BASF Se

Stefanie Wettberg – Senior Vice President-Investor Relations Kurt Bock – Chairman of the Board of Executive Directors Hans-Ulrich Engel – Chief Financial Officer

Andrew Stott – UBS Christian Faitz – Kepler Cheuvreux Paul Walsh – Morgan Stanley Tony Jones – Redburn Laurence Alexander – Jefferies Jeremy Redenius – Bernstein Andrew Benson – Citi Peter Clark – Societe Generale Markus Mayer – Baader-Helvea Mutlu Gundogan – ABN AMRO Martin Evans – JPMorgan Patrick Lambert – Raymond James

Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our analyst and investor conference call on the first quarter 2017 results.

On the call with me today are Kurt Bock, Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, BASF Chief Financial Officer. Kurt will explain the financial performance of BASF Group in the first quarter 2017, while Hans will present the segment results and financial figures for the quarter in more detail.

Kurt will conclude by providing BASF’s outlook for 2017. Please be aware that we already posted a longer version of the speech on our website at basf.com Q1 2017.

With this, I would like to hand things over to Kurt.

Yes. Thank you, Steffi, and ladies and gentlemen, good morning and thank you for joining us.

BASF had a good start to the year and finished the first quarter 2017 with conservative growth in sales and earnings compared to the prior year quarter. We were able to further increase our sales volumes.

The demand trend we saw in the course of 2016 continued into Q1. In some of our key value chains, supply and demand balance has improved.

Sales in the first quarter increased by 19% to €16.9 billion. This was mainly due to higher volumes and prices.

For BASF Group, volumes rose by 8%, supported by all segments. With that, we achieved increasing volume growth for the fourth consecutive quarter.

Sales prices increased by 8% following higher raw material prices and favorable market conditions, especially in Chemicals. Currency effects positively impacted sales by 2%, while portfolio effects amounted to 1%.

This was mainly related to our acquisition of Chemetall, which overcompensated the divestiture of smaller businesses, including industrial coatings and olefin catalysts. EBITDA increased by 25% to €3.5 billion.

EBITDA before special items were 23% to also €3.5 billion. EBIT before special items came in 25% – 29% higher than – higher at €2.5 billion.

Considerably higher earnings in our Chemicals business and in Oil & Gas drove the earnings increase. At €2 billion, EBIT before special items in our Chemicals business increased by €536 million, respectively 37%.

The increase was supported by a first insurance payment of €100 million related to business interruptions and physical damages in Q4 of last year, following the accident in the North Harbor in Ludwigshafen. About three quarters of this amount was recognized in the Chemicals segment.

At around €2.5 billion, EBIT was 31% higher than in the same period of last year. Special items amounted to minus €6 million.

From a regional perspective, we significantly improved sales and earnings in Asia Pacific, where we succeeded in growing volumes strong in all segments. China was a main contributor to this development.

Sales prices increased, especially in Chemicals. The tax rate grew from 15.4% to 22.9%, mainly due to higher taxes in Norway.

At €1.7 billion, net income rose by 23% compared to the prior year quarter. Earnings per share were €1.86 in Q1 versus €1.51 last year.

Adjusted earnings per share amounted to €1.97 compared to €1.64 last year. Cash provided by operating activities was €833 million compared to €1 billion last year.

This was attributable to changes in net working capital. We saw the usual seasonal increase in trade accounts receivables as well as higher sales in the Chemicals business.

Nevertheless, free cash flow rose from €45 million to €66 million in the first quarter. We continued to implement our “We create chemistry” strategy.

Our commitment to research and development is core to this strategy. In early March, we inaugurated our Innovation Campus in Asia Pacific in Mumbai in India.

The Innovation Campus will expand BASF’s existing R&D activities in India and include regional as well as global research on a wide range of specialty chemicals. In mid-March, BASF and Hewlett Packard Enterprise announced to jointly develop one of the world’s largest supercomputers for industrial chemical research.

The supercomputer will support the digitalization of BASF’s research worldwide. This week, we signed an agreement to acquire U.S.-based company ZedX, a leader in the development of digital agricultural intelligence.

The company’s expertise lies in the development of economic weather, crop and pest models that can rapidly translate data into insights for more efficient agricultural production. Our current strong volume development is largely enabled by the chemical expansions over the last few years.

We will continue to fill the new capacities. In addition, further investments at an average level slightly above depreciation will support our organic growth.

In early March, we inaugurated our mobile emissions catalyst manufacturing site in Chennai in India, doubling capacity for mobile emission catalysts in that country. In mid-March, we started up our expanded production facility for dicamba in Beaumont in Texas.

Dicamba is the active ingredient for our latest herbicide product, Engenia, which is used to combat glyphosate-resistant weeds. We continue to optimize our portfolio.

On March 22, BASF and Stahl signed an agreement to combine BASF leather chemicals business with Stahl Group. Under the terms of the agreement, BASF will receive a 16% minority stake in the Stahl Group as well as a payment that will lead to a special income at closing.

