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Executives

Magdalena Moll – SVP, IR

Kurt Bock – CFO

Hans Engel – Member of the Board of Executive Directors

Analysts

Martin Roediger – Cheuvreux

Andreas Heine

Rhian Tucker

Christian Faitz

Tony Jones – Redburn

Paul Walsh – Morgan Stanley

Neil Tyler – JPMorgan

Peter Spengler – DZ Bank

Sophie Jourdier – Citigroup

Jeremy Redenius – Sanford Bernstein

Ronald Köhler – MainFirst

Richard Logan – Goldman Sachs

Peter Clark – Société Générale

Norbert Barth – West LB

Jenni Barker – Nomura

Mutlu Gundogan – World Bank of Scotland

Annett Weber – BHF-BANK

Matthias Cornu – Exane

Jaideep Pandya – Berenberg Bank

Laurent Favre – Bank of America Merrill Lynch

BASF SE (OTCQX:BASFY) Q1 2011 Earnings Call May 6, 2011 2:30 AM ET

Operator

Ladies and gentlemen, this is the Chorus Call Conference Operator. Welcome to the BASF Interim Report First Quarter Results 2011. As a reminder, all participants are in a listen only mode and the conference is being recorded. (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 regulation and supply and demand. BASF has forwarded looking statements on its views with respect to future events and financial performance. Actual financial performance of the entities described herein could differ materially from that projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and final performance may better or worse than anticipated. Given these uncertainties, reader should not put undue reliance on any forward-looking statements.

Forward-looking statements represent estimates and assumptions only as 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 the assumptions associated with them, except to the extent required by applicable laws and regulations.

Ladies and gentlemen, at this time, I would like to turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead, madam.

Magdalena Moll

Thank you, Simone, and good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our first quarter 2011 conference call. BASF had a powerful start into the year 2011. Global tailwind of continued economic growth boosted the demand for our products in all segments. As a result, BASF posted very strong sales and earnings.

With me on the call today are; Kurt Bock, our current CFO, who will take over as Chief Executive Officer of BASF today at the end of this Annual General Meeting, and Hans Engel, Member of the Board of Executive Directors, who will become our new Chief Financial Officer.

Kurt will summarize the key financial highlights and important milestones in the first quarter 2011. Subsequently, Hans will review the segment results in more detail. Kurt will then conclude with the outlook for 2011. Afterwards both gentlemen will be happy to take your question.

Today’s conference call ladies and gentlemen will be limited to maximum of one hour since we have our Annual General Meeting which takes place right after this call. We have posted all the numbers and charts which we’ll discuss during the call as well as the press document on our website basf.com/share.

And with this, ladies and gentlemen, I would like to hand the presentation over to Kurt Bock.

Kurt Bock

Yeah, thanks Maggie and also good morning from my side ladies and gentlemen. Thanks for joining us. Global economic growth continued in the first quarter. BASF had an excellent start with the year driven by ongoing strong demand and our ability to protect margins by passing on higher raw material costs.

There was no significant impact on our business from the severe earthquake in Japan as well as the tense political situation in North Africa.

In Q1, we increased sales by 25% to EUR19.4 billion compared with the first quarter of last year. Volumes rose by 5%, excluding oil and gas, volumes were up 9%. We were able to raise prices by 13% Cognis contributed six percentage points to sales growth.

We’re reaching an EBITDA of EUR3.4 billion up 28%, resulting in an EBITDA margin of 17.4%.

The earnings before special items came in at EUR2.7 billion and increase of 40% compared to the first quarter of 2010. Special items of EUR182 million included an EBIT were mainly related to Cognis integration costs.

The financial results included capital gain of EUR887 million from the sale of our stake in Gazprom. This gain was booked as a special item. We generated net income of 2.4 billion, lifting earnings per share to EUR2.62. Adjusted earnings per share came in at EUR1.94 mainly due to the one-time gain from the sale of our K+S stake.

In the first quarter, we achieved important milestone. In March, our plant MDI facility in Chongqing was approved by the Chinese authorities. We’ve already started construction and we expect the finishing the operational in 2014.

There will be 100% BASF owned within investment of about EUR860 million. MDI is because of polyurethanes and we expect polyurethanes to grow faster than Chinese GDP over the coming years.

To support our growth in China anti-emerging market, we are currently looking into further investment opportunities with Sinopec and Petronas, we signed memoranda of understanding to explore further expansions of our joint Verbund site in Nanjing and Malaysia respectively.

In Brazil, we are evaluating new investments for acrylic acid, which (inaudible) and Superabsorbent polymer. We’ve also signed two memoranda of understanding order to further strengthen our successful partnership with Gazprom. We will expand our gas production by jointly developing additional areas of the (inaudible).

Furthermore, we intend to acquire a 15 stake in south stream, which we support the growth of our gas trading business in South East Europe.

In March, we announced plans to sell major part of our fertilizer activities, which no longer fit with BSF future strategic direction, and we also sold our as mentioned before 10.3% stake in K+S.

With this I will hand over to Hans.

Hans Engel

Thanks, Kurt. And good morning also from my side. I will highlight the financial performance of the segments in more detail and focus on the business development in comparison to the first quarter of 2010.

In the chemical segment, we increased sales substantially due to ongoing high demand and price increases, which we implemented to offset high raw material cost. EBIT before special items reached a record level.

