Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thanks for joining the BASF Analyst Conference Call First Quarter 2018 Results. Throughout today's recorded presentation, all participant in a listen only mode. Session.
This presentation contains forward looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in the opportunities and risks report from page 111 to 118 of the BASF Report 2017.
BSF does not assume any obligation to update the forward looking statements contained in this presentation above and beyond the legal requirements. I would now like to turn the conference over to Stefanie Wittberg, Head of Investor Relations. Please go ahead.
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 of 2018. Today's conference call is limited to 1 hour since our annual shareholders meeting starts right after this call. On the call with me today are Hans Engel, BASF's Chief Financial Officer and Mark Earhart, President of the Finance division. Hunts will explain the financial performance of BASF Group in the first quarter, while Mark will present the results and the financial figures in more detail.
Hans will conclude by providing BASF's outlook for 2018. Please be aware that we have already posted the speech on our website at BASF.comq1 or /q1 2018. With this, I would like to hand things over to Hans.
Yeah, thank you, Stephie. Ladies and gentlemen, good morning, and thank you for joining us. BASF had a good start to the year and finished the first quarter 2018 with slightly higher earnings compared to a strong prior year quarter. In most businesses, we implemented further price increases. However, strong currency headwinds, mainly due to the appreciation of the euro versus the U.
S. Dollar more than offset these price increases. Sales volumes were up driven by continued strong demand. Production plant outages negatively impacted volumes. Please also keep in mind that Q1 2018 had less working days than the prior year quarter.
Turning to BASF Group's financial figures for Q1 2018 compared to the prior year quarter in more detail. Sales in the first quarter of 2018 decreased by 1% to 1,000,000,000. Prices were up 5% and volumes increased by 2%. Currency effects were minus 8%. Overall, portfolio measures had no impact on sales.
EBITDA before special items came in at 1,000,000,000 compared to 1,000,000,000 in Q1 2017. EBITDA decreased by 2% and amounted 2% to 1,000,000,000 in Q1 2018. Considerably higher earnings in chemicals, oil and gas and other more than compensated for lower earnings in Functional Materials And Solutions, Agricultural Solutions and performance products. Special items in EBIT amounted to an income of 1,000,000 compared to an spend of 1,000,000 in Q1 2017. EBIT increased by 3% to 1,000,000,000 in Q1 2018.
The tax rate was 24.7 percent compared to 22.9 percent in the same period last year. The increase was mainly driven slightly lower and came in at almost EUR 1,700,000,000 in Q1 2018. Reported earnings per share decreased by 2% to in Q1 2018. Adjusted EPS amounted to This compares with in the prior year quarter. In first quarter of 2018, the operating cash flow increased by 48% and came in at 1,000,000,000 at 6 1,000,000.
Free cash flow was up by 1,000,000 compared to Q1 2017. Let me briefly provide you with an update on our M and A activities. In September 2017, BASF and Solvay agreed on the purchase of Solvay spec integrated polyamide business by BASF. We aim for closing of the transaction in Q3 2018, preparations and compares the finalization of ancillary agreements and obtaining regulatory approvals such as merger clearances in several jurisdictions. In October 2017, BASF signed an agreement to acquire significant parts of buyer's seat and non selective herbicide businesses.
In April 2018, BASF agreed to purchase additional businesses and assets, which Bayer offered to divest in the contact of its planned acquisition of Monsanto. The expanded scope includes Bayer's entire vegetable seeds business, as well established seed treatment business, the R and D platform for hybrid wheat and the complete digital farming platform. The transactions with Bayer compliment BASF's crop protection business and biotechnology activities, adding new capabilities and opportunities for profitable growth and innovation. The all cash purchase price for the combined acquisition is 1,000,000,000, subject to certain adjustments at closing. In 2016, the combined businesses generated sales of 1,000,000,000 and EBITDA of 5 1,000,000 on a pro form a adjusted basis.
All transactions remain subject to the closing of Bayer's acquisition of Monsanto expected in the second quarter of 2018. BASF expects to close most of the acquisitions in Q2 2018 the Vegetable Seats business closing in third quarter of 2018, of course, subject to the required regulatory approvals. In December 2017, BASF and LetterOne signed a letter of intent to merge their respective oil and gas businesses. Currently, we are conducting a confirmatory due diligence and are negotiating definitive transaction agreements. If an agreement is reached, closing could be expected second half of twenty eighteen, subject as always to regulatory approvals.
