Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining BASF Analyst Conference Call Q4 2015. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you'd like to ask a question, you may press star followed by one. When preparing to ask your question, please ensure that your phone is unmuted locally. If any participant has difficulty hearing the conference, please press star followed by zero for operator assistance. This presentation contains forward-looking statements. These statements are based on current estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict, and are based upon assumptions as to future events that may not be accurate.
Many factors could cause the actual results, performance, or achievements of BASF to be materially different from those that may be expressed or implied by such statements. BASF does not assume any obligation to update the forward-looking statements contained in this release. I would now like to turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead.
Yeah. Good afternoon, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our Analyst and Investor Conference Call for the fourth quarter and full year 2015. For today, we have chosen the format of a conference call in order to increase efficiency by enabling you to follow the publication of the results in your offices and avoiding travel on a Friday. As already announced in late January, BASF generated 2015 sales of EUR 70.4 billion and an EBIT before special items of EUR 6.7 billion. The EBIT before special items was slightly lower than prior year due to significantly lower earnings in the oil and gas and the chemical segments. With me on the call today to explain the results are Kurt Bock, our Chairman and Chief Executive Officer, and Hans-Ulrich Engel, our Chief Financial Officer.
Kurt will start and highlight BASF's performance in the fourth quarter and full year 2015. Then Hans will talk about the fourth quarter 2015 segment results in much more detail and review key aspects of the financial statements. Finally, Kurt will conclude with the outlook for 2016. Afterwards, both gentlemen will be happy to take your questions. For your information, we have posted the speech and the charts together with the press documents on our website. With this, I would like to hand it over to Kurt.
Yeah. Thank you, Maggie, and also welcome from my side. Pleasure to have you on the call today. Let's start with the earnings development. On January 27th, we published unaudited full-year 2015 figures. The steep decline of the oil and gas price in December and January led us to revise our price assumptions for 2016 and the following years. This resulted in an impairment of around EUR 600 million in our oil and gas segment. Today, we will provide you with the fourth quarter as well as the detailed 2015 results and the outlook for the current year. Let's start with the fourth quarter results. In the fourth quarter, the global economic environment remained subdued and challenging with ongoing geopolitical tensions and an increased level of uncertainty. Demand in Europe increased moderately while North America showed lower growth.
In Asia, particularly in China, growth slowed down further. The economic development in South America continued to deteriorate. In particular, Brazil remained in a deep recession, if not depression. The average price for Brent crude oil dropped sharply from an average of $77 per barrel to $44 in Q4 of last year. On a euro basis, the average price of Brent crude was 35% lower than in the prior year quarter. In the fourth quarter, the euro lost 12% of its value against the U.S. dollar and came in on average at $1.1 per euro compared to prior year quarter. While the appreciated U.S. dollar had a positive currency effect on our results, other currencies like the Russian ruble, Brazilian real, and Argentinian peso had sizable negative effects. Sales in Q4 came in considerably below the previous year's quarter.
Slightly higher volumes, particularly in China, as well as positive currency effects, could not compensate for significantly lower prices as a consequence of lower oil price. Sales were also negatively impacted by structural effects, accounting for almost 20% as we completed the asset swap and divested the natural gas trading and storage business to Gazprom at the end of Q3. EBITDA, after special items, dropped 34% to EUR 1.9 billion. EBIT, before special items, declined from EUR 1.5 billion- EUR 1 billion. We significantly increased earnings in Functional Materials and Solutions and in Agricultural Solutions, along with slightly improved results in Performance Products. However, this could not offset significantly lower earnings in Chemicals and Oil & Gas. Other also decreased significantly due to currency effects. EBIT dropped from EUR 1.7 billion to around EUR 300 million.
Special items in EBIT amounted to almost EUR -700 million, mainly attributable to the impairment charges in oil and gas. Please keep in mind that last year's quarter benefited with EUR 458 million from the divestiture of our share in Styrolution. We had tax income of approximately EUR 250 million versus a tax expense of EUR 300 million a year ago. The main drivers were the asset impairment in oil and gas as well as the dissolution of tax provisions. Net income declined significantly to EUR 0.3 billion compared to EUR 1.4 billion prior year. At EUR 1.01, the adjusted earnings per share came close to the prior year number of EUR 1.04. Let me now come to the full year results 2015.
The year was characterized by lower market growth than we had expected, especially in the second half of the year. We experienced a slowdown in demand and an increased level of uncertainty and volatility. Growth rates of our markets were lower than originally expected. In this challenging environment, sales declined 5% to EUR 770.4 billion. The divestiture of our gas trading and storage business with a structural effect on sales and lower oil and gas prices were the main reason for this decline. Volumes increased by 3%, mainly attributable to higher production and sales volumes in oil and gas. Currency effects contributed positively to sales. Sales in Europe were down considerably by 10% and came in at EUR 37 billion. The decline was mainly attributable to the sale to Gazprom, which was completed end of September.
In North America, sales increased and were above EUR 15 billion. Lower prices as a result of lower raw material costs were overcompensated by positive currency effects. In Asia, sales came in at a prior level, the prior year level and amounted to EUR 12 billion. Positive currency effects offset lower price and structural effects related to the divestitures of our textile chemicals business and our share at ELLBA Eastern. The sales in this region, South America, Africa, Middle East, declined slightly to EUR 5.8 billion. In South America, price increases could not fully offset very negative currency effects. EBITDA declined by around EUR 400 million and amounted to EUR 10.6 billion, a decrease of 4% versus prior year, which benefited from divestiture gains. EBIT before special items declined from EUR 7.4 billion- EUR 6.7 billion.
This decline was driven by significantly lower contributions from Oil and Gas and slightly lower results from Chemicals, Performance Products, Agricultural Solutions, as well as other. Functional Materials and Solutions came in considerably above the prior year results. Special items amounted to -EUR 491 million. Positive special items due to several divestitures could not offset negative special items, mainly attributable to the impairment charges in our Oil and Gas segment and restructuring costs. As a result, EBIT declined considerably to EUR 6.2 billion. Income taxes were EUR 0.5 billion lower at EUR 1.2 billion. The tax rate decreased from around 24% to about 22.5%, mainly due to lower earnings contributions from high tax countries such as Norway. Net income went down from EUR 5.2 billion- EUR 4 billion.
Adjusted EPS declined to EUR 5 compared to EUR 5.44 a year ago. Thanks to our strict working capital management, operating cash flow reached a record level of EUR 9.4 billion, up 36%. Free cash flow more than doubled to EUR 3.6 billion. Ladies and gentlemen, as you all know, we are very much committed to our dividend policy, which means we want to increase our dividend each year or at least maintain it at the previous year's level. We will therefore propose to the shareholders' annual shareholders meeting to pay out a dividend of EUR 2.90 per share, an increase of EUR 0.10 or approximately 4%. Based on the share price of roughly EUR 71 at the end of 2015, we are offering an attractive dividend yield of 4.1%.
