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BASF (NYSE:BAS)

Q3 2010 Earnings Call

October 28, 2010; 08:30 am ET

Executives

Jürgen Hambrecht – Chairman and Chief Executive Officer

Kurt Bock – Chief Financial Officer

John Feldmann – Board Member

Magdalena Moll – Head, Investor Relations

Analysts

Rhian Tucker - Credit Suisse

Jenny Barker – Barclays Capital

Neil Tyler – J.P. Morgan

Anthony Jones – Unidentified Analyst

Thomas Gilbert – UBS

Sophie Jourdier – Citigroup

Peter Clark – Société Générale

Nobert Barth - WestLB

Jeremy Redenius - Sanford Bernstein

Andrew Stott – Merrill Lynch

Christian Faitz - Macquarie Securities Europe

Jaideep Pandya - Berenberg Bank

Tony Jones - Redburn

Andreas Heine – UniCredit

Martin Rödiger - CA Cheuvreux

Ronald Köhler - MainFirst

Paul Walsh – Morgan Stanley

Annett Weber – BHF Bank

Davis Nigel – ICIS

Presentation

Operator

Ladies and gentlemen, this is the Chorus Call conference operator. Welcome to the BASF third quarter conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (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 these forward-looking statements on its views with respect to future events and financial performance. Actual financial performance on 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 represent estimates 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 the turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead, madam.

Magdalena Moll

Yes. Good afternoon, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our third quarter 2010 conference call. BASF again delivered a significantly better than expected performance in the third quarter. The global economy continue to recover, and business dynamics remained strong throughout the period. BASF was able to take advantage of these market dynamics through our improved portfolio and enhanced operational excellence.

With me on the call today are Jürgen Hambrecht, Chairman and CEO of BASF; Kurt Bock, our Chief Financial Officer; and John Feldmann, Board Member responsible for Performance Products.

As the numbers have already been published and I hope you had a chance to review the materials, since we had posted the charts and the comments on our website already this morning, Dr. Hambrecht would like to give you just a quick overview of the performance during the period and he will give a statement on the outlook for the rest of the year.

We would then like to use the bulk of the time to answer any questions you might have. And all three gentlemen will be happy to take your question. We would also propose that we first take some questions from analysts, and then in the second round we will take questions from journalist.

With this, I would like to immediately hand over to Jürgen Hambrecht.

Jürgen Hambrecht

Yes, thank you, Magi. Good afternoon and thank you for joining us today. And let me go straight into the numbers. This €15.8 billion BASF generated record sales for our third quarter in a row. Sales were 23% above the level of Q3 2009 and only slightly below the second quarter 2010, which is an impressive result given normal seasonality.

EBIT before special items at €2.2 billion increased by more than 75% per year and was in line with the level achieved in Q2 2010. Net income increased dramatically year-over-year to €1.25 billion, which is also a 5% increase over the second quarter. Adjusted EPS amounted to €1.52, an increase of €0.91 versus last year and up €0.02 versus Q2.

Additionally, cash flow from operations at €5.3 billion for the first nine months was very strong, and free cash flow amounted to €3.8 billion BASF SE cash machine. As a result of this positive cash flow development, we were able to reduce net debt by €2.1 billion to €11.4 billion during the last three months. These are impressive results, which reflect the strong position of BASF. The results were driven by a solid performance across all of our segments with positive impacts from volumes, margins and currencies.

However, the most important driver for this transformation from my perspective are first, our sustained and relentless efforts to increase operational excellence and to reduce costs demonstrating our leading position as the chemical operator.

Second, our fast integration and realization of synergies from our acquisitions, which will lead to an optimized less cyclical portfolio and finally and from my perspective most importantly, the extraordinary performance and teamwork of the best team in the industry.

As a consequence, we raised our outlook. We expect to achieve a record year 2010, with sales to reach approximately €63 billion and an EBIT before our special items above €8 billion.

We expect that the gross momentum going forward will decelerate due to base effect. We do not expect the economy to dip a second time. However, the obvious macroeconomic uncertainties and risks remain. Looking ahead to 2011 and beyond, we will continue to strive outpacing the market in growth and we certainly strive to grow our earnings growth year-by-year.

To conclude in 2010 we expect to earn a high premium on our cost of capital and therefore to increase our dividend for 2010 and with this we right away go into questions, because some of us have to leave later to the airport.