This week, BASF and Solenis have signed an agreement to join forces by combining BASF's paper wet end and water chemicals business with Solenis. So Lanas is a global producer of specialty chemicals for water intensive industries. The combined business with pro form a sales of around 1,000,000,000 and around 5000 employees in 2017 aims to deliver additional value for paper and water treatment customers. The goal is and share of the combined entity that will operate under the Solena name and be headquartered in Wilmington, Delaware, USA. 51% of the shares will be held by funds managed by CDR, pending approval by the relevant authorities closing is anticipated for the end of 2018 at the earliest.
I will now hand things over to Mark to give you some more details regarding the business development of our segments.
Thank you, Hans. Good morning, ladies and gentlemen. Let me highlight the financial performance of each segment in the first quarter of 2018 compared with the first quarter of 2017. Sales and chemicals increased slightly, higher prices in all divisions, particularly in monomers and intermediates, compensated the significantly negative currency effects Volumes growth in this segment was slightly positive, driven by petrochemicals as well as intermediates. Volumes development in the Monomers division was hampered by plant shutdowns due to inclement weather in the U.
S. Natural gas curtailing in China in the planned turnaround of the TDI plant in Ludwig South. EBIT before special items increased considerably from EUR 958,000,000 to 1,100,000,000. This was driven by higher margins and volumes. In petrochemicals, earnings were negatively impacted by weaker cracker margins in the new world scale ammonia plant in Freeport, Texas, which will strengthen the production footprint at this site.
The new plant allows us to take advantage of world scale production economics in attractive raw material prices. Sales in Performance Products decreased by 6%, mainly due to negative currency effects. All divisions of the segment were able to increase prices. The planned shutdown, the unplanned shutdown of the Suttrell plant in Wood3000 and the respective force majeure declarations for SITROL and ezoprenol based aroma ingredients as well as for vitamin AE and several carotenoid products resulted in a slightly negative volume development for the segment. Stitcher imports from our new aroma Ingredients complex in Quantia helped to partially reduce adverse impacts on our customers.
Slightly negative portfolio effects were mainly related to the transfer or BSS leather business to the Shaw Group. We raised prices in adjusted for currency effects, increased the average margin compared with the prior year quarter. EBIT for special items nevertheless declined slightly, largely as a result of the negative currency effects. Sales in Functional Materials And Solutions decreased slightly as higher prices, especially in the Catalysts division, and slightly higher volumes could not fully offset negative currency effects. Some of our businesses primarily in Performance Materials Margin declined as prices price increases could not fully compensate for a higher raw material prices.
Overall, fixed costs increased, partly due to maintenance work and new production plants coming on stream. As a result, even before special items decreased significantly. Sales in the Agricultural Solutions segment declined by 7% compared with Q1 2017. This was primarily attributable to negative currency effects in all regions. Sales were also reduced by slightly lower prices in North America in particular.
By contrast, we increased sales volumes. Business development in the Northern Hemisphere was dampened by the long and cold winter. In Europe, sales were down slightly on the prior year quarter, mainly as a result of negative currency effects. These could not be completely offset by slightly higher volumes particularly in Eastern Europe. Sales in North America decreased considerably, largely due to the strongly negative currency effects.
Slightly lower prices for herbicides in particular also contributed to the sales decline. Sales rose considerably in Asia, significantly higher sales volumes, especially in Japan and China, more than offset the negative currency effects. The region, South America, Africa, Middle East saw slight sales growth, driven in particular by higher volumes of soy fungicides and sugarcane insecticides in Brazil. Sales were weighed down by negative currency effects. EBIT before special items was considerably lower than the first quarter of 2017.
This was mainly attributable to negative currency effect in higher fixed costs in areas such as production and research. Sales in oil and gas were up significantly mainly due to higher oil and gas prices and increased volumes. In Q1 2018, the average price of Brent Crude was $67 per barrel. $13 higher than the same period of 2017. In euro terms, the increase was Cash prices on the European spot markets were also significantly above the level of the prior year quarter.
The combined price and currency effect was plus 3%. The volume increase of 11% was driven by higher production in Norway in higher trading volumes. EBIT before special items increased considerably from EUR 170,000,000 to EUR 365,000,000 This was largely attributable to a higher earnings contribution from Norway due to the lower depreciation the result of higher reserves as well as volumes growth. Higher oil and gas prices also contributed to the earnings increase. Net income in oil and gas increased from 1,000,000 to 1,000,000.
EBIT before special items in Other improved from minus 1,000,000 to minus 1,000,000. It was mainly driven a swing related to our long term incentive program, while earnings in Q1 2017 were negatively affected by an increase in provisions Q11 2018 benefited from the release of provisions from the LTI program. Let's now turn to our cash flow in the first quarter 2018. Cash provided by operating activities increased from EUR 833,000,000 to EUR 1,200,000,000 in Q1 2018. This was primarily attributable through the lower level of cash tied up in net working capital, largely from receivables.
