BASF Se

Good afternoon, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our analyst and investor conference call on the full year and fourth quarter 2018 results.

On the call with me today are Martin Brudermüller, Chairman of the Board of Executive Directors; and Hans Engel, Chief Financial Officer. Martin will provide you with an overview of the results and update on the implementation of our corporate strategy and the outlook for 2019.

In between, Hans will present the financial figures in detail. Please be aware that we have already posted the speech on our website at basf.com/fy2018.

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

Thanks Stefie. Ladies and gentlemen, good afternoon, and thanks for joining us.

Today we will provide you with the fourth-quarter and full-year 2018 results, the outlook for 2019 and an update on the implementation of our corporate strategy. Overall, we are not satisfied with our performance in 2018.

We expected much more at the beginning of the year. However, global economic growth slowed in the course of 2018.

Geopolitical developments and trade conflicts, in particularly between the U.S. and China, led to an increased uncertainty and an overall cautious market sentiment in the second half of the year.

In the EU, GDP growth slowed to under 2%, mostly driven by weaker export demand. And in Asia, the slowdown was pronounced, especially in China.

As a result, demand from key customer industries, mainly automotive, was dampened. In 2018, the global automotive industry recorded a 0.8% decline in growth compared to plus of 2.3% in the prior year.

In this environment, annual sales of BASF Group increased by 2% to €62.7 billion. We implemented price increases in all segments and divisions.

Volumes were up slightly compared to 2017. Higher volumes in Functional Materials & Solutions and in Agricultural Solutions were partially offset by lower volumes in Performance Products and Chemicals.

The outage at the citral plant, which began producing, again, in Q2 2018, particularly contributed to lower volumes in Performance Products. In addition to several downstream businesses, we are negatively impacted by the lower water level of the River Rhine.

In the Chemicals segment, the volume effect from the long-lasting drought in Continental Europe was most pronounced. Currency effects amounted to minus 4% overall, while portfolio effect positively impacted sales by 1%.

EBIT before special items of BASF Group decreased by 17% to €6.4 billion compared to the prior year. The decline is mainly attributable to the Chemicals segment, which accounts for 2/3 of the overall earnings decrease in 2018.

In Europe and Asia, isocyanate margins fell sharply in the second half of 2018. Average steam cracker margins declined in all regions in 2018 and were lower than assumed in our planning.

The exceptionally low water levels on the River Rhine weighed on earnings in Chemicals and also other segments. Overall, it led to a negative earnings impact of around €250 million in 2018.

Lower earnings in Functional Materials & Solutions, the segment that is most exposed to the automotive industry, Agricultural Solutions and Performance Products also contributed to the overall decline in EBIT before special items. As a consequence of the late closing of the transaction with Bayer, the net seasonality of the acquired seeds business, earnings in Agricultural Solutions decreased considerably.

The associated integrated costs also burdened the earnings development. Ladies and gentlemen, we are committed to our policy to increase the dividend per share every year.

A predictable and progressive dividend policy to return value to our shareholders is a top priority for us. At this year's Annual Shareholders’ Meeting, we will therefore propose to pay a dividend of €3.20 per share, an increase of €0.10.

We are thus offering an attractive dividend yield of 5.3% based on the share price of €6.40 at the end of 2018. Looking at our long-term development, BASF remains on its strategic path of profitable growth.

I would like to again highlight our six areas of action to be the leading chemical company of our customers. We will intensify customer focus to accelerate growth.

We will sharpen our portfolio and strengthen the Verbund. We will transform our organization to be more agile and customer-focused.

We will focus capital allocation on organic growth. We will drive growth particularly in China, the largest market of chemicals worldwide and we will do this in a sustainable way by setting the tone with our CO2-neutral growth target.

We have adjusted our segment structure as of January 1, 2019. We now have six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions.

We have done this to increase the transparency of our reporting and allow you to better benchmark us against competitors. To transform BASF into a more agile and customer-focused organization, we act according to three guiding principles: Empowerment, differentiation simplification.

As of January 1, 2019, around 14,000 colleagues from R&D, engineering and maintenance, supply chain and procurement, have moved closer to our operating divisions. The transfer in this first step went smoothly.

The embedding process will be finalized by the end of the third quarter 2019. By then, around 20,000 colleagues will have moved closer to our businesses, and with this, to our customers.

Let me also give you an update on the announced M&A activities. At the end of January 2019, BASF and Solenis completed the transfer of BASF's paper and water chemicals business to Solenis.

As of February 1, 2019, the combined business is operating under the Solenis name. With pro forma sales of around €2.4 billion in 2017 and approximately 5,200 employees, the combined company will provide an expanded product portfolio for paper and water treatment customers.

BASF holds a 49% share; 51% of the shares are held by funds managed by Clayton, Dubilier & Rice and Solenis management. Since closing, BASF accounts for its share in Solenis using the equity method and includes its share of the company's net income in EBIT before special items for the group reported under others.

The disposal gain in the order of a low triple-digit million-euro amount will be reported as special income in the Industrial Solutions segment in the first quarter of 2019. At the end of September 2018, BASF and LetterOne signed the agreement to merge their respective oil and gas businesses in a joint venture.

We are currently going through the regulatory approval processes and plan to close the transaction in the first half of 2019. The preparation of the integration and the approval processes in various countries are well on track.

We expect that the IPO will take place in the second half of 2020 at the earliest. The exact timing will obviously depend on market conditions.

On January 18, 2019, the EU Commission granted conditional clearance for BASF to acquire Solvay's polyamide business. This approval is an important milestone for the transaction.

The merger control process turned out to be more complex than expected. In the EU approval process, BASF made commitments to address the competition concerns of the commission.

This requires us to divest parts of the original transaction scope to a third-party buyer namely manufacturing assets and innovation capabilities of Solvay's polyamide business in Europe. BASF will still achieve key strategic objectives from the acquisition and strengthen its polyamide 6.6 business significantly.

Closing is expected in the second half of 2019 after all remaining conditions have been fulfilled, including the sale of the remedy package to a third-party. As part of our active portfolio management, we are continuously evaluating whether our businesses can still realize their full potential within BASF or would perform even better in a different setup.