I will now hand over to Hans, who will give you some more details regarding the Q4 business development of our segment.
Thank you, Kurt, and good afternoon, ladies and gentlemen, also from my side. Let me address the financial performance of each segment in the fourth quarter 2015 in more detail, and I'll begin with Chemicals, where sales declined considerably. This was mainly driven by significantly lower prices, reflecting the decline in raw material prices. Volumes came down while currency provided tailwind in all divisions. EBIT before special items decreased by 57% to EUR 249 million. All three divisions did not reach the earning level of the prior-year quarter. Lower margins, especially for cracker products and higher fixed costs related to new plants, were the main reasons for the substantial decline. Sales and performance products were slightly down despite stable volumes.
Positive currency effects could not fully offset lower prices and negative portfolio effects from the divestiture of our textile, pharmaceutical ingredients and services, and paper hydrous kaolin businesses. Prices came down as lower raw material costs were passed on. Fixed costs remained stable. Restructuring measures offset currency effects and higher costs from plant startups. EBIT before special items improved slightly as we realized better margins, mainly in the dispersions and pigments and performance chemicals divisions. Special items amounted to EUR -62 million related to our ongoing restructuring measures. In functional materials and solutions, sales grew slightly as currency tailwinds and higher volumes more than offset price declines. The latter was primarily caused by softer precious metal prices. We experienced continued high demand from the automotive industry, as well as improved business with the construction industry. EBIT before special items increased by almost 80%. All divisions contributed to this development.
Sales in agricultural solutions increased by 5%. Higher prices more than offset negative currency effects. Volumes grew, particularly in North America. Overall, EBIT before special items went up 17% to EUR 144 million, mainly as a result of the herbicide business in North America. Sales in South America decreased. Volumes were down due to high infield inventories, especially in fungicides and lower insecticide demand in Brazil. Business in Argentina, on the other side, developed well in an improving business environment for agriculture. The continuing devaluation of local currencies was almost fully offset by price increases. North American sales were up strongly based on higher volumes and currency effects. Especially our herbicide business showed an excellent performance driven by Dicamba and Kixor. Sales in Europe were stable compared to previous year.
Growth in fungicides, especially in France and Germany, and a good development in Functional Crop Care offset a decrease in herbicides. In Asia Pacific, business grew, driven by higher demand in Japan and Australia, as well as positive currency effects. Despite an even tougher market environment than the previous year, Agricultural Solutions showed a very solid performance in 2015. We were able to increase volumes and prices, especially in the emerging markets. Sales increased to EUR 5.8 billion. EBIT before special items amounted to EUR 1.1 billion and was almost at the level of 2014. The EBITDA margin came in close to 23%. Furthermore, we updated our innovation pipeline.
We increased the peak sales potential from EUR 2.3 billion for products launched between 2010 and 2020, to EUR 3 billion for products launched from 2015 to 2025. In oil and gas, sales decreased significantly, mainly due to the divestiture of the natural gas trading and storage business to Gazprom as part of the asset swap at the end of Q3 2015. Sales in exploration and production were almost stable due to higher production volumes from Norway and Russia, which could not fully offset significantly lower oil and gas prices, as well as the effects of the deconsolidation of Wintershall Noordzee. The average Brent price in Q4 2015 was $44 per barrel, compared to $77 a year ago.
EBIT before special items declined from EUR 347 million- EUR 127 million. The main reasons were lower oil and gas price levels and the catch-up of the depreciation after the reversal of the disposal group caused by the cancellation of the transaction with Tellus Petroleum. The missing earnings contribution from natural gas trading and storage also negatively affected the results. Special items amounted to EUR -564 million compared to EUR -189 million a year ago and were attributable to the impairment charges mentioned earlier. As a result, net income declined and came in at EUR -184 million. Now on to Other. Sales in Other decreased to EUR 660 million due to lower contributions from raw material trading, particularly driven by lower raw material prices.
EBIT before special items declined to EUR -114 million in the fourth quarter 2015, caused by a swing in the currency result. While in the prior year quarter, the currency result amounted to +EUR 110 million, we incurred a negative currency result of EUR -11 million in this year's quarter. Special items in Other amounted to EUR -21 million compared to EUR +473 million in Q4 2014, when back then we generated a disposal gain from the sale of our stake in Styrolution. Now on to cash flow. Cash flow for the full year. Cash provided by operating activities increased to a record high of EUR 9.4 billion. This was mainly attributable to our strong focus on net working capital. We significantly reduced our inventories and accounts receivable.
Cash used for investing activities amounted to EUR 5.2 billion. Investments related to property, plant equipment and intangible assets amounted to EUR 5.8 billion, particularly due to our large investment projects and the appreciation of the U.S. dollar. Net cash from acquisitions and divestments positively contributed EUR 436 million. At EUR 3.6 billion, free cash flow came in nearly EUR 2 billion higher than in the prior year. Cash used in financing activities amounted to EUR 3.7 billion in 2015. We paid EUR 2.6 billion in dividends to our shareholders and around EUR 230 million to minority shareholders in 2015. Now a short look at our balance sheet.
Total assets declined by EUR 500 million- EUR 70.8 billion, mainly due to the divestment of our natural gas trading and storage activities, as well as our strict working capital management. Long-term assets were up by EUR 2.3 billion. Intangible assets were EUR 430 million lower, mainly caused by regular amortization and the asset swap with Gazprom. The value of tangible fixed assets increased by EUR 1.8 billion- EUR 25.3 billion and was driven by our investment projects. Equity investments increased by approximately EUR 1.2 billion as a result of the asset swap and our new participation in blocks 4 and 5 of the Achimov formation as a financial asset. In addition, our remaining 50% share in Wintershall Noordzee is now accounted for at equity.
Short-term assets decreased by roughly EUR 2.9 billion. Inventories were down by almost EUR 1.6 billion, and the reduction of accounts receivable amounted to EUR 900 million. The reduction in working capital resulted from our strict working capital measures and the asset swap. On the liability side, provisions for pension obligations decreased by EUR 1 billion, reflecting adjustments of pension benefit assumptions, as well as slightly higher discount rates. Financial debt decreased by around EUR 200 million- EUR 15.2 billion. Net debt amounted to around EUR 13 billion, a decrease of EUR 700 million. The net debt to EBITDA ratio is 1.2. Equity grew by EUR 3.4 billion.
Our equity ratio remained at a very healthy level and increased from 39.5%- 44.5% at the end of 2015. With that, back to you, Kurt.
