings potential and the innovative power, I talked about this, extremely solid, but these are fluctuations we simply see in the day-to-day business. And the other questions, I would hand over to Hans.

Hans-Ulrich Engel

Happy to take your first question first, which was on the cracker feed in Port Arthur. At this point in time, we can use in the range of 80% to 90% of total intake in the form of lighter feeds. The way we run it is actually on models that we run there and make decisions on a daily basis, what is most economic with respect to intake but also with respect to yield of the cracker. But 80% to 90% is the range that we can now use as lighter feed. On the profitability on the cracker margins, if we quickly look into 3 key regions, I'll start in Asia, they continue to be relatively weak. I go west from there to Europe and I say stable. And as you can see in the results that we've generated in North America, we're quite happy with the cracker margins in the U.S.

Magdalena Moll

So this brings us to the next question of Andrew Benson from Citi.

Andrew Benson - Citigroup Inc, Research Division

You talked about startup costs in the Chemicals division as a key impediment to EBIT progress this year. Can you just dimensionalize what you're talking about there and give an idea of the underlying expectations? Secondly, I just want to qualify the target that you've got for this year of slight EBIT growth that incorporates the portfolio changes that you're expecting in midyear. And just can you provide some qualifications on expectations for financing charges, assuming no significant portfolio changes this year?

Kurt W. Bock

The guidance we provided for 2014, yes, this provides some portfolio changes. We do describe before, so the swap of the gas trading business. Startup costs, order of magnitude, EUR 150 million to EUR 200 million approximately.

Magdalena Moll

The next question comes now from Ronald Koehler, MainFirst.

Ronald Koehler - MainFirst Bank AG, Research Division

My first question is also on Oil & Gas. In Argentina, specifically, there was this change of the gas scheme, I'm understanding. Could you a bit elaborate what that is? And is that kind of still a spillover effect because I think it was implemented more the second half of the year? And additionally, obviously, we have seen the peso devaluating quite significantly. What does that mean for your Argentina income in Oil & Gas in 2014? And second question is on working capital swing. You obviously had a lot of cash inflow from lower working capital. Can you a bit explain what was the driver behind that and also give us a kind of an outlook for 2014? Should we now expect, let's say, stable growth with volumes or a bit elaborating on that? Third question is on outlook and volume improvements. I read it quite often that you expect higher earnings driven by good volumes. And so what does make you confident that you will get these volumes? Is it your GDP outlook which drives that, or is it, let's say, your own new capacity coming onstream which drives that?

Kurt W. Bock

I think Hans will talk about the working capital. Argentina, important country for us in Oil & Gas. Actually, put into perspective, it's much more important than Libya today, even if Libya are running at full capacity. And the government finally realized that the official gas price they offer to the industry was not sufficient to create new investments. And for that reason, they came forward, [indiscernible] and basically said, we offer you higher price, which is quite attractive if you invest, which we have done over the last 12 months. And that already had a positive impact in 2013. We haven't quantified the effect, but it makes our business in Argentina more palatable and more enjoyable. That is the positive side of the story. The negative side, obviously, is the currency effect, which is quite hard. Currency has 2 effects. One is on current earnings, which are simply translated at a different rate. And even if the business in Oil & Gas is somehow dollarized, you still have a currency effect here. The second effect is we have cash sitting in Argentina. You might call it trapped cash. We cannot invest that cash in U.S. dollars as we would like to do or euros. It's invested in peso, and that doesn't really make it a great investment at this point in time. So what do we do? We look for a natural hatch. And the best way to hatch your liquidity in Argentina is to invest it in Oil & Gas, which we have done over the last 12 months. We have initiated additional projects and investments. Working capital?

Hans-Ulrich Engel

On the working capital, I mean, we've talked about working capital a few times in this round here. It's of utmost importance to us to run our working capital as lean as we can. We've done that, I think, successfully in the year 2013. And you see us using a lot less cash for working capital purposes than what we used in the year 2012. There's also another impact that you see in our working capital, which is the result of netting account receivable and account payable in our disposal group. This is something that we've done in 2013 that also had a positive impact on our overall working capital. Overall, I think an assumption of using capital in line with the growing business is a fair assumption.

Ronald Koehler - MainFirst Bank AG, Research Division

And could you quantify the amount of working capital released by the disposal groups?

Hans-Ulrich Engel

I would look -- I have to look that up for you and get back to you.

Ronald Koehler - MainFirst Bank AG, Research Division

Volumes?

Magdalena Moll

The third question...

Kurt W. Bock

Oh, volumes, why are we confident that we'll get good volumes? Perhaps, if you have a little bit economic tailwind, but we are not sitting here waiting for the economy just to pick up. And then it's more -- it's really about being pushy in the marketplace and going for higher volumes. We had and you noticed a little bit of a setback in China in 2012, where we were not at a growth rate, which was, from our point of view, acceptable. And there was a little bit of lack of transparency whether that was the market or our market share. I think it was, to a high degree, the market. Nevertheless, we became a little bit more volume-focused without giving up on our, what we call, value before volume [indiscernible]. So it's still a price-oriented, profit-maximizing strategy. And we will learn later about our cooperation with Adidas, and I'm very thankful for the representatives being here today and so you see how we try to develop businesses to volumes at the end of the day and increase our business.

