BASF Se

Magdalena Moll – Senior Vice President, Investor Relations Kurt Bock – Chairman & Chief Executive Officer Hans-Ulrich Engel – Chief Financial Officer

James Knight – Exane BNP Paribas Lutz Grueten – Commerzbank Thomas Gilbert – UBS Jeremy Redenius – Bernstein Laurent Favre – Bank of America Merrill Lynch Michael Rae – Goldman Sachs Andreas Heine – Barclays Capital Tony Jones – Redburn Partners Laurence Alexander – Jefferies Christian Faitz – Macquarie Research Equities Martin Evans – JPMorgan Jagjit Bhambra – HSBC Andy Benson – Citi Peter Clark – Societe Generale Geoff Haire – HSBC Mutlu Gundogan – ABN AMRO Bank Markus Mayer – Baader Ronald Koehler – MainFirst

Thank you and good morning ladies and gentlemen. On behalf BASF, I would like to welcome you to our third quarter 2014 conference call.

Due to the more challenging macroeconomic environment we saw lower volume dynamics in the chemical business in the third quarter despite this decline in demand overall BASF has been able to increase sales and earnings. With me on the call 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 and highlight important milestones. Then Hans will review the segment results of the third quarter.

Kurt will conclude with the outlook 2014 and then he will also comment on our financial targets for 2015. Afterwards, both gentlemen will be happy to take your questions.

For your information, we have posted the long version of the speech and the charts, and the press documents on our website under www.basf.com/share. And with this I would like to handover to Kurt.

Thank you Maggie and also good morning from my side ladies and gentlemen. Thanks for joining us.

Today we represent to you our Q3 results which are solid amidst a noticeable weakening of markets in Europe. We will also brief you on our preliminary view on 2015 as promised to you earlier this year we will update you on how we see our strategic targets in view of the current economic environment.

Let's start with Q3, BASF operate in an increasingly challenging environment in the third quarter. Geopolitical tensions and then elevated level of uncertainty surrounding the global macroeconomic development significantly affect the demand in the chemical market, especially in the Eurozone macro indicators turned negative, the ongoing tension between Russia and the Ukraine directly impacted the economy in those two countries and business sentiment in the region.

In Latin America, Brazil is technically in a recession after two consecutive quarters of negative GDP. On the positive side North American GDP continued to expand somewhat faster than expected.

In China the impact of economy stimuli weakened and recovery in Japan was modest. So oil price was impacted by weaker demand as well as dampened growth expectations.

On the Euro basis the average price of Brent oil was 8% lower than in Q3 of last year. BASF generated sales of €18.3 billion up 3%, volumes grew by 7% driven by higher gas trading volumes.

On a group level prices were down 4% but contrary to previous quarters we experienced no negative effects any more. To better understand what happened in Q3 we should take a closer look at our price volume currency development.

Without oil and gas you saw no volume growth globally. In Europe, BASF sales even declined by 4%, however we were able to maintain our prices overall and therefore also margin.

Currency has lost its negative impact however did not yet provide tailwind in the third quarter. EBITDA came in at last year's level with €2.5 billion, EBIT before special items increased by 9% to €1.8 billion supported by conservatively higher earnings in chemicals and oil and gas.

We saw a slight increase in Functional Materials & Solutions and stable earnings in performance product. Agricultural Solutions posted a strong earnings decrease due to lower volumes and higher fixed cost.

EBIT before special items in Other improved significantly. The share price development led to the dissolution of provisions for our long term incentive program.

We have thus recognized special item in EBIT of minus €32 million essentially for restructuring and performance product. Therefore EBIT amounted to €1.8 billion, an increase of 8%, the tax rate was at 28% compared to 23% in the third quarter of last year.

The prior year quarter the tax rate was affected by a tax rate -- one time gain from the divestment of the 50% stake in the Norwegian Edvard Grieg gas field. Net income decreased by 5% to €1 billion and earnings per share adjusted were with 127 at last year's level.

Operating cash flow in Q3 reached €2.1 billion, an increase of around €170 million and finally free cash flow slightly increased to €820 million despite higher CapEx. We continue to make to take measures directed at further improving our portfolio and strengthening earnings.

Let me highlight some of the most important developments in the last reporting in July. On September 12, we announced an agreement with Statoil of Norway that with stands as part of ship and hence BASF's earnings and cash flow generation in our core region, Europe.

Reserves and resources arise by approximately 170 million barrels of oil equivalent and our production in Norway will increase from currently about 40,000 to 60,000 barrels per day. The purchase price amounts to $1.5 billion to $1.25 billion.

Closing is expected by the end of 2014 with the effective date of January 1 of this year. We continue to restructure our performance product segment, four weeks ago we published our plan to dissolve the paper chemicals division.

The structural changes in the market for graphical papers require further adjustments to our positioning. We aim to enhance value change synergies by combining the main product line with the corresponding operations in our performance chemical and dispersions and pigment division.