Furthermore, BASF will supply significant volumes of leather chemicals to Stahl under mid-term and long-term supply agreements. On April 6, we announced the sale of our non-core Bleaching Clay and Mineral Adsorbents business to EP Minerals.

These activities are currently part of the Process Catalysts business unit of BASF’s Catalysts division. At the beginning of this week, we announced the acquisition of GRUPO THERMOTEK, a leading construction chemicals supplier based in Monterrey in Mexico.

THERMOTEK is a privately held company founded in 1992 and the leader in waterproofing systems in Mexico and Central America. I will now hand over to Hans, who will provide some more detail on the development of our segments and at the end I will then talk about our outlook for 2017.

Hans?

Yes. Thank you, Kurt.

Ladies and gentlemen, good morning also from my side. I will start with highlighting the financial performance of each segment in comparison with the first quarter of 2016 and start with the Chemicals.

Sales in Chemicals increased considerably. The main drivers were higher prices in Petrochemicals and Monomers, as well as increased volumes in all divisions.

In a tight market environment, we were able to expand margins, especially in isocyanates, cracker products and acrylics. Overall, fixed cost went up due to the start-up of new plants.

Improved margins, higher volumes and increased contribution from our joint venture BASF YPC in Nanjing resulted in an EBIT before special items of €958 million, more than doubling the earnings of the prior year quarter. During the first quarter, we continued to experience the negative impact associated with insufficient supply of raw materials due to the North Harbor accident.

However, this impact was offset by the first insurance payment related to business interruption losses and physical damages incurred in Q4 2016. Sales in Performance Products increased by 9%, mainly due to higher volumes in Dispersions & Pigments, Care Chemicals and Performance Chemicals.

Slightly higher prices and positive currency effects more than compensated for negative portfolio effects. However, higher prices could not fully offset increased raw material prices and higher fixed cost.

EBIT before special items therefore declined slightly. Sales in Functional Materials & Solutions increased significantly as a result of considerably higher volumes.

This was mainly driven by strong demand from the automotive industry. Slightly higher prices and positive currency effects also contributed to the sales increase.

Portfolio effects were overall positive. The acquisitions of Chemetall as well as Henkel’s Western European building material businesses more than offset the sales impact from the divestment of our industrial coatings and polyolefin catalysts activities.

EBIT before special items for this segment was up significantly; in particular, due to the volume growth and our acquisition of Chemetall. Despite continued difficult market conditions, sales in Agricultural Solutions came in slightly higher than the prior year quarter.

Higher volumes and positive currency effects contributed to this while prices were flat. Sales to customers in Europe nearly matched the prior year level.

Sales grew considerably in Central and Eastern Europe. In Western Europe, we saw volume decline.

Sales in North America increased considerably as a result of positive currency effects and higher volumes. Volumes were up due to higher demand for herbicides, especially for our new solutions, Engenia and Zidua PRO.

Sales in Asia rose considerably. Volumes grew in fungicides due to earlier demand in China and the successful market launch of Seltima in India as well as solid herbicide sales volumes in Indonesia and Australia.

In the region South America, Africa, Middle East, sales increased considerably, mainly driven by positive currency effects resulting from the Brazilian real. Higher volumes partially offset lower prices.

Especially in Argentina, we have strong demand for herbicides. For insecticides, we experienced strong demand in Africa and the Middle East.

In comparison to very strong prior year quarter, EBIT before special items declined slightly. This was the result of lower average margins due to a different product mix.

Fixed cost rose slightly, among others, because of the start-up of new plants. Sales in Oil & Gas increased significantly, mainly due to higher Oil & Gas prices.

In Q1 2017, the average Brent price or price of Brent crude was $54 per barrel, in the range of our expectations, and $20 higher than in the same period of 2016. In addition, gas prices on the European spot market were significantly above the prior year quarter.

The combined price and currency effect amounted to plus 24%. Sales volumes increased by 12%.

While production volumes matched the level of the previous first quarter, sales volumes, especially of natural gas, exceeded the level of Q1 2016. Overall, EBIT before special items increased from €66 million to €170 million, mainly due to higher prices.

Higher earnings from our participation in the Yuzhno-Russkoye gas field also contributed. Net income in Oil & Gas amounted to €140 million compared to €47 million in Q1 2016.

I come to Other. EBIT before special items in Other declined to minus €250 million from minus €219 million in the prior year quarter.

This was mainly driven by our long-term incentive program. While earnings in Q1 2017 were negatively affected by an increase in provisions, the prior year quarter benefited from the release of provisions for the LTI program.

Let’s now turn to our cash flow. In Q1 2017, cash provided by operating activities was €833 million, a decrease of €213 million.

This was largely due to the higher amount of cash used for net working capital purposes. It rose mainly because of the seasonal increase in trade accounts receivable as well as higher sales in the Chemicals business.

At €1.2 billion, cash used in investing activities was €43 million lower than the prior year quarter. Payments made for tangible and intangible assets decreased by 23% and amounted to €767 million.

