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Executives

Magdalena Moll – SVP, IR

Kurt Bock – Chairman

Hans-Ulrich Engel – CFO

Analysts

Tony Jones – Redburn

Martin Rödiger – Cheuvreux

Mutlu Gundogan – RBS

Jaideep Pandya – Berenberg

Neil Tyler – JP Morgan

Thomas Gilbert

Laurent Favre – Merrill Lynch

Peter Spengler – DZ Bank

Ronald Köhler – MainFirst

Andrew Benson – Citi

Lutz Grüten – Commerzbank

Jenny Barker – Nomura

Andreas Heine – UniCredit

Jan Hein de Vroe – ING

Annett Weber

Richard Logan – Goldman Sachs

Jeremy Redenius – Sanford Bernstein

Peter Clark – Société Générale

Norbert Barth – WestLB

Paul Walsh – Morgan Stanley

BASF SE (OTCQX:BASFY) Q3 2011 Earnings Call October 27, 2011 5:00 AM ET

Operator

Good morning, ladies and gentlemen. This is the Chorus Call Conference operator. Welcome to the BASF Interim Report Third Quarter Results 2011. As a reminder, all participants are in 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, supply and demand.

BASF has based these forward-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 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 turn the conference over to Magdalena Moll, Head of the Investor Relations. Please go ahead, madam.

Magdalena Moll

Thank you, Jason and good morning, ladies and gentlemen, and welcome. On behalf of the entire BASF team, I’m delighted that you could join us for third quarter 2011 conference call. BASF, again, delivered good results in Q3. In today’s conference call, we would like to provide you with further details and our performance in the third quarter, share with you our updated economic forecast and confirm our outlook for the full year 2011.

With me on the call today to explain the results are Kurt Bock, our Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, our Chief Financial Officer. After the presentation, the two gentlemen will be available to take your questions. We have posted the numbers and charts which will be discussed during this call as well as the press documents in our Web site at basf.com/share.

I will now hand over to Kurt Bock.

Kurt Bock

Thank you, Maggie and good morning also from my side, ladies and gentlemen. As you certainly noticed, we changed the time of our call from the afternoon to the morning. I hope this doesn’t make it too much of an early bird session for some of you but there was an overwhelming demand of getting some guidance already in the morning and not having to be waiting in the afternoon.

So where are we? BASF, again, posted good results in Q3 2011. Sales rose by 12% to EUR17.6 billion compared to the same quarter last year. Successful price increases in all our segments contributed 14 percentage points to sales growth. Another 5 percentage points came from the acquired Cognis businesses.

Volumes, on the other hand were slightly below the very strong third quarter of the previous year due to 25% lower volumes in the Oil & Gas business as a result of the suspension of our oil production in Libya in the beginning of this year. Currencies, in particular the weakening of the U.S. dollar had a negative sales effect of 4%.

Volumes in our chemical activities were stable year-over-year. Adjusted for special effect resulting from the optimization of our supply chain of cracker products in North America, volumes in our chemical activities increased by 1% compared to last year. Hans will explain this in more detail in a minute.

EBIT before special items amounted to EUR2 billion and that was 11% below the very strong result of Q3 2010. Adjusted to Libya which contributed EUR355 million in last year’s quarter, EBIT before special items increased by 6% compared with last year. At EUR1.2 billion net income came in slightly below the previous year figure. Adjusted earnings per share were EUR1.52 and matched the level of last year.

In the last month, we achieved further important milestones to optimize our portfolio. On October 1, Styrolution, the 50/50 joint venture between BASF and INEOS began operating independently from its parents. With pro forma sales of EUR6.4 billion in 2010, Styrolution is the global market leader in industry. Given the higher value of our assets, we received a payment of EUR600 million at the beginning of October.

The new joint venture will be consolidated at equity and as of Q4, the equity income will be reported in the financial result. In addition, the disposal result will be booked as a special item in the EBIT of other in the fourth quarter of this year. At the end of September, we also reached an agreement with EuroChem to sell our fertilizer activities in Antwerp. The total transaction volume – value is in the range of EUR700 million. Divestment is subject to approval by the appropriate antitrust authorities and we expect closing by the end of the first quarter of 2012.

In the past few weeks, we made significant progress with important projects to spur organic growth in emerging markets. At our Verbund site in Nanjing, the first new production facilities which are part of the US$1.4 billion expansion have started operations. Along with the successful completion of the steam cracker expansion, the newly constructed butadiene extraction plant and the non-ionic surfactants plant are now up and running. The majority of the remaining plants will come on-stream around the end of this year.

In Brazil, we will soon begin construction on our new world-scale production site for acrylic acid, butyl acrylate and superabsorbent polymers. Our plants will be the first acrylic acid and superabsorbents production facilities in South America. At more than EUR500 million, it is the largest by far, the largest investment in BASF’s century-long history in South America. Production is scheduled to begin in the fourth quarter of 2014.

With our innovations we are working on the solutions for tomorrow. smart forvision, a joint concept car of Daimler and BASF was presented at the recent International Motor Show in Frankfurt in September. Thanks to the combination of smart’s automotive competence and BASF’s material and system expertise, a vehicle has been created which showcases technologies for sustainable and holistic electric mobility of the future. The smart forvision’s innovations are based on three main technology platforms.

First, electrical energy efficiency. A number of solutions such as our organic dye solar cells as well as organic light-emitting diodes, OLEDs, help to increase the electrical efficiency. Second, multifunctional lightweight construction. Many of the parts usually made from metal are now composed of fiber-reinforced plastic, significantly reducing weight. The most exciting example is a plastic wheel rim made of our engineering plastic, Ultramid.

Third, integrated temperature management. A novel transparent film applied in the windshield and side windows reflects most of the solar radiation and thus keeps the car interior cool.