These changes will be effective from January 1, further more we’re evaluating strategic options for part of our kaolin business which is in the United States. This adjustment allows to further optimize our asset base while maintaining our commitment to the paper industry.

As announced just last week we have agreed to sell our global textile chemical business Archroma. The parties have agreed to not disclose financial details.

About 300 people are employed by that business and closing should be in Q1 of next year. Before we come to the business performance of our segment let me briefly inform you about the next step that we will take to enhance BASF innovation follow-up.

We’re developing the organization of our resource platforms and with bundled competencies further globalize research and therefore by strengthen our worldwide R&D for Verbund. The new organization will be based on three global platforms starting on January 1, our process research and chemical engineering will continue to be headquarter in Ludwigshafen.

Our bioscience research will be managed from Research Triangle Park in North Carolina and finally the headquarter of Advanced Materials and Systems Research will be moved to our innovation campus in Shanghai by 2016, early '16. These measures will strengthen our network with research partner and customers and make BASF's R&D even more effective and efficient.

And with that I would like to hand over to Han.

Thanks Kurt. Good morning ladies and gentlemen also from my side.

I will start with a brief overview on our segments and I will start with the chemical segment. Sales in the chemical segment were on prior year level with the overall flat volumes and slightly lower prices.

Higher earnings in petrochemicals driven by strong profitability in the cracker business were partly offset by lower results in monomers and especially in Asia. EBIT before special items came in considerably higher.

In performance products sales were almost unchanged, volumes and prices were flat but we faced slightly negative currency effects. EBIT before special items came in on prior year level benefiting from strict fixed cost control.

The ongoing restructuring measures resulted in negative special items of €10 million. In Functional Materials & Solutions, sales were up slightly supported by continued robust demand from the automotive industry.

We realized higher volumes and prices but still face negative currency effects in all divisions. EBIT before special items slightly increased due to higher contributions from coatings and catalysts.

In Agricultural Solutions we experienced a disappointing business in the seasonally slow quarter. Excellent crop conditions led to good harvest for key crops globally strongly pushing down crop commodity prices.

Our sales decreased by 3% versus the very strong prior year quarter mainly due to lower volumes in North America and Europe. Nevertheless, we were able to increase prices in all regions.

Business in Europe declined considerably, lower prices for oil seed rate led to reduced acreage and consequently demand for oil seed herbicides declined. In North America sales dropped significantly as excellent crop conditions and low commodity prices adversely impacted demand especially for our yield boasting plant health products.

Sales in South America were slightly up supported by higher volumes and prices, our recent launches of Kixor and Xemium developed well while there was tough competition in insecticides. In Asia-Pacific sales slightly increased thanks to higher prices across the region.

EBIT before special items in Q3 2014 fell considerably on lower volumes less favorable product mix and higher fixed cost. For the remainder of the year we see business momentum building up in South America and we currently experience no significant negative exchange rate impact on earnings.

Market response to our Xemium-based fungicide solutions is positive. With our positioning and strong product pipeline we’re optimistic that we’re able to continue our success story in Agricultural Solutions.

Back to Oil & Gas, in the Oil & Gas segment sales grew considerably. This was driven by higher volumes in natural gas trading.

EBIT before special items significantly exceeded prior year results attributable to higher contributions from natural gas trading. Net income came in at €265 million, a decrease of €186 million.

In Q3, 2013 we had recognized the disposal gain of €164 million from the divestment of a 15% stake in the Edward Creek Field in the North Sea. Sales in exploration and production decreased considerably due to lower volumes as well as lower Oil & Gas prices.

The average price for Brent crude oil decreased by 8% to a $102 per barrel, in euro terms it was also 8% lower. Volume was about 10% lower.

EBIT before special items declined by 14% to €310 million on lower volumes and prices. Contrary to prior year we did not have an onshore lifting in Libya.

These missing contributions could not be compensated by higher earnings in Norway. Sales in the natural gas trading business grew considerably due to higher volumes especially on the European spot markets.

EBIT before special items recovered strongly after a relatively weak first half 2014. Now to Other, EBIT before special items in Other improved strongly from minus €105 million to minus €7 million driven by better currency result and the recent share price development which led to dissolution of provisions for our long term incentive program.

Let me turn to our cash flow. Please be reminded that we will summarize the first nine months of 2014.

At €4.8 billion cash provided by operating activities was down by €1.2 billion, this was due to cash outflow in networking capital of €700 million related to the reduction of trade accounts payable as well as a planned buildup in inventories to prepare for maintenance shutdown's. Cash used in investing activities declined by €1 billion to €3.6 billion, while CapEx increased by €400 million to €3.4 billion, cash payments for acquisitions decreased considerably.

