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Executives

Magdalena Moll - Senior Vice President of Investor Relations

Kurt W. Bock - Chairman of the Board of Executive Directors

Hans-Ulrich Engel - Chief Financial Officer, Member of Board of Executive Directors, Chairman of BASF Corporation and Chief Executive Officer of BASF Corporation

Analysts

Tony Jones - Redburn Partners LLP, Research Division

Martin Roediger - CA Cheuvreux, Research Division

James Knight - Exane BNP Paribas, Research Division

Norbert Barth - Baader Bank AG, Research Division

Jaideep Pandya - Berenberg Bank, Research Division

Chris Counihan - Crédit Suisse AG, Research Division

Neil C. Tyler - JP Morgan Chase & Co, Research Division

Lutz Grueten - Commerzbank AG, Research Division

Paul Richard Walsh - Morgan Stanley, Research Division

Andreas Heine - Barclays Capital, Research Division

Christian Faitz - Macquarie Research

Andrew Benson - Citigroup Inc, Research Division

Richard Logan - Goldman Sachs Group Inc., Research Division

Ronald Koehler - MainFirst Bank AG, Research Division

Peter Clark - Societe Generale Cross Asset Research

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

Thomas Gilbert - UBS Investment Bank, Research Division

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Laurent Favre - BofA Merrill Lynch, Research Division

Peter Spengler - DZ Bank AG, Research Division

Nadeshda Demidova - equinet AG, Research Division

Martin Evans - JPMorgan Cazenove Limited, Research Division

BASF SE (OTCQX:BASFY) Q2 2012 Earnings Call July 26, 2012 5:00 AM ET

Operator

Good morning, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF Interim Report Second Quarter Results 2012. [Operator Instructions]

The 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, forecast 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 Investor Relations. Please go ahead, madam.

Magdalena Moll

Yes, thank you, Jason, and good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our second quarter 2012 conference call. We are pleased with the business development in the first half 2012, where we exceeded the exceptionally high sales and earnings before special items of the first half of 2011. With me on the call today to explain the results are: Kurt Bock, our Chairman and Chief Executive Officer; and Hans-Ulrich Engel, our Chief Financial Officer. Kurt will summarize the key financials, highlight important milestones of the quarter and conclude with the outlook for the full year 2012. Hans will subsequently review the segment results of the second quarter in detail for you. Afterwards, both gentlemen will be happy to take your questions.

We have posted the charts and the speech, as well as the press documents on our website, www.basf.com/share.

And now I would like to hand over the call to Kurt.

Kurt W. Bock

Thank you, Maggie, and good morning, and welcome also from my side. The world economy experienced a turbulent first half of 2012, and we saw uncertainty increase in all regions. The deepening of the euro debt crisis overshadowed the global business sentiment in the second quarter. Concerns were also raised by the slower growth in China. All in all, chemical demand weakened more than expected earlier this year, both in the developed and the emerging markets.

In this challenging environment, BASF was able to deliver a solid second quarter. At EUR 19.5 billion, sales we were 6% higher than a year ago. Our top line benefited from the weaker euro.

In Agricultural Solutions, we experienced excellent demand for our innovative products and delivered an outstanding quarter, the best second quarter ever.

In Oil & Gas, our strong growth was supported by improving production volumes in Libya. In our chemical businesses, however, volumes could not be maintain compared to the very strong level of the previous year's second quarter. During the course of Q2, we saw a swing towards lower raw material prices. This triggered cautious customer behavior and order delays. Overall, prices were stable.

EBITDA came in at EUR 3.1 billion, up 4% from last year. EBIT before special items at EUR 2.5 billion, significantly exceeded last year's second quarter. Special items in EBITDA amounted to minus EUR 261 million, and included the restructuring charges, as well as the impairment of an Oil & Gas yield development project in Norway. The tax rate increased to 39%, mainly due to non-compensable oil taxes in Libya. This broadened our net income.

Adjusted earnings per share decreased by 9% to EUR 1.60. Overall, the first half of 2012, we were able to exceed exceptionally high sales and earnings before special items of the first half of the previous year.

In the second quarter, we achieved several important milestones. With its robust local industries, India is set to become a pillar of growth in Asia Pacific. In order to ensure local supply for growing markets and industries, we have decided to invest EUR 150 million in a chemical production site in Dahej, on the West Coast of India. The new site will be an integrated hub for polyurethane manufacturing, and also house production facilities for care chemicals and polymer dispersions for Coatings and Paper. The startup is planned for 2014.

The acquisition of Novolyte Technologies was the latest in a series of strategic steps to strengthen our technology position in battery materials. The integration of Novolyte's electrolyte formulation activities now positions BASF as global supplier of lithium ion battery electrolytes with production sites in Europe, the United States and Asia Pacific.

In Brazil, we acquired the polyamide polymer business of Mazzaferro Group. We are further strengthening our production presence with regards to engineering plastics and polyamide polymers in South America, where demand for polyamide in the automotive and extrusion industry is growing strongly.

And finally, the outlook. In our last quarterly conference call on April 27, we reiterated our full year ambitions to exceed the previous year's record levels of sales and EBIT before special items. In the first half of 2012, we were able to surpass the exceptionally high sales and earnings level of last year. However, the recent weakening of the global economy, which we see reflected in our order book, led us to become more cautious in our 2012 macroeconomic assumptions.

For 2012, we now expect global GDP to expand only by 2.3%, down 0.4 percentage points from our previous assumption. Industrial production, we now see at 3.4%, and chemical production at 3.5%, a reduction of 0.7 and 0.6 percentage points, respectively.

Our assumptions for the Brent oil price is $110 per barrel and the euro for the dollar-euro exchange rate at 1.30 remain unchanged. Given the weak demand outlook, we now expect volumes in our Chemical business to be flat in the second half of this year compared to the first half. Consequently, EBIT before special items in our Chemicals business for the full year 2012 is expected to come in below the level of 2011.