In Petrochemicals many of our products markets were still tight due to strong demand as well as planned and unplanned outages. We realized higher effect margins in all regions.

Acrylic supply remained very tight, resulting in significantly improved earnings. In organics and intermediates higher margins for ammonia and tight markets for butanediol and several innings supported our sales and earnings increase.

In plastics, we experienced strong demand in all product lines and achieved record earnings.

In Performance Polymers, strong volume and positive pricing momentum especially for couple of items for our sales growth. The engineering plastics business benefited from high demand from the automotive industry after the start-up of the Ecoflex plant in Ludwigshafen. Sales of biodegradable plastics developed very well. As a result, EBIT before special items was up significantly.

In Polyurethanes, high demand especially from the automotive and construction industries, resulted in increased sales and EBIT before special items. However, we have not yet been able to fully pass on higher feedstock in our sales prices.

All divisions in the Performance Product segment excepted by chemicals posted arising sales. Thanks to higher volumes and increased prices. Cognis contributed 29 percentage points to sales growth. EBIT before special items surpass the earnings levels of Q1, 2010 by far due to higher volumes and the excellent performance of the Cognis businesses.

In addition, we’ve realized cost synergies related to the Ciba acquisition and successfully reposition to combine businesses.

In dispersions and pigments, sales increased significantly in all product lines. Demand for our pigments remained strong, particularly in Europe and Asia. EBIT before special items was clearly higher.

In Care Chemicals, sales doubled mainly due to the integration of Cognis. Moreover, we experience strong demand for our hygiene products as well as for detergents and formulators. EBIT before special items improved sharply.

Sales in Nutrition and Health increased substantially in part due to Cognis. We face some prices pressure especially for Vitamin E. However, EBIT before special items matched last year’s high level.

In Paper Chemicals despite the challenging business environment we were able to increase prices. However, volumes were lower mainly due to our optimized product portfolio. EBIT before special items came in higher as the consistent implementation of our restructuring program is being off.

In Performance Chemicals, sales and EBIT before special items increased substantially. Thanks to strong demand, particularly from the automotive and refinery industries, as well as the inclusion of the Cognis.

Now I’d like to give you short update on the integration of Cognis, which is running at full speed. As you know, we’ve set ourselves ambitious targets. We want to achieve a 20% EBITDA margin in the Performance Product segment and make the Cognis acquisition accretive as of 2012.

We expect one-time integration cost of EUR290 million until the end of 2013 and additional EUR120 million had been incurred from inventory step-ups. Of these costs, EUR80 million were already booked in 2010 and EUR158 million in the first quarter of 2011. On the other hand, we aim to generate EUR275 million of additional EBIT annually through growth and cost synergies. EUR135 million will come from growth synergies by the end of 2015.

We will benefit from leveraging the joint customer base as well as extended solution and innovation capabilities. We aim to realize EUR140 million of cost synergies per year by the end of 2013. These are related to savings and procurement activities. The consolidation of administrative structures and the IT landscape, as well as the improvement of production facility.

Volumes in the Functional Solution segment were significantly higher, reflecting the global recovery of the automotive industry, demand from the construction industry rose slightly primarily owing to the robust building activity in emerging markets.

EBIT before special items improved substantially. Catalyst sales rose sharply, mainly attributable to higher volumes in mobile emission and chemical catalysts as well as higher pressures metal prices. As a result, our EBIT before special items came in far above the level of the previous year.

Sales in Construction Chemicals grew slightly. We experienced the positive business development in Eastern Europe, Asia and South America, but North America remains challenging. Due to higher raw material and fixed cost EBIT before special items did not match the previous year’s level.

In Coatings, the positive trend in demand continued for all product lines. However, raw material prices could not yet be fully passed on. As a result, EBIT before special items was only up slightly.

Agricultural Solution started the new season successfully. Positive market conditions and higher soft commodity prices and the improved liquidity situation of farmers contributed favorably to sales and earnings performance.

We achieved sales growth across all regions and indications. Our fungicide business in Europe and North America performed particularly well. The development of Kixor, our recently launched herbicide, is well on track. Despite strong overall demand there was price pressure on some herbicides in the North American market. Nevertheless, we have seen stable prices since last quarter.

Sales in oil and gas increased slightly, mainly due to higher oil and gas prices. EBIT before special items improved significantly. Sales in exploration and production increased slightly. Higher oil prices with Brent averaging $105 per barrel compared to $76 in Q1 2010 compensated for lower oil production in Libya.

End of February we suspended our oil production in Libya. Nevertheless, earnings increased substantially driven by the higher oil prices. Since the winter in Europe was less severe compared to the first quarter 2010, volumes and natural gas trading decreased. However, gas sales were up as a result of higher gas sales prices.

Earnings, on the other hand, decreased significantly as a result of lower demand and negative time lag effects. A look at the income statement shows that net income after-tax even minority interests rose by 12% to EUR306 million. Non-compensable oil production taxes amounted to $280 million.

In other, I would only like to highlight the positive business developments of Styrenics, which benefited from ongoing strong demand and higher prices. EBIT before special items in other improved by EUR57 million.

And with that, I’ll hand back to Kurt.