In the same period of 2013 we had incurred cash outflows of €1.1 billion for the acquisition of assets from Statoil as well as the acquisition of Pronova BioPharma. Free cash flow amounted to €1.3 billion in Q1 through Q3, 2014.

On a sequential basis we recognized a positive trend in cash flow, while in the first half 2014 free cash flow amounted to about €500 million, we generated €820 million of free cash flow in the third quarter alone. Coming back to the first nine months of 2014, financing activities led to a cash outflow of €995 million compared with an outflow of €1.3 billion in the first three quarters of 2013.

The cash flow resulting from the change in finance and liabilities amounted to €1.7 billion. This was mainly attributable to BASF issuing several bonds with the principle amount of around €1.6 billion as well as taking out bank loans.

The repayment of a bond with the principle amount of €1.25 billion had a counter balancing effect. Net debt amounted to €13.9 billion representing an increase of €1.3 billion in comparison to prior year, at 39% our equity ratio remained at a very healthy level and with that back to you Kurt.

Okay ladies and gentlemen lets come to the outlook for 2014. While our business in the third quarter was solid we remain cautious regarding the development of the macroeconomic environment in the fourth quarter.

We don’t expect an increase of demand, and assume ongoing economic volatility and a more modest global GDP growth for the remainder of the year. Compared to the last reporting July we reduced some of our macroeconomic assumptions for 2014 as follows.

Global GDP growth is lower now at 2.3%, industrial production is expected to grow by about 3.4%, the chemical production reduced by almost 0.5% now 4.0%. We continue to see the average exchange rate, dollar exchange rate by 133 that is the average four quarters obviously and regarding the oil price forecast 105 per barrel at an average compared to previously $110 per barrel.

Despite this challenging environment, BASF strives to slightly increase EBIT before special items for the full year 2014. Now I would like to update you on our We Create Chemistry Strategy and the respective financial targets which we published three years ago in 2011.

Our strategy is based on a long term trend, growth of emerging markets and certain customer industries. The growth in the rate of innovation, shift in feedstock costs and industry dynamics to name just a few.

We increased our investments in selected growth markets, intensified and globalized R&D, accelerated the pooling of our portfolio and sharpened the meaning of sustainability for BASF. They also laid out our operational excellence program which is called STEP which aims to achieve savings of €1 billion by the end of 2015.

And we announced specific financial targets for 2015 and 2020 in terms of sales and earnings. We have had this to be necessary also to allow you to hold us accountable.

Today well before starting the New Year we want to update you where we stand. This regard to our strategy, we are pretty much on track.

The decision to further globalize our R&D platforms mentioned earlier is just one example of the serious of initiatives and changes. Our portfolio optimization is ongoing resulting in more than 20 divestures since 2011 which we balanced with selected smaller acquisition many of them technology through.

Our operation excellence program step is ahead of schedule. By the end of 2015 we will most likely achieve €1.3 billion, €300 million more than planned and yet it looks like we will not achieve all of our ambitions financial targets next year.

We have worked very hard to reach them. However, early this year we told you that hitting this targets would require an economic recovery in major markets especially in Europe and a moderate improvement for some of our major basic products.

It's pretty obvious that this has not happened, we have seen a further weakening. Comparing the previously expected GDP industry and chemical production growth rates 2010 to 2015 was what we see today underlines this growing gap.

The average annual growth of global GDP we now see about 0.8 percentage points lower than expected. More importantly we know some growth of chemical production to be 4% instead of 4.9% per year.

This is still well above GDP and industrial production. We all now the reasons for this development, reduced gross dynamics of emerging markets and the delayed recovery in Europe.

Aside from lower demand growth which has adversely impacted our business, we have experienced margin pressures in some of our major product lines especially in China. Would just you one example, the margin of caprolactam in Asia today is more than 50% lower than in 2011.

We did not project such peak margins into the future, however the current margin is beyond what we had anticipated. Performance products we have seen a typical commoditization in selected product lines, this is why we initiated an additional restructuring program which will deliver about €500 million to earnings from 2017 onwards.

We have summarized these effect in one slide, lower market growth and lower margins cost us more than 1 billion of EBITDA each. The plant divesture of our gas trading and storage business was not considered in 2011 and the lower sales by approximately €12 billion and EBITDA by €500 million.

Expect the generated additional earnings of €300 million. The other positive factor amounting to around €400 million is the exchange rate since the expected weaker U.S.

dollar than what we currently see. However let me add we did not foresee back then the weakening of many currencies of emerging market from India to Argentina to Turkey which hit us quite severely over the last 2 to 3 years.

Most probably we will also see slightly lower growth going forward and we do not expect an immediate cyclical recovery. We now expect 2015 stated EBITDA to be in-line with current financial market expectations.

Analysts currently foresee is 2015 EBITDA between €10 billion and €12 billion clearly the aim to achieve the upper range. However we will as usual provide you with the outlook for 2015 at our annual analyst and investor conference on February 27 here in Ludwigshafen.