Okay, Hans, now let's sum it up with regard to the outlook for 2016. Looking at the overall economic environment, we expect that 2016 will be kind of similar to 2015 in terms of GDP growth. Certainly chemical growth will probably come in a little bit lower, and most importantly, we expect increased and continued volatility and uncertainty in our markets. Most importantly, the oil price we now see on average, that is our assumption at $40 per barrel, which is a decline from last year's $52 average price. Finally, the exchange rates. Contrary to 2015, the U.S. dollar will not provide us with any more tailwind.
Please also keep in mind that other currencies which are important for us, like the Russian ruble, the Brazilian real, and the Japanese yen, will most likely continue to have a negative impact on our results as they have had already in 2015. In this undoubtedly challenging environment, we will continue to apply self-help measures to compensate for slow economic growth and margin pressure. Let me go through some of these measures. Strict discipline in CapEx spending will be a focus. After major investment projects have been concluded in 2015, we will reduce our capital expenditures by EUR 1 billion to about EUR 4.2 billion. For the next five-year period, 2016 to 2020, we plan total investments of EUR 19.5 billion. They have more than 25% in emerging markets.
With respect to the oil and gas investments, it goes without saying that they will depend on the development of the oil and gas prices and may have to be adjusted if the low oil price environment persists. We will continue to focus on cost control and operational excellence. In 2015, we concluded our STEP program, as you know, with savings of around EUR 1.3 billion. We exceeded our target by EUR 300 million. In addition, we have initiated our operational excellence program DrivE. Here, we want to achieve additional contributions to our earnings of about EUR 1 billion by 2018 compared to the base year, 2015. Our restructuring efforts and performance products are ongoing, and we are on track to achieve an earnings contribution of EUR 500 million by the end of 2017.
In 2015, we have already reached a run rate of EUR 250 million. We will also continue to optimize our portfolio. For example, last week, we agreed with AkzoNobel on the sale of our industrial coatings business for a purchase price of EUR 475 million. We will focus on the global automotive OEM and refinish business, as well as the decorative paints business in Brazil. Our commitment to research and development is core to our strategy. In 2015, we have achieved our target of EUR 10 billion in sales with products younger than five years. We filed around 1,000 patents, and for the seventh time in a row, we are number one in the Patent Asset Index.
This year, we will maintain our R&D budget, supported by refocusing some of our projects, for instance, in plant biotech, where we plan to reduce the number of positions by 50% to around 350. We will focus on the most promising areas like herbicide and fungal resistance. What does it all mean for our business in 2016? Sales will be considerably below prior year due to the divestiture of the natural gas trading and storage activities. Excluding the effects of acquisitions and divestitures, we expect higher volumes in all segments supported by our increased capacities. We estimate EBIT before special items to be slightly below the previous year.
Based on our oil and gas price scenario, we will see a drastic reduction of our oil and gas earnings, which cannot be compensated by higher earnings in our chemical business and in agricultural solutions. We expect also slightly lower EBIT than in 2015. EBIT after cost of capital is expected to be significantly below prior year. However, we still expect to earn a premium on our cost of capital. In this volatile and challenging macroeconomic environment, we regard our targets for 2016 as ambitious. Achieving them will become extremely difficult if the oil and gas price stays at the current levels. Let me add quite clearly also, when we talk about slight decrease or slight change, this is a single digit, so up to 10% change. Please keep this also in mind.
Based on the described outlook for the global economy, our business and priorities, we provide the following guidance for our business segments. In Chemicals, we expect continued competitive pressure, especially for isocyanates, acrylic acid, and caprolactam. While cracker margins will come down to long-term average levels, fixed costs will increase due to several new plant startups in 2015 and 2016. As a result, EBIT before special items is expected to decrease considerably. We anticipate EBIT before special items in Performance Products to be slightly higher than 2015. Higher volumes as well as benefits from restructuring efforts and continued cost discipline will contribute to this goal. In 2016, we expect a continued good demand for our innovative systems and solutions, especially from the automotive and construction industries. We aim to slightly increase earnings in Functional Materials and Solutions compared to the already high levels of 2015.
Despite a subdued market environment in agricultural solutions, we project to slightly grow our earnings in 2016, supported by higher volumes of our innovative products and strict cost management. In oil and gas, obviously we will incur drastically lower EBIT before special items caused by the collapsed oil price and gas price, as well as lower earnings contribution from Ust-Luga. The surplus quantities at Ust-Luga, which we produced over the last 10 years, need to be compensated in 2016 as contractually agreed with our partner, Gazprom. There will also be no contributions from our natural gas trading and storage activities anymore since we obviously sold it. In other, we expect a strong increase in EBIT before special items due to improved non-operational effects. Furthermore, and finally, cash conversion remains a key priority for us.
Last year, net working capital was managed rigorously, leading to a high free cash flow. In 2016, free cash flow will also be supported by lower spending for investment projects. Now we are happy to take your questions.
Yeah, ladies and gentlemen, I would like to open questions. I ask you to please limit your questions to two at a time so that we can take as many questions as possible. Of course, you are always welcome to rejoin the queue for a follow-up question. I would like to start the Q&A session with Jeremy Redenius from Sanford C. Bernstein. Good afternoon, Jeremy.
Hi, it's Jeremy Redenius from Bernstein. Thanks for taking 2 questions. First of all, on the oil and gas business, you talk about a severe decline. In the decline we saw in Q4, could you help delineate the contributors to that or help size those, the contributors to that? I can understand the fall in oil price would be one big one. What about the fall in European natural gas prices that fell quite dramatically in the fourth quarter? Thirdly, the impact of the Russian ruble depreciation in the fourth quarter as well, just to give us a sense of the sensitivities to those other additional factors in 2016. Secondly, there's been some comments in the press about you're considering a big petrochemical investment in Iran.
I'm wondering if you could comment about those or at least talk, perhaps about your philosophy of generally building and investing where the customers are relative to where the feedstock is. Thanks so much.
Yeah, thanks, Jeremy, for your questions. I will start with the Iran question, and then Hans will answer the questions on oil and gas price effects of ruble in 2015 and 2016. As you know, Iran is opening up. It's still in, let's say, a volatile and uncertain process, but we do see opportunities going back, first of all, to Iran. We never really left completely, always followed the sanctions regime, but we always kept people in the country and some business. With 80 million consumers and a relatively good industrial base and most likely also good growth projections, it's certainly a place to look at and trying to understand what could it mean for BASF. That is one aspect.
There is a market, there's also feedstock availability, which we also want to understand, and that is actually everything I can comment at this point in time, Jeremy. Hans, oil and gas?
Yeah, Jeremy, this is Hans. I think you summarized it already very nicely. These are the three key contributing factors to the lower results that we've seen in the oil and gas segment. First, oil prices coming down from an average of $77 in Q4 of 2014 to $44 in Q4 of 2015. Natural gas prices, I don't recall exactly what Q4 of 2014 was, but Q4 of 2015 was at EUR 17 per MWh. So a significant decline there. Average price for 2015 for natural gas in Europe was in the range of EUR 21 per MWh. The third one is the decline of the ruble.