How is BASF addressing these challenges and the significant political and economic uncertainties? First and foremost, it is our objective to protect margin and to create value for our investors, which means as you all know, value before volume. Our operation excellence program step, which we announced in November 2011, is on track to deliver EUR 1 billion of earnings contribution annually by the year 2015.

Wherever possible, we will accelerate actions and evaluate our cost base and expenditures. We are continuing to optimize our working capital as demonstrated by a strong cash flow development in the second quarter. Due to the uncertainty around the development of businesses in Asia, we will slow down the planned buildup in personnel, particular in the emerging markets.

For BASF group overall, our target is unchanged. We aim to exceed the 2011 record levels in sales and EBIT before special items in 2012. Furthermore, we expect to again, earn a high premium on our cost of capital.

And with this, I will hand over to Hans.

Hans-Ulrich Engel

Thank you, Kurt, and good morning, ladies and gentlemen, also from my side. Let me highlight the financial performance of each segment in more detail and focus on the respective business developments and comparisons to the second quarter of 2011.

Sales in the Chemicals segment slightly declined, mainly due to lower volumes, planned turnarounds and the effects of an earnings neutral swap agreement for different grades of Propylene in the U.S. As you might recall, since Q3 2011, we now swap like-for-like Propylene, which does not show up as sales anymore. Feedstock sales to Styrolution and to the recently divested fertilizer business contributed positively to the top line. EBIT before special items declined significantly due to lower margins.

In petrochemicals, the sales decreased due to weakening demand in the course of the quarter. The scheduled 8-week turnaround of our cracker in Port Arthur, Texas negatively impacted volumes. Raw material prices started to drop from record levels and consequently, prices for all product lines went down. As expected, margins were under pressure. This led to a significant drop in earnings.

Sales in Inorganics increased significantly, driven by feedstock sales to the divested fertilizer activities, as well as the startup of a new sodium methylate plant in Brazil. EBIT before special items came in above the previous year's quarter.

In Intermediates, strong demand from important customer industries, such as agrochemicals and plastics, as well as positive currency impacts resulted in significantly higher sales. Nevertheless, margins were under pressure as rising costs for key raw materials could not be fully compensated by higher prices. Accordingly, earnings came in below Q2 2011.

Sales in Plastics were slightly higher compared to a strong second quarter in 2011. Favorable exchange rates were a strong support. Continued weak demand for polyamide precursors resulted in lower volumes. Overall, EBIT before special items was considerably down but improved compared to Q1 2012.

In Performance Polymers, sales remained below the prior year's quarter. Polyamide precursors were impacted by lower textile fiber demand in Asia. Engineering Plastics benefited from healthy demand from the automotive industry in North America and Asia. Based on lower volumes and lower capacity utilization, EBIT before special items was significantly below last year.

Sales in polyurethanes increased. Lower volumes in TDI and MDI were mostly a result of a scheduled turnarounds at several sites. While volumes went down for basic products, prices could be partially increased. Specialties were driven by strong demand from the automotive sector. EBIT before special items was slightly below the level of the previous year's quarter, due to the turnaround and higher raw material costs.

Sales in the Performance Products segment came in slightly higher. Volumes were down due to a generally weaker economic sentiment. However, we were able to increase prices and we profited from currency tailwinds. Earnings were significantly down due to margin pressure, given weak demand and higher raw material prices.

In Dispersions & Pigments, positive currency effects and slightly increased volumes resulted in higher sales. In North America, our sales increased significantly, driven by strong demand and higher prices. Europe experienced lower volumes, mostly due to weaker demand for pigments. EBIT before special items was down mainly due to an unfavorable product mix.

In Care Chemicals, sales declined as a result of cautious customer behavior in anticipation of falling raw material prices. Consequently, volumes were below the previous year. Margins were under pressure, hence, EBIT before special items was down significantly.

In Nutrition & Health, sales increased in all businesses and regions, except for Europe. Overall, volumes were in line with Q2 2011. Favorable exchange rate effects and price increases positively contributed to the top line. As a result of higher raw material costs, earnings could not be maintained at the previous year's level.

Despite challenging market conditions, sales in Paper Chemicals increased, thanks to slightly higher prices and a positive currency development. Volumes though, were negatively impacted by measures to streamline our portfolio. Nevertheless, EBIT before special items came in higher, mainly due to our continuing restructuring efforts towards fixed cost reduction.

In Performance Chemicals, sales rose due to successful price increases, as well as currency impacts. Volumes were down due to weaker demand. Earnings were up.

In our Functional Solutions segment, sales increased mainly due to portfolio effects and currency tailwinds. Demand from the construction industry in North America rose slightly. Earnings though, declined due to higher raw material costs and lower results in precious metal trading.

Catalyst sales rose mainly, attributable to continued strong demand for mobile emission and chemical catalysts. Slightly higher volumes, however, could not fully compensate for the higher raw material costs, as well as the lower trading results in precious metals. As a result, earnings were below the strong quarter of the previous year.

Sales in Construction Chemicals were up due to successful price increases, as well as positive exchange rate and portfolio effects. Volumes increased in North America and Asia, but remained below the previous year's quarter in Europe. Earnings before special items were up, given higher prices and improved margins.

In Coatings, we saw a strong demand for automotive, OEM Coatings, and Industrial Coatings. Margins were mostly maintained, thanks to successful price increases in all regions and the optimization of our raw materials portfolio. EBIT before special items, however, came in slightly lower than in the previous year's quarter, due to higher fixed cost.