Cash used in investing activities decreased from 1,000,000,000 to 1,000,000 in Q1 2018, mainly driven by the decline in additions to other financing related receivables. In addition, payments made for property equipment and intangible assets were down by 1,000,000 to 1,000,000. At 1,000,000, free cash flow was up by 1,000,000 compared to Q1 2017. Both the higher cash provided by operating activities in the lower payments for property, plant, and equipment and intangible assets contributed to the increase Cash provided by financing activities amounted to 1,000,000 in Q1 2018 compared to 1,000,000 in the prior year quarter. The decline was largely a result of the lower net additions to financial and similar obligations.
And with that, back to Hans's full outlook.
Yes, thank you, Mark. We confirm our outlook 2018 for the BASF Group as provided at the end of February based on our assumptions for the economic environment and taking into account the agreed transactions with Bayer and Solvay, We anticipate slightly higher sales to be up slightly on the 2017 level. EBIT for the BASF Group is forecast to decline slightly in 2018 We anticipate special charges in the form of integration costs in connection with the agreed acquisitions. We aim to once again earned a significant premium on our cost of capital in 2018. However, compared with the previous year, the BASF Group's EBIT after cost of capital will decrease considerably.
This will mainly be due to lower EBIT, including M and A related special charges, as well as the additional cost of capital from the planned acquisitions. And now Mark and I are glad to take your questions.
Ladies and gentlemen, I would now like to open the call for your questions. Anyone who wishes questions. So her questions. We will begin with Paul Walsh from Morgan Stanley. I will then ask Andrew Stott to ask this question and followed by Christian Faitz.
So now first, Paul Wals, Mohan Stanley.
Thanks a lot, Stephanie. Good morning, Hans. Morning, Mark. I'm just two questions from my side. Could you just help me understand a little bit more the year on year dynamics in both performance product and the functional business, it just seems you've had a very nice step up in margin in PP.
I'd just like to dig a bit deeper into that. Similarly, for a relatively similar sales number in the functional business year on year, there seems to be a sort of sizable decline in margin. Again, just to balance those 2 things, any insights you can give would be appreciated. And I'll leave it at that, please. Thank you.
Yes, Mark. This is Hor. Let me start with the question on Performance Products. Indeed, what you see is on a currency adjusted basis, an overall nice improvement. We had, price increases a across the board in Performance Products.
The raw material price increase was actually lower than what we expected going into the quarter. So that certainly helped. Overall, if I add the impact term of foreign exchange, we come out with better results in Q1 2018. In Performance Products than what we had in Q1 2017. Just to give you an indication there, currency, we took a real hit in Q1.
It's not only the U. S. Dollar. It's basically all the other major currencies that we have in our portfolio. You've seen the 8% on the top line, which equates to about 1,300,000,000 on an EBIT level, we took a hit order of magnitude, 300,000,000 due to the appreciation of the euro.
Functional Materials And Solutions I think you and I talked last time when we saw each other about the fact that we have a monomers business with isocyanates. We have announced the business in Performance Materials. And if I look at, improved results in the chemical segments, which are to a large extent driven by the improvement in isocyanates. But also in capital lifetime, that's where then, our Performance Materials business takes a significant hit because they can't pass on the significant price increases that we're seeing in the isocyanate chain. And that explains part of the earnings decrease that we have in, Functional Materials And Solutions.
But overall, in the isocyanates value chain, we have significant improvement. We have, in addition to that, the currency hit, which is equally significant as we've seen it in Performance Products. We've got to keep that in mind. And the 3rd bigger topic that we have. We had a turnaround of our styrene plant, which also hits the result of performance materials.
And these are the 3 key elements that lead to lower results, lower margin in Functional Materials And Solutions.
That's great. And just a quick second question, the D and A reduction in oil and gas hands, should we be seeing $200,000,000 as the ongoing run rate for D And A in oil and gas, please?
We have a significant reduction in oil and gas and depreciation as a result of higher reserves in particular in Norway. And you should continue to see that in the year 2018.
The next question is from Andrew Stott UBS. Please go ahead.
Yes, thanks, Stacy. Good morning, Hans. Morning, Mark. So a couple of things. I wanted to come on to.