You mentioned that already, where the ruble came down to, I think, an average of 80 in the fourth quarter of 2015. We have one more that is currency related, and that's the Argentinian peso that also took a significant hit towards the end of the year. I think these are the four key factors compensated then by higher volumes. Overall, our volumes increased in 2015 from the 135 million barrels of oil equivalent that you're familiar with for the year 2014 to roughly a 150 million barrels of oil equivalent in 2015.
As far as the size of the impact, is that the relative size of the impact, is that about the right order from oil to gas to ruble to peso?
I would have to look that up, and get back to you.
Okay, great. Thank you very much.
The next question now comes from Thomas Gilbert, UBS. Good afternoon, Thomas.
Yeah, good afternoon. I hope you can hear me. Two questions from my end as well. The first one, following up on Jeremy's strategic one. In the letter to your shareholders, Dr. Bock, you mentioned among other things that we'll continue a disciplined approach on acquisitions and that not everything that is en vogue in the chemicals industry is a priority for BASF. Can you let us know what is en vogue for BASF? Also in the context of that the petrochemical cycle is unlikely to recover until experts say 2019, 2020. Whether you wanna go through the three, four years of a downturn as is, or whether the portfolio needs strengthening downstream, that'd be interesting. The second question is more specific on the burden from the recent investments.
If you take the four big ones, the TDI Ludwigshafen, the two acrylic acid Superabsorbent Polymers project and Chongqing. It is obviously fair to say that these plants are running at very low utilization and are burdening the results. Could you around about quantify what the swing factor is if these new investments were to be decently utilized over the next two years? Thank you.
Thank you, Thomas, for the question, and thank you for reading my letter to the shareholders. I'm always wondering who's going to read this. Yes, I made a comment on M&A in our industry and the ongoing restructuring which we all notice. I said something like that we have a very disciplined approach with regard to M&A. We really have to create shareholder value at the end of the day. Obviously, and we have known this for many, many years, there are always trends in our industry. Currently, it's about focusing, because focusing means you are smaller and nimbler and speedier and more disciplined.
We have a one company approach, as you know, and we look at our entire portfolio trying to understand what is the relative competitiveness of our businesses vis-à-vis their respective competitors, and then we make decisions how to prune the portfolio, but also how to grow the portfolio. You have seen a recent example now with the divestiture of our industrial coatings business, which is a good business, but where we believe that somebody else like AkzoNobel can create more value as the new owner. Vice versa, looking at acquisitions, we really try to understand what can create value at the end of the day. Multiples or at least market valuations have come down a bit recently. Whether that translates into lower trading multiples, transaction multiples needs to be seen.
Clearly we will stay very, very focused in our approach to M&A, and that was probably what I referred to.
There is no specific regional focus in terms of M&A. That's not the criterion how you look at it.
Regarding regional, we always said, Thomas, we would like to do more in Asia, and Asia is awfully difficult. It looks like it's easier in the other direction. Asia remains very difficult to really acquire first-class assets. We have done a few things, but these are all smaller and minor from your point of view. Obviously, other than that, we don't really have a regional approach with regard to acquisitions, but a business approach. Certainly, then we also take a second glance at the regional product portfolio and production footprint and try to understand what it adds to our regional distribution of business. I'm always a little bit skeptical about describing one single cycle for our individual industry.
I think we have been refrained from doing that for quite some time. In the past, we always talked about the ethylene cycle. I think this is in a certain way history. We now have regional differences. We have the emerging market development, which is overshadowing the entire question of supply-demand-driven cycles. We do see certainly for individual products supply-demand imbalances, and you referred to Acrylic acid, which is oversupplied in some parts of the world. Obviously, that is one example. The four investments you mentioned, that is ramping up, Acrylic acid is being filled quite nicely. Margins have come under pressure. TDI has started. Chongqing is not running at full capacity because we have capacity constraints in our adjacent supply operations which are not owned by BASF.
The net effect of those four in 2015 has been negative and, depending, and that is a question mark in a certain way, depending on how we can fill capacity, it might still be a negative in 2016. I cannot give you an exact answer with regard to what is the break-even obviously, and what is then the leverage effect if we achieve higher utilization rates. I hope this answers your two questions.
Yeah. Very much so.
Thank you.
Thank you very much.
Now we are moving on to the next question from Lutz Grüten from Commerzbank. Good afternoon, Lutz.
Yeah. Hi, good afternoon, Lutz from Commerzbank, and thanks for taking my two questions. A follow-up on Thomas' question regarding utilization rates. You are aiming for higher volumes across all your divisions by 2016. Could you give me a trading update, what happened so far in the first 6-8 weeks regarding the volumes? Here I'm certainly interested to hear what happens in the volumes in the chemical division. That's the first question. The second question is the housekeeping item on the assets. Oil and gas assets, you're saying 2015, EUR 12.3 billion. I would have thought that asset base might come down a bit after the divestment of and the asset swap with Gazprom, but I might be wrong there. Thank you.
Yeah. Hi, Lutz. Hans will answer the question with regard to investment, especially with regard to oil and gas. It's very difficult to read the first couple of weeks because we had a very early Chinese New Year this year in 2016. It felt like in China people went directly into the Chinese New Year, so order intake was relatively slow. This has now improved over the last couple of weeks. We are cautiously optimistic for 2016, and we made it, I think, very clear that we have the expectation to improve and the plans to improve volumes. We will go for volumes in some markets quite clearly. Always looking at margins, but at the end of the day, you have to optimize your results. The start of the year has been relatively slow.
I think that is a fair description, yeah. Due to the high uncertainty which I described early on.
Okay.
Yeah. Hello, Lutz. This is Hans n ow. If you think about what the asset swap actually does, it brings us new assets in the form of Achimov four and five, where we have a 25% equity participation. You find that on the balance sheet. In addition to that, you see the results of the deconsolidation of Wintershall Noordzee, which is now a 50% participation of BASF, but one where we had to step the values up according to market values. A significant increase in total in our financial assets versus what you found before in plant and equipment for Wintershall Noordzee. That's the explanation there.
Thank you very much.
Welcome.
The next question now comes from Tony Jones from Redburn. Good afternoon, Tony.
Good afternoon. I've got two as well. Firstly, on the non-recurring costs, or ramp-up costs, I know we talked about this over the last couple of calls. Could you be specific just on a full year basis, what the non-recurring and also ramp-up costs were in this year, so 2015 as reported, and any indication for the coming year will be helpful. Secondly, on the currency result in hedging, currency and hedging in other, that was a EUR 220 million expense last year. With your visibility on your hedging book and where rates are at the moment, could you give us a bit of an indication how far that will decrease in 2016? Thank you.
I think Hans will start with the currency result, and then I come with the non-recurring cost.