Our Agricultural Solutions segment delivered an outstanding quarter, with sales increasing by 22% year-over-year. High demand for our innovative products in all indications and in all regions drove significant volume growth. The positive pricing trend was intact for the fourth quarter in a row, and the stronger U.S. dollar led to a tailwind on currency. EBIT before special items reached a new second quarter record, putting year-to-date earnings ahead of the full year 2011 figure.

In Europe, positive business momentum continued, especially in Central and Eastern Europe and in the United Kingdom. Our Clearfield herbicides made a strong contribution and our new fungicide, Xemium, is living up to its blockbuster potential. Moreover, last week, it got approved for use in crop protection products in the EU27, which will help us to obtain registrations for Xemium-containing products in additional countries.

In North America, significant sales growth was supported by excellent demand for our plant health products and for herbicides, mainly Kixor. The prevailing drought condition in the Midwest, U.S.A. did not impact our sales for the quarter, but is certainly something to watch out for.

Sales in South America also developed very well, as high demand for our fipronil insecticide, and for our F 500 overcompensated weather challenges, affecting the south of Brazil and Argentina.

In Asia, sales were strongly up versus the previous year's quarter, driven by higher herbicide sales in India and by strong fungicide sales across the region.

Sales in Oil & Gas continued to grow strongly, driven by higher volumes, both from Exploration & Production, as well as Natural Gas Trading. EBIT before special items increased significantly. Net income came in slightly below 2011, due to higher taxes.

In Exploration & Production, sales were up by 122%, mainly due to the resumption of oil production in Libya. Thanks to additional capacity in the export pipeline, we could temporarily raise our oil production in Libya from an average of 70,000 barrels in Q1, up to roughly 80,000 barrels per day in Q2. Strong volumes and higher prices in euro led to substantially higher earnings.

Sales in Natural Gas Trading increased strongly due to higher prices and volumes. Earnings grew significantly due to higher volumes and prices, as well as due to income from the OPAL pipeline.

Sales in Other decreased significantly due to the divestment of our styrenics activities into the Styrolution joint venture, as well as the sale of our fertilizer business. EBIT before special items improved substantially because of positive valuation effects associated with the long-term incentive program for executives. Special items in Other included provisions for potential asset devaluations and restructuring costs, which we will allocate to the respective businesses as soon as the matters are implemented.

Let me now conclude with our cash flow for the first half of 2012. Cash provided by operating activities came in at EUR 3.5 billion in the first half of 2012, and we recorded a strong free cash flow of EUR 1.8 billion. Net working capital increased by EUR 700 million. Cash used in investing activities amounted to EUR 1.1 billion. As planned, CapEx was up by 32% at EUR 1.7 billion. The net proceeds from acquisitions and divestitures amounted to EUR 430 million. This included the proceeds from the sale of our fertilizer assets in Q1, as well as EUR 278 million, which we paid for various small acquisitions.

Financing activities led to a cash outflow of EUR 2.2 billion, mainly due to dividend payments to shareholders of BASF SE and minority shareholders in group companies. Net debt decreased by EUR 700 million to EUR 11.5 billion in comparison to the end of the first half in 2011.

Thank you for your attention, and we're now happy to take your questions.

Question-and-Answer Session

Magdalena Moll

Ladies and gentlemen, I would now like to open the call for questions. As always, I would like to ask you to please limit your questions to one at a time, so that we can take as many questions as possible, but at the same time, I would like to encourage you to rejoin the queue for a follow-up question. And now Jason is going to explain the procedure.

Operator

[Operator Instructions]

Magdalena Moll

I would like to announce the first question comes from Tony Jones from Redburn.

Tony Jones - Redburn Partners LLP, Research Division

I just will ask one as you request. With a cautious outlook, your lower outlook for chemical production, the message here seems to be that you're moving a little bit more towards cost-cutting, a little bit more cautious, which feels quite appropriate. But what should we think about in terms of CapEx? And we're forecasting EUR 3.5 billion of CapEx this year, and that's just probably trend up, if anything, in the next few years. Do you think that your CapEx plans might slow? And if so, what businesses might get affected?

Kurt W. Bock

Actually, you're quite right, we are a little bit more cautious as regard to cost. When we look at CapEx, however, I'd say that we continue to spend as planned. Our CapEx budget is based on the mid-term and long-term assumptions for the expected growth in certain businesses and regions. And I think those assumptions are still relatively -- we see no reason for the time being to cut back any of our CapEx programs. Actually, they are in full swing and the EUR 3.5 billion is probably a good estimate for 2012.

Magdalena Moll

The next question is coming from Martin Roediger from Cheuvreux.

Martin Roediger - CA Cheuvreux, Research Division

It's on Care Chemicals, you talk about cautious customer behavior, waiting for lower prices, so margins under pressure and earnings significantly down. Can you elaborate a little bit on this, because I wonder why this -- the sense of business has such a strong swing, is it more the surfactants business or is it the superabsorbents business which is affected? So any thoughts about why this is just a destocking effect and not continuing, that would be very helpful.

Kurt W. Bock

Martin, thank you for the question, I think it's an important topic. It's not that easy to understand, frankly. It's not about surfactant, to make that quite clear. And obviously, the Care Chemicals business is also driven to a certain degree by raw material cost. We all know that lauric oil, palm oil is a major ingredient. Just looking at the price development of lauric oil over the last couple of years, shows this volatility and the, let's say, the sequence of events. We had a record price in 2011 of $2,300 per ton. It has now come down to less than 50% of that price. And obviously, this is also reflected in our sales numbers, the cost of surfactants and fatty alcohols are, I'd say, a function to a certain degree of the underlying raw material cost. What we have also seen -- and that is the question about destocking and underlying demand, what we have also seen in 2011 is virtually very high cost of our products, not just of our products but of the entire industry, post a major issue to our customers who obviously, as you all know, are not on a position to automatically pass on these higher costs to their consumers and consumer customers. So what has happened then, is that some customers have tried to reduce the intake, to change some formulation if possible. And in some cases, they came back to us and said, "Okay, we need a much lower price in order to justify buying from BASF." And I think I mentioned this in my little speech when I talked about value before. Volume, there have been cases where we basically said, "Okay, we understand what you're saying, but I think it's not in the medium- or long-term interest of BASF, and if you have a better and more affordable source, that's okay with us as well." So there were a couple of businesses where we basically said, "We will not compete based on that price." What is very important, the underlying trend for the business is a very healthy one. Actually, we're full on track with regard to reaping the benefits from the acquisition of Cognis' synergies, but also in terms of growth path, business plan. We just compared what we had expected when we made the acquisition about 2 years ago and where we are today, and I can assure you, we are still well above of what we expected to have about 2 years ago. But we had this huge, and frankly, also, I would say, unexpected surge in demand prices and profits in 2011. And compared to that, it's now weakening a little bit. I hope this helps.