Free cash flow rose from €45 million to €66 million in the first quarter of 2017. Financing activities led to the cash inflow of €831 million compared to €2 billion in Q1 2016.

We used the currently favorable market conditions to further optimize the financing cost of the BASF Group. And with that, back to Kurt for the outlook.

Okay, Hans. Today, we are confirming our sales and earnings outlook for 2017 as provided at the end of February.

We expect BASF Group sales to grow considerably in 2017, which means an increase of at least 6% according to our definition. We target to slightly raise EBIT before special items compared with 2016.

As we previously shared, we expect this increase to be in the upper end, up to 10% range. EBIT is also expected to grow slightly in 2017.

We strive to once again earn a significant premium on our cost of capital in 2017. However, EBIT after cost of capital will decrease considerably due to higher cost of capital, mostly from the acquisition of Chemetall at the end of last year.

Based on the good start to the year, our outlook may seem cautious, but we see some elevated risks as regard to macroeconomic development and political environment. Therefore, we confirm our full year outlook at this time.

And now we are happy to take your questions.

Ladies and gentlemen, I would now like to open the call for your questions. [Operator Instructions] And the first question is from Andrew Stott, UBS.

Please go ahead.

Yes. Good Morning.

Thanks. Question with Oil & Gas.

The drop-through on the €200 million plus of revenue growth was a lot less than – sorry, a lot less than, at least, I expected. The D&A was up significantly.

So can you just comment around why we’re seeing growth in D&A of about €70 million and whether that then translates to the full year? So just give me a sight on that.

And can I still, a second part on crop protection, can you just elaborate on the mix comment? Is it more herbicides and less fungicides?

Is that the problem on the gross margin? Thank you.

Yes. Thank you, Andrew.

I’ll take the crop protection question. Yes, you’re right, it’s more fungicides and – it’s less fungicide and more herbicide and that is also very much related to the very cold weather we have currently in Western Europe.

And you have seen in our report that also volumes in Western Europe are below last year’s numbers. But please keep in mind, we are talking about Q1 and the final accounting will only be done after the conclusion of the first half of this year.

Yes. Hello, Andrew, this is Hans.

Your question on depreciation, amortization in the Oil & Gas segment, D&A is up by €70 million. This is due to the start-up of new fields.

You may recall we started up the Vega Pléyade field in Argentina, also in the second half of last year, increased capacities in Norway, in particular. This leads to higher depreciation.

And you can expect this depreciation also to continue in 2017 in the quarters to come.

Okay. Thanks a lot.

The next question is from Christian Faitz, Kepler Cheuvreux. Please go ahead.

Yes. Thanks for taking my two questions, Stefanie and gentlemen.

Congratulations on the results overall and particularly congratulations to your profit performance in Asia. Could you differentiate the performance in Asia between China and other Asia?

Thanks. And then my second question, also pertaining to Dr.

Engel’s comments. In agro, can you please give us an indication how the current crop season in Europe has started?

Looking at weather conditions, Q1 should have had rather easy comps actually, in my view, simply because March 2016 was very wet. But I would believe that Q2 2017 will get much tougher, given rather dry conditions coupled with low temperatures.

Is that a correct observation? Thanks.

Yes. Hi, Chris, and if I knew the answer to your second question actually, this is highly, highly uncertain in our crop protection business.

We expect overall, a relatively flat market in Europe. Economic conditions are quite similar to what we have seen last year with the volatile exchange rates and relatively low commodity prices, especially in Russia and Ukraine.

Nevertheless, planting intentions foresee relatively high levels for grain and oilseeds in Russia and small gains in oilseeds in Western European countries. This is also due to the pricing, which we see currently in the market.

So it’s a very mixed picture. And as I said before, I think we have to wait for July to finally see how the season has developed in 2017.

And Asia, the growth comes and I think this is a positive development, not only from China, but it comes predominantly from China. We have had good double-digit growth in China in Q1 against the background of new capacities, which we have brought on-stream over the last 2 years.

So I think this is also necessary to grow. We feel like we are currently growing slightly faster than the chemical market in China.

That is our interpretation. And as you know, in China, we have very different businesses upstream, which is certainly supply-demand driven, but then lots of downstream activities, especially automotive-driven, where we have seen a bit of a slowdown in the automotive growth rate in Q1 compared with the 2016 and still higher incentives are being offered to the consumers.

However, we continue to grow very nicely in that industry, which is very important for BASF.

Okay. Thanks a lot.

Yes. Thanks very much.

Morning, Stefanie, Kurt, Hans, my 2 questions, please. Firstly, on capacities, can you remind me in which product lines you are still suffering production disruption?

That’s my first question. And my second question in Oil & Gas, you guys obviously give the sensitivity to moves in oil.

Can you help me understand the extent to which actually gas prices are more important as a barometer for performance in that business and what you’re seeing in gas prices, please?

Yes, Paul, I take your question on the Oil & Gas price sensitivities. You and I talked about this.

I tried to explain what the difficulty is. With the gas price sensitivity, it is, in particular, that we have, I’d say, on the gas side, more than 2/3 of our gas activities in regulated markets.