Magdalena Moll

Now we're moving on to Paul Walsh from Morgan Stanley.

Paul Richard Walsh - Morgan Stanley, Research Division

Two questions from me, please. With regards to the major CapEx projects that are ramping up this year, I think it's TDI, MDI and the SAP facility in Brazil. Can you talk about some of the timing of that ramp-up and ultimately, the opportunities? Because those are 2 markets drawing a lot of attention from the supply side fears elsewhere. And then my second question relates to the 2015 targets. Can you talk a little bit about the likelihood of moving towards those targets in 2015 and the moving parts that are necessary for you to get there?

Kurt W. Bock

Yes. Thanks for the question, Paul. And TDI's under full construction, on budget, on time here in Ludwigshafen. We expect completion early 2015 from today's point of view. And MDI, that is China, is also under construction. It's a little bit more complex project because, there, we are part of a larger chemical investment. It's not just BASF's investment but other adjacent and supporting facilities as well. That needs to be seen how this works out. We are working full speed and full energy to complete this project as soon as possible, so the 2014 time frame, 2015 time frame. But that is a little bit more uncertain than what we see here in Ludwigshafen. Acrylics in China will go onstream this year. Acrylics in Brazil is under construction, end of this year, early 2015. A question about capacity and timing with regard to the market. You know that isocyanates always have been a good growth story. We see isocyanates growth above GDP levels. Just to come back to your question [indiscernible] earlier on, there are always temporary adjustments necessary when you talk about how to bring your product into the market. But overall, we are very confident that the market will be able to absorb those new capacities. And you know about our approach, for instance, here in Europe is TDI, where we are not just sitting and building a new capacity, 300,000 tonnes, largest single train reactor in the world. But at the same time, we will shut down our 80,000 tonnes in Schwarzheide, and we acquired a business from a company in Poland, which means we will get that business without getting their product, which will be closed out, which essentially already fills up 1/2 of the new TDI plant here in Ludwigshafen. In acrylics, we have, I'd say, probably one of the best franchise in the industry there, very good technology. We are heavily downstream-oriented, meaning we are, at the same time, building superabsorbent plants, which also show very good growth rates in emerging economies where you have a growing middle class, which can now afford to buy these products. The 2015 targets, we are very challenging -- targets are supposed to be challenging for 2015 in terms of growth and in terms of earnings. Earnings is certainly more important than just growth but both depending on each other. What we can say today, we work extremely hard. We rolled up our sleeves to achieve what we promised to achieve. We have lots of restructuring programs underway. We are extremely cost-conscious. We try to improve our capital base, as Hans just explained. I think from today's point of view, it's more challenging to achieve those targets than, let's say, 2 years ago. That is quite clear because we have essentially had 2 years in chemical growth globally, which was slower than expected, especially Europe, which had almost 0 growth in 2014 -- 2013. And keep in mind, Europe is still the largest market for BASF. We always talk about emerging markets, but it's still 50% roughly what we sell and produce here in Europe. So it's more challenging today than 2 years ago. But as I said before, we rolled up our sleeves. We work extremely hard. And if we get a little bit of tailwind, you asked about the moving parts, a little bit of tailwind would certainly help. A little bit of recovery of some of the margins and some of the upstream products will also help. We have had some products which tanked. Caprolactam is one good example where the margins really came down quite dramatically. All these are moving parts. I think it's simply too early to make more specific forecast for 2015. We work extremely hard to achieve what we promised.

Magdalena Moll

So the next question comes from Andreas Heine, Barclays.

Andreas Heine - Barclays Capital, Research Division

Three questions, if I may. The first is -- in North America, you had a very strong increase in earnings. Was that because 2012 was exceptionally weak or was 2013 exceptionally strong? And how do you see this going forward? And then secondly, can you say anything how the year started in 2014, regions and value chain-wise? And last but not least, I'd like to try to ask a question whether you can give any update on RWE Dea and your interest in that?

Kurt W. Bock

Nice questions, Andreas. U.S. earnings -- we had a press conference this morning, I said the earnings growth in 2013, there's only one reason: Because Hans leads that organization over there. But he will become more specific in a second what happened or what he did in particular. The year started, from our point of view, in a way that we have no reason to divert from our guidance that we have provided. We have seen volume growth in January and going into February. We still see currency headwinds. That plays a major role both in terms of top line but also bottom line. And we talked about the big effects, EUR 300 million last year, predominantly in Performance Products, which was really a detrimental factor. We see raw material prices, after a little bit of a pickup in January, stabilizing or moving sidewards, which, from our point of view, seems to be good news, put it that way. But I think it's far too early to speculate about raw material prices going into Q3 or Q4. It's certainly also oil price-linked. Regionally, we had a very good start in North America, and China is a little bit harder to read because, obviously, we had Chinese New Year relatively early this year, end of January. South America is a little bit of a disappointment at this point in time. But please keep in mind that is roughly 5% of our total business. And the reasons are easy to understand, the currency turmoil in Argentina and a relatively low and disappointing growth in Brazil. I think they've got a problem over there. And Europe, I said in my little speech we expect that Europe will continue to recover, albeit at a still very low level. So we are now talking about 1.5, I believe, production growth in Europe, which is actually 0 from my point of view. Certainly, you try to grow faster than that, but we don't expect strong tailwinds in Europe. In terms of industry, we are quite optimistic for automotive. We think that the global automotive production could grow at something like 5% this year. That would bring, for instance, U.S. production levels back to where it were or was before the crisis started in the U.S. We are well positioned to grow with the automotive industry. We also think that the construction industry, for instance, in North America has a good chance to grow a little bit faster. So these are 2 important industries for BASF, and this gives you a little bit of a flavor. RWE, I cannot speculate on your question, actually. If your question is how attractive do we -- or how do we perceive our Oil & Gas business, how attractive is it and what's the role of Oil & Gas within our portfolio, I could answer that question, but you didn't ask that question.