Magdalena Moll

We're moving on now to James Knight from Exane.

James Knight - Exane BNP Paribas, Research Division

It's about shorter-term momentum in the course of the [indiscernible] industrial areas. Can you give us a little bit of a better feel about how markets looked in June and July? Obviously, you've seen the comments on downgrading GDP estimates, comments on the order book, et cetera. Have you seen any maybe shorter-term relief in the destocking from the recent oil recovery? Do you expect that to be sustained, et cetera? And just some feel for the current industrial momentum in your more industrial businesses.

Kurt W. Bock

I think it answers the core question, really, and this question -- and the answer to that actually led us to our guidance that we said. We at best expect second half to be flat compared to first half. So when we talk with our businesses around the table and ask each and everyone, what do you see? Do you see a pickup in demand? Do you see any restocking behavior at your customer level? The answer was, we don't know. No, we don't see this. What we see is a flat development. We don't see a decline, but we see a flat development for I would say most of our industrial businesses as you described them. And that is a pretty recent observation, which I just related to you.

Magdalena Moll

So we're now coming onto Norbert Barth from Baader Bank.

Norbert Barth - Baader Bank AG, Research Division

My question is related to the [indiscernible] flow , can you a little bit, still elaborate -- you mentioned that you realized that already in your order books, how this was continuing and also, especially, the typical summer activity, do you realize that this year? It's perhaps, very, yes -- a big one compared to last year one? And also, I think if we see it, especially Asia and China in particular, it looks that you also were a little bit disappointed from the growth in the second half and also saying that perhaps, growth coming not back to that level what we have seen before, so can you a little bit, also, elaborate on especially China Asian situation.

Kurt W. Bock

We don't see any different pattern right now with regard to the famous summer dip. We had this kind of seasonal development here in Europe, but actually, it's now much more balanced by other regions, because our business in North America and Asia has grown and obviously, these guys work on a different schedule, so to say. Yes, Asia, and this particularly China, has been a little bit of a disappointment. We knew that Q4 was and would be weak, and we expected that Q1 could still be in, let's say, in the recovery mode and not a great quarter. But Q2 now continues on that path and actually, volumes Q2 compared to Q1, a slight increase but nothing to write home about. And this is a new development for us, because apparently in Asia and in China, we have been in a growth mode, and we don't see that growth for the time being. Again, when I talk about flat development for the next couple of months, this includes the regional development we see in China or in Asia currently. Could there be upside surprise? Yes, that's possible, because developments have obviously recognized that they need to do something and there were various stimulus measures already implemented. At the same time, we have also seen that people are very, very cautious with regard to inventory levels. I know that we have talked about this now for quite some time and you might ask, when you see, let's say, a destocking overhaul, how far down can it go? But everything we have seen now is, again, people have tried to reduce inventories. They order in smaller quantities, higher frequency, which tells me, if there's pickup in demand and can we turn it around, there could be the typical surge in demand that we have seen in earlier times of uncertainty as well. So all in all, there's a high level of uncertainty right now, and our crystal ball is probably not better than anybody else.

Magdalena Moll

We will now be moving on to Jaideep Pandya from Berenberg.

Jaideep Pandya - Berenberg Bank, Research Division

My question is more on your downstream businesses. I mean, for a couple of quarters now, you've said that you couldn't offset raw material prices. While some of your peers, depending on the business we pick, have in the meanwhile, at least, been in a situation where prices offset raw mat. So is this a matter of concern for you, and I mean, what are you trying to do here, because especially in Performance Products and Functional Solutions, 2 areas where we hear this comment of prices not being able to offset raw material costs? So if you could shed some light there.

Hans-Ulrich Engel

This is Hans, I'll try. Raw materials, in fact, play -- they play an important role. What we've seen now quarter-over-quarter is basically an increase, which in part is currency-driven, that certainly has an impact on our business. You're referring specifically to Performance Products and to Functional Solutions. If you look there, we're down in the value chain. The prices there for raw materials do not compare necessarily to what you see up in the value chain. So they do not compare to the ethylene price or the Propylene price or the naphtha price. Look at something like titanium dioxide, which we've seen increasing in price consistently. If you compare today's price, that is at EUR 3.40 per kilogram to the price that we had in the second quarter of last year, was roughly EUR 1 lower than where it is today. You can imagine what kind of an impact that has. Let me give you another example that plays a role in the Functional Solutions area, which is the price of rare earth, that we've seen at levels during the last 24 months that ranged from below $10 per kilogram to roughly $150 per kilogram. So significant swings there. And as I said, further downstream, prices can be significantly different in their developments compared to what you are seeing upstream.

Magdalena Moll

Your next question comes from Chris Counihan from Crédit Suisse.

Chris Counihan - Crédit Suisse AG, Research Division

My question is more financial-related. Another fantastic cash result. It seems like growth CapEx isn't really taking a huge step up from here. Given the current environment, the limited forward order books, the limited customer confidence, does it make it more difficult to do a major acquisition from here? And maybe you could discuss some of the alternatives for using the balance sheet, including executing the buybacks.