Ladies and gentlemen, we create chemistry. Our chemical solutions are playing a key role in bringing electrical mobility quicker to the roads and hence to our consumer.

Now, let me comment on our current trading and the outlook for this year. In Q3, our businesses have developed positively. Demand from our main customer industries remained on a high level. The pace of growth, however, was as expected lower compared to the exceptionally strong first half of this year. We anticipate a continuation of this trend in the fourth quarter. Therefore, we now expect worldwide growth of GDP and industrial and chemical production in 2011 to be just under 1 percentage point lower than our previous forecast.

Given the current uncertainties about the future development of the economy, customers have become more cautious in their ordering behavior in the last weeks. Everyone is closely monitoring working capital. At BASF, we will continue to focus our attention on protecting our margins and controlling our fixed costs, as well as keeping working capital at a minimum level. As a consequence, we are managing our inventories accordingly.

Furthermore, I would like to point out that we have successfully resumed our onshore oil production in Libya last week. We are currently producing about 20,000 barrels of oil per day compared to roughly 100,000 barrels of oil a day before the stoppage in February.

Now to the outlook. We confirm the outlook for a strong full year 2011.

For 2011, we expect to generate significantly higher sales than in the record year 2010. As our oil production in Libya was suspended for most of this year, EBIT before special items excluding non-compensable oil taxes provide a much more meaningful guidance for 2011. We expect to significantly exceed the 2010 EBIT before special items excluding non-compensable oil taxes, which amounted to EUR7.2 billion last year. And we will earn a high premium on our cost of capital once again in 2011.

With this, I’ll hand it over to Hans for more details on Q3.

Hans-Ulrich Engel

Thank you, Kurt, and good morning ladies and gentlemen, also from my side.

I would like to highlight the financial performance of each segment in more detail and focus on the respective business developments in comparison to the third quarter of 2010.

In Chemicals, the significant sales growth was driven by double-digit price increases across all three divisions, which by far offset the negative currency effects. Demand remained on a high level. EBIT before special items was slightly above the very high level of the previous year.

In Petrochemicals, higher raw materials costs were passed on via price increases, leading to a strong rise in sales. Demand for cracker products remained high, but the modification of a swap transaction for a cracker product in North America led to a volume decrease. This adjustment was earnings-neutral. Excluding this effect, divisional volumes as well as segment volumes were stable. In industrial petrochemicals, demand softened, primarily for plasticizers in North America. Earnings reached the very good level of the third quarter of last year.

Sales in Inorganics were significantly up, driven by price increases and slightly higher volumes. Demand from automotive customers was high, while we saw signs of weakening in the electronic industry, primarily in Asia. Earnings grew.

Sales in Intermediates rose mainly due to significant price increases. Last month, we lifted a force majeure for the butanediol value chain, caused by a fire at our Ludwigshafen acetylene plant in May. Earnings matched the previous year’s figure.

Driven by significant price increases and further volume growth, sales in Plastics rose strongly despite negative currency effects. Demand from the automotive industry remained high. EBIT before special items was lower, mainly due to a weaker TDI business.

Performance Polymers had another very good quarter. Caprolactam prices stayed at record levels and demand continued to be strong in most other product lines. Engineering plastics and our specialties, particularly Basotect and Ecoflex, performed very well. Earnings went up substantially due to a combination of higher volumes and better margins.

In Polyurethanes, sales were slightly higher. Demand in the automotive industry stayed high, while it weakened in construction. Our specialty elastomers and systems performed again strongly. In TDI, volumes and prices declined, resulting from improved product availability after the start-up of new capacities in Asia and Europe by competitors. Due to the lower contribution from our TDI business, earnings came in below the high level of last year.

Performance Products continued to perform strongly. Sales rose substantially driven by strong price increases and the inclusion of the acquired Cognis businesses. EBIT before special items went up significantly despite low double-digit million euro integration costs for Cognis.

Price increases in Dispersions and Pigments drove up sales and offset slightly lower volumes as well as adverse currency effects. In pigments, customers started to draw down their inventories, especially for high-value products. Higher raw material costs could only partly be passed on. As a consequence, earnings decreased.

In Care Chemicals, sales went up sharply mainly due to the inclusion of Cognis. Price increases especially for detergents and formulators as well as for superabsorbents, nearly compensated for higher raw material costs. Earnings grew substantially.

Sales in Nutrition and Health were up sharply, primarily as a result of the acquired Cognis businesses. We were able to significantly increase sales volumes, particularly in animal nutrition and pharma. Prices were overall stable to slightly improving, with vitamin prices still below last year, but showing an upward trend. Earnings increased.

The business environment in Paper Chemicals continues to be challenging. Sales declined as a result of lower volumes, partly attributable to weaker demand and our measures to streamline the product portfolio. Despite reduced fixed costs, earnings were lower than a year ago.

In Performance Chemicals, price increases and the inclusion of Cognis lifted sales. Declining volumes and currency effects had a negative impact on sales growth. In plastic additives, volumes decreased as customers increasingly focused on reducing their stock levels. Fuel and lubricant solutions developed positively. Earnings were significantly higher. The previous year’s results included a one-time expense for valuation adjustments on receivables.

Let me give you a short update on the Cognis integration at this time, which is in full swing. The biggest part of the structural integration will be completed by the end of this year. The acquisition will be EPS accretive by 2012.

One-time integration costs will total about EUR300 million by 2013, thereof, two-thirds already incurred by the end of the third quarter. We increased our synergy target from EUR275 million to EUR290 million. We now expect EUR150 million – EUR145 million, sorry, each from cost and growth synergies to be fully achieved in 2013 and 2015, respectively. For cost synergies, we anticipate a run rate of roughly EUR60 million by the end of this year, representing 40% of total cost synergies.