In this context, we announced in October 2018 to evaluate strategic options for our construction chemicals business. Currently, we are preparing the carve out of the business and are structuring the M&A process.

Our intention is to sign contractual agreements in the course of 2019. Furthermore, we are going to start the divestment process for our global pigment business.

BASF has a leading position in the pigments market. However, we also want to ensure the long-term success of this business.

BASF's pigment business offers a broad portfolio of colored and effects pigments as well as preparations. It generated sales of about €1 billion in 2018, has around 2,600 employees and is supplying more than 5,000 customers worldwide.

We strive to close the transaction by the end of 2020 at the latest. Let me now give you an update on our large investment projects intended to fuel future organic growth in Asia.

In early January 2019, BASF and the government of the Guangdong province signed a framework and investment agreement setting out further details of BASF's plan to establish a new Verbund site in Guangdong. Following the signing of the memorandum of understanding in July 2018, BASF selected the city of Zhanjiang as the location for its second Verbund site in China.

More than nine square kilometers of land will be allocated for the project. The city of Zhanjiang is located at the heart of the Southwestern Guangdong province.

The new site will benefit from Zhanjiang's natural resources, a deep-water port and excellent transportation links to the industrial centers of Guangdong. In mid-January 2019, BASF and Adani signed an MoU, to evaluate a major joint investment in the acrylics value chain in India.

The designated site would be located at Mundra port in Gujarat. A feasibility study will be completed by the end of 2019.

According to the MoU, BASF and Adani want to establish a joint venture with an investment totaling about €2 billion, in which BASF would hold the majority. The investment would be BASF's largest in the country to-date and comprise the development, construction and operation of several production plants.

The products are predominantly for the Indian market to serve a wide range of local industries, including construction, automotive and coatings, whose growing demand is currently supplied via imports. In line with BASF's carbon-neutral growth strategy, the chemical site in Mundra would be the company's first CO2-neutral production site fueled by renewable energy.

At the end of October 2018, BASF and SINOPEC signed an MoU to further develop their partnership in upstream and downstream chemical production at the Nanjing Verbund site in China. Our joint venture BASF-YPC will invest in a 50% stake to build another steam cracker with a capacity of 1 million metric tons of ethylene per year.

SINOPEC Yangtzi Petrochemical will invest the other 50%. The participation in a new steam cracker and the expansion of our joint venture underline the strong partnership between SINOPEC and BASF and the commitment to our customers in China.

We will also jointly explore the new business opportunities in China's fast-growing battery materials market. Already today, China is the largest chemical market worldwide, and growing above the global market requires a strong participation in China's growth.

With our announced investment projects, we are well placed to further expand our already strong position in the region and accelerate our organic growth. And now Hans will give you more details regarding the business development in Q4 and the full year 2018.

Thank you, Martin. Good afternoon, ladies and gentlemen.

Let me turn to the financial figures of BASF Group for Q4, 2018 compared to the prior year quarter in more detail. Sales in the fourth quarter of 2018 increased by 2% to €15.6 billion.

Prices were up by 2% supported by Performance Products, Functional Materials & Solutions and Agricultural Solutions. Volumes decreased by 3%, mainly as a result of the low Rhine water levels and the supply limitation of important raw materials at the Ludwigshafen site.

Portfolio effects amounted to 3% and were related to the acquisition of agricultural solutions businesses from Bayer. Currency effects had no impact on sales overall.

EBITDA before special items decreased by 35% to €1.5 billion. EBITDA amounted to €1.3 billion, compared to €2.3 billion in Q4 2017.

EBIT before special items came in at €630 million, 59% lower than in Q4 2017. Considerably lower earnings in Chemicals and in Agricultural Solutions led to this decline.

In Chemicals, lower margins in the isocyanates and cracker businesses were the main driver. In Agricultural Solutions, acquisition related expenses burdened the earnings development in the quarter.

In Performance Products and Functional Materials & Solutions, we were able to increase earnings. Overall, earnings in Q4 2018 were negatively impacted by around €200 million as a result of the low water levels on the Rhine.

Special items in EBIT amounted to minus €161 million, compared to minus €104 million in Q4 2017. Special charges remain -- mainly related to the acquisition of agricultural solutions businesses from Bayer.

EBIT decreased from €1.4 billion in Q4 2017 to €469 million in Q4 2018. The tax rate was 25.1%.

In the prior year quarter, we reported a negative tax rate due to the effect of corporate tax reforms mainly in the U.S. and Belgium, which resulted in onetime non-cash deferred tax income of more than €400 million.

Net income amounted to €348 million, compared to €1.5 billion in Q4 2017. Reported earnings per share decreased from €1.68 to €0.37 in Q4 2018.

Adjusted EPS amounted to €0.66 as compares to €1.29 in the prior year quarter. In the fourth quarter of 2018, operating cash flow increased by €366 million to €1.6 billion.

The increase was driven by a cash inflow from changes in net working capital of €123 million, compared to a cash outflow of €1.3 billion in 2017. Payments made for property plant, equipment and intangible assets increased by €76 million and amounted to €1.5 billion.

Free cash flow came in at €88 million. I will now quickly comment on the full year 2018.

Sales of BASF Group increased by 2% to €62.7 billion on account of higher prices, slightly higher volumes and positive portfolio effects. At €9.5 billion, EBITDA before special items was 12% lower than in the prior year.

EBITDA amounted to €9.2 billion compared to €10.8 billion in 2017. EBIT before special items decreased from €7.6 billion to €6.4 billion.

In total, special items amounted to minus €320 million, compared to minus €58 million a year ago. EBIT decreased by 20% to €6 billion.

The tax rate increased from 18.7% to 21.5% for the reasons already explained. Net income amounted to €4.7 billion.

This compares to €6.1 billion in 2017. Income after taxes from our discontinued oil and gas operations increased by 9% to €829 million due to higher oil and gas prices and increased production volumes.