Hans-Ulrich Engel

To North America and the performance there, Andreas, I would like to, obviously, repeat what we've experienced in the year 2013 on an ongoing basis, which is improve earnings by -- I think the figure is 49%. But what are really the underlying factors there? One, 2012 is not a good year to compare to. In 2012, we were faced with the big turnaround of the cracker in Port Arthur, and we came out of that turnaround with some technical issues, which took us quite a while to correct. 2013, we have a strong performance in our Petrochemicals business, which is driven by the cracker in Port Arthur. We also experienced for the first time the full benefit of flexibilizing the feed for the cracker in Port Arthur. In addition to that, strong demand from the automotive industry. So all businesses supplying automotive in North America enjoyed strong demand. And we had a very good Agricultural Solutions business, which -- on top of the strong demand that we experienced in all 3 indications, so herbicides, fungicides and insecticides. Also then benefited from the acquisition of Becker Underwood, which we've done late in the year 2012. And these are the key factors that led to the significant improvement that we saw in earnings in the last year in North America. And that is certainly something that we want to build on going forward.

Magdalena Moll

So this brings us to the next question from Lutz Grueten, Commerzbank.

Lutz Grueten - Commerzbank AG, Research Division

First question, regarding your outlook on China, you have mentioned that you expect somewhat weaker growth in that region or in that country due to the consolidation trend in the country. Isn't that a bit optimistic given the latest news flow we got from the macro side out of China, where money supply are sharply down? Is there not further downside risk for that outlook you've given for your company here? And the second is regarding vitamin E, heavy price pressure in the final quarter. Any chance to get it done in 2014 and having a bit more healthy supply-demand than this year?

Kurt W. Bock

China outlook, I think we have always been a little bit more cautious than the consensus forecast [indiscernible]. We have seen good underlying growth with BASF and our businesses in 2013 and also going into the New Year. There are always these macro factors, which you talked about, and we are looking at those factors now for quite some time. Will this come to a -- oh, sorry, I haven't pushed the button. Will this come to a boiling point in 2014? Most people don't expect that to happen. Most people think, most observers think that China will be able to create a continuous growth pattern probably at a lower level, and that is factored into our forecast, so to say, something dramatic we have not included in our forecast. But I don't think that this is really the consensus view right now. Vitamin E or vitamin prices in general, prices are insufficient. That is quite clear. And this also explains the unsatisfactory earnings development in our Nutrition & Health business to a very large degree. We have announced price increases back in November. Those price increases take effect immediately, but we also have medium or long-term contracts, which we honor, so we cannot change all our prices on day 1. And frankly, when you increase prices, you are never certain whether your customers like it. They certainly will not like it. But whether we look for alternative there is always a question. So we also prepare to give up some volume because we think there needs to be a stabilization in that market. We have seen these kinds of fluctuations in the past. That is very, very clear. We have talked to you about vitamins at least for the last 10 years, when I was sitting up here in different roads, so this is nothing atypical. We have managed a price recovery in the past, and that is what we are working on. No guarantee of success, but we are working very hard on it.

Magdalena Moll

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

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

Two questions. First of all, just reading your letter to shareholders this year and comparing the last couple of years, it looks like you've stepped up your rhetoric a bit about your concerns about energy policy in Europe. Can you, perhaps, put that into context for global investors? What exactly are the concerns you're expressing, and how would you like global investors to think about that? And then second, if I look at Performance Products and Functional Materials & Solutions, I see headcount reductions of about 1,400 FTEs over the next few years. How do you feel about the urgency of change in your organization there? Is that -- are you pushing that hard enough? Are you seeing the results that you would like to see with factors that you can control?