Sales in Functional Solutions increased, mainly driven by continued high demand from the automotive industry. EBIT before special items improved primarily as a result of the strong performance of Catalysts. In Catalysts, sales rose substantially with higher prices. Volumes were up due to higher demand, not only for mobile emissions catalysts, but also for chemical and refinery catalysts. At EUR674 million, the contribution from precious metals trading was at the level of the previous year. Earnings improved strongly.

In Construction Chemicals, the business environment in North America and Southern Europe remains challenging. However, in the other parts of Europe as well as in Asia, we saw a positive trend in demand. As we could not fully pass on higher raw material costs, earnings came in lower.

In Coatings continuing high worldwide demand for automotive coatings as well as for decorative paints in Brazil drove up volumes and sales. We were able to almost pass on higher raw material costs to the market. Earnings were only slightly below the good level of last year.

Agricultural Solutions, again, had a very successful quarter. Sales increased by 9%, currency adjusted by 15%. We were able to raise prices by 3%. As a result of strong demand in all regions, we increased volumes by 12%.

In South America, we had a very good start to the growing season. Demand was especially strong for our new AgCelence production system and for insecticides. Business with the Clearfield herbicide tolerance technology expanded rapidly. In Europe, the fall season also began successfully. Demand for canola herbicides was strong in France and Eastern Europe.

Weather-related factors in North America pushed the application period for fungicides into the third quarter, resulting in higher sales. In Asia, we again saw high growth. In India, fungicides excelled. Please also note that we just received registrations for our fungicide blockbuster candidate Xemium in major European countries. We expect the first sales of Xemium in France as early as the fourth quarter of this year.

EBIT before special items jumped to EUR95 million. Due to our strong sales growth in the emerging markets of the Southern hemisphere, we have turned the third quarter into a steady earnings contributor. In this seasonal industry, we have been reporting positive quarterly EBIT since 2008. As our year-to-date earnings are already above the full-year 2010 result, we are on track for a new record year in Agricultural Solutions both in terms of sales and earnings

Sales in oil and gas were nearly stable despite the suspension of our oil production in Libya. Higher oil and gas prices offset most of the 25% volume decline. EBIT before special items was considerably below last year. However, adjusted for non-compensable oil taxes, EBIT before special items match the previous year’s figure.

In Exploration & Production, volumes fell sharply primarily due to the lack of oil production in Libya. As a consequence, sales and earnings declined despite substantially higher crude oil and natural gas prices. The average price for Brent was US$113 per barrel compared with US$77 per barrel in the previous year.

Sales in Natural Gas Trading rose strongly, primarily as a result of increased gas prices. Margins, however, were negatively impacted by the time-lag effect, the delayed adjustment of sales prices to purchase prices. This effect was compensated by a one-time gain from contract adjustments with customers. Earnings, therefore, were above last year’s level.

As already mentioned by Kurt, we are again producing oil in Libya, on- and offshore. As we are still in the start-up phase of our onshore operations, our focus is currently on the stabilization of production at 20,000 barrels of oil per day and on lifting the first shipment.

Crude oil production from the offshore platform Al Jurf in the Mediterranean Sea, in which Wintershall has a 6.75% stake began a few weeks ago. We expect an EBIT contribution from Libya of less than EUR100 million for the remainder of this year.

In Other, sales grew primarily as a result of higher prices in the styrenics business and raw material trading. A weaker U.S. dollar led to foreign currency losses in Q3. At the same time, we reported a gain from the reversal of provisions for our long-term incentive program, as a result of the lower share price. Special items in Other include a settlement payment in a class action lawsuit in the United States. Earnings were lower than last year.

Let me now briefly conclude with our cash flow.

At EUR5 billion, we generated a very strong operating cash flow in the first nine months of this year, thereof EUR2 billion coming from the third quarter. Net working capital rose by EUR554 million compared to the same period last year, mainly due to an increase in inventories – resulting from growing our business, higher raw material costs and the build-up of natural gas volumes in our storage facilities.

In the first nine months, we used EUR957 million in investing activities. CapEx amounted to EUR2.1 billion, considerably above last year, but still below depreciation. Free cash flow reached EUR2.9 billion in the first nine months of this year, thereof EUR1.2 billion generated in the third quarter. Since the end of 2010, we reduced net debt by EUR1.9 billion to EUR11.6 billion end of September, thereof roughly EUR650 million reduction in Q3.

With that, thank you for your attention. And we are now happy to take your questions.

Question-and-Answer Session

Magdalena Moll

Yes, thank you very much, gentlemen, and we are now happy to take your questions. Just usual reminder, since our conference call is limited to one hour, I would like to ask you that you please limit your questions to only one at a time and then you can re-queue again and I will take – certainly take a second question.

So with this we start with Tony Jones from Redburn. Good morning, Tony.

Tony Jones – Redburn

(Inaudible) my question. Over the past few weeks, we’ve seen a bit more weakness in the C3 and C4 streams and derivatives than in C2. Could you first clarify whether that’s a reasonable observation? And secondly, how do you expect to determine how to progress in the near term? Thank you.

Kurt Bock

Yeah. Hi, Tony. Yeah, I saw your note on this recently. We can’t really confirm this. I mean, there is a little bit of fluctuation on volatility across the board and we really have to go region by region. What I see here really is a very, very mix picture actually. Asia for instance is, from our point of view, improving right now in Q3, while United States or Western Europe might see a slight decrease so we are really trying here to, yeah, micro-identify certain developments.

We don’t see yet a clear trend and from our point of view we are not overly concerned with regards with those margins which, by the way, looking forward, have a certain importance for us as well certainly. But as you all know we have a high share of captive use, so if there is, let’s say, in propylene slight margin decrease, our guys who produce acrylic acids and superabsorbents will not complain about that development. That’s for sure.

Tony Jones – Redburn

Thank you.