Reported earnings per share decreased from €6.62 to €5.12 in 2018. Adjusted EPS were €5.87, €0.50 lower than in 2017.

Let's now turn to our full year cash flow. Cash flows from operating activities decreased from €8.8 billion to €7.9 billion.

This was mainly driven by lower net income. In 2018, changes in net working capital reduced the cash flow by only €530 million, compared to minus €1.2 billion in 2017.

Cash used in investing activities increased from €4billion to €11.8 billion. In 2018, net payments for acquisitions and divestitures amounted to around €7.3 billion, mainly due to the acquisition of agricultural solutions businesses from Bayer.

In 2017, we had a minor cash inflow from divestitures. Payments made for property plant, equipment and intangible assets decreased by € 100 million to €3.9 billion.

At €4 billion, free cash flow remained strong but decreased by €744 million compared to 2017 due to the lower operating cash flow. Cash flows from financing activities amounted to minus €52 million.

Changes in financial liabilities led to a net cash inflow of €3 billion, mainly due to the issuance of U.S. dollar commercial papers as well as bonds.

In 2018, we paid €2.8 billion in dividends to the shareholders of BASF SE and €174 million were paid to minority shareholders. Turning to our balance sheet at the end of 2018 compared to the year end 2017.

Total assets increased by €7.8 billion to €86.6 billion. The acquisition of a range of businesses and assets from Bayer contributed more than €8 billion to this increase.

Non-current assets decreased by €4.3 billion, mainly attributable to the reclassification of the fixed assets in our oil and gas business to current assets following the signing of the agreement to merge Wintershall and DEA. Current assets amounted to €43.2 billion compared to €31.1 billion at year-end 2017.

This increase is mainly attributable to the reporting of our oil and gas assets as a disposal group. Total liabilities increased by €6.4 billion to €50.4 billion.

Current liabilities were up by €8.4 billion to €23.3 billion, primarily because of the reclassification of the noncurrent liabilities and provisions of our oil and gas activities to the liabilities of the disposal group. Financial debt was up by €2.8 billion to €20.8 billion.

Net debt increased to €18.2 billion, compared to €11.5 billion at the end of 2017 this due to the financing of the acquisition from Bayer. Our equity ratio was 41.7% at the end of 2018.

And with that, back to you Martin for the outlook.

With this, I come to the 2019 outlook for BASF Group. The global economy is visibly slowing down.

At 2.8% for 2019, we assume that the global economy will grow 0.4 percentage points less than in 2018. In Europe, domestic and export demand are forecast to grow at a lower pace.

For the U.S., we still expect solid growth, but the benefits from the tax reform should be less pronounced than in 2018. Growth in the Asian emerging markets is probably weakening slightly, in particular as a result of lower growth in China.

Nonetheless, growth will remain high compared with the advanced economies. In South America, we predict the recovery in Brazil to continue, assuming that the newly elected president takes a liberal and reform-oriented course for the economy.

We anticipate global chemical production in this environment to grow at the previous year's level of 2.7%. A slightly better growth rate in the advanced economies is offset by a somewhat lower development in the emerging markets.

We assume an average exchange rate of $1.15 per euro and an average oil price of US$70 per barrel Brent. Our outlook assumes that the trade conflict between the U.S.

and its trading partners will ease over the course of the year and that Brexit will not cause wider economic repercussions. Furthermore, we assume that our customer industries will remain their growth trajectory.

For the automotive industry, we expect a slight recovery following the decrease in production in 2018. Based on these macroeconomic and further assumptions, we provide that the following outlook for the BASF Group.

We anticipate slightly higher sales in 2019, largely as a result of volume growth and portfolio effects. EBIT before special items is targeted to be slightly above the 2018 level, however at the lower end of the range.

ROCE is forecasted to be slightly above our cost of capital rate, but slightly below the 2018 level. It will be negatively impacted by the higher capital base due to the assets acquired from Bayer.

Let me add that Q1 and Q2, 2019 will be comparably weak quarters. Firstly, the first half of 2018 will benefit -- still benefited from higher margins in isocyanates.

That means, comparables are tough. Secondly, costs associated with the implementation of our strategy and a higher number of planned turnarounds compared to the first half of 2018 will negatively impact earnings.

The decisive factor to achieve our targets for 2019 are an improved business performance, solid customer demand and first contributions from our excellence program in the second half of the year. This slide summarizes the outlook 2019 by segment.

The slight increase in EBIT before special items largely reflects significantly higher contributions we expect from the Agricultural Solutions, Industrial Solutions, Surface Technologies and Nutrition & Care segments. We are forecasting a slight improvement in earnings in the Chemicals segment.

In the Materials segment by contrast, we anticipate considerably lower EBIT before special items, driven by a decline in margins in the isocyanates business. We also expect the earnings generated by other to be considerably below the prior year figure.

In 2018, the release of provisions from the LTI program had a positive effect which we do not expect in 2019. Additional information is available in the BASF Report which was published today.

Ladies and gentlemen, let me conclude with our priorities for 2019. Despite a more challenging macroeconomic environment, we will consistently implement our corporate strategy and transform BASF into a more customer-focused and entrepreneurial company.

Our commitment to R&D and sustainability is core and a major pillar for the future organic growth. Therefore, we will focus our R&D resources even more on growth businesses and increase our customer focus.

In the first step, we moved R&D closer to our businesses to better align customer needs and R&D projects. During our R&D webcast on January 10, we presented four specific projects of our Carbon Management Program to support our target of CO2-neutral growth until 2030.

In mid-January, we cofounded a global alliance of more than 30 companies to advance solutions that reduce and eliminate plastic waste in the environment, especially in the ocean. These examples show our commitment to sustainable development.

We will continue our active portfolio pruning towards higher value and clearer focus. This is an ongoing task and one major portfolio change in 2019 will be the merger of Wintershall and DEA.

We will accelerate our excellence program announced in November. The target is to achieve an annual EBITDA contribution of €2 billion from 2021 and onwards.

For 2019, we aim to achieve an EBITDA contribution of €500 million. For the implementation we expect one-time costs of €0.8 billion in the period 2019 until 2021.