Question-and-Answer Session

Magdalena Moll

Yes, thank you very much Dr. Hambrecht, and now I would like to open the call for questions and ask you please to limit your questions to only one at a time, so that we can take as many questions as possible.

Of course you can re-queue. All participants are also requested to only use handsets when asking questions, and if you are listening to the Internet stream, please turn the computer speakers off when asking the question.

So, I would like to start with the first question, and this comes from Rhian Tucker. Good afternoon Rhian

Rhian Tucker - Credit Suisse

Yes good afternoon, thank you for taking my question, it’s good to be back. I’d like to ask a question about raw materials. Obviously, prices have taped a couple lot and you have been very successful in passing those on. One of the things we’ve heard is that now we get – we’re seeing supply shortages of raw materials particularly Naphtha.

Can you comment a bit on your sourcing of raw materials? And just as a small add-on question, your inventory levels were particularly high post Q2 and post Q3. Is that because of this raw material price spike or are the volume builds up as well as you prepare for more activity? Thank you.

Jürgen Hambrecht

Let me take this one, and I will ask Kurt to complement if something is missing. Let me first say raw material going forward. We certainly had a major increase in the third quarter. This was almost 40% increase in raw materials. Most of it we have passed through to the market due to the competitive demand balance, which we have in most of our product lines.

Is there are a shortage in certain raw materials, Naphtha? I can’t see this in Naphtha because if you look into Naphtha going forward, basically this is very closely linked to oil and there is only a minor con-tangle. Other raw materials are a little bit shorter in specific cases, more on the specialty side like material, styrene and so forth, but not a fundamental limitation with regard to availability.

Inventory levels, all in all, this is due to the value. We have to say, we have adjusted our inventory levels to the operations we have at this point of time. Compared to the past, it’s on the low level, and if we look into the pipeline at our customer industries, all-in-all with very few exceptions, this is at the low side.

Rhian Tucker - Credit Suisse

Thank you.

Magdalena Moll

And the next question now comes from Jenny Barker. Good afternoon, Jenny.

Jenny Barker – Barclays Capital

Thank you. Actually, first of all not a question, could I just personally put an appeal for an early Q-&-A, an early conference call like you did last time. I thought that was very good, 7:30.

Right, now to my question, following on perhaps a little bit from the last question, you do mention under Performance Products that there was some weakening of the additional demand that had arisen earlier from inventory restocking in some customer industries. Could you just say which customer industries please and therefore which of your Performance Products chains were affected?

Jürgen Hambrecht

John?

John Feldmann

Well, Jenny, particular for products, which have a long shelf life like pigments and certain additives for plastics and for coatings, stabilizers, antioxidants and other products. We have seen that our customers for long time have tried to fill up their own inventories again.

This has now normalized, and we see that the mood in this industry is now shifting to optimizing their working capital with view of the year-end. Where they’re going to have, let’s say, a decent of level of working capital and the drive for filling up again has substantially reduced in these businesses.

Jenny Barker – Barclays Capital

Thank you very much.

Magdalena Moll

The next question comes from Neil Tyler.

Neil Tyler – J.P. Morgan

Yes, good afternoon, thank you for taking my question. You make several comments in your statement, in your interim report with regards to demand being in excess of available volumes, I think engineering plastic intermediates and some of the petrochemicals.

The impression as far as from that is that outside of the functional solutions business you are running close to a total capacity, and then my question as far, is that the right impression and if so, what scope do you have for increased volume growth next year and specifically where should we look for that? Thank you.

Jürgen Hambrecht

Neil, this boils down into quite a few of product lines. Let me generally say yes we are in some areas we are limited in capacity. For example, acrylic acid, this is very short around the world not only with us also for others and oxo alcohols and caprolactam, for example. These are the areas where, we on our side, I’ll do the utmost to make our brand even more available compared to the past, which means increasing the productivity of our plants, so there is room to do more but it’s limited.

So, it’s not a new capacity, and we cannot build these capacities right away. All-in-all, however, I have to say we look across the board; we still have room, major room for growth.

Neil Tyler – J.P. Morgan

Okay. That’s very clear. Thank you very much.

Magdalena Moll

The next question comes from Anthony Jones [ph]. Good afternoon.