Kurt Bock

Welcome.

Operator

Next question is coming from Martin Rödiger from Cheuvreux. Good morning, Martin.

Martin Rödiger – Cheuvreux

Thank you. On Libya you started operations. What are the real problems which hold you back to ramp up the production up to 100,000 barrel per day?

Hans-Ulrich Engel

Yeah, Martin. This is Hans. What are the real problems? First of all, we started production roughly 10 days back. And what you do with the field, you first of all go in. You test the pressure and then you start to produce slowly. That’s what we have done pretty much up to this time. We’ve fully tested our production plans. The next big question is actually, how does the infrastructure look? We know about the infrastructure that we have directly at all production sites, but the key question is, how does the pipeline look to transport the oil up north to the terminals and the harbors? How do the terminals look and what type of shipping capacity is available?

So we are very confident in being able to produce what we are producing currently. That goes without saying whether we increase or can increase production, fully depends on the infrastructure that we have in Libya. And with respect to that, we do not yet have all the necessary information. We know that the 20,000 barrels that we can ship that. Whether we can ship anything that’s higher than that, at this point in time, is unclear, and if you think about the entire situation that we have in Libya, that will actually not be a surprise.

Martin Rödiger – Cheuvreux

Thank you.

Operator

Our next question comes from Mutlu Gundogan from Royal Bank of Scotland.

Mutlu Gundogan – RBS

Yes. Good morning, everyone. A question on volumes. You saw volume declines and destocking in performance products. Would you expect this to intensify and spread to other businesses as the customers focus on cash generation and clean up their balance sheets towards the end of the year?

Kurt Bock

Yeah. Hi, good morning. That’s certainly the $1 million question, so to say. First of all, let’s state again, in Q3 in our Chemical business comparing apples with apples, we had volume growth; pretty slow, but still a volume growth.

What is also important, we kept prices up in Q3. Also compared with Q2, this is something we have to keep in mind. Prices in our Chemical business went slightly up looking at this development consecutively.

So, the question is now what happens in Q4 and that is pretty hard to read because there’s a cloud hanging over our heads of caution, general caution in the marketplace. Everybody tries to optimize his or her inventories including BASF obviously, which might lead to a situation where we still see overall growth. But one or the other customer simply will order a little bit less because they are always a little bit cautious also coming to the end of the year and want to clean up as you alluded to want to clean up their balance sheet and generate some cash.

I think this is overall a positive development. It might sound strange but it’s really a positive development because of the general sense of caution has left the situation where the, let’s say, train brakes quite slowly and still drive it quite nicely at, I would say, pretty high speed. But it has slowed down a little bit in terms of growth and that is much, much better than any other development we could imagine just producing like crazy and then all of a sudden, if people get really concerned, which we don’t know yet, which we don’t yet, all of a sudden we see some de-acceleration which could be then really harmful.

So, from our point of view, we like what we see right now. Everybody is cautious. If the caution and the certain pessimism which we have been seeing should disappear over the next couple of months, then I would expect that people have to come back to the waterhole and start drinking quite seriously.

Mutlu Gundogan – RBS

Okay, thank you very much.

Hans-Ulrich Engel

You’re welcome.

Operator

The next question is from Jaideep Pandya from Berenberg.

Jaideep Pandya – Berenberg

Yeah, good morning and congrats on a good result. We have been looking at your investment in Brazil, could you say that on a long-term basis, there is a possibility of a Verbund site in Latin America?

Hans-Ulrich Engel

Oops, that’s a long, long shot, I have to say. I mean, we are now – first of all, let me say it’s a big step forward in South America. Before so decades, we have been looking at a major investment opportunity. For what we see as a broad scale facility and as a probable, obvious has been that the market is too small and then that very often, a feedstock cost and the logistics and similar like in Northern Africa are not what we need. So now, finally the market for superabsorbent baby diapers, essentially, has grown into a size which is really interesting for us and we have been able to secure a long-term contract for propylene, which is a major feedstock here and that makes it, what I would see as a very promising and very attractive investment.

That is one big plant but coming from that one big or two big plants essentially, to a real Verbund site that’s a long, long way to go and frankly I don’t see it for the time being in South America.

Jaideep Pandya – Berenberg

Okay, thanks.

Hans-Ulrich Engel

Welcome.

Magdalena Moll

Our next question comes from Neil Tyler from JP Morgan. Good morning, Neil.

Neil Tyler – JP Morgan

Yes, good morning. And I wanted to ask about the other major investment announcement that you made with regards to the TDI plant in Europe. And relative to acrylic acid and superabsorbents obviously the TDI markets considerably less healthy at the moment, could you either perhaps talk just briefly about the longer term thoughts on the reason for the size and location of that investment. And what has to happen to TDI margins for you to be able to achieve the target IRR from the current level? Thank you.

Hans-Ulrich Engel

Hi, Neil. Let me start by saying that the reduction of TDI margin in 2011 does not come as a surprise to us. That is something we had expected because, frankly, we knew that additional capacity would come on stream both in Europe and in Asia. And you have seen this kind of fluctuation and cyclicality in the past as well.

Overall, and that’s important – overall, the TDI supply chain over has been very, very attractive for us and we see good underlying growth of those products. But obviously, margins are driven more by supply better than by demand in that particular industry. So when we announced that we are contemplating to build a 300,000 plant in Western Europe, we knew what to expect and we think – and you have to play the cycle here obviously in a timely manner. We think that when this plant comes on stream and we are talking here end of 2013, early 2015, by then, the market will be in pretty good shape, and we’ll be able to absorb those capacities.

And please keep in mind, this is not the net capacity increase which you might see because we would expect that some capacity will be taken out of the market. We also have a small TDI plant which we run at (inaudible) and we have to think very hard of what the future of that particular plant as well.