Kurt W. Bock

Yes, thank you for the questions, Jeremy. Let me start with the restructuring question. Yes, there is absolutely sense of urgency on our side, and we are pushing very, very hard for these changes. These changes include, by the way, the closure and shutdown of entire sites, for instance, in France, in Scotland and the U.K. So these are quite dramatic measures we are undertaking. And we clearly understand, and I think the organization at this point in time also understands, that we have to change, in some businesses, the way how we do business. So we have to adjust capacity, so we have to take out cost. And this is, again, underway as we speak, and we are working on more ideas. So this is nothing which is complete by now. The projects or the measures we have announced continue into 2014, 2015. But I would foresee that we will have additional ideas how to further improve our business in those segments or performance for our segment. Letter to shareholders, so I'm glad that at least one of you read it because I'm always wondering who's really reading that stuff. There's one important reader. Yes, we are concerned about energy policy at 2 levels, one is Europe, one is Germany. Let's take Europe first. Europe has a clear goal to increase the importance of industry, again, going back to 20% of GDP. At the same time, the commission came forward and said we have to increase our emission target, CO2 reduction targets from 20% to 40% over 2013. In order to achieve that, and we have no -- as you all know, we have no global ETS scheme. We have no global climate agreement. It's a European unilateral measure. To achieve that 40% target, energy efficiency in the industry has to increase to something like 2.2% a year. To put this into perspective, over the last 10 years, we have achieved 1.7% industry. And please keep in mind, the more you do, the more asymptotic, this kind of becomes a more difficult -- comes to achieve these effects, the more costly it becomes. If these targets are being implemented, 40%, it would require, given current state of technology and what we foresee going into the future, that the industry in Europe will shrink, not grow, shrink. So there's a certain inconsistency in the European energy policy. And I think this is something we have to highlight and that we have to press for an implementation of these targets, which also take into consideration the effects on economic growth and job creation in Europe. That is a request. I think this is something most people could sign up to. It's kind of pragmatic. Needs to be seen whether the politicians will really follow it. If you look now at German politics, they demand that European Commission does even more and impose even stricter targets and expectation. These are all based on the German mentality that we will be able to prove to the world that we can single-handedly change the climate by doing the Energiewende. Energiewende is well underway, includes many components. One is the shutdown of nuclear power. That is consensus within our society. It has to be done until 2020, 2022. Then we go for renewables. We already have 25% renewables in Germany. We want to go to 45% in 2025. We want to go to 80%, hold your breath, in 2015. If you do renewables, you need backups. If you don't have nuclear, it's gas or coal. Right now, it's coal in Germany. We burn more coal than ever before, therefore, CO2 emissions of Germany go up, and we have additional costs. The costs are, this year, more than EUR 20 billion. That is the subsidy being paid to the renewable energy producers to bring their products or their energy to the market. And they have no price risk. Actually, the lower the market price, the higher the subsidies. And they have no investment risk. It's a great business proposal. We always have been lobbied for having something similar. In Chemicals, you could never achieve that. And now comes on top that the government finally realizes something has to be done because, obviously, it's out of control. So what are they going to do is now they try to redistribute the costs of the Energiewende in a fairer way. It's all about, they call it, fairness. At this point in time, the small guy pays, people who rent an apartment, who don't have roof to put solar power on, who don't have land to build a windmill. They pay for their energy turnaround. And industry pays as well. Chemical industry in Germany alone last year, EUR 800 million additional cost due to the energy turnaround, additional costs for the chemical industry. So it's substantial. In our case now, BASF specifically, we produce our own energy, electricity here in Ludwigshafen. We have 3 power plants, which are combined power plants to produce steam, very important for chemical production and to produce electricity. That combination is very, very beneficial, first of all, from an environmental point of view because we have very high efficiency increase, about 90%. Normal power plant is something like 40%, 45%. And secondly, it can be adjusted to capacity needs here at our site. For that production, we don't pay into the German energy money pot, turnaround money pot, so to say. And the government knows that. You have to pay as well. Although we don't use public grid. We don't rely on public support. We cannot even buy from public grid because we also have to produce. You can only buy electricity. You cannot buy steam, you'll also have to produce steam. You need this combination. We are trapped in that respect. The current proposal which is on the table is to put additional costs onto Ludwigshafen in the order of magnitude of EUR 60 million. EUR 60 million doesn't look like a lot of money if you put it into perspective with the overall earnings situation of BASF Group. But frankly, we have to realize majority of earnings today come from out of Germany. And we look at investments on a full cost base. And if these additional subsidies are now put onto BASF, it could make certain projects and investment ideas in Germany simply not attractive, economical anymore. And that is a discussion we're having with the government. We urge them to slow down the implementation of the renewables strategy. That's not going to happen. And if they don't do that, please make sure that you don't burden the export-oriented, energy-intensive industry in Germany because we have no way to escape. The only way to escape will then be to shut down facilities and move production to other places, which is not really what you want to do if you have something here within our Verbund structure, which essentially works very nicely. So it's a heated debate in Germany. It's a long answer. Sorry for the long answer. The government try to do something about it. It's a political minefield because the government created losers and winners by artificially creating a completely subsidized market. And nobody want to change it. You create -- you have to take money away from people who have no entitlement mentality, yes, and that is always very difficult in a democracy. So interesting discussion, but it goes to the core of competitiveness of German and European chemical industry.

And last sentence, there is a study initiated by Cefic, the European chemicals association, done by an independent agency, Ecofys, about the implementation of EU energy policy. If that energy policy is implemented as is being explained today, it would destroy the trade surplus, the big, very big trade surplus the European chemical industry has always enjoyed over the last decade. And the European chemical industry is one of the -- I think the second or the third largest exporter of Europe. These things have to be taken into account.