That day we will also discuss our updated long term targets. We assure that we will remain committed to growing our business profitability and further improving earnings in the coming year.

And with that we’re ready to take your question.

(Magdalena Moll Instructions). So we start with James Knight from Exane BNP Paribas.

Can I start on the very short term view? You’ve talked of the -- we can all see the share price.

I mean the oil price not the share price -- Freudian slip. But you’re quoted on Bloomberg as saying October is okay so far, can you just add a little bit more color as to what you mean by okay?

Thank you.

What we have seen in Q3 was a very slow July and August and then in September eventually business came back in a certain way. This is continuing and going into October but frankly this is now less than 15 working days and I think it's simply too early to say, how this will develop further on.

But what we have seen so far is the reason why we reiterate it to essentially our guidance for 2014 and achieving an EBITDA slightly above for last year's number. So at this point in time no further deterioration but certainly overall especially in Europe, no positive moment to feel.

Then we move on with Lutz Grueten from Commerzbank.

You’re talking about inventory built-up and the duration for maintenance shutdown, is this the only reason or this is also reflecting some destocking on the customer side?

Looking at the overall inventory development, you’re talking about the situation that we experienced by the end of Q2, we explained what the reasons were for the inventory build-up in particular also the build-up that we saw in our precious metal inventory as a result of the strikes in South Africa. Now that has worked its way through the system but not yet fully so that’s one of the reasons that you’re still seeing but my expectation is it will have worked its way fully through the system during the fourth quarter and yes indeed we have the usual planned turnarounds in Q4 that we need to prepare for that, that also leads to slight increase in our inventories.

Do we see destocking? I think we have experienced destocking during at our customers in Q3.

First indications from the months of October are that inventories at our customers are low and I think that also as explained by Kurt and led to a situation in the first half of October as we have experienced it pretty much in line with the second half of September.

And now this brings us to the next question from Thomas Gilbert, UBS.

Staying with Europe and going to maybe the next three years. I reckon one of the key markets for you is the luxury end of the automotive industry.

Now your cautious on Europe, first question, sub-questions of course as usual, does that include that particular end market, the luxury automotive segment, are you cautious there? And secondly are you cautious there on production or do you see the automotive industry is changing their purchasing behavior towards the chemicals industry in that they are down trading because it's embraced all the modern chemistry that replaces metal and saves energy.

So is this a cyclical fear that you’ve, or is there a structural fear towards European automotive coming into your thinking. Thank you.

Thomas, I mean luxury cars obviously it's not just a German domestic or European markets. These cars are very much exported as we seek to emerging markets like China and this is awfully important.

I think at this point in time we don’t have an indication that the market for us is slowly down in any way we still believe that the global automotive industry will grow healthy by approximately 3 million unit this year to something like 87 million – 88 million cars which is from other point of view is good -- essentially because we’re well connected with the growing part of the automotive industry.

Can I then ask a follow-up? If it's not automotive which end markets are you worried about into going into 2015 for Europe?

If you can just give some two or three headline end markets that worry you?

You mean end markets in 2015 being slow for BASF. I think at this point in time -- we delivered early to make that kind of forecast.

We have seen as I said we have seen quite noticeable slowdown of demand in Q3 and this was from our point of view pretty much across the Board and certainly what Hans just said also plays a role. There was certainly a bit of inventory trimming included as well and you know it's awfully difficult for us to differentiate exactly what is inventory trimming and what is really underlying demand development.

But overall I think the GDP numbers point to the direction of a slowdown.

This brings us now to the next question from Jeremy Redenius from Bernstein.

I just wanted to ask a question perhaps about the bright spot of the business and chemical has been a strong result again this quarter. You have talked about the increase of startup cost or maintenance cost this year that would basically EBIT to come in at last year's level.

It looks like you’re set to do much better than that. So I'm wondering if you can talk about the cost associated with it, are they coming as expected and also are we just really seeing a big step up in margins and in EBIT from this business because of your activities in North America, the low cost gas.

Thanks very much.

Your question on chemicals, yes we enjoyed a very positive margin development in Q3, as you’ve mentioned driven by petrochemicals margins and there again in particular cracker products. By the way that is true for North America, it's true for Europe and also for Asia-Pacific, with Asia-Pacific still generating the lowest margins but overall also they are a nice improvement that we have seen.

With respect to the startup cost, yes when we gave our guidance for the full year we said that startup cost will have dampening impact on our expected earnings for the year 2014 in the chemical segment. We mentioned in the meantime that there will be a delay with our Chongqing project, we said that in May.

So we won't start that up in Q4. That will now come in the second quarter of 2015 and that obviously helps also a little bit with respect to the performance in our chemical segment in the year 2014.