Neil Tyler – JP Morgan

Okay. Thank just. But just a follow-up, in terms of the location, I mean obviously the lion share of demand for TDI in the last few years has been in Asia. So any thoughts on – any sort of color on the thought process that went into building it in in Europe versus Asia?

Kurt Bock

Yeah, I mean we are very good position in Asia. Actually we have very competitive plants in Asia, sizeable market share. We see continuous demand growth in Europe as well, it’s very important to keep in mind. So for us Europe is an attractive market and more importantly we will be able to produce competitively within this marketplace.

We haven’t made up our mind, well this will be an end work it will happen both sides are suitable. In both sides we can achieve, what is very important the backward integration into our value chains which really makes this investment a very nice fit and very, very competitive also given the size of the plant against that is sizable. And it will probably have one of the lowest cash cost one can imagine in that industry.

Neil Tyler – JP Morgan

Okay. Thank you very much.

Hans-Ulrich Engel

You’re welcome.

Magdalena Moll

Our next question comes from Thomas Gilbert. Good morning, Thomas.

Thomas Gilbert

Good morning, Maggie, good morning gentlemen. I’ve got one question in Plastics/Performance polymers. Could you give us an idea about the spread between downstream nylon products and upstream intermediates either by sort of quantifying how many tons long you are net in caprolactan? Or just giving a rough idea of the operating earnings split in that business between the genuine polymers business and the intermediates part? Thank you very much for taking my question.

Hans-Ulrich Engel

HI, Thomas. You know that we don’t really comment on individual products or product lines but what I can see here is that the capro business in Q3 was a very gratifying business, put it that way.

Thomas Gilbert

So you do have a sizable merchant position and net long position at this point. You do sell excess production into the merchant market?

Hans-Ulrich Engel

We still – certainly we still sell capro in the market, yeah. The share of capital reduction with both external have come down quite significantly because we have grown what we call our Engineering Plastic business with downstream activity quite heavily. But still we are in emergent position and that position, in Q3, continued to be very attractive absolutely, yes.

Thomas Gilbert

Okay. And the same is true for things like acrylic acid and BioMed and this isn’t immediate, same thing really?

Hans-Ulrich Engel

Pretty much, I would say, is kind of special right now.

Thomas Gilbert

Okay. Thank you very much.

Magdalena Moll

The next question comes from Laurent Favre from Merrill Lynch.

Laurent Favre – Merrill Lynch

Yes, good morning, Maggie. Good morning, gentlemen. A quick question on your MDI facility in Antwerp, which in my understanding is it’s been out of the market for a bit more than a month. Can you please give us some update on that and whether you think that the MDI market might be a bit looser when it’s back on stream?

Hans-Ulrich Engel

You’re talking about MDI...?

Laurent Favre – Merrill Lynch

Yes, the 500k in Antwerp.

Hans-Ulrich Engel

No, I’m not aware that we have any special problems and maybe that’s a confusion on our side. I have to clarify this. We would like to come back to you on that question if you wait.

Laurent Favre – Merrill Lynch

Okay. Thank you.

Magdalena Moll

Then we get the next question from Paul Walsh, Morgan Stanley. Paul, are you there? Then, we take the next question from Peter Spengler, DZ Bank.

Peter Spengler – DZ Bank

Yeah, good morning. Thank you for taking my question on Styrolution. You mentioned the 600 million special payment. So could you elaborate a bit on this, like a cash component, capital gain and maybe also on taxation?

Hans-Ulrich Engel

Yeah, this is Hans and I’m happy to do that.

As you know, we concluded the transaction and established the joint venture on October 1. We have received the compensation payment. In the meantime, with respect to the capital gain. Let me tell you at this point in time, that will be a sizeable capital gain. But we do not yet have the final figures since the external auditors are still working on the valuation report. And depending on the final amount, we will then also see what the respective tax amount will be.

Hans-Ulrich Engel

Okay. And I would like to come back to the question which has been asked previously about MDI and I was just a little bit confused, sorry to say that, but that is a planned turnaround and which happens on a regular interval so nothing special really. We shut down the facility for a couple of weeks and do our maintenance and then are up and running again. So that doesn’t have any special effect on the market on our earnings. It was just a slight shifting in earnings pattern maybe. I hope that helps.

Magdalena Moll

The next question will come from Ronald Köhler from MainFirst.

Ronald Köhler – MainFirst

Yes, hello. I have a question on your natural gas one-time income. So I believe you renegotiated contracts with Gazprom for potentially backward looking also for some quarters. And the question is that if you could qualify that income and if that is, let’s say, the last payment you will see of that or is there more to come?

Hans-Ulrich Engel

Well with respect to your question, that doesn’t have anything to do with special income with any type of renegotiation of our purchase contracts. It is just on the other side. It is on the sale side where we had an ongoing – over a long time ongoing price discussion in particular, with one of our bigger customers. And we finally, came to an agreement that covers overall a period of three years and as a result of that, there is a sizeable one-time income that’s reflected in our RMG business so in the natural gas trading business.

Ronald Köhler – MainFirst

Is it something mid-double digit, I could assume?

Hans-Ulrich Engel

Mid-double digits is a very good assumption. Yes.

Ronald Köhler – MainFirst

Okay and just to add on Gazprom, you have no renegotiation running here which means that it’s – I know from they are actually are waiting some payment over the next quarters but this is nothing which you would look forward to?

Hans-Ulrich Engel

In all the natural gas market over the last two years seen quite some changes and you can assume that we are addressing that situation constantly and as a result of that, also renegotiating where appropriate. But not only it was Gazprom but with all of our suppliers.

Ronald Köhler – MainFirst

Okay. Thank you.

Magdalena Moll

The next question comes from the line of Andrew Benson from Citi.