On the currency result, the EUR 220 million swing that you're referring to is actually not all currency. What you have in there are two components. One indeed is currency. That's an order of magnitude of roughly EUR 100 million. Where is that coming from? That's coming from, in particular, a very favorable development that we had in the end of Q4 of 2014. We had a significant ruble position, and the ruble dropped below 80 in a relatively short period of time in Q4. And that generated income of more than EUR 100 million. We don't have a position like that in the end of 2015. So there's EUR 100 million of your swing.
The other 100 million of the swing actually sits in our long-term provision for the long-term incentive program, where we had a decrease of the provision in the order of magnitude of EUR 50 million in 2014. We had an increase of the provision following share price development in the year 2015. There's the explanation for the swing of EUR 220 million, roughly 50%, as I said, long-term incentive program and 50% currency related. Now, Tony, you tell me what the currency development is, and I tell you what's gonna happen with currency results. We have a policy in place where we are almost fully hedged for booked positions, and we're partially hedged for planned positions.
Quite an amount of an overall amount that we are hedging there. Quite some volatility, but I think the key message is that the positive currency results that we're generating from these type of transactions are by far higher than the cost that you see reported in other.
Okay. Thank you.
Tony, non-recurring cost, EUR 200 million last year, approximately the same number, 2016.
Okay, great. Thank you very much.
Welcome.
Our next question is now coming from Andreas Heine from MainFirst. Hello, Andreas.
Yes. Hello. I have a question on oil and gas and the Q4 results. If I look on the EBIT and strip out what you probably have earned in the transportation business, which I would assume is EUR 50 million a quarter, then there were only EUR 70 million left. Is there something specific what happened in Q4, or would we have to assume that the NP business was worsening in the aforementioned things? The oil price in Q1 being lower, gas price being lower, ruble being weaker, and Argentine peso also being weaker. Would that drop even further? Is Q4 a good benchmark with all these variables as a forecast, or was something special happening in Q4? That's the first question. I might refer to what you have said on Bloomberg.
Could you specify a little bit how you think your position is in agro after we see that Dow and DuPont come together and Syngenta might be taken over by ChemChina, and how you see BASF's position in this market, changing quite rapidly? Thank you.
Yeah, Andreas, this is Hans. I think you set this up nicely by way of saying, is there anything special happening? There are lots of special things happening, in particular, on the price side, in the fourth quarter. The guidance that we are giving, which is that a change of $10 per year equates to EUR 200 million in EBIT or $1 per year equates to EUR 20 million in EBIT remains. Actually, when you look at the development in Q4, you see this nicely. Well, nicely is probably not the right word I should use here. Let me rephrase. You see this reflected in our Q4 earnings.
Oil prices, gas prices coming further down would certainly have a further negative impact on our oil and gas earnings. I believe Kurt already said that at current price levels you'll see a drastic impact on our oil and gas earnings.
Maybe to interrupt you on this point, sorry for that. Basically, with a further deterioration, that would mean that E&P is close to zero in earnings. Is that on the current situation as we see it, with current oil price, gas price currencies, the right reading?
It generates a slightly positive EBIT even in the current environment, let me put it that way.
Thank you very much.
I think, Andreas, what is happening is what I described as a drastic reduction in oil and gas earnings.
Thank you.
The $30, $30+, is not a level where we would generate a decent return on our investment in oil and gas. We need a high oil price. At $30+ we at current levels still generate a very, very healthy cash flow. Our goal is to have a balanced free cash flow, which means we have to work a little bit on our, on our CapEx side. But in terms of earnings over and then therefore also earnings after cost of capital, the $30-40 is certainly not sufficient to be happy about that business. Coming to completely other side of our portfolio, crop protection, agricultural products, a couple of things has happened. DowDuPont, that will obviously take a little bit of time to rearrange the seats around the table.
It is a new combination. We have been competing head on for quite some time. When you look at the numbers which we produced in 2015, I think overall for the crop protection business of BASF, that was, I think a good result. We are certainly not satisfied, but against the market development we have seen in 2015 and what our competitors have produced, I think BASF did quite well, which underlines we have a first-class portfolio, a deep, very strong innovation pipeline, and we are not shy of competing with the other folks. Syngenta, very difficult for us to read. Obviously, there is very little industry logic behind it, so it doesn't really change the structure of the industry.
That is a big question mark which I cannot answer, this company is now going private. So far, it has been under the discipline of the capital markets. Now it's state-owned, most likely, and I can't really tell you what this changes, but I have to rely on what the management has said, and they said it doesn't change anything. We go from there. If it doesn't change anything, it's still the good old competitor.
This brings us now to the next question from Paul Walsh from Morgan Stanley. Good afternoon, Paul.
Good afternoon. Sorry, good afternoon, Maggie. Good afternoon, guys. Thanks for taking my 2 questions. I just wanted to understand around the investment programs, the numbers you gave us on 2016 to 2019. I guess sort of insinuates a bit of an increase after this year, but I suspect some of that is subject to market developments. You've just talked about the oil price as it relates to the oil and gas business. But what I would've really wanted to know is what are the main projects, Kurt, that are ramping this year? We know about the ones from last year within that CapEx budget that you're spending. What's the major focus for you? That's my first question.
The second one is just a bit of housekeeping, I'm afraid, so very boring. What was the contribution to EBIT pre special items from the assets that went to Gazprom last year? Thank you very much.
Hans, on the EBIT contribution of gas trading.
Order of magnitude is EUR 300 million EBIT, Paul.
Thank you very much.
Yeah. Paul, on CapEx, we said 5 years, EUR 19.5 billion. If I do the math, that translates into slightly below EUR 4 billion a year. In 2016, we want to spend approximately EUR 4.2 billion. That means going forward, a slight decline.
Got it.
Obviously, these numbers are being adjusted annually during the budgeting process. Right now we are focusing very much on 2016. 2016 is already committed to a very high degree, and we also focus very much on 2017 to make sure that we hit our overall budget guidance. In terms of projects overall, I think we have a list in our annual report. If you turn to page 125, a couple of major things going on. One is the new SAP technology in Antwerp, which we, I think we discussed last year here, and we even presented it to you. Then we have very important investment in Kuantan, our joint venture with Petronas, especially for aroma chemicals, but also polyisobutene. We have a mobile emissions catalysts plant being built in Thailand.
We are expanding capacities for polyamide plastics in Germany. There's a pretty wide range of products. What we don't have anymore are these very big investments like TDI.
Yeah.
in Germany or also the MDI SAP complexes in Camaçari in Brazil, in Nanjing. This is now being completed.
I guess that means sort of, say for the time being, big potential projects like the MTP plant in the U.S., that's been shelved, I guess.
No, I think this is a little bit too fast concluded.
Okay.