1st of all, the guidance specifically for AG for this year, if you think back to March, I guess what's changed here is 2 important things. 1, you've probably lost some pre emergent business due to the weather. And now you've got the we'll see the asset on top. So when you think about those 2 influences, are you still thinking for this division that guidance is as we were, but with those 2 changes. So that's the first question.
The second question was just understanding where we are now with your polyurethanes capacity as we look out for this year and into 2019. So is Chongqing back on? Are you running at full production in China there? Do you expect that to the natural gas issues to have gone away? And also, I think last time we met, you were talking about the reactor just arrived on-site teeth for the TDI facility in Ludwig Southern.
So best guess is to sort of start up of the TDI facility. Thank you.
Yeah. Sure, Andrew. Let me start with the AG guidance. The AG guidance is unchanged. If we look at the historic business, we still expect a slight improvement in results compared to prior year, whether was quite interesting in Northern Hemisphere in the first quarter.
So we have a significantly delayed start into the season depending on where you are, which geography you look at. We're talking about to about 2 to 4 weeks. Based on everything that I hear from the guys in the ag business, they think that they can catch up So as always, we got to look at the full season Northern Hemisphere. In other words, the first half will give us then the answer to your questions. But at this point in time, we don't see a need to change our guidance Chongqing, yeah, natural gas supply started in the second half of March.
So we're fully supplied again. We overcame the weather related issues, winter related issues that we had in the Gulf Coast TDI, Lutrisafen, the reactor is in place, and we expect to start up in a few weeks.
Okay. So we'll continue with Christian Faitz. He will be followed then by a question from Patrick Lambert. So now Christian Faitz, Kepler Cheuvreux
Yes, thanks, Stephanie, and good morning. Good morning, Hans, good morning, Mark. Just two quick questions. Coming back to AG, are you worried about any inventory levels in ACRA given this 2 to 4 delay, a 2 to 4 week delay in the crop season, I. E, are we talking about a shortened season, maybe here, shorten application season?
And then second of all, can you please shed some more light, on the weak EBIT performance in North America, very state that all segments contributed negatively. I guess part of it is agweather related. Can you please elucidate this?
Yes. I'll start with the second question, Christian, good morning. In North America, we have three impacts that we need to consider. Actually, we have 4. We have the weather related issues, as everyone else, who experienced freezing temperatures in the Gulf Coast.
Plans there are prepared to take hurricanes to level 45, but they are not made for freezing conditions. And that's what we experienced, not only us, also our raw material suppliers, and that'll add to, extended outages that we experienced, in particular, in our Freeport and Geismar sites. As you know, these are the 2 Verbund sites that we have. Second big impact that we have comes from currency. Look at what happened with the U.
S. Dollar. I think U. S. Dollar on average, in Q1 2017 was at 106, and we were at 123 in the first quarter of this year.
The 3rd impact that we have are cracker margins, which are significantly lower in Q1 2018 than where they were in 2017? Will that I have 3? What was the 4th one that I have on my mind? So outages, whether ag big one. You mentioned that one already and foreign exchange.
These are the 4 explanations for the significant decline that we have in results in North America. On AG, overall, I'd say no significant issues with the distribution channels. I think end of the season now looking at products on ground in particular in Brazil, shouldn't be an issue there with all the measures that were taken in 2017 North America, compressed season may play a role and that could very well have an impact on, on the distribution channels and the level of product in the channels. I cannot exclude that. We will see what's going to happen there during the season.
Europe overall looks okay, but for France, where we see relatively high levels in the distribution channel. Eastern Europe looks okay. Asia based on everything that I heard. No issues.
Okay. Many thanks. I wish you a short AGM and a good weekend.
Thank you very much. Highly appreciated.
So now the next question is from Patrick Lambert, Raymond James. Please go ahead.
Hi, good morning, Stephanie. Good morning, Anne, Mark. Two quick questions. The first one is on C trial, and actually the EBIT on performance products. Was there any impact of any insurance payments, you already to the force majeure?
And how do you see that panning out in in Q2, Q3 in terms both of a ramp up and also insurance contributions. And the second will be around ags again. When I look at the potential size of of the platform post the acquisitions, would you help us qualitatively and quantitatively possible to think about the synergies you can extract from those acquisitions, both in terms of of R and D and also in terms of production, crop protection production.
Okay. Patrick, your first question on CITRAL. Yes, there is, we received an insurance payment As always, this is an initial payment based on what you currently what the insurers currently see. We expect a further payment, not yet clear whether that will come in Q2 or whether that will come in Q3. Depends on when we will reach agreement with the insurers.