Kurt W. Bock

Chris, I think you're right. Our cash flow was quite good in Q2 in terms of acquisitions. And acquisitions, in our case, are not cash driven. We don't get nervous because all of a sudden, we find out we have more money in the till. It's really about strategic fit and financial attractiveness. You have seen in the past, we spent on that. Every other year, BASF stepped forward and came up with another medium-sized acquisition. I think it's too early to say something specific here. But when you look at our strategy, which we have published November last year, this was very much about operational excellence, commercial excellence, R&D, innovation, sustainability. So we have a full plate how to improve BASF further, on how to increase and improve our competitiveness. And we are not sitting here, by any means, eager to do something just for the sake of acquiring a company. If something would become available at an attractive price, we would be looking at it and then make up our mind. But it's not that we are nervous here, and gee, let's do something about it. And yes, we have other ways of dealing with excess cash. And for that reason, we initiated a new share buyback program. We got approved from our shareholders in May. It needs to be seen when to apply it. But in the past, I think it's safe to say that this program was very, very effective. And on average, when you look at the pattern over 10 years, we bought back BASF shares for about EUR 500 million to sometimes even EUR 2 billion a year. But again, this is then a decision which we will take when we have a little bit more visibility. And that kind of visibility, we don't have yet to the extent necessary. There is this high level of uncertainty I already talked about.

Magdalena Moll

I would now like Neil Tyler from JPMorgan to ask his question.

Neil C. Tyler - JP Morgan Chase & Co, Research Division

A quick question on the assets devaluations. I wonder if you could talk a little bit more about those. You said you're going to allocate them across divisions later in the year. But specifically, the process through which you've gone to reach those conclusions, as to which assets have been devalued, and whether or not we need to consider any sort of material impact on things like depreciation going forward from here.

Hans-Ulrich Engel

Neil, this is Hans, I'm taking that question. First of all, the one asset impairment that we've done in the course of Q2, which is one for a Norwegian oil field in which we have a 10% activity of EUR 80 million, that is already fully allocated to the Oil & Gas segment. We then have roughly EUR 100 million that is related to a variety of restructuring and environmental remediation measures in the second quarter of this year, which then, during the course of the year, will be allocated to the respective divisions. Will that have an impact on depreciation? I'd say, in the grand scheme of things, relatively small amount as a result of that, nothing that's really -- that we need really to worry about.

Neil C. Tyler - JP Morgan Chase & Co, Research Division

Okay. So there wasn't a specific sort of watershed moment, where you decided that market conditions have triggered any of these -- any of the -- within the EUR 100 million that you referred to?

Hans-Ulrich Engel

No. If that question goes to goodwill that we have on our books when we ran the respective tests, and there's -- as I said, there's nothing to worry about. These are really specific individual situation in the entire system where we've taken the decision, as I said, for restructuring and remediation purposes to make a reserve of EUR 100 million.

Magdalena Moll

Our next question comes from Lutz Grueten from Commerzbank.

Lutz Grueten - Commerzbank AG, Research Division

Just one question to get a better feeling on the current trading situation here. On Chemicals, you have reported volumes being down 14% in the second quarter. Could we get an adjusted number here, adjusted for the propylene swap and also adjusted for the maintenance shutdown in Port Arthur?

Hans-Ulrich Engel

This is Hans. The impact adjusted in the Chemicals segment from the swap, as well as the turnaround of the cracker, is in the order of magnitude of 6% to 7%.

Magdalena Moll

And now we move to Paul Walsh from Morgan Stanley.

Paul Richard Walsh - Morgan Stanley, Research Division

From my side, to what degree did the maintenance shutdowns depress operating profit in the Chemicals and Plastics business in the second quarter? I wonder if you could put some numbers around that, with Port Arthur end of this half is down. And are there any further maintenance turnarounds planned for the rest of the year?

Kurt W. Bock

Paul, the number is about a high 2-digit million number. We have -- we will have additional turnarounds in the second half. But since we always have turnarounds in every half of every year, I don't think this have -- has any material impact on the year-over-year comparison 2012 for 2011.

Magdalena Moll

Andreas Heine from Barclays.

Andreas Heine - Barclays Capital, Research Division

One question on the price and raw material trend. We read now for several quarters that it is difficult to pass on the raw material prices. Now it seems that raw material price are, at least, lightening. Looking to the second half of this year, do you see closing or still a widening of the gap between your price trend and your raw material cost increases or stabilization there?

Kurt W. Bock

The prices -- I mean, we made the claim that we push our prices as hard as we can, and that's the reality. We never said that this is the 100% perfect solution. So what we have seen over the last couple of quarters is a small margin squeeze in almost all businesses. I think that's quite natural if you have these steeply increasing raw material costs, and overall, also this very, very high volatility. The name of the game now is, since raw materials have softened a little bit to maintain, if not widen, margin, this is, obviously, achieving and that game is our customers. And I referred already to their, let's say, cautious behavior with regard to placing orders. But obviously, that's our goal now, to widen margins. It's too early to say to what extent we will be successful. This is obviously driven by competitive pressure in our various markets. And the trend, it doesn't help. It doesn't help that in some markets, demand is relatively weak.

Magdalena Moll

Our next question is coming from Christian Faitz from Macquarie.

Christian Faitz - Macquarie Research

Just a quick question on Oil. I remember that's still under the Gaddafi regime. You had entered into discussions with the Libyan government regarding more favorable tax conditions. Is there any chance that the new government is open to talks about contractor renegotiation? Any update on that?