This includes special charges in a mid-triple digit million euro range. Due to the accelerated implementation, a large share of the implementation costs will occur as early as 2019.

These costs will reduce the EBITDA contribution in 2019 accordingly. The program does not cover our operations, but also includes expected benefits from digitalization and automatization.

Furthermore, we include the expected efficiency gains from organizational changes and simplification measures in the program. At the same time, we will continue to invest in our organic growth.

Our corporate strategy is first and foremost a growth strategy. We are committed to implementing the defined strategic measures to achieve profitable and sustainable growth.

And now, we are glad to take your questions.

Ladies and gentlemen, I would now like to open the call for your questions. [Operator Instructions] And we will begin with Thomas Wrigglesworth from Citi and then followed by Andrew Stott and Christian Faitz.

Now Thomas will go first. Please go ahead.

Thanks, Stefanie. Thanks.

Thanks, Martin for your presentation. Two quick questions, if I may.

Firstly on the announcement that you would divest pigments and perhaps going wrapping up with Construction Chemicals as well in that, can you give us an update on where you are in the decision process around Construction Chemicals? And in pigments, can we assume that if you're looking for a sale that attempts with -- to potentially put this into a JV has -- are now behind us and that a sale is the only route?

And could you provide some framework, just on these divestitures about how you're going to define value realization for shareholders? Is there going to be price levels at which you just won't sell and you'll keep?

And can you give us some framework? Second question, if I may.

Just looking at the fourth quarter I was just wondering if there are any -- if you could just define for me the one-time effects? Obviously, you've identified the €200 million from the Rhine.

Is that both from lower utilization rates and lower logistics? And is there -- are there any insurance payments that have been received that are included in EBIT pre in that fourth quarter EBIT number?

Thank you.

So, Thomas, a status on where we stand with the Construction Chemicals process. We are currently preparing the documents and the data room and then we will go into an open and clear auction process.

We assume that it was the end of 2019 we came to a conclusion and know where we go. This will be very clearly a straight sale of this business.

The pigments part that really worked today. We announced today, certainly in an earlier step, we have to now prepared all the documents.

I think the timing is right for that. You're right; we have looked into different options.

We came to the conclusion that a straight divestiture is the best option for this business. This portfolio pruning, we are going forward as the new strategy.

It's very clear that this is no longer an innovation-driven business. Although a slow growth and it is not that deeply embedded in the Verbund.

So with this, very clearly we think there could be better owners in environments to bring this business forward. With regard to the Rhine impact, yes, most of what you -- what this €200 million's made up in Q4 is in fact the two things you mentioned.

It is the reduction of utilization -- or the reduced utilization rate of the plants and with this -- the EBIT we could not capture, and it is definitely also from the higher transportation costs, because it could only bring about one-third of the volumes that are normally coming by ship to the road. And that has significantly higher transportation costs.

And these are the two major effects. Hans, you say something to Q1 one-time costs?

I think, if I got this correctly, Thomas your question was on insurance and other type of special items or special effects that we have in Q4. I don't have the exact figure on the insurance payments.

But on the insurance, let me make the statement, that what we received during the course of 2018 equals the damages that we had in the course of 2018. I hope that helps.

And then, as you have seen in the special items in particular, you see a significant ramp-up there. That's all related to the integration costs that we have for the businesses that we acquired from Bayer.

Okay. And just a follow-up on the -- the current utilization rate at Ludwigshafen, is that back up to full rate?

Thank you.

I would not say to full rate, but it certainly recovered from the fourth quarter and has also to do with the current business development, which is slower than average what we have. So with this, it is on a reasonable level, but not in the highest level possible.

Okay. So it's very helpful.

Thank you very much.

The second question or questions are from Andrew Stott, UBS. Please go ahead.

Yes. Thanks, Stefie.

Hi, Martin. Hi, Hans.

And a couple of areas I wanted to focus on. Number one is guidance on Chemicals.

Just slightly surprised that you're guiding up for the Chemical division or --obviously not the non-nominal part. Is there something specific about 2019 for BASF?

I just heard some fairly downly comments from INEOS last week, Dow two weeks ago, particularly around cracker margins. So is it the Intermediates business that gives you confidence, something specific in your particular sites?

That's the first question. Second question is on ag.

It's sort of twofold. One can you give me the one-off costs of integration in 2019 and also what you saw in Q4?

And also a specific one glufosinate. It looks like glufosinate as a product has completely recovered in the last 12 months, I guess, partly helped by the glyphosate-resistance issues.

Just wondering if you can confirm what you're seeing as sort of data that we're relying on into Brazil. So I'd love to hear your thoughts on glufosinate as you look into 2019 and generally across the ag business.

Thank you. Sorry, long question.

Andrew about the guidance for Chemicals, just be aware that also the new segment Chemicals from 1st of January does not continue Monomers.

Yeah. So I said…

So the isocyanate part is definitely in the Materials segment. Indeed cracker margins are stressed in the moment in other regions particularly, however, very much in the U.S.

which has to do with the additional ethylene capacities coming onstream over there. And however the other businesses look rather well.

And you're right, Mins business I think is a very strong one, but also BDO business is something which is hard to improve margins. So, overall, I think, we have a good situation here, except the cracker margins.

I think all over the other part of the portfolio is relatively stable. Yeah.

With this, Hans, you do on the one-time costs and...

Yes. On the one-time costs, Andrew, we're looking for the exact figures.

I'll give you a rough order of magnitude in Q4 for the ag business roughly €100 million. And the total, including Q3, I'll give that to you in a second.

Your second question was on glufosinate. All I can tell you is that, based on what we've seen there so far, we were quite satisfied with the business that we generated in Q4.

And I can also tell you that the start in the New Year, so in January was pretty good. And now let me take a look here.

Total integration cost in 2018, order of magnitude €160 million. And we are expecting in 2019 order of magnitude €100 million more than that.

Perfect. Thank you very much, Hans.

Thank you, Martin.

The next one is Christian Faitz Kepler Cheuvreux. Your turn Christian.