That makes it extremely difficult to provide a gas price sensitivity. You also see when you look at our Q1 results and what we’re providing there with respect to volume increase, price increase, structural impacts, you see that we have prices increase, if I recall correctly, by 24%, which is clearly less than what you are seeing when you look at the Brent price development, compare $34 in Q1 to $54 in – Q1 of 2016 to $54 in Q1 2017.

You also see less of an increase in prices than what you would see when you would just look at Northwestern European natural gas prices. But the driver behind that is the fact that two-thirds of oil production happens to be in countries with regulated prices.

But just to be clear, Hans, that is incorporated in that $20 sensitivity to every dollar in oil, correct?

What we’re providing is only a sensitivity for oil. And to be more specific on that, that includes our production in Libya where currently, since March 7th, we do not produce and have produced only at very low levels in the first 2 months of this year.

Thank you.

Okay. Paul, your question on capacity and capacity constraints in – let’s start with China.

We are essentially sold out in Nanjing, and we had very gratifying result, also due to good volumes, good utilization rates but also higher margins. Chongqing, that is our MDI plant, not running at full capacity.

We had to interrupt production again and again this year, essentially because there’s a lack of feedstock availability and that is where a partner of BASF is working on to improve reliability with respect to that. That is certainly a bit painful in a relatively tight market for MDI.

We have in Ludwigshafen, in TDI, still the repair completed, but the test runs now for the new reactor which we put into place for the relatively new TDI product, I have to say, that is ongoing exercise. And we are – and this is an on and off work in terms of test runs now, and we expect to come back pretty soon.

We have – then all our markets like BDO, where margins still have to recover, where we have a bit of a production issue in Kuantan, to give you one example here where we have not full capacity available. So overall this year, in Q1, the cost of unplanned outages are slightly higher than in the first quarter of 2016.

And finally, we have the North Harbor incident here in Ludwigshafen, where we obviously had a negative volume effect and earnings effect in Q4, continuing slightly lower into Q1 and this will also continue into Q2. This affects essentially the propylene access for our site, so the C3 value chain is here impacted in a certain way.

What is important and maybe I will explain this again, we got this €100 million insurance payment now in Q1. That payment essentially offsets the negative effect of lack of product availability in Q1, so that is essentially a wash.

And we expect a similar wash going into Q2, where we still then have not all capacities available, and most likely, we’ll receive another €100 million insurance payment. And then in Q3, we most likely will have completed the repair of the pipeline grid and are back to normal operations.

And then, we also do final accounting from an insurance point of view.

That’s really clear, Kurt. And just to be clear on the C3 chain, that’s largely acrylics?

Yes.

Thank you very much.

Welcome.

The next question comes from Tony Jones, Redburn.

Good morning, everybody. Question, partly related to Paul’s actually, so it was just on some of the pluses and minuses for costs, but specifically in Chemicals.

So I just wanted to check, is the insurance gain, the €100 million, all in the Chemicals segment? Or is it spread partially over a couple of different BASF segments?

And then thinking about some of the shutdowns you talked about versus the ramp-up costs, which I think we had last year. I think I had in my notes that there was about €200 million of EBIT impact spread over 2016.

So I was wondering whether we still should be thinking that, that continues, at least partially, and then we’ve got these added shutdowns you talk about. And then finally, should we be expecting any major maintenance over the next quarter or 2, maybe one of the crackers goes into maintenance for prolonged period?

Thank you.

Okay. Thank you, Tony, for your questions.

The €100 million, I think I said in my little speech, about 3/4 go into the Chemicals segment and the remaining 1/4 is distributed mainly in Performance Products, partially also in Functional Materials & Solutions, but the big chunk is really at Chemicals. And that also holds true then for Q2 most likely.

Shutdown and ramp-up costs, as you know, outages and turnarounds, these are 2 different categories. The turnarounds, we can plan.

And what we see right now in 2017, the cost of planned turnarounds will be at the level of last year. Last year was around €300 million.

This year-to-date, planning is also at €300 million for turnarounds. And the unplanned, as I said before, are slightly higher in Q1.

And we certainly aim to come back to more normal operation with respect to that as soon as possible and want to be below then the total number of 2016, which was a bit elevated compared with, let’s say, our historical average with respect to that. And maintenance, yes, we do have a couple of maintenance projects coming forward, coming on, but this is essentially covered in what I just told you about the planned turnarounds.

So nothing really special compared to last year. This is normal course of business, I would say.

Great, thanks very much.

Welcome.

The next question comes from Laurence Alexander, Jefferies. Please go ahead.

Good morning. I guess, two things.

First, could you give a little bit more detail on the pressures you’re seeing in Construction Chemicals and Nutrition & Health and how you might address those? And secondly, within Functional Materials and Performance Products, how much – sorry, how much of each of those is product lines that are effectively nearly sold-out if you continue at the volume growth that you’ve been seeing recently?

Laurence, thank you for your questions. I’ll start with Construction Chemicals.