Anthony Jones – Unidentified Analyst

Good afternoon. Thanks for taking my question. SABIC yesterday announced the intention to move into polyurethanes, which is a market which is quite consolidated, and you have quite a big position. The trend over the past cycle has been for Middle Eastern expansion and mainly into alophinic businesses, but this is aromatic. So, I suppose does this suggest a change in strategy there and is this going to be a medium term threat for BASF? Thank you.

Jürgen Hambrecht

I cannot comment Anthony on, let me say, strategic shifts within SABIC. But what I can tell you for us it’s certainly not a threat. We are one of the world leaders. We are very well positioned in all regions. We are best positioned in all regions. We have manufacturing sites all around the world in the market where the customers are, though it will not be a threat, if this is anyway the case because I think its pure speculation.

Anthony Jones – Unidentified Analyst

Okay. Thank you very much.

Magdalena Moll

The next question is from Thomas Gilbert. Good afternoon Thomas.

Thomas Gilbert – UBS

Yes, good afternoon. Thank you very much for taking my question. The Oil & Gas business, I was wondering if you could comment on the current trading conditions into 2011 off-sea, whether this discrepancy with the volume and price development?

The situation in Libya, the ratio of Spotless [ph] contract gas that you’re selling whether that stays constant or whether it’s improving in 2011, and in general the Oil & Gas business is one of the cornerstones for your ambition to grow the earnings next year, I was just trying to understand how vital the Oil & Gas business will be and what it’s role in the earnings increase is going to be going forward. If you could comment on that, that would be very, very helpful? Thank you.

Jürgen Hambrecht

Thomas, nice try to have five questions in one. So, but let me tell you Oil & Gas, as all other businesses will have to contribute to our growth and they will, and with this I hand over to Kurt, because he knows best about it.

Kurt Bock

Yes, hi Thomas I’m still wondering which question I should answer. First of all Libya situation hasn’t really changed. We are still not yet where we operated in the past due to OPEC restrictions. Second question was about spot where this contract market is in and its regards obviously.

The market is changing, that is for sure. I think we are in a good position. Let me phrase, that’s why we are in a good position to take advantage of any changes in the marketplace, and we feel that we are absolutely competitive with our purchasing supply contracts, which we have in.

Thomas Gilbert – UBS

So you would say the situation is stable there?

Operator

Ladies and gentlemen, please hold the line. The conference will continue shortly. Thank you.

Magdalena Moll

Hello. Hi, the next question comes from Sophie Jourdier, please.

Sophie Jourdier – Citigroup

Afternoon, thanks for taking the question. My question was actually on the electronics end markets. We have had some companies talk about some softening in that market. I just wondered whether you could talk about what you’re seeing in electronics. Thanks.

Jürgen Hambrecht

Sophie, we have seen this too, but they are two main areas. These are the PC’s, which are bought by; let me say the companies after the crisis. They have to do it, let me say, regularly and most started to do it when the business has taken up and the second one is flat TV where there was world championship of soccer, South Africa big, big boom, which has a little bit softened. However, we consider this as a temporary effect, let me say, beginning of next year we will see another pick up.

Sophie Jourdier – Citigroup

Great, thank you very much.

Magdalena Moll

The next question I have is Peter Clark.

Peter Clark – Société Générale

Hi, yes, good afternoon and thank you. Hey, I don’t want to be reminded of World Cup, but anyway I’m just talking about the operations that came with Ciba. I know you don’t like specifically talking about the old company itself, but it is nice to see the practicalities fully utilized, can’t remember that last happening.

But we’re now just over two years since you announced that deal. I see you’ve got an expansion of Flokshin [ph] in China. Just a your feeling of how those businesses that have come in now fare, especially against the expectations of the time two years ago, sort of been through the recession, we’re coming out, and it looks like the profitability is building very nicely. Thank you.

Jürgen Hambrecht

Well, Peter we have acquired a business, which was quite cashless making when we acquired it. We are now as you can see in the Performance Products segment in a situation where we have extraordinarily results better than we had anticipated ourselves.

And this is certainly the effect both of generating synergies as we predicted, but also in improving our market position. This is particularly true in some areas like paper, like plastic additives and in the coatings areas. So we see the benefits from the Ciba integration coming, and you can this in the bottom line effect that we have.

Peter Clark – Société Générale

All right.

Magdalena Moll

Next question I have is from Paul Walsh from Morgan Stanley.