Magdalena Moll

So with this, we are now moving on to Norbert Barth from Baader Bank. Norbert?

Norbert Barth - Baader Bank AG, Research Division

Yes. Honestly, Mr. Bock, I read also the article in Hedge [ph] if Germany has no debt questions, I want to ask on that, but perhaps you have just made, I think, also the [indiscernible] weakness. Do you believe they realize what is going on, especially in the industrial world and especially here? Or do you think now the proposal is on the table and there is more or less, it looks to me no chance for big changes anymore. So will we see that burden? So that's the first question on this overall situation. And the second question, regarding your joint venture, Styrolution, I think it performed quite okay. So do you see that you have these put options? Do we see any change there in the -- yes, in 2014 or the coming time? And thirdly, about the joint venture with Monsanto. It looks relatively quiet at the moment. So I don't know if it's the case because there isn't so -- not so much going on or can you elaborate a little bit how that develop and how the pipeline looks from your point of view?

Kurt W. Bock

Okay. Hans will talk about the joint venture or cooperation. Cooperation, it's not a joint venture. Politics, I think Berlin clearly understands what's going on. They clearly want to support the industry. They understand that the industry is core to German competitiveness and well-being. They try to find a solution, but this is politics. I mean, this is not just being right or wrong. It's really for implementation. I don't have to explain this to you. This is now in the making. We sincerely hope -- and we try to be very constructive here as a company or as an industry -- we sincerely hope that we will find a solution which avoids these additional charges because we deem them as, first of all, unnecessary to balance the system and extremely harmful to our industry.

Norbert Barth - Baader Bank AG, Research Division

But could you, on the other side, be willing to take if that not comes as you think it's the right way to take major steps?

Kurt W. Bock

I don't answer hypothetical questions. We try to be -- again, we try to be constructive. And we sense there is -- again, there is an understanding and a set of facts. And this, I think, can be solved in a constructive way if people really put the competitiveness of German economy and industry at the forefront of their thinking. Styrolution, that's our joint venture with INEOS for the production of styrenics, has developed very nicely, very successful, very good management performance there. Synergies have been achieved even more than what we had projected at the initiation of the project or the company. Yes, we have a put option which we could exercise. For the time being, I think it's simply too early to talk about this. We are a happy shareholder. I'll put it that way. We are very confident that the management is doing the right things. Everything else needs to be seen, again, at this point in time.

Hans-Ulrich Engel

Yes. On your question with respect to the cooperation that we have made with Monsanto, I'm not sure that we're really quiet about that, the cooperation there with Monsanto. If I think back to what we usually do, which is midyear, report on the respective progress. The progress report was in line with our expectations. We focus on corn. We focus on soybean. And we focus on wheat. And there, on yield and stress. So nothing has changed there in the cooperation with Monsanto. And actually, the year 2013, we achieved something that I would call a first milestone, which is the first product was introduced, which is corn DroughtGard, relatively late in the season. So we've seen only relatively small sales there, but it was well accepted based on everything that I hear in the market.

Norbert Barth - Baader Bank AG, Research Division

In your point of view running as expected at least?

Hans-Ulrich Engel

Yes.

Magdalena Moll

So now we come into Thomas Gilbert from UBS for the next question.

Thomas Gilbert - UBS Investment Bank, Research Division

Thank you for taking 2 questions and also a request to answer Andrew Benson's question on guidance for financing charges, pensions and interest costs. The 2 questions. You had a press release in January where Wintershall announced an agreement with an Argentinian gas company to explore shale gas drilling in Argentina. Can I just check, is this company state-owned? Who runs this business? Who spends the money? And can you repatriate the cash flow once this collaboration starts to generate cash? Just checking the political and CapEx risk. And the second, staying with CapEx, very spectacular question. In the Other segment, the CapEx is around about 3% of total CapEx, yet in your Annual Report, for the next 5 years, you guide the Other CapEx at 13% for -- which quadruples the run rate of the CapEx in the Other -- in the corporate center. Why is that, please?

Kurt W. Bock

The last question, I have to assume that we have a couple of projects which have not yet been specified to a degree where we know exactly where they are. So they are placeholders, so to say. Those that will be attributed to specific business segments over time as they become realized.

Argentina, yes, we have a cooperation with an Argentine company. The field is called [indiscernible]. It is one of the largest in the world. Vaca Muerta metco, that should really be the headline for the project. It's for us a good entrance point into shale gas in Argentina, which is presumably a very attractive business proposition. Cash flow, bringing it back, at that point -- at this point in time, we are not in a position to bring back cash from Argentina. That is quite clear. There are restrictions. And we couldn't really pay a dividend for quite some time. I think about -- for about 2 years. As I said before, the cash is being trapped in Argentina. And therefore, we invest in hard tangible assets, which I think is the right thing to do. And the assumption is certainly that over time, redistribution of money back from Argentina will be possible again. Otherwise, we wouldn't do those investments. So it's not a risk-free business in Argentina. But frankly, in Oil & Gas, we have lots of countries which are not completely risk free. And financing charge, you are right, we didn't really answer that question. And it was asked by Andrew Benson earlier on.