This project is right now being planned. We do the engineering, since it's a potentially large project, quite a bit of work. We have to make up our mind at the end of the day about the viability of the project. Obviously, Paul, that depends on a couple of things. One is what is the competitiveness of the marginal producer? The marginal producer for propylene is essentially oil-based. Those thresholds have come down quite a bit. At the end of the day, we have to have a very firm understanding and expectations with regard to the difference between the gas, i.e., methane price on the one side and the oil price on the other side. This is a difficult, quite frankly, difficult estimation to be made.
We will complete engineering in Q2, and then we look at all the facts. Everything we know, we put on the table, and then we make up our mind where we are. One thing is quite clear. Going forward with, let's say, $40 per barrel oil price, would make this project unattractive. You have to have a better understanding about the oil price going forward. I hope
Understood. Yeah, that's brilliant, guys. Thank you very much.
You're welcome.
Paul, you still had two further questions. Is it okay if we take you after five other questions? Is that okay?
Absolutely. No problem. No. Fantastic. Thank you.
Then comes Christian Faitz from Kepler Cheuvreux. Good afternoon, Christian.
Yes. Good afternoon, Maggie. Good afternoon, gentlemen. Two questions please from my side. First of all, regarding your guidance for 2016, you obviously seem to count on a positive volume price development in Performance Products and Functional Materials and Solutions. Otherwise, it is hard to imagine how a forecasted EBIT improvement is possible in my view. Can you please elucidate your view on pricing pressure in those two segments throughout 2016, if there is any? Then second of all, I have a question regarding yesterday's news release to refocus Plant Biotechnology. On the one hand, you mentioned that the Monsanto collaboration is unaffected by the massive cuts announced yesterday. On the other hand, you talk about streamlining early development projects also in yield and stress, including corn and soy.
I was always under the impression that this area is the feeding ground for the Monsanto Corporation. Does this mean that the corporation, in terms of common R&D and stress tolerance, is about to conclude, and you will simply reap the benefits from earlier existing projects? Thanks.
Okay, Christian, I will take the second question, and Hans will answer the question on Performance Products and Functional Materials and Solutions. Plant Biotech, what did we say? Yesterday, we will adjust our capacities essentially in R&D both in Europe, outside of Germany, this is essentially Belgium, and in the United States, and focus on the most promising fields of activity. This is essentially fungal and herbicide resistance of plants, where we have some very smart projects underway. We will adjust, not completely stop, but we will adjust our efforts in some other areas where the payback periods are quite long and the level of uncertainty is very, very high. For the time being, obviously, we continue to work with Monsanto. We have a very close and a very good working relationship and cooperation.
We inject our genes in that cooperation, and then Monsanto does the field testing, and then we see how it works out. There have been products in the market like DroughtGard recently, which develop, as far as I understand, quite nicely. Nevertheless, overall, I think after having gained experience over the last approximately 10 years, it's now the point in time where we need to adjust our efforts on those fields where we have the most promising results. Actually, those results are looking quite promising. That's the reason why we do adjust. Hans?
Yeah, Christian, you asked with respect to volume development, price developments in the Performance Products segment, supporting the outlook that we gave there. Please keep in mind we invested in a number of new plants, which we started up in that segment during the last two years. Think about SAP in Nanjing, SAP in Camaçari. Think about the dispersions plants that we started up in the last two years, such as, for example, in Freeport in the U.S., or in Dahej in India. A number of other things that we've done there. Yes, that is clearly meant to support the volume growth that we would like to see in the Performance Products segment.
In addition to that, we have seen tremendous price pressure in some areas in Performance Products. To give you one example, that is Vitamin E. You're familiar with the story there over the last years. Even before, we may have reached the bottom there. Price increases seem to stick. I'm fully aware of the fact that I said something along these lines also in last year's call in the beginning of the year. There seem to be competitors in Asia, in particular in China, now dropping out, so that could help there. We've taken a number of self-help measures. You're also aware with those. Major restructuring program that is scheduled to deliver EUR 500 million to EBIT in 2018.
We'll make another step there during the year 2016. The program is fully in plan. All of that combined should help us to achieve what we said in our outlook.
Okay. Thanks a lot.
The next question comes from Andrew Benson from Citi. Good afternoon, Andrew.
Yeah, hi. Thanks, Maggie, and afternoon, everybody. On the chemicals division, where you're looking for considerable decrease, can you perhaps define the structure of that forecast in terms of whether there's idle costs, one-off costs, associated new plants, the price dynamic? Just give a flavor for how you see that business. You did talk at the start quote about your determination to drive volumes, and you said in certain areas it's important to achieve volume growth, potentially at the expense of profits. I wondered if you put that into the context as well. Secondly, on the major product categories you've got, are you seeing signs of rationalization?
I mean, Covestro talked about a TDI player in China shutting an asset. You've talked just then about a perhaps rationalization of Vitamin E. Is there anything notable that can give us some sign that we are at the trough now?
Yeah. Thank you, Andrew, for your questions. Maybe I start with the capacity adjustment topic. Clearly, there are some guys out there in the market who are at a pain level. They really feel the heat, and they are thinking very creatively about how to adjust their capacities. This, I think, is important. There is a second effect, which means most likely the number of new projects will come down, and this needs to happen, especially again in Asia and in China. This is a to-be-expected development on adjustment, which unfortunately only works in basic chemical markets if margins come under pressure, and that seems to be the case now.
The big question mark in China is obviously to what extent will state-owned companies really be willing and able to adjust capacity, even if the existing capacity cannot be run at a cash positive level? That we don't know completely. The chemicals business, a number of factors going into 2016. First of all, yes, we want to grow our business. We have new capacity available. That is quite obvious. We also have. That is a positive. On the pricing side, we expect that margins on average will probably be below what we have seen in 2015, where we had a very strong Q1. We have start-up costs. I think I talked about this already. We have a couple of turnarounds also in Q1.
If you add all this up, I think it is not unreasonable to expect that earnings will be below the level of 2015. Coming back to the volume issue, that's very important, and since you made this side remark, our goal is to optimize earnings. Be very clear about this. I think we try to behave as smartly as possible in the markets. But on the other hand, we're also not willing to give up volumes to competitors if we have a cost advantage. We have talked about this quite a bit in the past, where are we with regard to the cost curve of our most important large chemicals. In general, we are pretty well placed.
Thanks.
You're welcome.
The next question comes from Peter Spengler, from DZ Bank. Peter?
Yeah. Hello, Maggie. Good afternoon, gentlemen. Yeah, actually, I want to come back to the question of Christian on the collaboration with Monsanto and your biotechnology research. Can you completely rule out to discontinue the contract with Monsanto? I guess it's going to end within the next two years, or maybe you put it on a test now for the next two years. Maybe you can say additional comments on that. On your impairment of the oil business for last year, the EUR 600 million. I guess it was basically related to the oil North Sea activities.
Was Libya a part of this? Since it's part of the group for a long time or other assets in other regions.