Paul Walsh - Morgan Stanley

Good afternoon everybody. And thank you for taking my question, which really focuses on your Chinese business. I was hoping we might get an update on your activities in China, how the third quarter progressed in particular, and in terms of the investments that you’re putting on the ground and how you think the landscape is changing in China with regards to the 12 Five Year Plan, which is now really set in stone.

Just, I want to really understand the contribution that’s going to make to your growth going forward. Thank you.

Jürgen Hambrecht

Paul, very generally, China is still growing very, very solidly for us. And this has to be supported by investments. Our investments into Nanjing too, you are aware of has started with the cracker integration, turnaround this year in the second quarter. And now we are in the midst of constructing the rest of it, which at the end of the day means we will start up in the quarter, second half of 2011 getting into 2012 offering us additional opportunities in the ethylene oxide added value chain, but also in oxo alcohols, surfactants and so forth.

Secondly, in China, we are still working on our project in Chongqing leading to a huge additional investment into polyurethane specifically MDI. There is a 12th Five Year Plan is very interesting, I have to say, because the headline most probably has to be qualitative growth instead of quantitative growth, really meaning that they are looking into efficiency everywhere, not just because of climate change, but because of natural resources too. They are short in certain areas.

This will support our business, because as you know chemistry is the enabler everywhere. So at the end of the day, our added value chains especially in the water area but also plastics and basic chemicals will benefit from this overall approach.

Paul Walsh - Morgan Stanley

Thank you very much.

Magdalena Moll

For the next question is coming from Nobert Barth. Good afternoon.

Nobert Barth - WestLB

Good afternoon, perhaps a question still on Cognis, I know you have written that you still expect it in November to come, but do you have any indication that from anti-trust you have to sell pick-a-parts or do you have the feeling that also in the creation could go better than perhaps so far announced?

Jürgen Hambrecht

Let me make this very quick. This is just as a process in Brussels, first. Second we do not expect that there is a big issue.

Nobert Barth - WestLB

Thanks.

Magdalena Moll

Next question is coming from Jeremy Redenius.

Jeremy Redenius - Sanford Bernstein

Hi, this is Jeremy Redenius from Sanford Bernstein. I haven’t heard any mention of the NEXT program recently or fixed cost control. I’m wondering if you could possibly give us an update there.

Jürgen Hambrecht

With regard to NEXT, we are basically now at the level you’ll remember that in 2012 we want to achieve 1 billion. We are now at the level of about 600 million out of which 300 million have come in, in this year.

Jeremy Redenius - Sanford Bernstein

Okay. Thank you.

Magdalena Moll

The next question is coming from Andy Stott. Good afternoon.

Andrew Stott – Merrill Lynch

Good afternoon. Thanks for taking the question. Apologies, I was, struggled to get on the call and I probably missed your run through on the Oil & Gas part of the slide pack. So could I just ask you a question on that? Five North Sea discoveries in 2010, you’re talking about appraisal phase starting ASAP. Could you just give me some idea of the scale potentially of these discoveries and also the timing of contribution to production growth if successful? Thank you.

Jürgen Hambrecht

Yes, Andrew, we have five fields under development. I think it’s too early to talk about the specific findings, and I’m really not sure that we have done this in the past. I think we refrain from giving detailed numbers on individual exploration projects. But coming back to a question, which was asked earlier on in terms of growth prospects for 2011, I think, we’re in pretty good shape to achieve a production growth in 2011.

Andrew Stott – Merrill Lynch

Okay. Can I ask it another way? Yes or no. In aggregate are those five discoveries material to the division or not?

Jürgen Hambrecht

Yes. Sure. Every finding is material

Andrew Stott – Merrill Lynch

Okay. Thanks. Thank you.

Magdalena Moll

So this brings us to Christian Faitz. Good afternoon.

Christian Faitz - Macquarie Securities Europe

Yes. Good afternoon. Thanks Christian Faitz from Macquarie. Can you give us just a qualitative assessment of how in your overall Chemical businesses the inventory restocking was compared to underlying demand in the third quarter? Thank you.

Jürgen Hambrecht

Christian, I’ve covered this, basically already earlier on and especially in Chemicals. The inventory is in parts even more complicated compared to, let me say, Plastics or other Pigments and so forth. Though here we do not see an inventory level comparable to 2007 or 2008, it’s below, however if business has picked up, inventory storage around the world is rather full, but this is also due to the fact that there is quite a lot of oil inventory at this very moment.