Kurt Bock

Yeah, thanks, Hans. And let me now briefly talk about our cash flow before we concluded the outlook. Thanks to our strong business performance in the first quarter. We generate an excellent operating cash flow of EUR2.3 billion, up EUR900 million compared with Q1 of 2010. Despite improved business activities cash at the net working capital decreased slightly by EUR260 million. This continues to demonstrate BASF outstanding cash generating capability.

Cash from investing activities was positive and amounted to EUR257 million. This included EUR917 million of proceeds from Cañadon disposal. CapEx came in at EUR547 million. As a result, we turned in a very strong free cash flow of EUR1.7 billion in the first quarter

From the beginning of 2011 we were able to reduce net debt by EUR2.4 billion to 11.1 billion.

Now let’s come back to the outlook for 2011; what do we expect? We are increasing our Brent oil price forecast from $90 per barrel to $100 per barrel. We are assuming that the oil production in Libya will not restart during 2011. Based on this assumption, EBIT before special items on our Libyan oil production for the full year 2011 will be about EUR1 billion lower compared with 2010. However, as you all know, of these EUR1 billion about 700 million are non-compensable oil taxes.

For the full year 2011, we still expect to generate significantly higher sales, considering the suspension of the oil production in Libya EBIT before special items, and now that’s important. Excluding non-compensable oil taxes provide a much more meaningful guidance for 2011. Thus we aim to significantly exit the 2010 EBIT before special items excluding non-compensable oil taxes which amounted to 2.7 – EUR7.2 billion.

Finally, we are committed to our target to achieve a high premium on our cost of capital again in 2011.

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

Magdalena Moll

Yeah, thank you very much Kurt and Hans and now I would like to ask you, ladies and gentlemen to post your questions. So we are opening the call for questions. Please limit your questions to one at a time so that we can take as many questions as possible and then of course you can always re-queue and then we will take a second question. So with this, Simone I’m handing back to you.

Question-and-Answer Session

Operator

(Operator Instructions)

Magdalena Moll

Actually Simone we have already a number of questions here in the queue. We are starting off with Martin Roediger from Cheuvreux. Good morning, Martin.

Martin Roediger – Cheuvreux

Yeah, thanks good morning for taking my question. It is on the guidance to me 100% true earlier. Am I right that for the EBIT guidance the starting point is now 7.5 billion for 2010? You said a significant growth its mean more than 10% that means actually 7.871 billion is then for year 2011 guidance, and this excluding already 280 million oil taxes so when we add this 280 million oil taxes than the EBIT guidance, so to say, including oil taxes would then be 8.155 – 8.151 billion at least for 2011, is that correct?

Kurt Bock

Mr. Roediger thanks for your question. It’s very hard to understand what you said exactly. The starting point which I mentioned in my little speech was 7.2 billion, but I think you then added the non-compensable oil taxes in a correct way on top of that. What we try to say that we are still very, very optimistic for 2011 and the bottom-line is probably that our outlook today is slightly better than what we said at the end of February when we had our last conference call. So things have change a little bit because of the Libyan situation as you know. So, the mathematics are little bit more difficult.

Martin Roediger – Cheuvreux

Thank you.

Kurt Bock

In economic terms the order is slightly better.

Magdalena Moll

Now our next question comes from Andreas Heine. Good morning, Andreas.

Andreas Heine

Hi, good morning. I have a question regarding the net working capital decreased. Why was that in the first quarter that you had a decrease of 260 million, usually that is the phase of increase in net working capital not at least in this scenario where we have quite some inflationary effects.

Kurt Bock

This time we had only a slight increase of receivables much lower than the accompanying sales increase. We had also bigger increase than last year of payables and that is essentially explaining why we came in better than last year and as I’ve said we have – we really try to push our businesses to further improve with regard to networking capital productivity there.

Andreas Heine

So that is – really achieved and we will not see tremendous change in the same quarter, so that is the structured improvement you achieved in the first quarter?

Kurt Bock

As you all know it’s awfully difficult to forecast cash flows. I’m not aware of any let’s say end of month – end of quarter special effect which we sometimes had as you know, but we will see what happens in the second quarter of 2011.

Andreas Heine

Thanks.

Kurt Bock

Welcome.

Operator

Next question now comes from Rhian Tucker. Good morning, Rhian.

Rhian Tucker

Yes, good morning, I’m sorry to focus on something a little bit negative in such a good set of results. I’m looking through the others EBIT, the others division EBIT, you had a strong improvement in the contribution from Styrenics and fertilizers not surprisingly. You had a less negative number from currency and hedging effect. And yet the overall growth in EBIT was not that significant, it was only 40, 45 million. Can you explain what other effect was quite negative to cancel out those two positive effects for me? Thank you.

Kurt Bock

Yeah, hi, Rhian. Thanks for that question. There are two effects essentially. Again we had higher costs of our long-term incentive program where we already booked consumer number for Q4 as you know and since the share price continued to go up, we had to book again besides the number. And the second point is that we put aside a two-digit number essentially for couple of risks which we are still seeing, which have not yet been completely specified, but will materialized over the course of 2011 that’s a two- digit number as well.

Rhian Tucker

Okay, well I guess as long as the share price keeps going up that incentive program will keep penalizing EBIT, but that’s not necessarily a bad thing. Thank you for the answer.

Kurt Bock

You are welcome.

Operator

So the next question comes from Christian Faitz. Good morning, Christian.