And so is it fair to characterize this year's good result so far as a little bit better than expected because of lower costs for maintenance or startups, a little bit lower cost from U.S. gas or more products of cheap gas and then also a little bit of benefit from higher ethylene prices.

You can look at it from the cost side, you can also look at it simply from the margin side and overall what we have experienced is a slightly better margin environment and then on top of that we’re obviously keeping our fixed cost under control and it looks like the MDI cost for Chongqing will come in '15 and not in '14.

So the next question comes from Laurent Favre from Bank of America Merrill Lynch.

My question is on the STEP program and the acceleration so that you get that 1.3 billion of savings as an exit rate for 2015. Could you tell us what is the exit rate for 2014?

In other words, the '15 to '14 incremental savings? Thank you.

Laurent, beginning of the year we said what we have got under the belt a 600 million by year-end 2013 and we said we then expect 200 million each year in '14 and '15 to get us to the 1 billion target. At this point in time we see that we deliver faster and a bit more, Kurt explained in his speech it will be 1.3 now.

The total amount and what we see for year-end 2014 is a P&L impact in the order of magnitude of 900 million to 1 billion and the remainder coming in 2015.

Next question comes from Michael Rae from Goldman Sachs.

Can you provide an update on the disposal of nat gas trading to Gazprom? I think the guidance is for completion in the autumn, so should we assume an announcement will be preeminent?

And just if you can give a summary of where you’re in the process, it would be great. Thanks.

We’re still working on some technical issues and the goal is to conclude as we said before in the fall of this year which I think officially last 21st of December.

Can you give us an details of just where you’re in the process? I mean is there anything that has taken a little bit longer or?

Michael there is a lot of technical nitty-gritty details we have to resolve but this kind of -- it took more time than we wanted actually. So we’re eager to get it done but I don’t want to go into more detail.

It's really the technical stuff which holds us back.

So now we move onto Andreas Heine from Barclays.

I’ve one question on performance products, we have seen in the last two years a very week Q4, is that a seasonal pattern or can it be better this year for whatever reasons? And how you see the trends in this business?

You had the strong growth in the first half but zero growth in the third quarter. Is that what you expect for in this division going forward or are there some other effect?

Thank you.

Just trying to find out the exact data so we tell you exactly what's going on. As you said Q4 is always a little bit difficult to predict because this is uncertainty when the year-end break really, really starts.

But we do think -- we don’t really give specific guidance on segment but we do think it should be a relatively good quarter for BASF performance products. Can we leave it that way?

Yes you can.

I have the data in front of you but sorry I'm.

I was just wondering in the last two years I was surprised about the strong seasonality towards Q4 and it was in both years, quite a disappointment but according to what you said that might not be every year the case?

Yes you’re Andreas, however we only know by the end of December and the fourth quarter is always kind of very special quarter unfortunately. And what you don’t really know is inventory management of your customers.

We have seen this more again and again and at the end of the quarter our customers try to trim the inventories holding back orders and we don’t know yet how they will operate during the end of the year, do they have to complete break, do they really continue to operate. All these things are kind of uncertain at this point in time.

But I gave you an indication.

Good. So then we move on to Tony Jones from Redburn.

One question for me with two small different parts to it. On Asia you highlighted that petrochemical margin just started to get better on Asia but having a look at the regional EBIT margin in Asia, it continues to be at a pretty low level which suggest that there is something else is going worse.

Could you help us think about what that is? And then also with the changing guidance and the management changes you talked about yesterday, should we read -- there is a slight shift or change to the internal view on the Asia investment program.

Thank you.

I think Hans will clarify the first topic with regard to base products in Asia and China. Management changes in -- a very interesting question Tony, essentially I would say these topics are unrelated within our company.

We have a long term strategy, that’s the way how we see markets industry dynamics. Our development going forward would have a hard time to imagine that now with Martin Brudermüller coming back to Ludwigshafen after seven years and Sanjeev Gandhi going back to Asia actually.

Anything should change, we have certainly a big advantage in having somebody with Sanjeev who has a deep experience of the Asian markets. He has worked in India obviously and Hong Kong and Singapore and Japan.

So he knows all these markets and he should get -- should be up to speed very, very quickly. So he is warm up -- should be relatively short and that is good because we have many projects going on in Asia.

We need management attention.

Just following up on that then so to be clear there is going to be no change in the CapEx guidance?

That is a different question, there is a more general question. At this point of the time we’re looking at our budget for 2015 going forward, I think we’re keenly aware of the market situation at some of our product areas.

You can rest assured that we stay as capital disciplined, financially disciplined as possible and I think we use the Investors Day this summer to talk about some of the bigger, larger product where we invest in China, in Asia where we do believe that we have good cost positions and defendable competitive positions than we have other topics like shale gas in North America that is specifically see which we can discuss if you like than we have Oil & Gas which needs a certain attention as well in terms of CapEx but again I think we’re very much aware that we have to look carefully at our CapEx budget.