Christian Faitz - Macquarie Securities Europe

Thanks.

Magdalena Moll

Next question is coming from Jaideep Pandya.

Jaideep Pandya - Berenberg Bank

Yes, thank you for taking my question. Just a question on inventory levels in one of your most important end markets that is the auto industry. Are you comfortable with them, are you think there is inventory built up, which could hurt some of your businesses and if I can sneak in a second one, acquisition opportunities for your Crop business?

Jürgen Hambrecht

Second one, there are always acquisition opportunities, but we talk about those when they are there. And first one automotive industry, basically, let me say very reasonable up to short inventory levels mostly in Europe and especially in premium sector as well and as in the U.S.

J.D. Power figures are from our perspective accurate. There is some inventory in China at the low end. So, there we see a little bit more than we have seen in the past, but there is also very high growth.

Jaideep Pandya - Berenberg Bank

Thank you.

Magdalena Moll

The next question now comes from Tony Jones.

Tony Jones - Redburn

Oh, good afternoon. For the Other division, I’m sorry I mean specific about one segment. I may not be alone in wondering how to forecast for Q4 because of the swings from Q2 to Q3. With the FX changes, so the euro-dollar rate is reversing from Q3. Should we think that the hedging impact becomes a negative again? And then also am I correct in thinking that the benefit from provisions release, your options scheme, is that a one-time gain that you saw in Q3. So, some help with that would be great?

Jürgen Hambrecht

John?

John Feldmann

Yes hi, Tony. With regard to options that is really fair valuation per end of quarter. We have no freedom how to do this. So we had a small release, positive option effect at the end of Q3, and it certainly depends on the share price obviously and the relative share performance vis-à-vis the Chemical Index, whether we have then an additional provision or another profit in Q4.

Actually we are hoping for another provision, which means the share price goes up further on. Hedging, this is a big question mark I fully agree. It’s fluctuating from quarter-to-quarter. We don’t expect if the dollar price stays at about where it is today. We don’t expect a major hedging effect in Q4.

Tony Jones - Redburn

Okay. Thanks very much for that.

Jürgen Hambrecht

Welcome.

Magdalena Moll

Your next question comes Andreas Heine. Good afternoon, Andreas.

Andreas Heine – UniCredit

Hi. Good afternoon. Basically, my question is regarding the dividend or dividend policy. You said already the dividend will increase, and the general policy is, I’m fully aware is stable or preferable increasing, but as you know approaching a new record and strive for higher earnings in the coming years, could you elaborate a little bit what the dividend policy means in terms of pay-out ratio?

Is it more dedicated, as it has to be stable even in difficult years that even in a worst-case scenario the dividend could be paid, so is the dividend then more related to the worst-case scenario BASF can ever achieve or is it more that you look for a reasonable pay-out ratio for this year and even higher earnings in the coming years? Thanks.

Jürgen Hambrecht

Andreas, you know that I cannot really comment on this because this is not up to the Board. It’s up to the Supervisory Board and the annual shareholder meeting, and they will have to decide next year about it. You know however our basic approach, and our basic approach – and I don’t just repeat it, and we said very clearly, we are striving to increase our earnings year-by-year. As we increase earnings, we will increase dividend.

There is no pay-out ratio fixed in our company to be very clear on that. So, going forward, the best indicator is EBIT performance.

Andreas Heine – UniCredit

Thanks.

Magdalena Moll

So now the next question is coming from Martin Rödiger

Martin Rödiger - CA Cheuvreux

Yes, thank you. Martin Rödiger from Cheuvreux. On Chemicals, your earnings and growth and margin expansion is quite impressive the first nine months, but the financial market expects a substantial drop. So, can you elaborate a little bit on how sustainable is the earnings and margin level in the Chemicals segment when we go into 2011?

Jürgen Hambrecht

You know Martin, I think, here the market has rather different views. Some are talking about super cycles; others are talking just the opposite. What we see at this very moment is very solid demand, and we see in our Chemicals business. You need to look into here our very strong portfolio of, I would say, special commodities.

These are short, and I’m rather confident that we can keep on, let me say, with the pricing power we have at this very moment. It’s a little bit different for the crackers, but you see also on the cracker side that there are quite a lot of uncertainties and going forward I’m more confident than pessimistic.