Yes, thanks Stefanie and hello gentlemen. Two questions if I may.

First of all, in your chemical activities, do you see any sign of a demand revival in China after the end of New Year celebration sequentially? And then second on ag again partly covering Andrew's question.

Can you give us an idea how the activities acquired from Bayer have developed in the course of Q4? And how do you see the agrochemical demand picking up heading up into the application season in the northern hemisphere right now?

Thank you.

So Christian with respect to China I think it's a little bit too early. We just crawled out of the Chinese New Year.

It started relatively slow in China in January. But let me tell you also I've been living there 10 years.

And certainly Easter holidays and everything Chinese New Year is always shifting a little bit every time. And it's early in the year normally the period between a year's change in Chinese New Year is a relatively lousy slow-moving period.

This is also the case this year. So, I think it's a little bit too early because we have to compare it also with last year the Chinese Year was later.

So, I would say I don't see a vigorous revitalization here of the business, but let's give a little bit more time until we can compare the two periods for a longer time zone because otherwise I think it is not really comparable.

I guess I'll ask the question at the Q1 level again -- Q1 reporting.

Sorry. Again?

I guess I'll ask in late April again.

Yes okay. Yes.

All right.

And then Christian it may be easier to comment on the developments in Q1, sorry. On the development of the Bayer business in Q4 fully in line with our expectations.

We had expected negative contribution from that business. We had a negative contribution from that business.

That should not be a surprise. It's the slower part of when I look at it only two halves of the year.

Much slower -- much more costs in that part of the year. And then going into 2019 that's building on the answer that I already gave to Andrew.

Figures for January were actually a bit better than what we had expected. But as you and I know from following the ag business over many, many, years you can't judge it on the basis of one month.

You cannot even judge it on the basis of one quarter. For the northern hemisphere, we have to see how business will develop in Q1 and in Q2 and that then will give us a full and fair view on the development.

But so far so good I will say.

Okay, great. Martin, Hans, thank you very much.

The next questions are from first, Patrick Lambert, then Tony Jones, and then Markus Mayer. We'll start with Patrick Lambert, MainFirst.

Please go ahead.

Thanks Stefanie. Thanks everybody.

Two quick questions I think again on ag. The question on prices.

I see you have a positive price at 6% I think on Q4; I just wanted to check that it's prices or it's mix. And if you can talk about the regional development on prices on core protection?

Question number one. And a question regarding to oil and gas on your annual report.

I see that the reserves in Europe were -- in North Sea were pretty sharply down. Can you comment on that?

Is that a worry? Or do you have enough ag chem off to continue the growth of production there?

Thanks.

Okay. Patrick, this is Hans.

I'll take your first question first. So, ag price development, overall, we had positive developments in all regions when it comes to prices obviously offset significantly by FX effects in South America but the price front overall looked pretty satisfying.

On your reserves question in oil and gas, overall, what we have is we expanded the R/P ratio from 10 years to 11 years. That gives you an indication on what's happening overall in the portfolio and we had an adjustment to reserves in the North Sea, in fact, in one of our Norwegian fields and that had an impact on that specific region.

But overall, as I said, reserves picture looks pretty good and R/P ratio up by roughly 10%.

And you continue I think the same type of production growth that you -- a few years ago you presented to us. It should be the same type of production growth?

It should be the same type of production growth. I cannot exclude that once we formed the joint venture with DEA and if you look in particular at DEA's portfolio and what's coming onstream there that production will grow at a higher late.

If I follow things correctly, Wintershall and DEA put out press releases last week with respect to also their expectations on production growth. And if I compare that to let's say order of magnitude 3% to 4% in volume growth that we targeted on an annual basis that is more and goes to the range of 750,000 to 800,000 barrels per day in the relatively near future.

Thanks Hans.

The next question is from Tony Jones, Redburn.

Good afternoon everybody. I had a question back on guidance.

Martin maybe if you could talk through what gives you the conviction for this improved trading to develop over the year apart from economic forecasts. Is it something more tangible like improved visibility or some big new customer contracts?

So, my question there is what underpins that guidance to recover strongly in the second half? And then second question a little bit related.

You also said Martin much more positive on the outlook for U.S. growth and China tariffs and trade compared to when we met in December.

Can you help us understand a little bit about what's changed since then? Thank you.

Yes, Tony, I mean, I think the two things are a little bit connected. I mean, first of all, let me really say we saw a slowdown in the China market environment very especially with automotive not only connected with China, but also globally whereas many of the other markets where we are in don't really look depressing or pessimistic.

So, it's very much with China and automotive. I want to say that in January, it started still negative on automotive.

We talked about Chinese New Year already, but I think if we look forward and we analyze all the data we have today, we come to the conclusion that the chemical market growth is about the same as last year as by the way also for the industrial production. And that however includes that -- for example in the automotive market, globally you had an 8% decline in January in numbers of cars produced.

The projection for 2019 is a slight increase to 0.8%. If that does not materialize over the next month then certainly the assumptions are not true.

So in that respect we clearly have a kind of a backloaded budget or planning. And we have to clearly see then in the second half, let's see -- let's say a lifting in the business activity.

Why is this the case? I think first of all, it really has to do a lot with the trade issues between the U.S.

and China, but also U.S. and Europe.

And what you can see as imposed on the side of the Trump allocation as well -- administration as well as on the Chinese side, I think that both sides feel the pain of a slowdown in the economy. And it looks like both companies at least try to de-escalate and find some solution for the most pressing issues in the trade friction.

That looks at least like -- and this is factored-in in our planning that this is going to improve over the next month. I don't think and this is -- with this I'm still consistent with what I said earlier, there will be some easing of economic problems.

It does not solve the issues between the U.S. and China as such because I think the problems the two have as two superpowers and how they arrange themselves in the future of tomorrow is not settled and will not be settled over the next month.

We also had as part of our guidance still the belief that the Brexit will not happen in a very disruptive way. I think there will be last-minute some easing in the sense that they might postpone it or whatever.