So Tony on the margin question that you raised, I should have been more specific there in the beginning. We saw positive development on the cracker margins in Asia.

We see other areas which are definitely under margin pressure. Caprolactam, one example there.

The isocyanates, but also acrylic acid and BDO, so my comment earlier was specifically with respect to the improvement that we have seen with respect to cracker margins.

So now this brings us to Laurence Alexander from Jefferies.

Why don’t you touch on the, your views on the current volatility in oil prices and particularly if they did stayed down for an extended period are there parts of your business where you would see better positioning for share gains over the next say 2 to 4 year horizon?

I will start with -- obviously with the easy piece, we have seen the oil price coming down in the relatively short period of time by significant amount Brent this morning trading at I believe 86.40 when I looked at the last time. Average prices that we’ve experienced in the first nine months are still at I think the average for Brent is at slightly above 106.

So $20 per barrel Brent below what the average is for the first nine months significant amount there, that has an immediate impact obviously on our oil & gas business, you know the guidance that we’re giving there which is $1 per barrel equates to 15 million in EBIT on annual basis. Now, that's for the oil and gas business.

Whether a lower oil price overall will allow us to position ourselves better in other parts of our portfolio, I think the answer to that needs to be it remains to be seen. Typically, what a lower oil price means -- it's a reflection on overall lower demand, which then also would have an impact on our entire portfolio.

Could it be that lower oil prices allow us through lower feedstock costs to position ourselves in a different way compared to, in particular, North American competitors? That might be the case.

But as I said, that's all in a big speculation there. So I would like [Technical Difficulty]

Thank you.

Okay we can go on with Christian Faitz.

I'll take those questions. Actually, there are two.

U.S. -- you’re correct, yes that that is a fact.

We got hit by a weaker AG business in the United States and the other factor is really mix. We have other products in the mix now which have a lower contribution margin, and that essentially leads to a lower overall margin in AG, despite the slight price increase that you mentioned.

Next question comes from Martin Evans, JPMorgan.

Just going back to the 2015 guidance, or your new guidance, if we were to take maybe the midpoint of €11 billion of EBITDA for next year as a starting point, even allowing for the STEP progress and possibly cost inflation that would imply around a 5% progress next year on this year's consensus EBITDA, can you just remind us which bits of the business, given the relatively gloomy macro environment, which bits of the business you are more confident about in terms of showing that sort of underlying growth projectile, irrespective of the current GDP situation?

Actually, it's not going back. It's going forward when you talk about 2015.

I don't want to speculate about long range, midpoint, et cetera. We will leave that to the meeting on February 27, when we brief you on what we see going forward.

I think that is core of your question -- we do have businesses which obviously are based on innovation that can continue to grow quite nicely because they have customer intimacy. We have seen this now in Asia and very nicely in the entire automotive space which is growing very, very nicely for BASF, also in a profitable way.

So despite what you described, a more conservative macro outlook, we do have quite some areas where we can grow based on our own strength and our own performance, and are not just subject to overall supply demand factors which we have seen now quite clearly in some of our upstream businesses.

Next question from Jagjit Bhambra.

Just speaking to 2015, two, basically, questions -- if you can quantify or give us some color about agro chemicals or agro solutions -- what are you doing here? And what should be our expectations for 2015, given a sharp drop in profitability on a year-on-year basis?

And then just what is your working assumption for oil price for next year when you give this precise range of €10 billion to €12 billion or you are sort of pointing out the consensus? Because obviously that is a key part to your -- you know beyond your bridge.

Again, I do not want to speculate too much about 2015 right now. With regard to the oil prices, I think it's pretty obvious and clear that most likely we will work with an oil price which is below $100 per barrel.

I think that is a realistic assumption from per-day point of view. And in agro we have to put things into a perspective.

We have had a great run for 6 – 7 years, continuous improvement, excellent top line growth, excellent profitability, despite considerably higher investment both in R&D and marketing. We have an excellent pipeline; we have briefed you on that one.

We have defined clear mid-term targets for BASF. So what we experience right now is a little bit -- a setback against a definitely softer marketplace.

And now speculating about 2015, there you have to make a couple of assumptions about the market development in soft commodities, which I don't want to do at this point in time. I can only tell you that we do think that we have an excellent portfolio-pipeline and we have a couple of ideas, new products coming to the market as well.

So fundamentally and structurally, we don't see that this business is now different from what we had six months ago. Let's put it that way.

My question was more related to -- if you look at your comments on Latin America, where you do flag more competition. So going into next year, do you feel that you have enough in your pipe in new products that will offset this or get you out of this?

Or should we expect you are investing more in ag, and there is a little bit more competition in Latin America? Should we expect this to linger on?

Because this started as a theme in Q2 and it has obviously continued into Q3.

I would clearly describe this as a normal volatility in our markets. Sometimes you gain share; sometimes you lose a little bit of share.