Give you an order of magnitude of the insurance situation. And I give that to you on BSF group level since we are partially self insured, and then figure something in the lower double digit million range, a positive impact in the lower double digit million range in Q1. And as I said, not yet clear whether there will be another positive impact coming from the insurance either in Q2 or in Q3.
In terms of volumes ramp up, how does it look?
So significant hit, obviously, you see this I think volume decline order of magnitude 10 plus percent in the in the operating division in Q1. We were able to bridge supply to our customers with quantities that came in from Qantan, but nevertheless, it's 10 plus percent volume decline. We're ramping up as we speak. So let's keep our fingers crossed that we are able to supply our customers as quickly as possible again. On your ag synergies question, actually, that is what we do is not the typical, acquisition where you look harvesting significant synergies, in particular, on the cost side.
These are complementary businesses that we are acquiring. And as a result of that, we look primarily, not to say exclusively at growth synergies and not necessarily for cost synergies.
Okay. And I would now ask Peter Spengler, the third one to ask his questions. And the following ones in the queue are Tony Jones and then Markus Mayer. So now, Pitesh Painela, it's hetbank. Please go ahead.
Good morning. Thank you for taking my questions. I have a follow on question on the Bayer Crop Science business you acquired. Are there also facilities and land you acquired from Bayer in Germany and especially in the U. S?
And do you feel still in own seeds and business and, sizable research experts and facilities which you can add to the BASF business? Or is it basically that you buy the BASF business and keep it and add some experts from your side? And the second question is on your joint venture with Solenis. You have a minority position and you have, I think, 3 out of 7 board members there. Your business was smaller.
Is there a timeline or, to change this setting or is the current setting permanent in the future? Thank you.
And Mark will then address your Salinas question. AG, what we are acquiring are actually fully enabled businesses they come with, they come the 1st part of the transaction, 5 chemical production and formulation sites, 10 R and D sites, the second part of the transaction with a further 7 research and development sites. And then obviously, a lot of regional seed production and breeding facilities with respect to personnel out of the different parts of this deal, total number of employees or order of magnitude 4300 that come with the transactions. So you see, fully enabled businesses be it on the production side, be it R and D side, be it sales, marketing, breeding and seed production facilities. So what you need to run the business comes with these transactions.
And with that to Salinas.
Thank you. So Peter, 1st and foremost, what we want to do is create a customer focused global solutions provider for the paper and water treatment industry. So, we've now gone the first step in creating this entity. And we're fully focused in bringing those 2 businesses together. 1st, And, you know, that CDNR is a private equity firm.
So at one point, we will look what the next step are, but for now, we're just concentrating on making sure that we set up this entity the right way.
The next question is from Toni Jones, Redburn. Please go ahead.
Oh, good morning. It's actually Neil Tyler Redburn. Good morning, Stephanie. Hans, Mark. 2 from me, please.
Firstly, on the cash flow working capital development, the tightening of the working capital balance in the quarter. Can you share your thoughts on how much of the drop in receivables particularly is is down to timing effects, later sales, perhaps in Ag and the like. And then sticking with Ag for the second question, And I suppose further to Andrew's question earlier, the EBIT impact from acquiring those seasonal businesses midway through the year, presumably I would assume would be negative for the second half of the year, because of the lack of sales in those last 6 months. Is that the right assumption to make? Thank you.
I'll take your second one and then Mark will answer the question on cash flow receivables and what he and his team have done in this area. On the EBIT impact, your assumption is correct overall. What we are expecting is a negative EBIT impact, A, due to the seasonality of the business and B, as a result of the significant integration costs that we will have to book in 2018.
And the pre integration costs still negative?
Again, please.
Excluding the integration costs, you would still expect
because the seed season is more or less done for the crop protection product and the seed treatment product season Northern Hemisphere, we will miss that will be compensated for by way of an adjustment of the purchase price, obviously, but that you will not see in the P and L. You'll see that in the balance sheet.
Perfect. Thank you.
Now to the cash flow question, yes, indeed, the, let's say, the delay in, in some ag business played a somewhat of a role. However, I think what we've shown over the past year is a very, very concentrated management of our cash flow. We have instituted a series of of, of measures to make sure that we accelerate our cash cycle. And that then ends up also in the improvement of almost $1,000,000,000 in receivables, measures that we've taken for instance, also cleanup and long standing, overdue. That we've systematically gone through all the regions and trying to get back.
We've addressed issues like bank acceptance traps in, in China to make sure that, we, accelerated cash cycle there that are reported under receivable for the longest time. So, it's combination with both, a little slight delay in that the uptick that we see in the first quarter due to the Northern Hemisphere Act season and the other is continued efforts to accelerate our cash cycle.