Hans-Ulrich Engel

This is Hans. Yes, as you correctly recall, we had discussed with the National Oil Corporation to change there in the contract regime. Negotiated contracts are basically on the table. But at this point in time, I don't see any imminent movement in that direction. The key focus of the National Oil Corporation at this point in time is really get production volumes up, get exports up. There's not much talk about addressing contract conditions at this point in time.

Magdalena Moll

Andrew Benson from Citi is our next question.

Andrew Benson - Citigroup Inc, Research Division

Can I -- just taking off kind of from James's question, really. In terms of the current trading environment for the industrial chemical divisions, you cited both that destocking, because of the oil price coming back, as well as change in the demand picture and a change in the ordering patterns. I presume that it came from June. Can you just give a little bit more detail and try to give your best guess? If you disaggregate the destocking effects from any underlying weakening in demand, where you think we are? Because, obviously, that's got an -- if the bulk of it is destocking, then that won't go on forever. Just to try to give a bit more flavor of how you think the weakness that is involving is structural or temporary.

Kurt W. Bock

Andrew, I think this is a tall question, and it's extremely difficult for us to answer that particular question. It's because we -- as I alluded to, we very often don't get total visibility. Sometimes our customers don't know either what's going to happen in their market. Sometimes they don't want to tell us exactly what they plan to do, just to keep us on the edge, so to say. We would expect that destocking has come to a level now where it's very, very difficult to continue doing that, because it has been going on and off for quite some time. People are, again, extremely cautious due to the uncertain times. But I don't have any precise data, and I know it's a little bit frustrating. I'd like to give you those but we recently don't have -- I mean, we cannot really differentiate between what is underlying demand pattern and what is a destocking effect.

Andrew Benson - Citigroup Inc, Research Division

But you would have thought, though, that the destocking component of any demand weakness would pretty much can't continue now?

Kurt W. Bock

That is our assumption, and it's, frankly, has been our assumption for quite some time. But as I said, I think it has now come to a level where people are really bare bone and would have to come back in a quite dramatic way, if all of a sudden, a demand in their customer industries or underlying swap markets surges all of a sudden.

Magdalena Moll

So our next question comes from Richard Logan, Goldman Sachs.

Richard Logan - Goldman Sachs Group Inc., Research Division

With regards to the STEP program, I wondered how much saving you had made so far during the first half, and also, is there scope to bring forward some of the cost savings if the situation deteriorates further in terms of the economic environment?

Hans-Ulrich Engel

On STEP, as you know, we announced that in the late in the fourth quarter of the year 2011. It's a program under which we want to see an annual contribution from 2015 going forward of EUR 1 billion. There is actually -- with respect to STEP, there are, let's say, minor effects that we will have in the year 2012. You may recall that we have the NEXT program. And in NEXT, we said by the end of last year, we were at an impact of -- positive impact of EUR 800 million, increasing to EUR 1 billion in the year 2012 as a result of that. There's roughly EUR 200 million coming from NEXT, which will then be sort of closed as a program, and then STEP will follow. And if you look at the cost that you have at beginning for a project like that, and the return, typically low in the beginning and then increasing towards the end of the program. Do we accelerate any activities under the STEP program? No, not at this point in time. As I said, it's roughly 500 different measures that we intend to implement over time in all different areas of the business, in all different regions that BASF covers. But what we do is -- and I would put that in the category of good housekeeping. Obviously, in times of higher uncertainty, what you do is you watch the cost that you can manage closely, and this is exactly what we're doing.

Magdalena Moll

Our next question now comes from Ronald Koehler from MainFirst.

Ronald Koehler - MainFirst Bank AG, Research Division

I have a question on currency effects. Obviously, you guide for EUR 0.01 change, EUR 40 million EBIT effect. There might be something coming up in the future, at least. So my question is a bit twofold. How much did you already recognize from that currency effect on the EBIT line, or was it mainly hedged? And let's say, when will your hedging policy allow to have a bigger impact on the bottom line?

Hans-Ulrich Engel

Ronald, as you know, yes, we are providing the figures on U.S. dollar-euro change. The currency effect that we have currently on the sales level is roughly 5% in the second quarter. Yes, we do hedge our planned sales, as well as our booked sales, roughly out for one year. Will there be a positive impact on EBIT as a result of, in particular, a stronger U.S. dollar? Yes, there will be. Can I quantify that at this point in time? No, I cannot.

Ronald Koehler - MainFirst Bank AG, Research Division

But just to clarify, you didn't have any positive effects so far on the EBIT line?

Hans-Ulrich Engel

On the EBIT line, if so, only minor.

Magdalena Moll

Next question now come from Peter Clark from Société Générale.

Peter Clark - Societe Generale Cross Asset Research

It seems like there's, at least, destocking sort of coming to end here, and that clearly helps your guidance for the Chemical volumes H2 being similar to H1, or the same as H1. I'm just wondering, regionally, within that guidance, because obviously your Asia will be important in the destocking story, but clearly, you're making -- obvious, it's still very soggy. Europe probably deteriorating, I would have thought. I don't know where the seasonality kicks in here, whether it's in the guidance or not. And then North America, you have to make another shutdown, but again, there's a risk of something happening by the end of the year. So I just wonder, regionally, in terms of the volume guidance, how it all squares.

Kurt W. Bock

It's very hard to say if we have a different regional pattern with regard to demand right now. Europe is slow and weak. Asia has slowed down quite severely. The only difference we see is in the U.S., where demand is still, I would say, grown nicely, although the expectations have -- they are also changed. When you ask people today in the United States what they see compared to what they saw 3 or 4 months ago, they would probably say, we were -- we are much more cautious today. And you've -- you already alluded to the fiscal cliff [ph] later this year, and nobody knows what's going to happen after the November election. So no major difference. Actually, the one, I would say, brighter spot right now is the U.S., where we had -- and I think Hans explained this, where we had the effect of the turnarounds, which was a big bite, either out of our sales and earnings in Q2.