I think the main reason is that they’re not completely happy is that we have a very high exposure in the Middle East. And the Middle East has weakened considerably, essentially due to a lack of infrastructure investment and a lack of financing availability, plus payment behavior of customers has changed as well.

So there’s a, let’s say, a little bit unfortunate combination which hits BASF probably more than others because we have a relatively high share in those countries, which essentially are very attractive for Construction Chemicals. Health and Nutrition, anything special to report?

I’m just wondering. This is – Hans, if you...

In Health and Nutrition, Laurence, what we have obviously is the developments in vitamin prices, where we’ve seen peaks both in vitamin A and vitamin E in the third quarter of last year due to capacities, in particular, in China being temporarily shut in. After G20, they started up again, which led to significant price declines in both vitamin E and vitamin A, so that is certainly a watchout.

Q1 prices in both are slightly higher than what we’ve experienced in Q1 of last year, but we are pretty much back to the same level as we were in Q1 due to these capacities being back in the market. And I think this is actually, if I think about Nutrition & Health, this is the key watchout there.

And capacity constraints, your last question, Laurence, as you know we have spent quite a bit of money on CapEx over the last couple of years, so we have essentially capacity available to grow. Do we really have acute bottlenecks?

I mentioned Nanjing where we sold-out and – as we speak here. But overall, I think there is enough capacity available.

And in the downstream businesses and, anyway, those investments are more of an incremental nature. And I mentioned, for instance, the doubling of our automotive catalyst capacity in India, which we just completed.

These are relatively small investments which are really very much market-driven according to the business we are bidding for and mostly likely also gaining. So I don’t think that capacity-wise, supplier-wise, we should be concerned about lack of growth opportunities for BASF.

Thank you.

The next question comes from Jeremy Redenius, Bernstein. Please go ahead.

Yes, hi. It’s Jeremy Redenius from Bernstein.

Thanks for taking the couple of questions. First of all, I noticed in the report this morning you mentioned that Europe – European volumes have grown year-over-year.

And I wanted to see if you would quantify what the growth is for the business in Europe outside of Oil & Gas and if that’s largely linked to what I’d expect to be the auto industry. And then second, we’ve been working with a model that, I think, does quite a good job with your Oil & Gas segment, but it looks like the price sensitivity – the price change that you report has been much different than what you’d infer from European spot gas prices now.

And I’d heard your comments earlier about the regulated price in many regions, but that’s been the case all along. So I guess, the question is, has that – has there been anything changed in the nature of your contracts such as the price sensitivity would be lower now than it was, let’s say, last quarter or last couple of years?

Thanks very much.

Okay. Jeremy, thank you for your question.

European growth, non-Oil & Gas, Q1 is 7%, which was slightly above-market growth most likely.

And which industry has been the driver of that?

That is Chemicals. Everything which is not Oil & Gas.

Yes, I understand. But what types of customers is that going to?

That is across the board, I’d say. I don’t have specific data here industry by industry.

But we had, as I said before, we had a good start into 2017, including Europe and 7%. It needs to be seen whether that speed can be maintained over the course of the year.

We did quite well in automotive, which continues to grow in Europe. Consumers was okay from our point of view.

We talked about ag, which has a slow start. So if you take ag out, the growth for the non-ag, non-Oil & Gas businesses would be even slightly higher.

Okay, thank you.

Jeremy, your question on pricing mechanisms in Oil & Gas, no change there. I hope I explained well enough what’s happening structurally and why you don’t see the same type of price increases in our earnings as you would see when you just follow Brent and just follow Northwestern European gas prices.

The two things that you may want to keep in mind is Libya, almost no production in Q1, that certainly has an impact. And then we have, in Russia, through the way the price models work there, the mineral extraction tax, which was increased, works its way through in our pricing mechanisms.

And that may then also help to understand what you’re seeing there on the price side.

And was the mineral tax recent change?

Mineral extraction tax was increased in 2016 and also slight increase in 2017.

Okay, great. Thank you very much.

The next question comes from Andrew Benson, Citi. Please go ahead.

Thank you very much. I – hopefully I haven’t – I’ve got this – got my numbers wrong, again very early in these results.

But if you assume, you’ve said 9% EBIT growth before exceptionals this year, which is sort of [indiscernible] your range, it means effectively that you don’t expect to achieve any profit improvement in the coming three quarters of this year to achieve your targets, given the very strong start to the year. And yet if you look at – in a higher oil and gas prices, the likelihood, and who knows, of lower unplanned maintenance costs, and let’s say we don’t have another accident and all of the other factors of new capacities coming on-stream, I just wondered what the basis for the caution was for the rest of the year?

And I just wanted to confirm, you thought the insurance impact was roughly sort of profit-neutral in the first quarter and I know that, that just replaced the additional cost of the overall logistics. I just want to confirm.

I wasn’t quite sure when you – well, I think you answered that question. I didn’t really understand the answer there.

Thanks.

Yes, Andrew, you’re correct. Yes, this insurance payment was profit-neutral because it compensates for the lack of product availability in Q1 and the same will hold true most likely in Q2.