Christian Faitz

Yes good morning, just quickly can you explain your pricing and volume strategy in Agro in the first quarter since your two key competitors seem to have outperformed you at least in the first quarter, if I look at volumes and pricing. Also can you give us your view of channel inventories at present due to the adverse weather conditions both in North America and in Europe? Thanks.

Kurt Bock

The second question is very hard to answer I think, because we are in the midst of the season and as you all know Q1 numbers generally are not that meaningful. You really have to look at the entire season which we will only know by the end of June. So I can give you no specific comment on the ground inventories as you ask.

Concerning the first question yes, we thought the same feature. When you think about it, you have to keep in mind that we had very, very strong volume growth over the last couple of years. So if you take a longer term view, we did not have some of the bumps some of our competitors saw in 2009 and 2010. We had continued volume growth and therefore, I think the base effect, the starting point for BASF is slightly different.

We also have different portfolio. For instance we are not exposed to (inaudible) which came down significantly in 2009 and 2010 and has a base effect. And then pricing, what is important you to keep in mind that there was no negative pricing effect compared with Q4. What we see is specific situation in North America more specifically in Canada where we had price reductions, which basically reflects new competitive realities, where we have to adjust prices already last year. And this no translates into this slightly negative price effect overall. The underlying theme is still full in place, innovation and being able to get good prices for good products, which we see across the board. This is one exception have Canada.

Christian Faitz

Great. Thanks. But just quickly, what you will subscribe to the fewer for –you’re your competitors that overall situation in Europe assisted. You would have problems on the general inventory side, not you will own by the industry?

Kurt Bock

I mean, we’re all waiting just really for awareness. You can imagine for many different reasons. And it’s really too early to say, I mean this can change almost overnight as we all know. So far it’s really too early Mr. Hans to make a statement here.

Christian Faitz

Fine. Sorry.

Magdalena Moll

So now we are. Next question. So, now we are moving on with the Tony Jones from Redburn. Good morning, Tony.

Tony Jones – Redburn

Good morning. Tony Jones from Redburn. Your cracker margins as you pointed out were very high in the quarter, and you are doing very well with pricing tab. Some of this was due to tight markets and what will be helpful would be, could you give us an indication of what you think market dynamics might look like in the coming quarter or so? Because I know that some of your competitors were offline, so will that unwind and therefore are those margins sustainable? Please that would be great. Thanks.

Hans Engel

Yeah. This is Hans. On the cracker margins, we have in fact seen strong cracker margins throughout the first quarter. We believe that’s primarily driven by the strong demand that we’ve seen globally on the cracker margins in particular for properly in Benzene and like. We’ve seen very strong pricing in the U.S. due to the situation there. Asia still strong in demand, Europe strong in demand. So yes, there have been planned and unplanned outages during Q1 but we see also going into Q2, and a continued strong business environment.

Tony Jones – Redburn

Okay. So should I assume your margin, your risk reported can be rolled for the quarter, because that’s quite a lot ahead of where I currently see it?

Hans Engel

With respect to entering Q2 as I said, we still see that strong environment.

Tony Jones – Redburn

Great. Thank you very much.

Magdalena Moll

Now we are moving on to Paul Walsh from Morgan Stanley. Good morning, Paul.

Paul Walsh – Morgan Stanley

Good morning, Maggie. Good morning, Dr. Bock. Thank you for taking my question. I wanted to come back to the cost savings programs and the restructuring, the various different restructuring processes you have in place. So can you just remind us where you are on the next program on the Cognis synergies in terms of timing this year and also on the Ciba synergies i.e. of those plants how much have you delivered and how much is yet to be delivered? Thank you.

Hans Engel

Paul, this is Hans I’ll take the Cognis synergies and the Ciba synergies to start with, On Cognis by year-end, we have to deliver on a run rate basis, roughly 350 million in euros. That is 350 million out of the total of 450 million which we want to have fully achieved going into the year 2012. So we are very well on track there. On the Cognis synergies, we say that we announced our detailed integration plans on March 25th only. We are now in full swing with respect to the integration there is at this point in time not yet a lot that I can report on with respect to cost synergies.

We intent to achieve 140 million in cost synergies by the end of 2014 – 2013, sorry, and looking at the history that we have with respect to delivering on synergies that we are announcing, I can say rest assured we’ll achieve what we have announced.

Kurt Bock

And Paul with regard to your other question, our efficiency programs net – which is Cognis, we expect an effect – the total effect cumulative of more than 1 billion as of 2012. As of end of 2010 we had realize already 600 and the run rate is approximately 300 a year. So you’ll see another 3, 400 million of savings in 2011 coming to our bottom-line.

Paul Walsh – Morgan Stanley

That’s all. Very clear. Thanks a lot.

Magdalena Moll

And so now we are moving on to Neil Tyler from JP Morgan. Good morning Neil.

Neil Tyler – JPMorgan

Yes, good morning. Question on the order book, order flow really. When you speak to your divisional, excuse me divisional managers – you mentioned in previous quarters that either order patterns were short-term more sporadic, is your visibility on order book and is that – is the feeling that is sort of building out and your visibility is improving or you’re still seeing shorter order book then perhaps with the case a couple of years ago? Thank you.

Kurt Bock

Neil, actually we don’t see any shifting order patterns right now. It’s still very, very strong. We got little bit confused this morning when we read the German paper because you might have seen in Germany the order intake has come down in the month of March...