Andrew Benson – Citi

Yeah, thanks very much. You’ve reduced your GDP and the production numbers for 2011 so presumably that’s all coming in the second half but you haven’t changed your outlook guidance. So you’re expecting to do just as well in a materially slower environment which seems odd. But what message are you trying to convey with your reduction in your macro assumption? Should we take anything out of that on your thought processes for 2012?

Hans-Ulrich Engel

Yeah, hi Andrew. Yeah, I understand it’s a little bit difficult to digest maybe but first of all what is important to keep in mind we still expect positive GDP and industry growth in Q4 from today’s point of view. But it certainly reflects a note of caution which I have talked about just a few minutes ago. I think it’s too early to talk about 2012. We’re in the middle of our budgeting process. We look at – or first of all, try to understand what’s going to happen. We see a continuous growth, underlying growth in emerging markets et cetera but the key question is really how long will it take for politicians to sort out the big issues which we are facing in Europe and in the States so that this sense of caution or maybe even pessimism which dominates right now out of the economic environment could disappear.

How do you align this GDP reduction by one percentage point as our outlook? I mean we did not change our outlook. That’s important to keep in mind. We just say significantly above last year’s numbers in terms of sales and EBIT and certainly it’s up to you to come up with sort of appropriate numbers, what to expect that general qualitative statement. I know this is might be a little frustrating but we have had that type of guidance for quite some time now and we will probably restructure it the way I see it.

Andrew Benson – Citi

Yeah, I know that’s sort of what we got paid for but before you were looking to sort of 10% plus, I mean basically you must still be looking for 10% plus. So you...

Kurt Bock

We still use the same right significantly so, yeah I agree. Okay.

Andrew Benson – Citi

All right. No, that’s great. Thanks very much.

Magdalena Moll

So now we come to Lutz Grüten from Commerzbank.

Lutz Grüten – Commerzbank

Yeah. Thanks. Good morning. Thanks for taking my question. You’ve mentioned that the order pattern became a bit more cautious in the third quarter. How would you describe the current situation on inventory levels? I just remember that in the second quarter conference call, we had an issue or discussion on Chinese inventories that you stated that at the end of the second quarter that came back to a normal level. How would you describe the current situation in regards to inventories? Thanks.

Hans-Ulrich Engel

Yeah. This is Hans. Let’s look at inventories first. When we talk about inventories, we talk about inventories based on the information that we can gather from discussions with our customers from our understanding of the market. And I think we all have to appreciate that that gives us a pretty good idea, but never gives us really specifics about the inventories that our customers run.

What we see currently, I think we’ve described that quarter, described that in his speech which is, customers being cautious, customers running their inventories tight. So as a result of that, we don’t expect further significant destocking effects.

What do we see on the order side? On the order side, we see that as a result of the slight cautiousness of our customers, they tend to order in shorter intervals than they did in the past. Smaller quantities often orders that come in more often, that’s pretty much across the board and quite understandable in times of economic uncertainty.

Our order book, looking at that in the beginning of the fourth quarter is actually stronger than the order book we had in the beginning of the fourth quarter of last year. But I don’t have to split there between volume and price. Price is certainly significantly higher and driving our order book up is probably what we are experiencing there and why our order book is stronger than where it’s been Q4 2010.

Lutz Grüten – Commerzbank

All right, thank you.

Magdalena Moll

And now we’re coming to Jenny Barker from Nomura. Good morning, Jenny.

Jenny Barker – Nomura

Good morning. My question is on Exploration & Production. Given the volume growth that you give for the overall oil and gas segment and some indication that you’ve given for volume growth in gas distribution, I estimate you had an extremely large year-on-year volume decline in the third quarter. My estimates are 50% or above decline in volume in E&P.

Now your Libyan business has not been large enough even at peak to count for that sort of volume drop. So could you please give us an indication of where else in your E&P portfolio you’ve seen volume declines?

Kurt Bock

Yeah, Jenny. As you rightly state, the key impact there is our Libyan activities. We were in full production in the third quarter of 2010 in Libya and didn’t have any production there during the third quarter of 2011. The other factor that we have is scheduled maintenance work in the field and that scheduled maintenance work leads to a drop in the volumes in the third quarter since there was nothing like that in the third quarter of 2010. And here we have the two factors that lead to the reduction volumes, A Libya and B – but I can also tell you that after the scheduled maintenance is back on stream and will deliver as in the prior year’s roughly 25 billion cubic meters of natural gas.

Jenny Barker – Nomura

So...

Kurt Bock

Totaled.

Jenny Barker – Nomura

Just come back, so (inaudible) for the full year volume will be flat versus last year. And also sorry to be a pain in the neck but I mean, my annotation to my model says that Q3 last year in Libya was down because of OpEx restrictions. You weren’t operating at full production and conversations I had with IR earlier suggested that there was also some volume reduction in your mature European fields. So, I mean, perhaps I could just comment that the commentary on what’s going on in ENP is a little bit inadequate and inconsistent in my view.

Kurt Bock

You are right, during Q3 2010, we’re in the process of ramping up. I don’t have the exact figures anymore but I believe we were producing at a range of 70 in the beginning of the third quarter 2010 and then ramping up to 90, if I remember that correctly, by the end of Q3. And then during Q4, we went up to 100. As I said, the other impact is coming from. And what we also see is in the mature fields in Germany and also in the Netherlands. We have a slight decline there and that, in combination, leads to the reduction in volumes that you’re pointing out.

Jenny Barker – Nomura

Thank you.

Magdalena Moll

We now come into the next question from Andreas Heine from UniCredit. Good morning, Andreas.

Andreas Heine – UniCredit

Good morning. I have a question to Performance products. This business should be more stable and more resilient than, for example, Plastics and Chemicals are. Looking on the quarterly trend from Q1 to Q3, that seems not to be the case. Is there something – some seasonality we have to be aware or is it the trend going down from Q1 to Q3 what we have also to expect as an underlying trend Q4? Thanks.