Martin Rödiger - CA Cheuvreux

Thank you.

Magdalena Moll

The next question comes from Ronald Köhler. Good afternoon.

Ronald Köhler - MainFirst

Good afternoon. Thank you. I’m looking a little at – no actually I’m switching to another question natural gas. Obviously, we see the spot market prices down, and we have this discussion about the asset, the relationship to the oil price in Europe could switch to a more freely price. Obviously you have two effects on that. You have the natural gas trading effect, trading business where you potentially need some release here. On the asset side, you have Yuzhno Russkoye gas field, which will obviously, would have a negative item on that.

Could you a little bit elaborate on your thinking of the prices and the effect on number one, natural gas trading, let’s say, over the next 12 months, should it be negative SSE and are the assets pointing towards and also a little bit how that might effect Yuzhno Russkoye.

Jürgen Hambrecht

First of all, I think, you have to keep in mind that still contract price is the dominant pricing mechanism, which we see in natural gas. There is some spot pricing going on there, we even had seen moments when spot prices went up again quite close to the contract price, so when you really talk about big volumes and that is a real question. I mean can you really safeguard big volumes, big supply at fixed prices, then I think you’re still talking about contract pricing mechanism.

There will be some change further on in 2011. We have no doubts about this. So in the trading area, this is really about margins, and I think we are in a good position to preserve our margin. In our production of oil and gas obviously, we are dependent on the predominant market price in Yuzhno Russkoye, as you know. We have both an export price, and we have a domestic price and by the way the domestic price in Russia goes up over time and the export price is a mix on composite of contract and spot and so far Yuzhno Russkoye has more than fulfilled our expectations, That’s what I can say both in terms of production ramping up production and in terms of profitability.

Ronald Köhler - MainFirst

Okay, thank you.

Jürgen Hambrecht

Welcome.

Magdalena Moll

We are now getting into the second round of questions. I have three questions from analysts, and I’d like to invite any journalists that still have a final question. We are starting with Neil Tyler.

Neil Tyler – J.P. Morgan

Yes, hello again, simple question this time on full year cash flow expectations, and I suppose specifically the the two items I’m looking for guidance on would be any working capital, major working capital influence you expect in the final quarter of the year and secondly on where you expect CapEx to end up, thank you?

Jürgen Hambrecht

Neil, I think in terms of cash flow performance so far this year has been quite gratifying, and when you look at our cash flow statement you can see that the net working capital change in the first nine months was about 800 million negative. This is given the sales growth and volume growth, which we experience over the last couple of quarters. I think an excellent result.

Also coming back to an earlier question asked about inventories being up in terms of days outstanding, both inventories and receivables are at last year’s level or below last year’s level. You have to keep that in mind, always it’s a little bit difficult to forecast exactly what’s going to happen in Q4 with regard to working capital, but I wouldn’t foresee a major change in our net position here, and I think in to close this we will finish the year with a strong cash flow generation and also very strong free cash flow.

Neil Tyler – J.P. Morgan

Thank you. I mean CapEx year-to-date is close to 20% lower than it was last year. Are you expecting any significant catch up to last year’s run rate or do you think that…

Jürgen Hambrecht

It will probably stays slightly below last year’s number.

Neil Tyler – J.P. Morgan

Okay, thank you.

Magdalena Moll

Next question from Andrew Stott, and then the final question from Paul Walsh.

Andrew Stott – Merrill Lynch

Yes, a question on North America. So it looks to me like in the quarter, it’s the highest growth region even adjusting for currencies. Can you just walk me through why you’re seeing that that scale of growth in North America in particular which businesses are doing well? Thank you.

Jürgen Hambrecht

Andrew let me try to give you an answer to that one. I think we have grown pretty much in line with the overall BASF Group in terms of volumes. It is at first glance kind of astonishing because obviously GDP growth is not very strong. Manufacturing growth is a little bit higher.

There was obviously over the last three quarters sort of replenishment of inventories throughout the supply chain. We think that has come mostly to an end, and what I can add is that those businesses that we acquired, especially Ciba, over the last three years, have contributed significantly to our growth and profitability in North America as well as John alluded to earlier on.

Andrew Stott – Merrill Lynch

Okay, thank you.