But your math is probably not wrong, so I’m not arguing about the numbers. What I talked about is really the uncertainty going into the second half of 2017.

We have seen good volume growth for BASF. We had some nice margin developments – recovery of margin actually, we have to say, in many of our value chains.

At this point in time, to make it also very clear, going into Q4, we don’t see a fundamental change of business environment and sentiment. But we also said back in February at our press conference, we will update the forecast then in July when we look at our half year results.

And then we have most likely, and I think hopefully also, a better visibility going into 2020 – into the second half of 2017.

But can I just add? So what you’re saying then is there’s just a – perhaps it’s your instinct to want to be conservative at this point in time, that’s driving your judgment here?

We’re cautious. You might say we are conservative.

What is on my mind? I mean, there are a couple of political risks out there.

Everybody right now is very, very positive in the United States that things will move in the right direction, and the business climate, investment climate will improve considerably. This might actually happen.

So far, the United States have not really demonstrated a superior growth in Q1. China started strongly into 2017.

It needs to be seen whether that momentum can be maintained. We have a couple of yellow and red light, and you’re looking at Italy, for instance, which is an important market for BASF.

It’s more the, I’d say, overall sentiment. We are certainly hoping that some markets will recover.

Russia, hopefully, will come out of recession same as Brazil. But then look again at country like Argentina where the recovery is probably a little bit delayed.

So all in all, we think for the time being, it’s just prudent to be cautious. And actually, that shouldn’t really come as a surprise to you.

You know BASF.

I know. Thanks.

Okay. The next two questions probably come from Andreas Heine, MainFirst.

Yes, two questions indeed. One is on Chemicals.

If I look on the main margins for the main products, then I would say that on average, the second quarter margin wouldn’t be less than in the first quarter. Is there anything I have to have in mind not to believe that the Chemicals should deliver earnings being as high as in the first quarter?

That’s the first question. And secondly, as Easter was this year in the second quarter and not in the first quarter, and as you’ve already looked – very closely looked onto your sales numbers, from what you see now, end of April, and what you’ve seen books going forward, have you seen any Easter impacts?

So being, one, looking too strong and volume-wise then Q2 having then the Easter impact, especially in Europe?

Yes, I start – Andreas, I’ll start with your second question, Easter impact. Actually, it’s more a topic in Germany and some European countries.

There is no Easter Monday in most parts of the world. And we had, if you do the accounting, we had 65 business days.

Q1 last year, we have 65 business days. Q1 this year, we will probably have one business day less in those countries which are affected in Q2.

So you can do a lot of math here, but frankly, I think this will average out in a certain way. And so far, we have not seen, coming out of the Easter break, any remarkable or noticeable slowdown of economic activity, which leads me to your first question, are there reasons to be skeptical about Q2 with regard to the Chemical segment?

Yes, Q1 was a very good quarter for Chemicals. There’s no doubt about it, especially for cracker products and for what we call monomers.

So it’s not just isocyanates, it’s also a couple of other products which developed nicely. We have done a bit of restructuring, which also seems to pay off, caprolactam taking capacity out of the market.

These are investments which we have made actually to rebalance the market. At this point in time, we are, how can I describe this, cautiously optimistic for Q2.

But you can never rule out that there are, for instance, supply disruptions. You can never rule out that there are outages.

You can never – on our side or in the competitive field. And you can never rule out that people probably are a little bit more skeptical with regard to economic growth and a little bit more hesitant to buy.

So I think there are reasons to be cautiously optimistic. But again, we do the accounting then in July and then we see where we are with regard to the second half.

Thanks.

The next question comes from Peter Clark, Societe Generale.

Yes, good morning. Thank you.

It’s a question for you, Kurt, on your caution looking forward. If I take Performance Products, which is where I’ll angle my questions, I mean, you mentioned again the start-up costs, which I thought were quite high last year as well in that division.

Just wondering how big they were and how they drag through the year? Then, of course, the main impact has been the raw material one with the lag of passing that through.

Just wondering if you can catch that up as we go through the year. Because you are seeing pretty strong volume growth at the moment, I think it was 7% in the first quarter.

And obviously, with your bearish outlook, you might be assuming that might not last. So I’m just wondering how you see that full year margin in Performance Products perform year-on-year and the impact of the start-up costs we saw in Q1 and through the year?

Thank you.

Yes. Looking at Performance Products, to make it very clear, we are not satisfied with the development in Q1.

We have seen volume growth, yet we haven’t seen earnings growth. I mean, we recognize that as well.

There are a couple – or two reasons, essentially slightly higher fixed costs, essentially start-up costs, which are a double-digit million number, which was to be expected. That is something we planned.

On the other hand, we need to bring up margins, Andreas. To recover margins, we had, in some of our divisions, pretty steep increases of our feedstock cost.

And you know also internally that we transfer at market prices, that is very important to keep in mind. And the task for the entire team is now to pass this on to the customers as quickly as possible.

We have announced a series of price increases already in Q1. This will continue reflecting our much higher feedstock cost.