Yeah, hi, Peter. On the impairment, yes, Libya is involved, and I think there is a breakdown in our annual report as well with regard to the regional distribution of the impairment, but the majority comes from Norway and the Netherlands then, which are higher cost operations. With regard, again, the other side of the product portfolio with regard to plant biotech, we have an ongoing very nicely working collaboration with Monsanto. This is for the time being everything we want and need. Yes, we have contractual obligations vice versa, and we are happy with what we have. That's all I can say at this point.
We know a couple of years down the road, we know where we are, and then we will, as you can imagine, always again evaluate where we stand and make up our mind.
Okay, thank you very much.
You're welcome.
Next question is coming from Markus Mayer from Baader Bank.
Yeah, good afternoon, Maggie. Good afternoon, gentlemen. I have two questions as well. First of all, can you remind us what kind of cash contribution came in the past from the chemical segment from your oil and gas operations? We know that roughly 40% came from oil and gas. Am I right that roughly 20% came from chemicals? Then the next question is if a CapEx cut of EUR 1 billion is enough to tackle the missing cash flow or are there measures to do there to stop the bleeding here? Thanks.
Markus, your second question was about whether the reduction of CapEx in 2016 is enough to adjust to market realities. Is that what you-
No. Yeah, this, of course, and also.
I didn't even understand what you were saying.
Yeah, sorry. The line is not so good. If the CapEx cut is enough to adjust for the market environment and of course also to help the cash flow to remain on basically such a kind of a record level we had in 2015.
It's still very difficult to hear you. I believe I understood what you said. The EUR 1 billion reduction in CapEx, I think is quite a number. This will certainly also help to improve free cash flow. As you can imagine, our CapEx planning is not just one year, but this is medium to long term, and I already reflected on that one, talking about the 5-year timeframe and what's going to happen in 2016 and 2017. This adjustment is not what we planned for 2016, and we have capacity in place, as you know, to continue to grow the company. With regard to cash contribution, Hans?
I'm sorry, I don't have the cash flow figure for you, but I'll give you what I would think is a good proxy, and that's the EBITDA of our Chemical segment. The Chemical segment generates about EUR 3.1 billion in EBITDA, and I think that's probably a good number to work with.
Okay, thanks so much.
Welcome.
Now we are coming back to the two questions from Paul Walsh. Are they still interesting, Paul?
Can you hear me, Maggie? Thank you. The first question is around the chemical margins, guys. I was wondering to what extent you actively destocked in that business in the fourth quarter, driving idle facility costs, meaning the actual margin is not the kind of run rate moving into the first half of this year? Or indeed, should we be taking the fourth quarter chemicals margin as a sort of reasonable starting point, given I haven't seen any major changes in petrochemical spreads in the first couple of months? That was the first follow-up question. And the second one I think you broadly answered.
It was really just if you could remind us what the ramp-up costs were in 2015 and any guidance you did or didn't want to give for 2016. I mean, you've already touched on that, so thank you.
Your question was essentially, is Q4 a good proxy for Q1, and I think more or less, yes. Yeah.
Perfect. On the ramp costs, Kurt, are you prepared to give any numbers on that?
I think we said it already, right? On recurring startup costs, EUR 200.
Sorry, for 16.
I don't have the number here for the chemical segment only.
Okay. Thank you very much.
The next question comes from Peter Clark from Société Générale. Good afternoon, Peter.
Yes, good afternoon. Thank you for taking the questions. I've got two, obviously. The first one, you've touched upon performance products and the outlook there and why you think the business will be up. Obviously, it is a segment that you've had confidence about delivering before, and it hasn't come through. Just looking at the margin, I mean, it's the lowest I think I've seen it at 8.7%. I know you had a lot of idle costs in there. You had a lot of startup costs. Where do you realistically think you can get this margin? And also in the context of you're talking about portfolio pruning, et cetera, you know, is it that an area that is quite active at being looked at in terms of structurally improving the business here?
The second question is, you touched upon again the methanol-to-propylene plant still being in. I think that's implicit from the numbers. You've got the EUR 19.5 billion out over five years. When you strip out and just look at chemicals, it looks like, North America is still 35% as it was last year. Europe now actually under 30%, and that's the question, it's around Europe. I mean, obviously this was an area that was taking almost 50% of the CapEx. The world has changed, your footprint has changed.
Do you think you'll ever see that European number creep up towards the 50% again, or is it certainly the case that the geographical footprint BASF now has means that Europe, you know, is down in the pack, so to speak, because North America is above it and Asia is not too far behind this at the moment? Thank you.
Yeah, thank you, Peter, for your questions. I'll start with the second one. Role of Europe within our investment strategy. Europe is still important because we have a large asset base in Europe, as you know, and we have to maintain this and keep it agile and competitive. But you're probably right with your assumption that the 50% in Europe is gone and that essentially then the majority will be spent outside of Europe. MTP, I talked about it. Final investment decision hasn't been taken yet. Performance Products. I hear a certain skepticism with regard to our guides when you talked about it. We have done quite a few things to improve underlying performance. We have had major restructurings going on.
We talked about the performance enhancement program, where we have a run rate now of EUR 250 million. This actually has materialized in 2015. We want to achieve EUR 500 million by 2017, and we will achieve that. At the same time, we have margin pressures in some products like hygiene, where margins have come down quite considerably. We have improved our portfolio, including last year, for instance, the divestiture of parts of our pharma business, textile chemicals business, the kaolin business. This is an ongoing process. It is a very complex portfolio, as you know. Therefore it's very difficult to find a common denominator, but quite clearly we want to improve margins further on and that is what we are going to achieve in 2016.
You don't want to put a sort of feel for where it could be because obviously under 9% EBIT, you know, 200-300 basis points on a normalized basis if we go out a few years, or it's just something you don't want to do.
I didn't get what you said first. You talked about.
Well, where the margin can go. Obviously, you're under 9% on EBIT now. You're doing a lot of work. You've got the cost-cutting coming through in a normalized economic environment where you would like to see that business normalize its EBIT margin.
I hesitate a little bit to give you a precise margin number here because obviously, this entire segment also has price-sensitive products. The raw material prices play a certain role, so sales numbers also can change quite a bit. There is room for improvement, there is no doubt about it. EBITDA margins have improved over the last couple of years in most of the businesses, but we have some pockets where we have to work very diligently to improve further on.
Okay. Thank you.
We're now coming down to the last two questions. The first one is Patrick Lambert from Raymond James. Good afternoon, Patrick.
Good afternoon, Maggie. Good afternoon, gentlemen. Two questions on 2016 outlook, especially on oil and gas and ag. If I look at oil and gas, the production cost per barrel and the exploration cost per barrel actually have not declined in 2015. I was assuming that you were trying to get those down per se. Is there possibility in 2016 to get these numbers down in terms of cost, exploration cost or production cost? And what's your outlook in terms of production? Are you still trying to compensate a bit price impact by volume in the different regions? That's for oil and gas. And for ag, it's basically the same question on looking at the bridge between 2015 and 2016.