The next question comes from Mark Meyer, Baader Helvea. We will then, after him, have Andreas Heine, a minor. Good morning, Fred. Markus Mayer, please.
Good morning. Two questions on airgasoline. First one, on this negative price effect in agro, maybe I have missed this answer, but came this mainly from Protemic effects? That is basically my first question. And the second question, on the acquired Digital Farming Salvio of Bayer, Did I understand it right, please, that you, the basic buyer still has a license?
And maybe you can shed some light how this works with this license And, maybe also, as I understood it, so far, this is a kind of open, data business? So how does kind of business model works from this digital farming for you?
Good morning, Marcus. I'll take your first question on AG and indeed that is, predominantly the impact that comes from product mix and overall slightly lower prices in North America. These are the 2 contributors, and with that to Digital Farming and to Mark.
Yes. So I fully understand that with the dynamic of the discussion with regulators. So at the beginning, we were to purchase a license to the digital farming platform that Bayer had, but that then turned on to a full out divestment. So now we own the digital farming platform. That Bayer built up.
So we're really happy that that really accelerates also our efforts in that space and is a great outcome for us in the overall deal.
Okay. Thank you.
So now, Andreas Heine, MainFirst. Please go ahead.
Please. If you look on that, you most likely will have a much better availability of the high margin plants in MDI and TDI. And on the dynamics we see in prices, what do you see going into the second quarter for chemicals, which was at least in 2017 and in the first the main driver of your earnings? And secondly, could you give a little bit shed a little bit more light in the discussions you have with letter 1 on the oil and gas joint venture. I thought did the negotiation come to an end much earlier than they seem to do.
What is the issue it takes that long to come to a final agreement, please?
Okay. Good morning, Andreas. First on your question, on chemicals, what do we currently see? I'll start with, I'll start with petrochemicals, I alluded already to significantly lower cracker margins, continued strong isocyanate prices. Overall, good price situation and margin situation in in intermediates.
Petrochemicals, cracker margins in in particular in North America, significantly below what we've experienced in Q1 2017. I think since Q11 2017, there's roughly 3,500,000 tons of C2 capacity that was added in in North America that obviously has a significant impact on prices, but also on margins in what we call industrial petrochemicals, be it acrylic acid, be it the oxos, actually a good solid margin environment, good solid demand, across or around the globe. Isocyanates, we see what I would call a differentiated development by region. MDI prices have come down quite a bit in Asia and in particular in in China if you compare to end of Q3, early Q4 like they peaked there and have come down from that point. In Europe, MDI prices slightly down compared to the highs that we've seen also there in end of Q3, early Q4.
North America MDI relatively stable. But question always with the new capacity, MDI capacity that is coming on stream, in particular, the Sadara quantities that hit the market, what this will mean and how long we can actually enjoy this still very strong margin environment. TDI is relatively stable at a very high level. Looks like April prices will roll over into May, but also the other question what the additional volumes that come on stream will do and they include then also our TDI plant in Ludwig. So that may be the quick outlook on chemicals overall if I think Q1, Q2, we've seen not only SIM.
We are based on everything that I've seen in April, operating in an environment, with respect to chemicals that is very similar to what we've experienced in Q1 2018. On oil and gas, your question is, why does it take longer? Now if I think about the fact that we've signed a letter of intent, in early December, and we're now at the beginning of May I don't see a significant delay. What you have to factor in is that you need a consent from one of your partners in each and every geography that you're operating in. Because in oil and gas, you are typically not alone.
You're always in a consortium, in a joint venture. Can provide data only once your partners have provided you with the necessary consent That actually took a bit longer than what we had expected in certain geographies. Which then overall leads to what I would call a delay, but nothing where one needs to be concerned about, both parties are well aware of what's happening in, in oil and gas. And have done a number of transactions. And the lesson from that is it typically takes a little bit longer than what you tend to think in the world of, in the ambitious way that we typically think.
Does that help? Thanks.
Yes, a lot. Thank you very much.
You're welcome.
Okay. We have 5 more analysts in the queue and 15 minutes to go. So we will now have Laurence Alexander from Jefferies then followed by Thomas Wigglesworth, Sebastian Bray, Titan Udeshi and Peter Clark. So now, Laurence Alexander from Jefferies. Please go ahead.
Good morning. Just quickly, could you clarify a little bit the margin pressure that you're seeing in construction chemicals and the degree to which you believe you either lost demand for the year or you saw demand get pushed into Q2? And then secondly, just more broadly across your downstream chemicals with the functional and performance products. Have you seen any real slackening in underlying order trends or has everything been pretty consistent?