What we don’t like in that respect is, certainly, volatility when all of a sudden then the oil price came down again quite remarkably. This certainly sends wrong signals into the marketplace and doesn’t make our lives much easier.

What we really need is a stabilization on the feedstock cost front, and I’m pretty sure we will not see a price adjustment in Q2 and Q3. Some of the pricing is what we call formula based.

So with couple of customers and for certain volumes, we have agreements which basically mean if our raw material cost increased then, with a time lag, and that is agreed upon, then with a time lag between three months and six months, our product cost also go up. So there is a natural delay in that adjustment, but we’re working with that with all hands on deck.

So you wouldn’t want to commit to a full year margin ahead of this point? It’s just too early and you got to see how it progresses?

So of course, it’s a very bad – I could not understand what products were you talking about?

Yes, sorry, full year margin in Performance Products moving up year-on-year. It’s too early to commit to anything like that given these moving parts here?

We are trying to bring them up as quickly as possible, that is for sure. That is an uphill battle, obviously, because as we have very, very strong customers who are not really happy about absorbing higher feedstock cost, yes.

Understood.

Welcome.

The next question comes from Markus Mayer, Baader-Helvea.

Yes. Good morning, two questions.

The first one on the Catalyst business and your statements are quite optimistic on the overall emissions and the chemical catalysts. Here, a question.

What is your more long-term outlook on the heavy-duty diesel market? I know that this is less important than the other automotive catalysts, but what do you expect here?

And on the chemical catalyst business, do you already see that the refill business and the specialty catalyst has started the recovery? Does this maintenance shutdowns not only at your businesses but also at others?

Then another question on, again, on Q2, sorry for that. On the Analyst Meeting, you said April was a strong month, and now it looks also that May was not that bad.

Can you confirm this and then was there any kind of momentum change from April to May?

Okay. Markus, I think we are still in April, so I’m hesitating a little bit to talk about May at this point in time.

As I said before, from today’s point of view, we have no – we are cautiously optimistic for Q2 and that’s all what I like to say. In chemical catalyst, yes, we do see refill activity that is certainly helpful and that probably also underlines a more optimistic stance at some of our competitors and customers in that field.

And heavy-duty diesel, it is an important business for the very simple reason heavy-duty diesel catalysts are very big and quite expensive and very important, obviously, also to clean up the diesel engine. And we have had quite a concerted effort over the last couple of years to improve our situation in our business with respect to heavy-duty.

I won’t give you any market data, obviously. That would be a little bit too much.

But we – I think we are making good progress with respect to that as well.

Okay. Perfect.

Thanks so much.

The next question is from Mutlu Gundogan of ABN AMRO. Please go ahead.

Yes. Thank you very much for taking my questions.

First one is very short. On Performance Products, can you quantify the negative impact on the margin from higher feedstock prices?

And then secondly, I’ll also try to take a swing at Oil & Gas. Can you help me with the sequential comparisons?

So compared to Q4, because if I look, your sales is down about €90 million quarter-on-quarter, while your EBIT is up €7 million. So can you help me understand why that is?

Let me start with the margin impact. Actually, for your understanding, we don’t do – really quantify this, because we also have discussions with our customers for a very simple reason.

I mean, we try to pass on raw material costs here, higher raw material costs. There has been a margin impact, but it has been very different for very different businesses.

So it also, I think, would be kind of almost misleading to give you now an average across the entire segment of Performance Product. Oil & Gas, Hans, the sequential?

On the sequential, to be honest with you, I didn’t look in detail. I give you what my gut feeling is, and the answer on that should be price.

But let me do this, I go back, check, and then we get back to you, if it’s okay.

That’s okay. Thank you.

The next questions are from Martin Evans, JPMorgan. Please go ahead.

Good morning, just one question. Going back to the Chemicals division and the outlook going forward given the strong start, destocking, is that something that you’re beginning to see now given the relative softening and loosening in supply and so on?

Or is it indeed something that is partly behind your sort of cautiously optimistic outlook for the rest of the year, the potential that customers could start now from elevated levels, destocking? Thanks.

As always, Martin, it’s very difficult for us to fully understand what is the customer situation with regard to inventory levels. We have no real indication that there has been restocking of a material nature.

And for that reason, we are also very cautious now to expect some destocking going forward. Just looking at the nature of our business, these are all high volume pipe type of products, where also storage is not really what you want to do.

Sometimes, supplies even by pipeline. So I – we don’t really have any data which would indicate that now a major destocking should start, for the simple reason that we haven’t really had a major restocking.

What is something which we would watch very carefully is obviously the volume development overall. I mean, we had this sequential improvement quarter-over-quarter now for the last 4 quarters.

We cannot rule out that with our capacity installed now and available, that we simply also have gained some market share in some cases.

Thanks, very much.

You’re welcome.

The next question is from Patrick Lambert, Raymond James. Please go ahead.

Hi, good morning, everybody. Two or 3 questions, very quick.