It looks, as you said, as you mentioned, Kurt, the outlook is not very positive for farmers. Is there possibly some developments, particularly on new products and in particular on Dicamba that we should put in 2016 on the launch of the soybean traits, the double trait herbicide? Is that also what we're seeing in Q4 a bit on the herbicide side? Thanks.
Yeah, I'll start with your oil and gas question, Patrick, and I'm not 100% sure at what kind of numbers you're looking when you're looking at production costs. Maybe we have to-
Per barrel.
Yes. I'm also looking at my numbers on a specific per barrel basis, and they came actually down nicely. We got to,
Okay.
Sit down and take a look at the numbers and the basis that you're using there. There is taken out costs left and right wherever we could, and I can assure you that will continue in the year 2016. That is simply the name of the game. We'll have to compare notes here because my numbers show a very nice decline if I look at my 2014 and 2015 figures. Again, I assure you we'll continue.
I'll call you back on that.
-to go that di-
Yeah.
go that direction in 2016.
In terms of volumes, production volumes?
Production volumes 135 million for 2014. 150 million barrels of oil equivalent in 2015. We're targeting a slight increase in 2016, but that also to a large extent will depend on what's happening in Libya, where we had a little bit of production in 2015. No production so far in 2016. It remains to be seen what's happening there. As I said, roughly 15 million barrels of oil equivalent increase for 2015.
Great. Thank you.
Now we are.
Yes, Patrick, I still have to answer your question on ag. Obviously, market is difficult, and it will remain difficult in 2016. Farmer profitability has come down quite a bit. When you look at crop prices, some of them have reached new lows in 2015. They're not even in the range of the five-year prices anymore. That doesn't bode too well for the industry overall. Yet it is still an innovation-driven competition, and we like it, and we have good products in our pipeline. We just explained that our peak sales from our pipeline will increase further on. We are again cautiously optimistic for 2016, which means we have to continue very diligently on the cost side. We have taken out cost in 2015.
This is going to continue in 2016 as well. Actually this is possible against the background of having had quite a few very, very strong years in ag. Obviously, we are also having a little bit of cost inflation, and in a situation like 2015 and 2016, you normally then can cut back quite nicely, and this is happening as we speak. Again, cautious optimism for the industry for our business despite a rather dim picture for the entire agricultural sector. We want to continue to grow and improve our profitability. It's challenging, but I think it's necessary to try to achieve it.
Dicamba is a big part of that thing for 2016 in particular or not really?
We are expanding capacities. This will come to the market over time. I don't think it really has already a major impact in 2016. Since you mentioned it's a nice product. I mean, it's, as you know, it's 50 years old, and it now has seen a renaissance because as a selective herbicide, it's quite attractive also for plant biotech application, and that is the growth driver for the growth of this old product where BASF has a very attractive cost position as well.
Thanks.
Now we are moving on with the next question from Martin Evans from Kepler Cheuvreux.
Just on the outlook, clarification of your hopes for slightly lower EBIT than in 2015. Kurt, as you said, that's up to but not more than 10%. But equally, you do say that will be extremely difficult if oil and gas stay at the current levels. Just in simple terms, if they stay at current levels or if oil stays in this sort of whatever it is, $30-$35 level as an average for the year, you'll miss that target, i.e. you'll move from slightly to considerable, just mathematically based on the sort of metrics we have on $1 in terms of the EBIT contribution from oil. That's the first point.
I suppose related, just looking through your outlook assumptions, and I appreciate it's very difficult at this stage in the year, but you're talking about the growth rate being lower in the U.S., China growing at a reduced level, Japan, recession in South America and Russia. I mean, against that background, if oil were to recover to your average target of $40, do you think you would therefore still make this slightly lower guidance against that very difficult macro backdrop? Because it does seem to be quite an optimistic scenario you're painting. If so, thanks.
Yeah, Martin, thanks for your question. What we have said is essentially we want to improve, again, earnings in chemicals, and we have a drastic reduction in oil and gas earnings, which we cannot completely compensate by higher earnings in chemicals. If, and again, we are talking here hypothetically, if the oil price remains at $30+, this will become extremely difficult to just have a slight decrease of earnings simply because the reduction in earnings in oil and gas is direct and immediate, while in chemicals it has to be translated into widening margin, which obviously then is prone to supply and demand situations. And then you have to make assessments about the underlying volume development.
What we send out here is a note of caution that the oil price of 30+ would make this quite difficult to achieve. As I said, again, our guidance is based on $40 per barrel. Hope this helps.
With this, we are now coming to the end of the conference call, and I would like to thank-
No more questions? Okay.
No.
I have one topic to discuss with you because I think it is important. Maggie actually decided to jump boat. She wants to leave BASF. We are very unhappy about it, but she got an offer she couldn't refuse. She wants to go to Vienna. With all due respect, I think Vienna is more attractive than Ludwigshafen. I'm not talking about companies here, I'm just talking about the location. We wish Maggie all the best because she has done an incredible job for BASF for the last 13 years in investor relations. She has received every single award which the investor relations industry offers. When you come to her office, she has a shelf with I don't know, dozens of those. It's quite amazing.
She will still be around until end of April, and then move on to new challenges. Her successor, some of you might know her, is Stefanie Wettberg. Stefanie has worked in public relations for the last four, five years as head of corporate communications here in Ludwigshafen. She has a background in finance. She has worked in other jobs as well outside of Germany, and she's looking forward to then connect with you and interact with you. Over the course of the month of April, I think there is an opportunity to meet her and to get acquainted to her. Stefanie looks very much forward to this new challenge.
With regard to Maggie, I can still say a few words in April. That is, I think it is important information because I know that many, if not most of you, have very much enjoyed working with Maggie over the last couple of years. We will ensure that this very close cooperation and trustful cooperation will continue into the future. With that, I think we come to the conclusion of this event. Maggie?
Yeah. Thank you, Kurt, and also thank you for your warm farewell. At the same time, I would like to thank you, ladies and gentlemen, for the trustful collaboration we had over the past 13 years. I'm certainly looking forward to talking to many of you also in the future. I would also like to thank my team that has excellently supported me and cooperated with me over the 13 years. I would like to wish my successor, Stefanie Wettberg, all the best in her new position. BASF will next report on the first quarter results on April 29th. Furthermore, I would also like to inform you that we will be hosting a roundtable Asia Pacific, which will take place on December 23, 2016 in London. We are telling you this date already now so that you can mark it in your diaries.
I would like to thank you for joining us this afternoon. Should you have any further questions, please contact any member of the IR team, and we will be happy to help you. Goodbye, and have a nice day.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.