And we have gained for quite some time, according to our data. So, again, we don't see a fundamentally different path forward than what we had 6 or 12 months ago.

There is this overarching topic of profitability in the entire X space, meaning soft commodity prices, which are certainly important for some of our products especially those which are used for what we call plant health, which is very much about additional yield, which farmers normally only apply these products if prices or when prices are at a certain level. So there is a certain part of our portfolio which is very price sensitive to soft commodity prices and therefore it's a little bit difficult now to make the forecast for 2015.

And actually, I don't want to make a forecast for 2015, because that's what we typically do in February.

The gas trading volume, I know you’re imminently going to sell the business, but can you just explain why that did quite as well as it did, please?

What we saw in Q3 is actually a significant increase in the volumes, which has to do with the fact, predominantly, that got to the end, what's called -- of the gas year which ends in Q3. There are a number of contracts which have minimum quantities due to the very warm winter.

Some of our customers didn't pull as much gas as they were expected to and had expected themselves. Now, getting towards the end of the gas year, they pull the gas according to their minimum obligations and that is the major explanation here.

Plus, then, we had some price revisions, which is also typically for that business with suppliers. And overall, that led to the good performance of our natural gas trading business in Q3.

The profit is sort of retrospectively adjusted. That's right for this one?

So it's a reset to the beginning of last year or something on that order? Is that right?

Well I'm not 100% sure that I understand your question correctly. We report the results, obviously, till the point where we then swap that business out, which is expected to be prior to the end of this year.

And what's going to happen is from an economic perspective, that the results that are generated in that business from -- if I recall that correctly -- April 1, 2013 on -- are then the buyers' or the swap partners economically.

Now this brings us to Oliver Schwarz from Warburg.

Just a quick one on the margins in the chemicals business, is that solely due to the change to flexible feed in the U.S.? Or does that number contain also some windfall product profits, so to speak, from declining raw material prices that don't have yet reached your customers because the contracts are fixed on a monthly or a three monthly business?

So, example, will we see, let's say, a moving up of that windfall profits along the value chain? And will that no longer stick, for example, in the chemicals business starting, let's say, Q4 of this year?

I think what we've seen in Q3 -- I would not call that windfall profits. What I think we've seen is a good balance between supply and demand that had to do with a number of things, among them scheduled as well as unscheduled planned outages.

But overall, you saw that clearly reflected. Raw material price decline -- yes, that may have played a role, but I would say a much smaller role than overall supply and demand.

And you already alluded to the steps that BASF has taken to change raw materials for the cracker in Port Arthur. And that also certainly has shown the results that we expected in Q3, in combination with a 10th furnace that we started in April of this year in the cracker.

So all of these three components together led to the good and healthy performance that we've seen in the chemicals segment in Q3.

And Oliver, you’ve to keep in mind that everything was just perfect in it for us. We have our SM-PO plant in Moerdijk -- which is operated by Shell, which is not operational at this point in time has also had quite a negative effect on overall profitability of the petrochemicals business.

Now we come to Peter Clark from Societe Generale.

Coming back to the Asian margin question, and obviously it's come back a long way. If you go back to the extraordinary peak in 2010, those were -- what about 10%?

It has been hovering around the 6% level, just a bit below that. I know it's very dangerous just to look at that regional margin as such.

But effectively, I'm just wondering when you see this turning or starting the long slog back up because obviously, the outlook for supply-demand remains quite difficult in some of the major markets in Asia for some time, just your feel on that? Because we've sort of stabilized around this 6% level for quite some time now and just your thoughts on what it might start to claw its way back up.

I don't think that at this point in time, Peter, we have a clear opinion on when China should really -- a tightening of supply-demand again. Actually, it's very hard to say.

As I said before, we focus also on our downstream business which could grow very nicely. But in the upstream businesses, I think it would be realistic to expect for quite some time that we continue to see margins under pressure.

At least, that is our assumption going forward.

So now we’re moving on to Geoff Haire from HSBC.

Just wanted to ask, you hinted earlier in the Q&A that you may have looked at the CapEx budget going out for the next few years. Would that entail you also may be having a slightly bigger probability of returning cash to shareholders, either through special dividends or share buyback?

Yes, I can take that question, special dividend? You’re not at alluding to our anniversary next year, which is 150 years.

So there is very little inclination on our side to have a special dividend for our 150th anniversary. And buybacks -- we have started now for quite some time.

I think we do have a solid balance sheet which has certainly enhanced stock. But I don't see at this point in time meaningful potential for a buyback and when you start something like that, it would be meaningful and not just buy it then.

But then we should do it as we have done between 1999 and 2008, where essentially we continuously bought back stock on the order of magnitude of about €1 billion a year and that I don't see for 2015.

Our next question comes from Mutlu Gundogan from ABN AMRO Bank.