On the Oil & Gas production outlook for ‘17, I think Q1 you said basically flat in terms of mboe. What – can you confirm still the growth of production overall for BASF in 2017 in the same range of last year?

First question. Second question will be more precise on Engenia and the type of growth you’re seeing.

I know it’s the first season. It’s limited acreage, but can you already guide us a bit for next year in terms of rollout of the whole trade in North America?

That’s the first, second – And quickly, the third one. When you expect the ammonia plant in Texas to be started?

Thanks.

I’ll start with your question on Oil & Gas. We’ve seen a significant increase in our production last year.

We went up by roughly 20 million barrels from order of magnitude 140 million to above 160 million. The plan for this year is to stay at this volume of 160 million.

The new fields that come on-stream will compensate for what’s called natural decline, so the natural reduction that we have from older fields. But that’s the plan that we have for 2017, which is roughly 160 million.

And out of that, we have delivered exactly 1 quarter in Q1.

And the ammonia plant, which we built together with Yara, the start-up is expected at the end of 2017, so this is according to schedule. Engenia, the rollout starts – we made a pretty heavy investment actually for this product, dicamba, in Texas.

We don’t – we probably have, but I won’t give it to you. So we don’t have specific sales plans for this year available.

What I can tell you is we start now in North America and we’ll also roll it out in South America. And it’s supposed to be a sizable business, simply because resistance to glyphosate is such a widespread issue now and dicamba is the product of choice to fight glyphosate resistance.

We have a follow-up question from Christian Faitz, Kepler Cheuvreux. Please go ahead.

Again, two questions, if I may. First of all, sticking with agro.

Would you mind updating us on your latest thoughts on agricultural M&A and also pertaining to your own ambitions? And then a quick question on pension provisions.

They’re down €600 million from year-end. Where do you see them at fiscal year ‘17 end?

Thank you.

Yes, thank you for the question about crop protection consolidation. I think we are certainly aware of what’s going on.

We have a good business. I’ve talked about this several times.

Do we like to grow the business, also why M&A if this becomes available? Yes, if it makes sense, if it’s a good strategic fit and financially attractive.

In normal course of business, this takes a purchaser and a seller to agree upon conditions. And what we see right now, the remedy action, that actually takes 3; so it’s a seller, it’s a purchaser and it’s a regulator who have to agree upon the course of action.

And that’s the only thing I’m going to say about this one at this point in time.

Christian, it’s a tough one on the pensions, where will they be. If you and I can agree first on interest rates on December 31 of this year in the key countries, first with Germany, the U.S., Switzerland and the UK., if we have an agreement on that, then I can tell you whether pension provisions will go up or will go down.

We’ve seen last year, a rollercoaster ride with our pension provisions. It went from €6.2 billion in the beginning to €9.6 billion, if I recall correctly in the end of Q2, and we ended up at €8.2 billion.

We’re now, at the end of Q1, at €7.5 billion. So in the end, it’s all driven by interest rates and discount rates.

Should interest rates increase, then we’ll see a lower pension provision but remains to be seen what really happens with interest rates during the course of this year.

Okay. So the biggest part of the €600 million roughly was interest rates, that’s it?

That certainly has an influence, yes.

Okay, thank you.

We have a final question, which is a follow-up question from Markus Mayer, Baader-Helvea. Please go ahead.

Yes, also on M&A but more on the divestment side. There’s still divestment of the leather chems business.

Are there still some non-core assets in the portfolio where you’d consider a divestment? That’s the first question.

And secondly, on this raw material impact on Performance Products, maybe you can shed some light in which units this was particularly the case?

Thank you, Markus. The strategy you never have non-core businesses until the day you decide it becomes non-core.

Leather is relatively small business and this fits, I think, what we had said before when you looked at, for instance, textiles. Textile chemicals, which we also put on the block.

Is there’s anything big, I think this is the question really you’re asking me this, constantly pruning going on, pruning of our portfolio. Is there anything big, material, so to say?

I don’t see it at this point in time. We are pretty happy with our overall portfolio composition.

And the raw material effect, we certainly felt it in home care and personal care. We also felt it in Performance Chemicals, less so in Nutrition & Health and dispersion in resins certainly because simply, and we talked about this, we had higher C3 costs and that translated obviously into higher raw material costs for that business.

That’s pretty much it, yes. So it affects in the first glance – first glance, it affects the higher-volume, less-specialized businesses in Performance Products.

Ladies and gentlemen, this brings us to the end of our conference call. The Annual Shareholders Meeting of BASF is scheduled for May 12 at the Rosengarten in Mannheim.

On Monday, May 15, BASF shares will be traded ex dividend. On Wednesday, May 17, the dividend will be paid.

Finally, I would like to invite you to the Roundtable on BASF’s R&D strategy and its implementation with Dr. Martin Brudermüller.

We will host this event in Ludwigshafen on June 28, 2017. Special emphasis will be put on digitization in R&D.

You will receive further information in due course. Should you have any further questions, please do not hesitate to contact a member of the BASF IR team.

With that, I thank you very much for joining. Goodbye for now.