Neil Tyler – JPMorgan

Yeah.

Kurt Bock

And this is not reflected in our numbers, not at all. It continuing at full speed.

Neil Tyler – JPMorgan

Okay, very clear, thank you.

Magdalena Moll

Then comes Peter Spengler from DZ Bank. Good morning, Peter.

Peter Spengler – DZ Bank

Good morning, ladies and gentlemen. Thank you for taking my question. Could you give us guidance for the second quarter compared to the first quarter and potential influence you expect from Japan? And then could you also give us the current status of your Styrenics joint venture negotiations and may be also statement or comment on the statement of Dr. Kurt Bock according to new acquisitions which are now targeted?

Kurt Bock

Peter, it’s tricky. These are three questions instead of one.

Peter Spengler – DZ Bank

Yeah, may be take –

Kurt Bock

Like so first of all we don’t really provide specific guidance for individual quarters and I would stick to that policy. We gave an outlook for 2011 and as Hans said just a minute ago, what we see right now going into the second quarter doesn’t give us any reason to be particularly skeptical here.

With regard to Styrenics, we are in the midst of forming – setting up the joint venture. We – the efforts of works to do internally to cut out the business and then bring it into a new business combination with INEOS. We still have to wait for anti-trust approvals essentially in Europe. This is an ongoing discussion. Frankly, it’s too early to say how this will and what kind of action might result from this. We are very optimistic for the formation of the joint venture. And underlying business trend so far has been very positive.

And your last question really quickly with regard to M&A I mean you know our underlying policy first comes. Organic growth, investments, R&D where we really generate lots of value; we have done a couple acquisitions and drive now, we are, as Hans explained, really, really busy integrating Cognis. And we also said that we would like to reduce our net debt a little bit in 2011. We already achieved this during Q1 by about EUR2.4 billion. But just keep in mind that as of today essentially we are paying 2 billion in dividend to our shareholders if our shareholders approve our proposal at the shareholders meeting.

Peter Spengler – DZ Bank

Thank you very much.

Magdalena Moll

Now, ladies and gentlemen, I have to comeback. Please only one question because the list of people who still want to pose a question is extremely long. And we are coming to Sophie Jourdier from Citigroup. Good morning, Sophie.

Sophie Jourdier – Citigroup

Good morning and thanks for taking the question, just on the fertilizer, so could you just update us in terms of the likely timing of the sale as far as you can control it. And also it will be helpful have an idea of – in don’t know – revenues and profit that that business generated last year if possible? Thanks.

Kurt Bock

Sophie, the process has started a couple of weeks ago with in – we have received very positive good feedback. It’s simply too early to become more specific here. It’s an ongoing process. We don’t expect this to close before the end of 2011 depending on many issues obviously. But we are optimistic for the process and we are also optimistic for the business. The business – the size is approximately 0.5 billion and it’s a profitable business and they are great assets both in (inaudible) but also in France and (inaudible) as you know the assets in (inaudible) are not up for sale. There we will doing a tolling due to Verbund structure but I think this is first rate fertilizer as we put on the market here

Sophie Jourdier – Citigroup

Thank you very much

Kurt Bock

You welcome

Magdalena Moll

We are now coming to Jeremy Redenius from Bernstein, Sanford Bernstein.

Jeremy Redenius – Sanford Bernstein

Hi good morning. This is Jeremy Redenius from Sanford Bernstein. Thanks for taking my question. I am wondering if you could perhaps describe the kind of the market dynamic or the operating dynamics of crackers that you are seeing in industry. And I am wondering if people are kind of running their crackers really to see maximize production right now and doing the best they can or are people being really clever about just kind of managing their inventory levels to that increased oversupply in the industry?

Hans Engel

Jeremy, this is Hans, you and I remember had discussions on this already. Let me start with the way (inaudible) running the crackers. We are running the crackers primarily to support our downstream activities. So posing that question to us, yeah, you can get an answer. It will be also be a qualified answer. There is no question about it. But there are other companies out there, who are really participating in the cracker product markets to a much, much higher extent than we do. So can I tell you what they are doing actually? No. We are running our crackers at this point in time at high capacity utilization. We’ve already alluded to there is a very favorable margin situation and to the fact going into Q2, we don’t see a changed there. At this point in time, demand is strong and this strong demand is driving the pricing situation and the margin situation.

Jeremy Redenius – Sanford Bernstein

Thank you.

Kurt Bock

And then we’ll just add one sense and we also do not plan to add the new cracker to our portfolio.

Magdalena Moll

Okay. So with this now we’re moving on to Ronald Köhler from MainFirst. I try to reach this morning, but you was already in the morning meeting. How are you, Ronald?

Ronald Köhler – MainFirst

Thank you. Thanks fine. Yeah I thought it was the busy day today. Quick question on consolidation effect potentially, there is obviously new IFRS rule which passes through 50-50 joint ventures to put at equity and I was curious thinking of Nanjing or other effect, and when they’re might come. So, can you guide us a little bit on that, any details?

Kurt Bock

Yeah, hi Ronald. Thanks for the question. This will become effective for BAS in 2013. Only we are still looking at the situation to fully understand what it could mean. At the end of the day one consequence could really be that we have to consolidate those companies at equity. But I can assure whatever is going to happen we’ll inform you upfront in detail about possible effects, but right now it’s too early to become more specific because it’s a kind of an ongoing process.