A question on trading conditions -- you mentioned destocking basic chemicals. Just wondering how long you would expect that to continue.

And would you expect this to affect some of the downstream products as well in particular as we approach the end of the year?

Destocking in petrochemicals or in base chemicals is pretty difficult because normally inventory levels are not really that high. Very different from some of the downstream business, where we have very long value chains and sometimes inventory levels at our customers which are much longer and much higher.

So we don't think that this will have a major effect going forward. And again coming to the end of the year, behavior of our customers is very hard to predict.

But our underlying assumption is that there is again a major effort to trim the inventory levels.

Our next question is from Markus Mayer from Baader.

A question on the target or on M&A. Is M&A included in your target?

And on the divestments, you have been successful with leather chemicals divestment. Are there further divestment candidates in your portfolio?

For example, is leather again on the block?

Actually, Markus we divested the textile business, not the leather business.

But are textiles now on the block or they have been a divestment candidate? And then you pulled this back.

Now the question is, are your leather on the block again?

We’re looking at a couple of potential candidates for divestitures that is an ongoing exercise. I mentioned in my little speech earlier on, we have done quite a few over the last couple of years, and this will continue.

But I ask you for your understanding that we normally talk about this after we have concluded a deal. We made one exception here, which was really the kaolin business as part of the paper chemical business, just to help you to understand the rationale why we decided to dissolve this paper chemicals division after our decision to divest a part of the kaolin business over the next couple of quarters.

And is the M&A part of that 2015 target or is included?

Going forward, we normally don't but M&A into our EBITDA targets because there is a high uncertainty whether you can really get what you want to buy. Historically, what you can say for BASF's M&A -- the net effect was a slight positive over the last 10 years.

It always added about 1 percentage point to our growth. But that is also almost more often a side effect.

We look at businesses on a case-by-case and try to understand whether they really add to our performance, to competitiveness, and profitability. And then it can happen, but it also adds net-net to the growth of BASF.

But precisely, coming back to your question, it's not included. It's not included -- no, our 2015 models which we normally talk about and at the annual press conference.

So now given the time, we are circling in on the last two questions. There is one coming from Ronald Koehler from MainFirst and the last one then from Thomas Gilbert from UBS.

Oil & Gas, so question one, A, actually your volumes. You said volumes are down in Q3.

Is it a production issue or is it a demand issue? And then, looking a bit forward we obviously have Libya at least coming back on stream with this limited level so far.

How do you see the ramp up here? And also a bit on Q4, so in general, with Libya coming back, I'm not sure what your volumes will do, if they should come back in the rest of the world as well and with lower oil price.

Can you a little bit elaborate what we should expect in Q4 on oil and gas, excluding natural gas?

I'll start with Libya. We restarted production there on, I believe exactly September 22 -- 35,000 barrels per day of a production capacity that we have of 100,000.

I can't tell you at this point in time whether we will see any type of ramp up. It's still fragile, the situation there.

We do not have any experts on the ground, due to the situation that we face in Libya, the export terminals. It's still unclear what the available capacity is there.

So we’re working with the assumption that we'll produce in this order of magnitude. This is 35,000 barrels per day in Libya in Q4.

The connection wasn't too good, but I think the first question that you asked had to do with the earnings performance in the E&P segment and you asked, why did volumes come down? It's not a production issue that we have there.

It is the difference between having an offshore lifting in Q3 of the year 2013 and not having an offshore lifting in Libya in Q3 of the year 2014. At this point in time not yet 100% clear on whether we will have one late in Q4 or early in Q1.

So we are coming now to Thomas Gilbert, last question.

North American base chemicals -- assuming the North American economy continues to grow, can we assume that you do have wiggle room and enough spare capacity to satisfy that demand? Or asking it from the other way around, from Laurent's question, the STEP benefit that relates to Port Arthur -- has that been partially reaped?

Or i.e., is this fully loaded in Port Arthur? Or is there still incremental capacity or benefits to come?

In other words, how do you see capacity utilization rate there? Is there upside into 2015 in Port Arthur?

Actually we’re not sold out in North America, so there is still a little bit room to continue to grow and we have a couple of investments which are in this shale gas space like formic acid, they also come on stream. Overall, however, you have to keep in mind profitability of a cracker is yet determined by capacity utilization rate, but it's also the margin.

What we do see then, next year is that we have to become very specific -- then we will have the 10th runners in Port Arthur fully available for the total year. So there is still room.

Ladies and gentlemen this brings us to the end of our conference call. There have been a couple of who are still on our list whom we will be calling back as soon as we have finished here.

But I would also like to alert you that our full year reporting, as Kurt said before will be on February 27th, 2015. For today I would like to thank you for joining us on the call.

And whoever should still have any further questions, please contact any member of the IR team and we will be happy to help you. With this we say goodbye.

We wish you a very nice weekend and hope to speak to you soon. Thank you.

Bye.