Yep. On the E B margin pressure, we have, what I would call, 2 businesses which are tend to be impacted by weather. 1 is the ag business. The other is the construction chemicals business. So also there, we've seen a late start to the season.
Both in commercial and in residential. And the expectation is that and April has shown that to a certain extent, the demand will pick up in Q2. On Functional Materials And Solutions. Your question was, do you see a flattening somewhere, I say no, I mean, I just explained what's happening in construction chemicals. We've seen slight growth in automotive.
These are the 2 key industry automotive and construction that we supply out of the Functional Materials And Solutions segment. So slight growth in automotive, a bit below what we are expecting for the full year, in particular, in North America, a slow or slower start than what we had actually expected, which may also be weather related, but overall, demand patterns pretty much in line with what we thought we would see in 2018. And in line with what we explained earlier in the year during our call in February. So in other words, no change.
Okay. Thank you.
The next question is from Thomas Wrigglesworth, Citi. Please go ahead.
Good morning, everybody. Thanks very much. So obviously, I know there are a lot of puts and takes, but on performance product, it looks to me like we're seeing kind of pricing picking up over the last really kind of two to three quarters. Are you how are you doing in terms of recouping the raw material impact that's coming through there? As we exit the first quarter and into the second quarter, should we be anticipating, further further pricing acceleration?
And is that being accepted by customers? That's my first question. A second question, just a point of clarification, you kind of gave us the insurance numbers, but the insurance claims, is that purely sit trial in the quarter or are there other MDI claims as well? If you could just clarify what the group insurance covers? Thank you.
Yes, okay. I'll start with your insurance question. What I gave you is purely the impact that we have from CTAL with this low double digit million figure on a on a group level. There's nothing in there for MDI, the outages that we had there in in China due to natural gas curtailment, there is no insurance available. The weather related impact that we have does not all under business interruption insurance.
So there's nothing in for that. There's also nothing in for the North Harbor incident where we are expecting also sometime in Q2 and Q3 a final payment. So what I've given you is purely unperformance product. As mentioned already, we have, we have a margin improvement if I adjust that for the FX impact which in other words means, we were able to increase prices above the raw material impact that we had in Q1 on the raw material side. Please always keep in mind, we have in U.
S. Dollar terms significant increases compared to Q1 of last year. But again, current currency adjusted for a company that reports in euros, there is not much of an increase and we were able to compensate or even gain a little bit back compared to the situation that we were in, in particular, in Q2 and Q3 of last year in Performance Products. And price increases the whole range of price increases that was announced in Q1. We'll see now during Q2 what will stick and what will not
stick. Okay.
Thanks very much.
Very welcome.
The next question is from Bastian Bray, Berenberg. Please go ahead.
Good morning and thank you for taking my questions. I would have 2 please So the first is on the agreement with Solenis. I just want to confirm and apologies for being a bit simple on this. Is it right approach to modeling this to simply deduct the related revenues from the, from the Performance Products segment for BASF for 2019 onwards? And the second one is on a question of distribution of integration costs.
I appreciate it's a bit early, but would you expect a significant proportion of fees to fall into 2019? And will you try to book as many as possible up front? Thank you.
The second question, again, that was on.
Costs or sorry, integration costs, pardon me?
Integration costs, for which transaction?
For most, what I trying to get at this, but would you expect 4 of the transactions that you have announced for Solvay, for the AG for Vichuan, for all of them to potentially move into 2019 relative of how much of these do you think will be in 2019 relative to 2018?
Okay. On the latter one, it's obviously depends on the point in time where we close. So let's take them one at a time. For the ag transactions, we would expect to actually book a large chunk of integration costs already in 2018. There will be spillover into 2019.
There's no question about that. Depends on the point in time at which we will sell inventories and then cycle the what I call purchase price allocation costs thing to close that transaction in Q3, which then would also mean that, there will be a large chunk already in 2018, on what else do we have? On Solenis, we are a expecting a closing at the earliest in Q4. And that depends then really whether we will still be in a position to book something in Q4 of this year. Whatever we can, we will most probably book in
the year
to Solenis in 2018. And in other words, in Q2, we will have to put that business in a disposal group as a result of that. And I have to tell you Lebastian, that everyone around me is nodding. I think they are a bit concerned that I got my reporting correct here, but apparently what I'm saying so far is correct. So there will be disposal group, as of Q2, which then means the revenue as well as the results will be In that case, stay where they are, okay.