Peter Clark - Societe Generale Cross Asset Research

Okay. So actually, you're pointing to the -- I mean, to me, it seems like the guidance is pretty challenging. It does rely heavily on the destocking ending.

Kurt W. Bock

I mean, that's up to you to make that assessment, whether it's challenging or not. We're basically saying we see no indication for a pickup of demand compared to the situation we have seen over the last couple of months. I mean, that is essentially what we have been saying here. And with respect to visibility, we, therefore, say that, okay, this indicates that most probably the second half will be kind of flat compared to the first half. We do have -- yes, we do have seasonal effect, for instance, in Ag, less so in Chemicals. But we also have to keep in mind that the fourth quarter of last year was a pretty tremendous weakening in the Chemical business as well, and it's not very likely that this is going to repeat itself in the fourth quarter of 2012.

Magdalena Moll

So this brings us to Jeremy Redenius from Sanford Bernstein.

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

I noticed some very large volume growth in Ag Solutions. And I just wanted to check, is your perception you're gaining share or are you growing with your markets? And also, are -- is your view that you're pricing in line with what your competitors are doing?

Kurt W. Bock

Jeremy, pricing is good. Actually, we are very satisfied with regard to the development, and the market share to -- as you say, because we haven't seen all the data. A couple of competitors already came out. Our volume development is based on a couple of new innovative, active ingredients and some good new formulations. So we have a good underlying business here. But I cannot answer your question whether this is a market share gain or not. It feels a little bit like it could be, but again, I'm very cautious to make that assessment at this point in time.

Magdalena Moll

Now we come to Thomas Gilbert from UBS.

Thomas Gilbert - UBS Investment Bank, Research Division

A question around the battery business. You've done a lot of bolt-on technology acquisitions, electrolytes, membrane separators, cathode materials, licensing agreements. What seems to be missing is anode materials. As long as you say you don't have that, are you -- or is that package ready now to put a lot of capital behind it? So that's the first part of the question. The second part of the question is, is this new business unit loss making, in a sense that it dilutes the Functional Solutions margins in a way that an analyst would notice, i.e., is it meaningful, the run rate of the losses? And when do you expect it to break even? And of course, will there be acquisitions in this area still?

Hans-Ulrich Engel

All right, Thomas. This is Hans. A number of questions, I'll try to take them one by one. As you correctly stating, we've made a number of acquisitions in the first half of this year. The Evonik acquisition, the Novolyte acquisition, acquired electrolyte business from Merck, on top of that a participation in Sion Power. So a lot of activity happening there. You're mentioning rightfully, we have no anode activities. We're focusing at this point in time on cathode material. We're building a plant there in Elyria, Ohio, which will start up in the fourth quarter of this year. Could there be further activities in that field? Yes, certainly, there could be. Do we want to become a cell producer or a battery producer? That is clearly not within our strategy. You then asked with respect to the losses from the battery materials business and is there anything that is noteworthy from an analyst perspective. It is a single-digit figure in the quarter. We expect that to continue for quite some while because we're building a business. We're starting a business up here. We will have meaningful sales from our cathode materials plant in Elyria, only from the beginning of 2013 on. And I think that should give you the picture.

Magdalena Moll

Next question come from Jean De Watteville from Nomura.

Jean De Watteville - Nomura Securities Co. Ltd., Research Division

Jean De Watteville. Pretty basic question, I'm sorry. Just a clarification, again, on the volume guidance. As far as I'm concerned, the volume guidance sequential basis H2 versus H1 is kind of new because of -- or rather unusual because of the obvious seasonality factor and, particularly, with the effect of destocking and so on. Can you -- the way I understand it, and please correct me, is that what you're basically telling us is that on a seasonally adjusted basis, you don't see a change of environment. Can you please confirm that? And just to be helpful to us, can you tell us what stable volumes would mean in terms of year-on-year volume growth in the second half?

Kurt W. Bock

I think it's not completely new that we give some kind of sequential indications here. We have done this before, especially in very volatile times, and it's sometimes not very meaningful and not very helpful to have these year-over-year comparisons. And I -- just to reiterate again, at least confirm our outlook to make this quite clear, change of environment, you wanted to have a confirmation. Yes, that's what we see we. We don't see a change of environment for the time being. This could still lead to a volume gain over last year if we continue to have a reasonable good business in Q4, because you know that Q4 of 2011 was very weak, even weaker than normally because there was a lot of destocking going on. I hope this clarifies.

Magdalena Moll

Our next one is Laurent Favre from Bank of America Merrill Lynch.

Laurent Favre - BofA Merrill Lynch, Research Division

On Oil & Gas in Libya, I think you were saying that you managed to temporarily increase the market share for the export facilities and which is why you managed to produce a bit more than what you were thinking 3 months ago. What is -- what should be our assumptions for the second half on this? Do you think that you will have to go back to the first quarter run rate, or do you think that what you managed to do in the second quarter can be maintained, if not be increased?

Hans-Ulrich Engel

Laurent, this is Hans. As I said, in Q2, we were lucky we got more capacity in the export pipeline than we have -- what I had actually expected. So we were able to produce 80,000 barrels per day. Our expectation is that we will be able to produce, on average, 75,000 barrels per day in the second half of the year, and that always with a proviso. Our field can produce up to 100,000, but we are limited by the capacity of the pipeline and the terminals. There's a lot of work that's being done on them. But so far, so good, and we are working with 75,000, on average, per day.

Magdalena Moll

Now ladies and gentlemen, we are coming down to our last 3 questions. The first one is coming from Peter Spengler from DZ Bank.

Peter Spengler - DZ Bank AG, Research Division

Actually, most have been answered already, but regarding the other segments, so does the current or the Q2 fully reflect the new structure without styrenics and fertilizer business, especially in the EBIT before special items, you booked there EUR 13 million?