So there are some assumptions which gives us with all that we hear and with all the people we talk about, a little bit more optimism about 2019. But as we said, not only for the base effects, the first two quarters will be comparably weak because with the standard price they compare to a very very high and good quarters in the past, but we will see whether this holds true on the economic side in the second half.

So with oil talking to our customers also besides the automotive industry, the outlook is not really super pessimistic. It slows?

Yes, but it's not falling off the cliff. And this is why we come with this budget.

And I hope after -- you always say, we are super conservative. We are a little bit more optimistic for 2019.

Thank you.

And this is also -- by the way it comes along with the U.S. growth where I think we still have a very positive consumer confidence.

And we still see high industrial activities, certainly a little bit less because the -- let's say the effect from the tax reform is vanishing a little bit, but overall expectation for the U.S. is still very positive.

The next question is from Markus Mayer Baader-Helvea. Please go ahead.

Yes, good afternoon. Thank you for taking my three questions.

First one is on the guidance again. Last year you also gave guidance on reported EBIT.

This year this was not in the guidance or at least I have not found in the presentation, the other material, maybe a word on this? And also indication for CapEx for 2019 would be very helpful?

Secondly on your Catalysts business which was at least in revenue terms up 18% in Q4, could you split up this very strong growth into the PGM effect and also the organic growth? And then lastly on net working capital maybe can you quantify what was the effect from the low Rhine water levels?

I think that there might have been higher inventories than at year-end due to this effect. And what do you expect how your inventories would develop then in the first quarter on 2019 and also how you see the inventory levels at your customers?

Do you think that the destocking of the second half of last year brought your customers to levels that might be now hard to destock further? Thank you.

Markus, first point we never guided on reported EBIT. Basically we do only EBIT before special items, right?

So secondly...

At least I tried.

Pardon?

At least I tried.

Let me comment on the other part. And with regard to CapEx, guidance is €3.8 billion planned for 2019 and €21.3 billion for the next five years.

With regards to inventories, it's true, if you have a slowdown in the economy and also with your sales there is also a time when you might run into higher inventories. There was also an inventory buildup on our side.

With regard to customer inventories, I don't think that we have over-pronounced effects here. You have generally; and towards the end of the year that your customers try to go into the New Year with lower inventories.

Let's also see now what the overall, let's say, sentiment on our customer side is with what I said. If the economic activities go up then also we will see a more positive side on the inventory.

Certainly in a period where it's a little bit slower, I think everyone is cautious. We will certainly work on all the inventories that had also to do with some reliability topics we had in the past.

And with cleaning that up, we can also operate with a little bit lower inventory. So this I think goes hand-in-hand between our own operations the let's say overall sentiment on the market.

I think this is what I have to say to you three parts.

Okay. Markus and I'll take your question on maybe CapEx first.

CapEx guidance for 2019 is €3.8 billion. And for the time period 2019 through 2023 it's a bit more than €21 billion.

And you'll find that hidden in the outlook. You then had a question on the development -- sales development if I got that correctly in our Catalysts division in there in particular on the precious metals trading sales.

We've experienced significant increases there both in Q4 and also in the full year 2018 figure. Sales increased from €2.5 billion to roughly €3.2 billion and roundabout €300 million of that increase are in Q4.

That's not so much related to volumes. It's more related to the price developments that we've seen in precious metals and there in particular to palladium which I think hit a new record the beginning of this week or yesterday at more than 1,500.

And so quite a development there and that clearly pushes up then also the sales. And I think with that we've got your questions covered I hope at least.

Perfect. Thanks so much

Okay. Since we have six more analysts on the line, I would ask you to limit your questions to only one or two at the time.

And we will now have Peter Spengler, then Laurence Alexander and then Sebastian Bray. Peter Spengler, DZ Bank.

Please go ahead.

Thank you, Stefanie. Good afternoon.

I have two questions. One on the Rhine water levels, so if they reach similar low levels in H2 2019 comparable to 2018, is this fully covered by the 2019 EBIT guidance?

And do you have plans at hand when we face a similar situation? And the second question is about your joint venture in the paper and water business.

So could you provide us with the historic net income figures of this business so which would help us to model the equity contribution in 2019? And are the sales and earnings of the water and paper chem still of the group in 2018 so in the report?

Or are they already in the disposal group? So that was not clear to me so far.

Thanks.

So Peter, very clearly there's nothing in the budget with regard to low water in the Rhine. So we expect we have right operations for 12 months in the year.

Normally in the past we had always a few days or a week or something like that where we could not -- took out the full amount of cooling water from the river or where we have maybe a few days where our ships cannot go. That is normally what we can pass off with our inventories.

It was really very, very exceptionally -- exceptional in this year's summer in all the 153-year history. So I think this is nothing which you have to factor in into your business.

With regard to the JV so then please understand that we will not give you further details on the earnings of that business, but very clearly they were part of the Performance Products segment this year.

Okay. Thank you very much.

The second part was on Solenis. I feel that we will not be able to provide you with the comps on a net income basis and we have sold our water and paper treatment business in the disposal group, but you still find it different than the type of accounting that we have to do for oil and gas because oil and gas is discontinued business.

So that disappears. But for the net profit, in the case of our water and paper treatment business, you still see this in the regular P&L despite the fact that it's part of a disposal group.

But I think I can tell you that the profit contribution is not overwhelmingly high.

Okay. Thank you.

Now the next question is from Laurence Alexander, Jefferies. Your turn.

Good afternoon. Can you give us some perspectives on your R&D pipeline in Ag?

And I guess really, can you frame it in terms of what level of peak sales do you like to have in your R&D pipeline to match or at least to keep to sustain the new Ag business given the step-up in size?

Well I think if you read the press release this morning, I think basically all the information is in there. I think it is a very impressive peak sales of more than €6 billion.

It's basically doubled from €3 billion to €6 billion. This is not only from our own products, but it certainly includes now all the business we have from the Bayer acquisition.

I think this is a very impressive number here. On the other hand, I have also to say it is very impressive what we invest in R&D because the segment is now invested in 2019 or is projected to spend around €900 million in R&D.