Hans-Ulrich Engel

I think Andreas, a major explanation is really our Paper Chemicals business which had been declining volumes and still is in the process, as you know, of restructuring and regaining its competitiveness to the full extent necessary so that is a major explanation.

In principle, you are right. That business, by definition, should have less cyclicality. That business by the way gets lots of product for – that segment gets lots of products from our upstream sectors. So they are in the constant need to improve prices and margins. We have seen this at other companies as well as you know. So, when you look at the overall earnings pattern of BASF, you see sometimes a certain delay in, let’s say, passing through those higher feedstock costs which come from our chemical segment essentially.

Andreas Heine – UniCredit

So it’s not the seasonality. So the feedstock difference

Hans-Ulrich Engel

There is a little bit of seasonality there. As always Q3, as we all know, in some part of Europe for instance is quite slow. There’s a little bit of seasonality included here as well, yes.

Andreas Heine – UniCredit

Last year we have seen a rather weak Q4. Is that then also a seasonality or was that something where the business conditions were? Again, and just to find out what we have to expect from this division, which is very important as this includes the last two very big acquisitions going forward.

Hans-Ulrich Engel

What you will see in Q4 normally is the normal seasonal slowdown. Q4 is weaker than Q3 and Q2. And what we expect again is some inventory management by our customers. Those customers are quite sensitive as you all know and they also carefully watch their markets and make up their minds how much stuff they really need in their warehouses. So those two factors might lead to a situation that Q4 is a relatively slow quarter for performance products.

Andreas Heine – UniCredit

Thanks a lot.

Hans-Ulrich Engel

You’re welcome.

Magdalena Moll

The next question comes from Mr. de Vroe from ING.

Jan Hein de Vroe – ING

Yes, thanks for taking my question. I must say, I’m going back to the inventory subject, if you will. If I look at the development of your inventories as a percentage of sales, at the end of Q3 with 57.8%, it seems at a record high if I compare it to last quarter, if I compare it to Q2 2008. We’re not talking about a couple of bps but many percentage points. And being a percentage of sales number, I’m not really convinced of the argument of higher input prices changing this a lot. Could you give me some more comfort that the actual levels themselves are far lower than before?

Hans-Ulrich Engel

Yeah. On your inventory question, what do we have there? We certainly have a significant impact that’s coming from higher raw materials prices. If you compare Q3 last year to Q3 this year, we’re talking high raw material prices in the order of magnitude of 25%. That’s the one impact that you see.

The other impact is actually one that’s related to our natural gas business where our storage capacities by the end of September were full and these storage capacities were filled with natural gas at a significantly higher price than the price that we saw in the summer and going into Q3 of last year. Why is the storage facility still full? We actually had expected to start delivering all of the storage facilities that we have, simply had to do with the weather conditions, the September – second half of September that we had was very, very nice. We had summer-like weather in Germany and as a result of that, no natural gas deliveries, but as we all know, that can change quickly and we will see these inventories in our natural gas storage facilities being drawn down quickly. Thank you.

Jan Hein de Vroe – ING

Okay.

Kurt Bock

Okay. Let me just add one cent. I think your observation is not completely wrong, don’t make it quite clear. When we measure our, let’s say, inventory efficiency and how effective we are managing them, we are – internally we are excluding the price effect and exclude the price effect inventories at the end of Q3 were a few days, we measure it in days, outstanding days, a few days, three, four days higher than Q3 of 2010. But again that is something which I would still include in a kind of a normal fluctuation which we have seen again and again in our business.

Jan Hein de Vroe – ING

Okay, thank you.

Magdalena Moll

We have five more questions that we can take. The next one is coming from Annett Weber.

Annett Weber

Yes. Good morning. And I’ve got a quick question about the reversal of the provisions for the stock options program and how much was that in Q3 2011? And if I remember correctly last year in Q3 the impact of that revaluation was negligible but now I remember back into the conference call and the comments you made back then, right?

Hans-Ulrich Engel

Yeah. Let me answer that by giving you a qualitative answer. Yes, we had a sizeable amount there that led to a positive impact in other. But please also understand that we don’t comment on that any further than that.

Annett Weber

Okay.

Magdalena Moll

So our next question is coming from Richard Logan from Goldman Sachs. Richard?

Richard Logan – Goldman Sachs

Yes, good morning and thanks for taking my question. Given the macro concerns, have you had any change to your CapEx plans either for this year or going into next year?

Hans-Ulrich Engel

No, Richard. Actually, no.

Richard Logan – Goldman Sachs

Okay, great. Thank you for that.

Magdalena Moll

This brings us already to Jeremy Redenius from Sanford Bernstein.

Jeremy Redenius – Sanford Bernstein

Hi. Thanks for taking my question. And just looking at the Bloomberg interview this morning with Mr. Bock, I saw there was a line or a quote about growth and global GDP and in Europe, both for 2012. I’m wondering if you could perhaps provide a little bit of the color on that commentary or if confirm that quote, please? Thank you.

Kurt Bock

Actually, I don’t remember what I said on Bloomberg this morning. Did I really talk about 2012?

Jeremy Redenius – Sanford Bernstein

Yes.

Kurt Bock

Good. I mean, I think, what I tried to say is that we expect that the negative sentiment which we see in the marketplace right now will disappear very soon and that all new plans obviously on the decisions with regard to the debt situation both in Europe and the United States. And I think I alluded to that earlier during this call today, if that disappears, if that negative sentiment disappears, I think it would be possible to improve volumes pretty, pretty quickly.