Ronald Köhler – MainFirst

Okay, thank you.

Kurt Bock

Welcome.

Magdalena Moll

The next question comes from Richard Logan from Goldman Sachs. Good morning, Richard.

Richard Logan – Goldman Sachs

Good morning, and thanks for taking my questions. I mean both within BASF and right across the whole industry, we’ve seen stronger than expected pricing par in the face of significant raw material cost increases. Firstly I wonder what you believe is the key driving factor behind that, because it’s not only BASF. It’s like right through the whole of the sector. And secondly, price sustainable, do you believe that is both for BASF and for the industry as a whole? Thanks.

Kurt Bock

That is certainly a core question. I mean you’re absolutely right in what you’re describing. We see good pricing power right now, which is obviously driven in the commodities businesses by supply demand balance, which is a very, very tight. And again we haven’t seen any change since the start of May, so it continues.

By the way when you look at our segments and we have six business segments, certainly our downstream business still have to cope with some of the cost increases. They have to accept also for our internal capital deliveries, so we are not yet through this price adjustment throughout the entire value chain as a company, in total we’ve managed to recover our raw material cost increases, but certainly not every single individual business.

It’s very difficult for us to tell you, in general terms, what the driving factors behind this. Obviously is overall good economic development. We have seen in some cases a lack of capacity available due to technical issues, which hasn’t really affected BASF, only a positive way our capacities are available. So apart from the overall economic picture, I cannot really give you any specifics.

Richard Logan – Goldman Sachs

Do you think that there has been – there is much greater discipline or there are not, I mean certainly are impression.

Kurt Bock

Oh yes, this has been the future for the current industry now for a couple of years.

Richard Logan – Goldman Sachs

Yeah.

Kurt Bock

Very strong future, comments have become much more disciplined also with regard to the investment behavior. And we say this all the time and we kept to that also during the crisis 2008 and 2009 for us it’s always value over volume. It’s really a value-driven strategy what’s behind BASF economic success and we’re not going for volume at any costs. What you can say however, there are particular products right now where you see record margins which we had never seen before and clearly will those margins stay forever, that’s hard to believe.

However, it’s very difficult to say for how long they will continue to stay. For the time being again we see no change, no change, and we don’t see any indication why it could change in the near-term future, but compared with historic margins they are really in some cases, particular cases record margins and maybe that’s a normal, but that’s too early to say.

Richard Logan – Goldman Sachs

Okay, all right, thanks.

Operator

Now I would like to move on to Peter Clark from Société Générale. Good morning, Peter.

Peter Clark – Société Générale

Yes, good morning. It’s following on from that actually in terms of the areas where you’re still facing margin squeeze, particularly the construction chemical business. I know that Q1 is seasonally weak particularly in the Western Hemisphere, but the lag of that there and obviously you’re trying to get these margin squeeze through pricing accommodated, et cetera.

How long do you think the lag effect could be in the construction chemicals? And squaring that with the full-year guidance in that segment or that business for the strong improvement in earnings, but obviously you are still under pressure in Q1, I’m just wondering how you square that with the guidance for the full-year? Thank you very much.

Hans Engel

Yeah, Peter this is Hans. I mean, with respect to construction chemicals, I actually don’t know whether it’s right to speak about a lag effect there when it comes to passing on raw material pricing. I think first of all, we got to look there at the market and the demand that’s coming from the market. And there we see continued weakness in North America. We see continued weakness in parts of Europe and there in particular in the Southern parts of Europe. And I think that is what we have to take in mind first and foremost when we think about performance of construction chemical businesses.

The demand isn’t there, it will be awfully difficult to do something on pricing. With respect to guidance that we have given for the full-year, the Q1 results don’t lead us to change that guidance. As expected Q1 on the Northern Hemisphere due to the winter situation is a very weak quarter. Yes, it was a very weak quarter, and our expectation is that that business is not only our expectation, we’ve seen it picking up going into April and May now.

Peter Clark – Société Générale

Thank you.

Operator

Now I am coming to Norbert Barth from West LB. Good morning Norbert.

Norbert Barth – West LB

Yes, good morning. I have a question perhaps it was a tradition that Mr. Hambrecht in the past gave always a little bit situation of demand supply in the main value chain, that’s like it really got someone. So perhaps Mr. Bock you can follow up this tradition and explain a little bit how the situation there is, perhaps also split a little bit by region. And you mentioned that particularly our products have record margins and perhaps you can name that?

Kurt Bock

Yeah thanks for the question Mr. Barth. I am not sure yet what kind of solution I want to develop, but at least I try to answer your question.

Here we see some good margins, for instance in acrylic, we see very good margins in capital as you all know. And this is across a globe. There is no really difference between Europe, Asia and Europe and United States, simply because there is also arbitration going on between those regions as we gain also no.

And with regard to the time, I mean you still have 10 people lined up here for questions. I would really reframe from going into much more detail here.

Rhian Tucker

I would say no, but we can help you, I think a little bit after the call to stay sometime, I would now move on to Jenni Barker from Nomura, good morning.

Jenni Barker – Nomura

Thank you very much. In the sort of recent past, you have been within your cracker portfolio long SME and short the higher cuts. Could you just give us, including an order of magnitude what your status is today? I mean what’s your in terms of your percentage purpling use for example how much is generated captivly?