And I think this shows very clearly, first of all our commitment to the segment, but it shows also how innovative this business is and this was actually also the driver for the acquisition. If you read through this before, I go through all this.

I think you see, we have a very good mix on one hand on really traditional crop protection products, but we have also now the seed products. And I think what is also very important, we have also business and innovation from the digital part in there.

So I think that shows how comprehensive and full-fledged our segment is. And we are very proud and happy about this because I think this is what fuels the segment and gives you a perspective about the future of that business.

And I think that BASF is here very, very well positioned in terms of innovation.

I guess just to be clear is that pipeline the €6 billion, is that enough for BASF to outgrow the market it operates in? Or is it really the right level to sustain the business?

I mean you can see also the last years already on our traditional or legacy business. We had a very, very strong pipeline on the Chemicals side which is actually one of the strongest in this industry.

Now you see that this is basically more comprehensive by having also the seeds and traits in the digital part over there. And I think this is a full pocket of ammunition to also be very aggressive in this market.

So I think we have a very good position here. And it was always what we said.

I think with the size of the business we don't have any disadvantage not to reach any regional or local market. And I think we always made this clear in the past.

You might have a little bit higher sales cost compared to one of the bigger competitors now, but the main determining factor in this business is always your innovation power, how much new stuff you can bring to the market. And I think in that respect, we absolutely do not have to hide in front of any of the other big merged competitors here.

Thank you.

The next question is from Sebastian Bray, Berenberg. Please go ahead.

Hello, good afternoon and thank you for taking my question. I would have two please.

The first is on the potential difference between adjusted EBIT and EBIT in 2019. Could you please give an overview of what exactly the special charges will be?

And in particular I'm interested in how much of roughly €500 million of restructuring costs that was mentioned is actually going to be absorbed there. And are all of the integration costs going to be booked to special items?

And related to this is where are they for 2018? And are there any other areas which we should be aware of?

That's my first question. And my second is on the Other segment.

Given that the profit growth is quite marginal for -- or guided to be quite marginal with EBIT's adjusted level for 2019, the moving parts from this could potentially make the difference between flat and modestly up for the year. Could you talk about how much oil and gas contribution you have built into Other for 2019 and the other moving parts that could move the Other contribution up or down?

Thank you.

Yes. Sebastian, this is Hans.

I'll start with your first question on the special items. So what do we expect there?

You've seen our figure for 2018. What we expect is roughly special items doubling in 2019.

And the big contributors to that will be the integration costs from the Bayer acquisition and the other big piece will be the cost that we have related to the excellence program. And that in combination should lead to what I call doubling of special items in 2019 compared to 2018.

On Other, yes, you're right. From the point in time on that the Wintershall-DEA joint venture is established.

We will show the -- our part of the net profit of the joint venture in Other as part of the equity consolidation that we are doing there. Be careful when you look at the net income of Wintershall in 2018 and please be mindful of the fact that 2019 will be the year of integration and also restructuring.

You may have seen the announcement that we made there last week with respect to reduction of provisions in particular in Europe and in Norway. So please factor that in.

And please also understand that I can't give you a specific number on what the oil and gas contribution is expected to be, not the least because it certainly depends on the point in time where we close the transaction. And then, as you know, in Other, we have a lot of moving pieces in there.

We had a significant positive contribution. In other words, income coming from our long-term incentive program.

Unfortunately for -- as we all think the wrong reasons. It's share price-related as you know and that provided significant income that obviously we do not foresee for 2019.

We also had FX-related positive effects, which we just can't forecast or estimate that way in 2019. So, unfortunately, Other will remain an area where also we at times need a little longer to fully grasp what has happened in Other.

We tend to grasp it quickly, but sometimes the developments such as in the area of share price and/or currency is extremely difficult to forecast or to predict.

Thank you.

The next question is from Georgina Iwamoto, Goldman Sachs. Please go ahead.

Thanks. I have two questions both on the guidance and both follow-ups.

So, the first one is, on the outlook for the Chemicals division, I'm sure everybody on the line would appreciate a little bit more convincing on how you see that segment growing. Your comments earlier indicated that cracker margins were currently depressed and that the other components of the kind of new division would be more stable.

And so, if you can just help me figure out how that ends up being a net positive impact for 2019? And then the second question is for Hans, just a follow-up on Sebastian's question on the oil and gas EBIT contribution.

I appreciate that you can't give us a number, but is it fair to assume a six-month EBIT contribution for whatever our own forecasts are for the oil and gas business and then strip out some-- and costs associated with the restructuring? Thank you.

Georgina, thanks for the questions. I'll start with the oil and gas question.

And I can tell you that this is what we're doing internally. We're using six months.

We're using the expected net income. And in the expected net income, we are fully reflecting the kind of restructuring and integration costs that I've already addressed.

Georgina, I cannot add much more to this. I think, yes, the cracker margin situation particularly in the U.S.

is something on the real negative side. I think the volume side is positive.

The BDO margin as I have mentioned is positive. I think also the acrylic value chain which is a very important one for BASF has a better outlook.

And then don't forget we have a lot of specialty business, which is also contributing significantly which is also -- have far rather good perspectives to the future. So, I think this all -- and also I should maybe say Oxo alcohols is a very stable part of the business.

So, overall, that is the conclusion we get by summing up, for the map the different expectations we have in these business segment. So that is why we come to the conclusion this is a rather positive picture than a negative one in adding up negative and positive effects.

Okay. Thank you.

Okay. Given the time, I would really appreciate it if you preferably could limit your questions to only one at a time.

We now have Andreas Heine from MainFirst, then Peter Clark Societe Generale, and then Chetan Udeshi JPMorgan. So, we start with Andreas Heine at MainFirst.

Yeah. Very briefly on the cost savings.

You will get €500 million you stated on the EBITDA level. How does it compare with the inflation of costs you have in the OpEx line?

Maybe I'll try still a second one. Could you give any update what you might have earned with by being consolidated for full year?

The last number we have was from 2016, could you add anything how that business has developed from 2016 to 2018 please?