And what I also said is that the underlying growth we still see in 2012 because I think that was a question which had been asked, “Do you see any growth at all and we said, “Yes, certainly.” In the underlying trends which was about emerging markets, they need our product and about the need for more innovative product are still in place. So we are quite optimistic for the mid-term future. We simply cannot tell you whether this will – this negative will disappear within the next couple of weeks or whether it will be in the midst of 2012. That is a bit uncertainty which we’re facing right now.

Jeremy Redenius – Sanford Bernstein

Thank you very much.

Kurt Bock

Welcome.

Magdalena Moll

We’re now coming to Peter Clark from Société Générale.

Peter Clark – Société Générale

Yes. Good morning. Thank you. It’s on China. Actually you alluded to obviously some potential risk with China looking ahead. Just wondering what happened to the volumes through Q3? I see the Asian underlying growth were still 17%. So, it wasn’t too different from Q2 22. I’m just trying to get a feel for China and how it’s progressing. Thank you.

Kurt Bock

Growth has slowed down a little bit. We alluded to the situation with regard to credit. Again from our point of view that is essentially a positive development because our biggest concern in China was a buildup of a bubble and we have certainly seen signs of that in the real estate industry and the construction industry. So, again slowing down a little bit I think is ahead to development and as Hans said in his speech earlier on, what we do also see is that the government in China when it’s necessary will take measures to ease credit for instance and provide more liquidity to the market. But so far there has been a little bit of slowdown, simply as a response to the inflation, which is still above 6% as the oil now.

Peter Clark – Société Générale

But one thing, China is still growing ahead of the Asian growth?

Kurt Bock

Absolutely, absolutely, (inaudible) growth engine in Asia absolutely yes.

Kurt Bock

Yeah, okay. Thank you.

Magdalena Moll

Now we move to Norbert Barth from WestLB.

Norbert Barth – WestLB

Yes, good morning, gentlemen. To my knowledge there was in the Ludwigshafen side, there was a problem with the Brunswick asset value chain, Ludwigshafen. There was a long run still stand. Can you elaborate a little bit? Will this has a material impact on Q4 result and especially going, I think, also most part in TDI chain. So, what is the impact?

Kurt Bock

Norbert, we have a force majeure situation for acetylene, which has been lifted. Meanwhile, that affected our butanediol value chain as Hans talked about this has gone away. Is there a material effect on all our numbers in Q4? No, that I can say clearly.

Norbert Barth – WestLB

Okay.

Kurt Bock

Okay.

Magdalena Moll

By now, we are coming to a final question from Paul Walsh, Morgan Stanley. Is Paul here now?

Paul Walsh – Morgan Stanley

Maggie, can you hear me?

Magdalena Moll

Yeah.

Paul Walsh – Morgan Stanley

Sorry about that. I’m not sure what happened, but good morning, everyone. It was really just a simple question on the savings and synergy targets you had in place. I wondered if you could give us an update on where you are in terms of what’s been delivered on next the Ciba synergies and the Cognis synergies? And you’ve updated on Cognis already, but perhaps, on the other bits, what more is left to come?

Hans-Ulrich Engel

Yeah, Paul. This is Hans. On Cognis, I already said that for the year 2011, we are expecting in the order of magnitude of 60 million in cost synergies. On next, you’re following BASF. You know BASF, we will deliver.

What do we say on next, on next we said 1 billion by the year 2012. I can tell you that we are very well on track with respect to that. Our run rate currently stands – and this is at the end of the third quarter. Our run rate stands at 900 million. We could see a pretty clear indication that over the next quarter, we will be, at least, where we wanted to be.

Paul Walsh – Morgan Stanley

And just – is there anything residual, Hans, on the Ciba synergies? And given you’re so close to that 1 billion target, is there perhaps more that you can do?

Hans-Ulrich Engel

On the Ciba synergies, our target was 450 million by the end of 2012. With respect to the year-end figures 2010, if I remember correctly, we were at 350 million already then. A big chunk of the remaining 100, we’ve got under our belt during the year 2011 and then maybe a small amount then still coming in the year 2012.

What does that have to do with? Overall, we reap the benefits much faster than we had originally planned and we will, as a result of that, also achieve the 450 million sooner than what we had already planned.

Paul Walsh – Morgan Stanley

Okay.

Hans-Ulrich Engel

Well let me just add one cent here because you ask about what’s going to happen next.

Paul Walsh – Morgan Stanley

Sure.

Kurt Bock

So what happens after next so to say, so we are not sitting on our hands. We have continued improvement program underway. We are certainly – we have additional initiatives that already have started. We are looking at that in a permanent way to make sure that we stay cost competitive and you can rest assured that we will come up with some ideas or talk about this also at an appropriate point in time. But it’s an ongoing effort actually.

I think that was the last question, right Maggie? So nobody complained about the early time. So the way I see it unless you send us very nasty e-mails, we’ll stick to the time now earlier in the day to talk with you and I hope it’s the same from your side as well. Have a good day.

Magdalena Moll

Yeah, ladies and gentlemen, there are still several of you that were in the queue but we have noted you all down and we will call you back from different members from the IR team to answer your questions. And now I would like to make a brief announcement regarding BASF’s future strategic direction.

Our current strategy has made us the world’s leading chemical company and it is our objective to remain the number one in the industry.

In the future, BASF will continue to focus on strength such the unique Verbund system. Also with its strong technological bases and its access to a wide range of industries, BASF will further develop new and sustainable businesses.

And finally we will also help our employees and environment in which they can fully develop their individual talent. These are our topics that belong to the BASF strategy and we plan to have an open dialog with you on our future strategic direction shortly. And we will send you invitations to this meeting that will take place in London shortly.

So with this I would like to end today’s conference call. I would like to thank our speakers, and definitely should you have any further questions, please call us and we will call back all these, ladies and gentlemen, that haven’t been able to post their follow-up questions.

Thank you very much for joining in and have a good day. Bye-bye.

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