Kurt W. Bock

Yes. Peter, I used to be the specialist for others. I pass this on to Hans, and he will answer the question now.

Hans-Ulrich Engel

Yes. Peter, happy to answer that question. When you look into the Q2 figures, you have in Other, one significant positive item. And that is actually the valuation of our long-term incentive program, which, as a result of share price development in this quarter, contributed positively. Other than that, Other reflects the current status of Other. Let me put it this way.

Magdalena Moll

So now we're moving on to Nadeshda Demidova from equinet.

Nadeshda Demidova - equinet AG, Research Division

I have a follow-up question on Plastics. For polyolefins in Q2, if you exclude the maintenance costs, will it be implemented price increases sufficient to compensate increased raw material prices? And after 2Q, what is of year-on-year lower earnings in polyolefins? How realistic is year-on-year increase in earnings for polyolefins and for Plastics, as a whole, in 2012 as it was targeted by you at the beginning of this financial year? I feel optimistic, probably, and due to still strong demand from the automotive sector.

Kurt W. Bock

Polyolefins, as an ethanol, is an interesting and good business for BASF. Underlying demand, essentially, is good. And you mentioned automotive, which is a very important customer industry. What we have seen over the last couple of quarters is increased supply, actually, especially in the emerging markets. And this drove down margins in some areas, and we have seen different developments in different businesses. What I can say -- I mean, we don't go here into too much detail is what I can say is that our strategy, which we started late in 2011 to keep up prices, again, value before volume and to be very, very cognizant of this relationship between volumes and prices and margins, has worked quite well. We lost volume actually in Q1 in polyolefins, because we had pushed up our prices, but they have stuck to a very high degree. Still, there's a difference between TDI and MDI, and MDI is relatively weak for the time being. Again, this is very much supply driven and less a demand issue. And we have seen this, obviously, before because when new capacities comes onstream, this is obviously a big chunk of material, which needs to be absorbed as the market does.

Nadeshda Demidova - equinet AG, Research Division

Okay. But your prices are still sufficient to compensate higher things and prices and so on?

Kurt W. Bock

We don't really comment on specific margins, I mean, for specific products. That would lead us probably into the wrong direction. We are trying very hard to bring our prices in whenever possible. Let's put it that way.

Magdalena Moll

And the final question is from Martin Evans from JPMorgan.

Martin Evans - JPMorgan Cazenove Limited, Research Division

I just want to ask about this Care Chemical performance. We've referenced, I guess, to your expectations at the time of the Cognis acquisition because -- are you disappointed at all, so far, to have to talk about earnings significantly below the previous level and lower sales and margins, when I guess, one of the major competitors in this field, who quote or appeared this week, sort or reported exactly the opposite, in other words, higher margins and higher volumes and so on. Is there an issue of market share loss temporarily from your perspective, or does it simply relate to the integration process, and thus, you would expect Care Chemicals to rebound quite strongly?

Kurt W. Bock

It's -- Martin, I'm not sure if you listen to the first question, which was exactly about Care Chemicals, and I gave a pretty lengthy answer what has happened there with regard to raw material cost, lauric oil steep increase in 2011 driving up price but also our margins. And then a more cautious customer behavior in 2012, and then the prices for our raw materials coming down, leading to even more cautious customer behavior and our strategy value before volume. I'm not sure about these comparisons, that we have heard this story before. We couldn't find a single case where we lost -- and we checked into this in a very detailed way. We couldn't find a single case where we lost market share. Maybe we're just not competing with the same products here. What we saw is, basically, a certain weakness in our business for surfactant and fatty alcohols, which, by definition, by the way, are not real specialties. These are pretty commoditized products. They go by the price per pound on gallon, essentially. With regard to our expectations, we were, frankly, positive surprised in 2011 by the tremendous development of the Care Chemical business when volumes and margins took off in a very nice way, which was much ways above our business trend, when -- which we had developed before we made the acquisition of Cognis. Now it has come down a little bit compared with a very good year, 2011. It's still at a level, which is very good and actually below what we had expected for 2012 to happen back in 2010. Having said that, that doesn't mean that we are completely satisfied with this development. Don't get me wrong here. We're working very hard to look into further opportunities to create synergies and cost savings, and we are certainly also looking at individual markets and try to find out what -- how to compete even better in the marketplace. This is an ongoing exercise. I think all in all, the team has done an excellent job integrating Cognis work and then running the business and we are very satisfied with the results overall. Now that [indiscernible] second time, you have a little bit of a bullet that happened.

Magdalena Moll

So ladies and gentlemen, this brings us now to the end of our conference call. I would like to thank Kurt Bock and Hans-Ulrich Engel. And we will also inform you that we will report next time on our quarterly results, and this is our third quarter, on October 25, 2012.

At this point, I would also like to use the occasion to invite you again to our Automotive Investor Day, which will take place on September 5 in London. Kurt Bock and our board member, Wayne Smith, will basically outline to you the importance of the automotive industry to BSF, our cross-divisional customer approach and our wide-ranging innovation capabilities. So we are very much looking forward to welcoming you at this event. The registration page will go online on Monday of next week, so you can all please sign up.

And yes, Kurt just reminds me, I'm happy to announce that we will provide you, so that the waiting time is not too long, in the meantime, with our Factbook. Mid of August, our Factbook will be online as a PDF version, and you will get a final hard copy printout at our Automotive Investor Day. And I hope it will help you in your everyday analysis of BSF.

Kurt W. Bock

Which, by the way, is great to read if you go on a summer vacation on the beach. It's the perfect reading material.

Magdalena Moll

I can attest to this. This is true. Thank you for joining us in the call this morning. Should you have any further questions, please do not hesitate to call the Investor Relations team, and we'll be very happy to help you with any further open questions that you may have.

So goodbye, and hope to see you soon.

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