In that case, I just hear, stay where they are. And then from the point in time on where we close, we will then have at equity reporting, which means then we will not show sales anymore for that business. We will show our share of the net profit and that will be shown as part of the EBIT line. Now everyone's nodding around me again. That seems to be correct.
Sounds good. Thank you very much.
Okay. Now we have Chetan Udeshi, JP Morgan. Please go ahead.
Two questions. Firstly, on Performance Products, can you quantify what is the net negative impact you might have seen from the loss of production in the trial change in Q1 because you had some insurance payments. You benefited as you mentioned in the release from higher prices, and maybe you saw some volumes from inventory or your Malaysian plant. So the question I have, should we be expecting a sequential substantial improvement in performance products one central is up and running by endofthisquarter or so just to know the exact or some sort of quantifying the impact in Q1 would be helpful for that? And the second question was in your Catalyst business, you mentioned the margin or earnings are down significantly, primarily because of FX, but even underlying, it seems the margin was down.
So can you explain what is happening in that business given that the metal prices were more favorable. So that should have been probably be a tailwind on margin. As well?
Thanks. Okay. So I'll do Performance Products. Mark, we'll do a catalyst On CITROL, as explained, we received a 1st insurance payment picture a picture for the results, in Performance Products overall. A low double digit million negative impact after this net insurance payment.
Now to your question on the Catalyst division, well, we're seeing very good business in, and remember, we've got 3 or 4 areas, if you still will, in that division. We've got, the chemo catalyst, refinery catalyst, that's one that those are doing very well with volumes developing in the right direction. Battery Materials is obviously coming from a low level also looking good trading also with healthy, healthy numbers. Where we're seeing volumes coming down is, in fact, in the Mobile Emission Catalyst business there, especially, and if you're performing turmoil in the European sector. A lot of the OEMs are shuffling their platforms back and forth.
In the light duty diesel segment. And that's when, I mean, also if you know, number of components that are not diesel exhaust treatment is almost fourfold of what you have in the light gasoline. So obviously then if there's a shift in platforms, that has an impact on our business.
Is it just a diesel share mix as an overall percentage of the sales or is it also because of some share gains between yourself and your competitors, which is impacting you more maybe at the moment?
Well, it's a little bit more complicated from that because you usually win a platform 3 years before you, you implement. So here you've got a combination of both the actual sale of certain platforms is moving in a way different than what was maybe planned in the past. And what you did in the competition performance 4 years ago. So I think it's a little bit too complicated to sort that out, but I wouldn't say that we've lost market share in the short term.
Okay. Thank you very much.
So now the final question from Peter Clark, Societe Generale. Please go ahead.
Yes, good morning. Thank you very much for that. It's coming back on your talking functional solutions on the margin. You've made it quite clear Performance Materials is particularly hard hit and I think you had fixed costs rising again in the first quarter. So the first question really is Is that the case?
Performance Materials really makes that segment margin look a lot worse potentially? And then in terms of the coatings business has also been under a lot of pressure, particularly from raw materials. One of your major competitors on the auto side is pointing at potentially getting over the raw materials as they see it or making head to certain headway on it by the second half. Just wondering if the progression is similar with what you see in the markets that going into the second half that you're more confident that these margins can start stabilizing and turning on the coating side. So that's excluding the Deco in Brazil.
Thank you.
Yes. Peter, on your first questions, indeed, performance materials for the reasons I mentioned earlier, they get the high raw material costs from the isocyanate, but also in the PA6 and PA6 6 value chains where we seen significant increases, not only quarter over quarter, but also Q4, compared with Q1, they can pass on part of that, but not all of it. That was one of the reasons. But if you look at the entire value chain, We are quite happy with the results that we are seeing there. In other words, there's nice improvement.
Next thing that I already mentioned is we had a turnaround of our styrene plant in Ludwigshafen. Also hitting performance materials. And then overall, the FX impact has already mentioned several times. So that's the explanation for Performance Materials in particular, but also explains a large to a large extent what's happening in Functional Materials And Solutions overall. On the raw materials for coatings, I have to say I am not yet sure what's going to happen there in the second half of the year.
Yes, we've seen that raw material price increases, are much lower than what we experienced, during the year 2018 on an ongoing basis. The foreign exchange helping there, but whether or not that could lead to a margin expansion in the second half of the year. Frankly, that's too early to tell.
Okay, thank you. Welcome.
Ladies and gentlemen, this brings us to the end of our conference call. Martin Gudamala and Hans Engel Engel will report on our second quarter results on July 27, 2018. Should you have any further questions at this time, please do not hesitate to contact a member of the BASF IR team. Thank you for joining us today and goodbye for now.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.