Hans-Ulrich Engel

I wasn't sure whether, Andrew, your question went in the direction of cost of capital. On that, I can tell you that, that will remain at the 11% before tax as we had it in the year 2012. Other than that, financing cost for the BASF Group will go down. Why? You've seen us being active in the bond market last year, and that led to overall financing cost decline in the range of 70 basis points.

Magdalena Moll

Okay. So now we'll move on to the next question from Tony Jones from Redburn.

Tony Jones - Redburn Partners LLP, Research Division

I've got 3 questions. Firstly, EBIT margin in Asia just exceeded 7% this year, but I think you talked about China doing very well. But if we think about long term CapEx as around 1/3 of your EUR 30 billion CapEx going into the region, can you just talk through why you still believe that this is a good use of shareholder capital given the margin at this point? And then secondly, with your views on regional growth and the good cost position that we've got in the U.S., could you -- I mean, are we at a point where we should be expecting maybe a step-up in upstream chemical CapEx for the U.S.? And then finally, on wage inflation, I saw earlier this year the German unions had agreed a rate of inflation, I think about 3%, 3.5%. I wasn't really sure how to use that number. So could you help us think about what the net inflation will be for BASF as a group, whether it should be sort of similar or a lot more diluted?

Kurt W. Bock

Yes. Wage negotiations are collective in Germany. So this applies to the entire industry. It's 3.7% for 14 months, which is roughly 3% for a 12-month period. And this is being implemented, I think, as of April 1. So it's a cost increase for BASF, which we have to overcome by improving on productivity.

The regional growth, more specifically, CapEx North America upstream, shale gas driven. We have announced a couple of projects. Formic acid is underway. We talked about ammonia. We are contemplating other ideas as well. What we are not going to do, Tony, is to venture into upstream products to produce these base chemicals for third parties to sell them to the market. For us, it's really about securing our value streams and getting access to the cheapest available feedstock. So it's a classical make-or-buy decision at the end of the day. Take ammonia, for us, it was a very simple question. Is it useful to continue to buy ammonia in the market? Or does it make sense to go into a joint venture with Yara and to reap additional benefits by producing based on very attractive feedstock? And the conclusion is obvious. And that is the thought model which will apply to our value chains at the end of the day. It would be a complete change of strategy if all of a sudden we would go into building a cracker in North America to sell ethylene or produce MEG/EO. For us, we actually have reduced capacity in North America about 10 years ago because it wasn't profitable. So we will stick to our overall strategy. We will continue to have a very strong Verbund structure in the Chemicals segment, very profitable, very attractive. It has a good business outside of BASF, but at the same time, it's a major cornerstone for our downstream profitability.

China, overall profitability and why is it attractive to invest in Asia, more specifically. We have big start-up costs in Asia. That is quite because we continue to invest quite heavily in Asia, and this also burns our bottom line. We have -- I talked about China. We have had a, I think, good year in China. We had a disappointing year in ASEAN, where we had an excellent 2012. And 2013, we did not achieve the same rate of growth. We had an extremely bad year in Japan, frankly, talking about profitability because the devaluation hit us really hard. A devaluation of about 50% of the Japanese yen. So these factors also influence the overall profitability picture.

If you look at -- to give you a little bit more flavor, if you look at Nanjing, our big site, we operate together with Sinopec. That is according to everything we know in the market in China. One of the best performing chemical sites in China. Very attractive, a good combination of upstream and increasingly downstream. But certainly, we have room for improvement, there is no doubt about it, to bring up our profitability.

One last sentence with regards to Asia. We continue to export heavily to Asia. So what we present here to you is essentially the profits which are being made in Asia. The pre-profits we make by exporting from the United States, from Europe to Asia, you don't see. These are profits which show up as regional results in the North America and in Asia and in Europe. And these profits, pre-profits are relevant and important. And when we steer our business, we look actually at consolidated results. We look at what is -- what's the profit locally, but what's the pre-profit from the exporting region. And that is how we compare regions in terms of profitabilities. In that respect, Asia suffers a little bit because they are relatively still relatively high exports despite all our investments, growing exports to Asia.

Magdalena Moll

The next question now comes from Marcus Diebel, JPMorgan.

Marcus Diebel - JP Morgan Chase & Co, Research Division

Also on what you just said on Asia, I mean, you put in the press release that you will see an uptick in utilization rates, particularly for Performance Products also in Europe. I mean, given what you just said on the exports from Europe into Asia, do you think an increase in utilization rate is really for now just a function of a macro recovery here in Europe? And we're just going to see flat exports also in the next few years? Or do you see a decline in exports hurting utilization rates just by the macro recovery here? And the second question is on pricing. Could you elaborate a bit more on your view on pricing in the 3 Chemicals divisions in the next, yes, 9 months. Do you see a chance that we'll see positive pricing effects here or you remain on pricing relatively cautious?

Kurt W. Bock

The exports from Europe will continue to grow unless we make big mistakes. I talked about the energy policy earlier on, which will drive our competitiveness as well. And so our growth in Asia is a combination of local production, increasing local production. We aim to achieve local content of something like 75%. We are not yet there. We are slightly below. And exports are supposed to continue to grow x Europe x North America. Pricing, you're talking about the Chemicals segment, so this is Petrochemicals, really Monomers and Intermediates.