Kurt Bock

In – Jenny in property we have small net buyer and probably its tightened some market as we all know and in ethylene we are relatively small net seller that sums up our position.

Jenni Barker – Nomura

Can you give any scale on that at all please? And it just in terms of your percentage?

Kurt Bock

I don’t have it at the tip of my finger, I frankly. Jenny, we can give the number later on, if you agree.

Jenni Barker – Nomura

Okay. And butadiene?

Kurt Bock

We are net buyer.

Jenni Barker – Nomura

Thank you.

Magdalena Moll

So this brings us now to Mutlu Gundogan from World Bank of Scotland. Good morning Mutlu.

Mutlu Gundogan – World Bank of Scotland

Yes good morning everyone. A question on performance polymers, you are currently operating at full capacity in the polymer (inaudible) change and it has been the case for last couple of quarters. So I was wondering, if you are planning any capacity additions here? Thank you.

Kurt Bock

We have no what you described as, let’s say car engineering, classic business. We have no great capacity expansion project underway. We are doing quite a bit in what we called echo products, where we have new investment. What is going on all the time is capacity creep. So we constantly fine tuning our plans, some of them in the intermediate business as you all know are quite mature. We are constantly fine tuning them to extend and increase our capacity, and so far we have been successful doing that.

Mutlu Gundogan – World Bank of Scotland

Okay, thank you.

Kurt Bock

Welcome.

Magdalena Moll

Now we come to Annett Weber from BHF-BANK. Good morning Annett.

Annett Weber – BHF-BANK

Yes, good morning and just a quick question coming back on the pricing situation you said in an answer to an earlier questions that’s in the downstream businesses there were some work to be done still and my question now is are you confident that you will be able to pass on the raw material cost pressure in these businesses as well and have the pricing initiatives already been started And until when do you expect these to be passed on?

Kurt Bock

This is an ongoing process as you can imagine. To give you an example our coating business, obviously they have to cope with higher pigment costs. And it takes time, if you discuss this with your automotive customers to adjust prices, because very often we have long-term or medium-term prices, which are adjust only on an annual basis, but it will take a little bit of time at the general rule of thumb. And I think that’s meaningful also from your point of view. You can assume that under normal business conditions, it takes us across the board two to three months to pass on our raw material cost unless it’s a complete disruption in the marketplace, again which we don’t see it right now.

Annett Weber – BHF-BANK

Okay. Thank you very much.

Magdalena Moll

The – to Matthias Cornu from Exane. Good morning, Mathias.

Matthias Cornu – Exane

Good morning. Thank you. I just like to come back on the Libyan assets and thank for the guidance of roughly 1 billion less EBITDA, I suppose for the next time for 10 months are roughly 10 million run rate per month. But looking at your annual report 2010 and the oil and gas supplement and the results in North Africa before taxes were 1.3 billion i.e. 110 per months roughly and the lower average oil price.

So do you explain the difference between these two guidance? And also maybe just on the net income to confirm below the fact you have a non-compensable oil tax, but also the minority to Gazprom, can you give us a run rate on the net profit basis per month of what is the loss of opportunity this is as being stopped at the moment?

Kurt Bock

Excellent question, Mathias. Let’s start at the beginning 2010, yes, the numbers you mentioned there absolutely correct 1.7 billion in sales, 1.3 in EBITDA, 1 billion then in non-compensable oil tax, and roughly 70% in net earrings. We stopped production completely at the end of February onshore and a week later offshore. And we’ve said that we have 280 million in non-compensable oil tax in Q1 of the year 2010.

I think at this point in time, that is probably all that we can say, you look at roughly 1 billion in non-compensable oil taxes that we had in our EBIT before special items for the year 2010. Our assumption that we’re working under at this point in time is there will be no oil production in Libya back on in the year 2011. And as I’ve said much more on – the very difficult situation down there. I can say at this point in time other than that that our assets that we have in Libya roughly 700 million net book value fully insured.

Matthias Cornu – Exane

Sorry, for Q1 if I look at the impact for just one month you said it stopped by the end of February, it was about 100 million loss of opportunity in term of EBIT that’s correct? Based on the average oil price you have at that time.

Kurt Bock

Yeah, that’s roughly correct. I mean, I give you – I gave you the 280 million in non-compensable oil tax. I also give you 360 million for the first quarter in EBIT.

Magdalena Moll

So I think you have all the numbers now, and we move on to (inaudible) from ING Bank.

Unidentified Analyst

Yeah, good morning, everybody. Also from my side one question on the petrochemicals or may be on the chemicals provision more specifically. If I remember well, at your full year results, when you were discussing the outlook for that division, you did see slightly – or you saw higher earnings, but some pressure on margins. Now that has not surfaced evidently. And you’re also guiding for a very good Q2 in that sense. But going forward, in the second half of the year, would you resume or go back to your previous view that you had at middle of February? Thank you.

Kurt Bock

That’s obviously very, very specific question, I mean, what I can say is that what we have in our books gives us some kind of indication for the next two to three months max. And beyond that our visibility in the marketplace is quite limited in terms of what you get from you customers. We can only look at the overall macroeconomic picture and there we don’t see any reason that supply/demand should change dramatically from what we have today. But again we don’t guide specific quarters and we also don’t do that for specific businesses or individual quarters.