Jürgen Hambrecht

Welcome.

Magdalena Moll

Then the next question comes from Paul Walsh.

Paul Walsh – Morgan Stanley

Same question on acrylics. This is clearly one of the markets that’s tight at the moment. Is there anything, my understanding was that a number of outages in the first half of the year have helped support this tightness and those are now coming back on stream.

Is there any reason to believe pricing should go down from here with those force mesures being lifted? Or do you expect tight conditions to really sustain themselves now going forward within a tight market conditions?

Jürgen Hambrecht

Paul, I’m not sure whether I really got your question. Could you just briefly frame it again because this was a long consequence of thinking, and I really didn’t get the real point.

Paul Walsh – Morgan Stanley

Yes, it’s my weakness. I tend to waffle on a bit too much, but on acrylics how sustainable do you think the current strength in that market is please?

Jürgen Hambrecht

Yes, this I alluded to before. I think it’s, this will stay strong.

Paul Walsh – Morgan Stanley

Even with the force measures, having been lifted in North America

Jürgen Hambrecht

Yes, even with this.

Paul Walsh – Morgan Stanley

That’s very clear. Thank you very much.

Magdalena Moll

So, Dr. Hambrecht gave me permission that we can do a couple more questions. So, we would like to move on with Annett Weber.

Annett Weber – BHF Bank

Yes, good afternoon. I’ve just got a question on Performance Products please. The first thing is you might have mentioned this already, but the receivables write-off was how much in the quarter?

And the second question with regards to Performance Products; is there anything in the special items in that division in Q3 that was potentially a gain and if so what was it?

Jürgen Hambrecht

No, there’s nothing in the special items in that division in the third quarter and the write down of the receivables was a long-term contact. We didn’t really specify. It’s a two-digit number. So, it has an impact on the bottom line because otherwise we would have seen different numbers in that segment.

Annett Weber – BHF Bank

Yes, sure. Yes, but it must have been relatively sizeable I would say.

Jürgen Hambrecht

I need to be very clear, if this would not be there, we would have really been above your consensus estimate.

Annett Weber – BHF Bank

Okay. Thanks.

Magdalena Moll

Then the next question comes from Rhian Tucker.

Rhian Tucker - Credit Suisse

Yes, thank you for taking my question. The minorities have been very high so far this year, that kind of surprises me given you’ve been selling less volume of Libyan oil. Can you explain a little bit behind what has driven those minorities up?

Jürgen Hambrecht

Yes we can. We have a couple of joint ventures, which run very well, for instance in Malaysia but also in North America. Our cracker operation is a joint venture operation where we have minority interest. So, in the Chemical space, we have definitely a higher results than last year, went in together with PETRONAS and therefore minority interest also went up.

Rhian Tucker - Credit Suisse

Okay

Magdalena Moll

And now we have one question from a journalist coming in, and this is Davis Nigel from ICIS. Good afternoon.

Davis Nigel – ICIS

Well, thank you for taking my question. I’d like to ask about the operating rates in third quarter. You mentioned, you gave it a quick mention earlier on. Are you effectively balancing demand with output currently and are you able to give me an operating rate figure for the Chemicals business generally in the third quarter. So I can get an idea of how much margin you got there to increase rates in future quarters? Thank you.

Jürgen Hambrecht

Nigel, we have talked last time already about this question, but I’m not giving an overall capacity utilization rate for BASF because I think it’s nonsense. We have areas where we have still, let me say spare capacity which we can use. And as I said before, in some areas, very few, for example acrylics and capro we are fully loaded at this point of time, but we are also creative to increase our maintain capacity, so there is still room to further grow for BASF, and this certainly dilutes the costs.

Davis Nigel – ICIS

Thank you.

Magdalena Moll

So, ladies and gentlemen this brings us to the end of our conference call. I would like to thank you very much for joining us. We’ll have a couple of analysts that we couldn’t finish up now, but we will call them as soon as we are back in the office.

We will next report on our full-year 2010 results on February 24, 2011. In the meantime, we’re looking forward to talking to you on the phone or seeing you during road show. I would like to wish you a good afternoon and say good-bye at this stage. Bye bye.

Operator

Ladies and gentlemen thank you for joining and have a pleasant day. Good bye.

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Source: BASF CEO Discusses Q3 2010 Results – Earnings Call Transcript
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