Marcus Diebel - JP Morgan Chase & Co, Research Division

Sorry, no, the 3 main divisions. So Basic Chemicals, Performance Products and the Functional Solutions segments.

Kurt W. Bock

Okay. That is a broader question. In base chemicals, it was very much a function of functionally killing [ph] ourselves, very much a function of raw material costs. Our assumption for the year going forward is that raw material cost will be at about the current level. That is also based on the oil price scenario which we have. Based on that, you shouldn't really see major fluctuations in terms of pricing. Again, that's today's point of view. There are always short-term fluctuations. There is sometimes arbitrage between Asia and Europe. Sometimes it's open, sometimes it closes, but this is kind of normal operational day-to-day business. In Performance Products, we have seen a little bit of a price decline in 2013. This is only partially reflecting raw material cost. It's also reflecting increased competitive pressure. And we have talked about this here already. And that's the reason -- another reason why we are going into -- why we are in restructuring mode in some of those businesses.

In Functional Materials & Solutions business, this is not really a price-driven business. I mean, take catalysts, catalysts are sold based on technology available, yield improvement and emission performance -- emission reduction performance, et cetera. And so there, we have, in general, the opportunity to improve pricing whenever we provide additional technology and value for our customer. That is really the game we are playing there. So it's very difficult to give you a general answer. If you'll take a long-term view of Chemicals, we have seen approximately 1% to 2% price decline over time within the chemical industry. That is pretty much the overall price reduction.

Magdalena Moll

Okay. This brings us on to the next question from Markus Mayer, Kepler.

Markus Mayer - Kepler Capital Markets, Research Division

First of all, you said that the first months of this year were quite okay from a volume development. How do you see currently the inventory level of the global chemical industry, and do you see already a restocking? Then second question, in the outlook, you see acceleration of GDP growth and also industrial production growth. But at the same time, you expect that chemicals growth is basically flat or even slightly down from last year's level. Why is this? And then the last question was really on that, yes. That is 2 questions.

Kurt W. Bock

Inventories destocking, Hans?

Hans-Ulrich Engel

Okay. Current trading environment, I'd say overall, a good start into the year, slightly better than going into the year 2013. Now is that the result of a restocking that is taking place or is that just an expression of slightly stronger demand, which, by the way, we've also experienced in Q4, if you compare Q4 '13 to Q4 '12. Frankly, that is very difficult to say at this point in time. I think we explained here that our visibility with respect to the inventories of the industries that we are delivering to is not -- by far not perfect. So there is a lot of interpretation going on. I don't want to call that guesswork. Frankly, difficult to answer that question. It looks like demand is slightly stronger out there than what we experienced same time around last year.

Kurt W. Bock

So with regard to chemical production growth and GDP growth, we will not get into the nitty gritty detail of statistics. A major reason is that the weight of the respective regions for calculating GDP is different from the way they use for calculating the overall growth rate of chemical production. So in GDP, the developed countries have a much higher share in chemical production. The emerging markets have a much higher share. And since in relative terms, the mature economies in 2014 are supposed to grow a little bit relative again, a little bit faster compared to what the difference in the emerging markets is. You see these slight differences. So this is our model for the time being. I think it's a realistic assumption to see something like 4% to 5% chemical production growth going into 2014.

Magdalena Moll

So this brings us to the next question from Oliver Schwarz. It's a follow-up question.

Oliver Schwarz - Warburg Research GmbH

I'm still trying to get my head around on your outlook for the ag business. You stated that Monsanto, the impact of Monsanto was positive. We reached first milestone in 2013. And so 2014, I guess, stands to benefit even more from the business. This is purely earnings-related. There is almost no sales in there. We saw you notch up the peak sales of very important products. You have Xemium, Kixor and still we are guiding for a disproportional increase in sales to earnings. And I'm just wondering what's behind of that. You cited the currency problems, but the currency should also relate to sales, obviously. So I'm still trying to get a grip why the costs -- and it's got to be that the costs are playing such a dominant role in your forecast here. And secondly, a pretty straightforward one. You mentioned that we'll see a positive one-off from the asset swap with Gazprom somewhere in the middle of 2014. Would you be so kind to quantify that impact?

Hans-Ulrich Engel

Okay. I'll start with the second one, which was the special item that we are expecting as a result of the asset swap that we do with Gazprom. Yes, we do expect a positive special item there, but the order of magnitude is extremely difficult to forecast. There are so many factors that play a role here that it would just not be appropriate at this point in time to give you even a range. On your question with respect to Agricultural Solutions, the cooperation with Monsanto, frankly, it doesn't play a role here because the income from DroughtGard is minimal and anyhow not reflected in the Agricultural Solutions business because that part is reflected in Other. But again, very, very small. I think the outlook that you see here is driven by what we expect to see with respect to product mix. That has -- it plays a key role here. And to a certain extent, it is also impacted by cost that we had, marketing and distribution cost in order to prepare markets in the year 2013, that we will not see the same order of magnitude in the year 2014. So that should be hopefully a good explanation.