Unidentified Analyst

Thank you.

Magdalena Moll

We are now moving on to Jaideep Pandya from Berenberg Bank. Good morning Jaideep.

Jaideep Pandya – Berenberg Bank

Good morning, everybody. Just a question really on businesses which are still not doing as well as you expected. My direction is mainly functional solutions. But if you can just tell us which are the other areas where you would expect better performance going forward in Q2, Q3 or rest of the 2011? Thank you.

Kurt Bock

I mean you picked right segments only Jaideep because obviously there were some concerned at the end of Q4 about functional solutions. Coatings continues to operate at very healthy level also runnings wise. Catalyst has done very well in Q1 as we announced – as we told you in end of February both in terms of sales and especially in terms of earnings and market development where we are not yet completely satisfied as Hans also alluded to is construction chemicals which predominantly is due to external market factors, especially, here in Europe and the United States, and that is pretty much what we see right now.

Jaideep Pandya – Berenberg Bank

Okay. Thank you.

Magdalena Moll

Now we are coming to Laurent Favre from Bank of America Merrill Lynch

Laurent Favre – Bank of America Merrill Lynch

Yes. Good morning, all. Thank you for taking my one question. From performance polymers where you have had very strong volume growth and earnings growth – I guess you just said that you are not planning to add significant capacity. I think you are assuming significant capacity additions for this year as per your full year guidance from performance polymers. Could you tell us what you are seeing right now on ground are those expected to best additions coming through or are they being delayed? Thank you

Kurt Bock

I am on aware that the situation will ease very quickly. We had to follow a couple of small investment projects in this area, but for instance the big product – one big product here is certainly (inaudible) where we will not add large capacity in the foreseeable future.

Laurent Favre – Bank of America Merrill Lynch

Thank you

Magdalena Moll

We are having the two final questions because the gentlemen then have to – head off the AGM. Rhian one from you and last one comes from Andreas Heine. Rhian Tucker?

Rhian Tucker

Yeah. Sorry, thanks for my follow up question. Just going to back to pricing power, I mean obviously construction chemicals has been something that’s been highlighted where you didn’t manage to increase prices to compensate for raw materials. Are there any – and we know that obviously year-on-year as weak pricing, but is there any other areas where you think that pricing has not compensated for the raw material hike? Thank you

Kurt Bock

Let me come back to equity because we have strong pricing across the board there is one exception which is really, as I mentioned before, very special situation in North America herbicide type of family. Apart from that certainly some of our downstream businesses are still pushing, I mentioned coatings, it’s also true for some of our business in performance product where we have seen very good sales and also earnings increase. The earnings increase also largely attributable to the Cognis acquisition, which really paid off very, very handsomely. But some of those businesses still suffer from a higher raw material cost and they keep pushing into marketplace for higher prices.

Rhian Tucker

Okay. And what about polymers, did prices fully compensate to raw material increases there?

Kurt Bock

In polymers, we are pretty much on track. We have seen price increases and strong volumes, obviously.

Rhian Tucker

Okay.

Kurt Bock

I’m not really discussing individual margins here. I have to ask, understanding individual margins of individual business we really never explain that in more detail.

Rhian Tucker

Perfect. Thank you.

Magdalena Moll

And then Andreas last question.

Andreas Heine

Yes, thanks for taking this question as well. Again on the outlook. If I make the mess and takes the lower end of what significant means an increase of 10% and this is roughly 700 million. That’s basically what you already achieved in the first quarter, but according to all the comments you’ve given my understanding is that we do not should interpret the outlook as the next three quarters should be only on par with last year, so probably a little bit more than that.

And secondly on the 2012 18% EBITDA margin target. Do you have to change this if you cannot start-ups the production of the oil production in Libya in 2012.

Kurt Bock

Coming to your second question, the first one I take as a comment, we certainly have to look into the situation if oil and gas will not the Libyan production will not come back in 2012, what could it mean for our overall EBITDA, our sales profitability, and if that is – if that becomes clearer over the course of the second-half we will talk with you and explain it to you.

Andreas Heine

Thanks.

Kurt Bock

But you can already today calculate the EBITDA margin for our chemicals business obviously and see where we are and then take our comments.

Andreas Heine

Thanks.

Kurt Bock

And the outlook, again I take it as a comment. It’s, as always it’s very difficult for us to tell you what’s going to happen in the second-half of 2011. What we see today what, again what we see today gives us no reason to be in anyway more skeptical or more cautious than we were at the end of February. Is that helpful, I hope so.

Andreas Heine

Yeah, it is.

Kurt Bock

Okay, thank you.

Magdalena Moll

So ladies and gentlemen this brings us to the end of our conference call. Before we close I would like to invite you to our next event namely the Rounds Table on Agricultural Solutions which will take place on August 8th in the United States. So please mark your calendars already. We would like to all take you to the U.S. and we will also be able to show some of the biotechnology cooperation that we have with Monsanto. So I think this should be a very interesting and worthwhile trip for you.

Secondly I also would like to inform you that we had indicated to you that we are planning an event on oil and gas. We are currently in the process of scheduling road shows including an analyst breakfast on the oil and gas segment in the coming month.

And finally, we will next report on our second quarter 2011 results on July 28, 2011. Well, thank you for joining us today and should you have any further questions, please contact any member of the IR team and we will be very happy to help you. Thanks and good day.

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