Andreas, this is Hans. What I can give you on Bayer is unfortunately not more than saying that business overall has had a positive development.

Just can't say more for relatively obvious reasons which have to do with the contract. And your second question was on the €500 million in targeted contribution from the excellence program in 2019 and how that compares to what I would call general inflation in the portfolio.

Did I get that question correct?

Yes. Absolutely.

Okay. So, what will -- what we work with is in very broad and general terms, inflation figures order of magnitude of 2% to 3% per year, offset by a number of efficiency measures.

And in this year an additional significant contribution coming from the excellence program.

Thank you.

The next question is from Peter Clark, Societe Generale. Please go ahead.

Yes. Good afternoon.

Sorry, for sneaking one in. Is on the cash flow and it's for Hans.

It's probably quite simple, but obviously, you're pointing to CapEx constrained working capital constrained. You've got more cash-outs, I presume on restructuring efficiency.

Just wondering about that free cash flow level. I presume you're looking at it at least in the level we saw last year given the DV is getting close to €3 billion.

And just to clarify you haven't put a number have you on the maintenance shutdowns? Because I know there are big plants going down this year the year-on-year effect on that.

Thank you.

That is correct, Peter. We have not put a number on that.

But starting end of Q1 and then in particular in Q2 the turnaround cost will be significantly higher than what we have experienced in the first half of 2018. And your question on the cash flow again?

Yes. On the free cash flow, I presume you're looking at 2019 free cash flow being at least the level of 2018 given your dividend is climbing up to the €3 billion mark in terms of payout?

Yes, Peter as you know we don't give specific guidance there. But BASF has a good solid strong free cash flow provider.

And Martin and I are looking at each other and nodding and saying, that's what we want to be in 2019 also.

Okay. Thank you.

Okay. The next question is from Chetan Udeshi.

And then we have one final analyst in the queue. That's Charlie Webb.

But now first Chetan Udeshi, JPMorgan.

Yes. Hi.

Two questions. One is just a simple clarification.

So when you talked about €260 million of integration costs, can you just clarify how much of that is part of EBIT before special items? Or are all of those costs part of special items?

And similar question for other special items associated with the €2 billion excellence program. How much of those costs will actually be part of EBIT before special items?

So that will be useful. And the second question, sorry to just come back on the guidance.

I understand the optimism on second half, but would it be fair to say that you probably tempered some of that optimism in terms of your internal forecast for second half given that, clearly, you might not want to have a situation where it proves to be too optimistic? Thank you.

Chetan on the guidance, again, you always claim to be so conservative. Now we are really a little bit more optimistic.

And I think I mentioned this. I mean, the first thing is why we have a positive I think we expect from the macroeconomic environment that we have a relief on some of the critical items like Brexit and like trade conflicts, which I think is also psychologically most probably bringing some of the markets a little bit more dynamics.

And then you should not underestimate then what I said earlier, that we have then the task from the first half no longer in the second half. We have some of the costs part kicking in, so it is basically coming from both sides.

It's coming from the market side that we are optimistic, but it's also coming from our own cleanup and restructuring where we're showing fruits. And this is why we are optimistic about the second half.

This is all what I can say. And we repeated this.

This is our best guess from today's point of view and this is why we gave this guidance.

Thank you.

Chetan, on your question with respect to one-time effects how much of that is actually special items? How much do we see in the underlying performance?

I tend to work there with a rule of thumb and that is it's about 75% that goes into special items and 25% you will find in the underlying performance also. So, in other words 25% that roughly hits the EBIT before special items and 75% that goes to special items.

Thank you. Thank you.

Now, the final question from Charlie Webb, Morgan Stanley. Please go ahead.

Great, and thank you very much, guys. Given I'm last I might just try and sneak two in.

First off just on the cathode business, you talked quite positively in terms of its contribution at the end of the year and also about -- I saw a few headlines around getting approvals in that business. So perhaps you could just give us a quick update where you are in that approval process, when you would expect to be on platforms and the outlook for that business going forward?

And then secondly just coming back to the acquisitions including guidance, you helped us with the oil and gas. Perhaps just on the Bayer business.

I remember you're suggesting previously that EBITDA was on a stand-alone basis for that business historically around €550 million accounting for the PPA, the amortization, is it right to think that we're going to get a low triple million digit contribution in 2019? Is that the right way to think about it?

And likewise PA66, I think €200 million of EBITDA in 2016, clearly there's going to be some remedy packages. I guess we don't know what that is yet, but is that a small double-digit contribution for 2019 in the guidance?

Is that the right way again to be looking at that?

Charlie just a question. Your first question was the cathode business?

So the battery materials? So what was this?

Yes, exactly the battery materials business.

Okay. So I can only say overall that developed nicely in 2018.

We don't publish single numbers for that business, but we just have to make this very clear again. We are an established commercial player in this business.

We have a lower double-digit – triple-digit million sales in this business. And particularly on the high-energy materials, so the NCA4 particularly we are a very well-established player.

We have our own capacities in the U.S. and we have the TODA JV capacities in the U.S.

as well as in Japan. So we are producing and delivering these materials to customers.

What is the new step now, which you maybe talked about is our European investment, which is a very important one, and stepping this business up. It's also a very important commitment to the European value chain, which you see a lot in the newspapers also with a lot of political support.

I would say to build this up. And we will bring our contribution to this.

And we are now preparing our investments in the first step in Finland and then a second step. So we are very well on track with this business.

Now -- and Charlie since this was actually the last question and then this will be the last answer on the EBIT contribution before special items of the Bayer business, I keep this very short and I say this sounds more or less correct what you assumed.

Brilliant. Thank you very much guys.

Okay. So, ladies and gentlemen, this brings us to the end of our conference call.

And today we already provided you with the most relevant figures for our new segments. In the last week of March, we will publish a comprehensive restatement brochure with all the data you need to adapt your models before our Q1 2019 reporting on May 3.

Should you have any further questions at this time, please do not hesitate to contact a member of the BASF IR team. Thank you very much for joining us today and goodbye for now.