Magdalena Moll

[Operator Instructions] Next one is Christian Faitz from Macquarie.

Christian Faitz - Macquarie Research

Let me see which question I'll ask. The slower construction end markets you flagged in the U.S. Construction Chemicals in Q4, was this purely weather-related or was there a structural element in there? And if they were weather-related, how should we think about Construction Chemical sales in Q1 2014 given the polar vortex?

Hans-Ulrich Engel

No structural effects there in the fourth quarter of 2013. What we will see in the construction business, after not experiencing a real winter 2012, 2013 and a severe winter east of the Rockies in 2014, we will see an impact in that. Despite all of that, based on all figures that I've seen for the construction market in the U.S., it is seen as positive. If you look at new housing starts, still forecasted in excess of 1 million. So this will be the first time since, I believe, 2007, if I recall correctly, that we would be in that order of magnitude. But we will definitely experience a slow start into the season in Construction Chemicals, and we will see similar effects also in some of the businesses, such as, for example, dispersions that supply into the construction industry in the U.S.

Magdalena Moll

The next question comes from Peter Spengler, DZ Bank.

Peter Spengler - DZ Bank AG, Research Division

Actually 2 on your guidance.

Magdalena Moll

One, otherwise, we can't finish on time, one. Okay. Here you are, by the way, here, sorry.

Peter Spengler - DZ Bank AG, Research Division

Okay. Yes, on your guidance. First, on the divestiture of the gas trading business. You said you expect a slight decline of sales. So does it mean you compare 2 quarters in 2014 to 4 quarters in 2013? Or do you compare, since it's done retroactively, to the first quarter of 2013, 1 quarter in 2013 and nothing in this year? And secondly, on the word slight and slightly that you used twice in your outlook, could you give us an idea what slight and slightly increase means?

Kurt W. Bock

Yes. Happy to do. So in terms of sales, a slight is between 1% and 5%. In terms of earnings, it could mean 1% and 10%. If we had a 1% or a 2% change, we would not call it slight. We would probably call it stable or no change to make this quite clear. We had to find a solution because the German law has changed in terms of how you provide guidance. It's not perfect, but I hope it will help you to do your work. The other question, you want to do?

Hans-Ulrich Engel

Yes. On the gas trading business, I think we need to be -- need to clearly differentiate between gas trading business being part of the swap that we do with Gazprom and the GASCADE de-consolidation that we talked about earlier that created the special item in the fourth quarter. Now on the gas trading business, that will have a significant impact on sales of the BASF Group, as Kurt mentioned, to the tune of EUR 12 billion on a full year basis. You will see the sales and the earnings from that business in our result, in BASF's results until the point in time where we swap that business out, where we divest it out. So let's assume this happens right around midyear. Now when you look at seasonality of the gas trading business, by then, we have the first quarter, which is the highest sales quarter under our belt. I can give you probably better guidance at that point in time. But again, on a full year basis, for the gas trading business that we are swapping out, we're talking EUR 12 billion in sales. While on the GASCADE part, I'd say that is a rather small figure.

Magdalena Moll

So the last question now comes from Tim Jones, Deutsche Bank. And then you will have plenty of time during dinner tonight to ask your additional questions. So Tim, please go ahead.

Timothy Jones - Deutsche Bank AG, Research Division

Can I ask a general question about consultants and the data that you see that's published by consultants. There are a lot of consultants in chemicals. Many of us use them. But quite a few of them suggest there's a lot of capacity coming on in the industry in certain regions in the next few years. Does your experience of seeing data being published -- do you think that type of data is accurate or do you think they tend to underestimate delays or companies overstate their additions? Your thoughts on that, please?

Kurt W. Bock

That is a tricky question, I have to say. I mean, yes, we do also follow what consultants publish, and they try to be very accurate in announcing every single change in capacity and new investments. Experience over the last 10, 15 years tells us they have consistently overestimated capacity increases. You always underestimate the difficulty of doing an investment. There are delays. There are cost overruns. There are other issues. Hopefully, not at BASF, but it happens. Projects are abandoned at some point in time. So I think we have to be very, very specific when you look at this data. And we do our own internal forecasting for our important value chains, where we try understand what are the drivers for profitability, what is the supply-demand balance. And later this year, we will have an Investors Day about the Chemicals segment. And I think that is a good point in time to explain to you in more detail how we do this and how we see the world for specific products, which is a more medium to long-term view and not about, let's say, current business, what we are discussing here predominantly today. Then there's the issue of reliability, start-up. I mean, there are lots of issues why capacity is always not as high as it is announced or what you see as the nameplate capacity. A good example, and then I'll stop, is isocyanate, where there's a nameplate capacity, and there is constantly somewhere in the world one or the other plant not running because it's tipping [ph] us, technical issues.

Magdalena Moll

So with this, ladies and gentlemen, we are concluding our discussion of the financial statements for the full year 2013, and this also brings us to the end of our live broadcast. I would like to thank all of the guests and participants who are listening in via the web or on the phone. And should you have any further questions, then please do not hesitate to call any member of the IR team, and we will be very happy to help you.

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