Yeah, good afternoon, ladies and gentlemen, and welcome to the BASF 2013 full year results conference here today in Ludwigshafen. I would also like to welcome all those participants who are watching the webcast or who are listening in by phone. Ladies and gentlemen, the macroeconomic environment in 2013 was demanding, and we have been facing significant headwind from negative currency effects. Despite this, we have been able to grow volumes, and we delivered on our promise to increase sales and EBIT before special items in 2013. On top, we again propose to pay an attractive dividend to our shareholders. With me this afternoon are Kurt Bock, our Chairman of the Board of Executive Directors, and Hans-Ulrich Engel, our Chief Financial Officer. Kurt will first highlight BASF's performance in the fourth quarter and then also look at the full year 2013.
He will address major strategic achievements that we did in the year, and then he will conclude with the outlook for the year 2014. Hans will take over and discuss with you the segment performance in the fourth quarter, and he will also review key aspects of our financial statement. Afterwards, both gentlemen will be very happy to take your questions. For your information, we have posted a little bit of a longer version of the speech, together with the press documents, on our website, www.basf.com/share. I also would like to remind you that the webcast will finish after we have concluded the discussion of the financial statements.
For all of you who are here today in Ludwigshafen, there is one special feature that we have then in addition, and that is, following the discussion of the full year results, we will host a joint presentation of Adidas and BASF focusing on our successful partnership. We all know the Adidas Group, and we know it is a leader in sporting goods in the sporting goods industry with brands built upon a passion for sports and a sporting lifestyle. Do you know, ladies and gentlemen, Adidas sells approximately 250 million pairs of sports shoes per year. On top of this impressive number, they are selling more than 300 million T-shirts, shorts, and scarves, and, well, above 50 million sports balls, bags, and golf clubs.
This is quite impressive, and we're very happy that we have with our special guests this afternoon, Gerd Manz, who is here in the back with us. He's Senior Innovation Director. Jean-Paul O'Meara, he's Head of Investor Relations at Adidas. From the BASF side, I'm very happy to introduce to you Christian Fischer. He's our President of Advanced Materials Research, also here in the back, and Jörg Unge, Head of Technology in the Performance Materials Division of BASF. The four gentlemen will strive hard this afternoon to provide you with insights about the development of our innovative Infinergy technology. You've seen the entire BASF team is jumping already on this technology, and certainly also the successful application in the Energy Boost running shoe. Then Adidas will elaborate on the successful market launch.
In the meantime, the Energy Boost is already one year on the market and has proven very successful. Before we start, ladies and gentlemen, I also wanted to ask you to please switch off your phones and your mobiles, since they could interfere with our microphone system. Now, finally, I would like to ask you to take a look here at the screen to review the disclosure language. With this, actually, we are ready to start. I would like to hand over to Kurt.
Yeah, thank you, Maggie, and good afternoon also on my side. Welcome here in Ludwigshafen. We are glad to have you here. Before we went into the interesting world of sports shoes and polyurethanes, you have to pay attention to our strategy and finance topics today, but we try to make it as interesting as possible. The Adidas story should be the icing on the cake, hopefully later on. Let me start with the business development in the fourth quarter of 2013. Despite some first indications of recovery towards the end of last year, the global economic environment remained challenging in Q4, as Maggie already alluded to. While important markets such as China and the U.S. showed good volume growth and Europe stabilized, we faced strong currency headwinds in various countries, impacting both the top and the bottom line.
Sales in Q4 increased slightly to EUR 18.1 billion. Higher volumes and portfolio effects were almost offset by lower prices and negative currency effects. EBITDA rose strongly to EUR 2.6 billion, up 26%, primarily due to a sharp increase in oil and gas. EBIT before special items increased by 18% to EUR 1.5 billion due to a better performance of all of our five business segments. EBIT went up sharply to EUR 1.6 billion as a result of higher earnings and a swing in special items year-over-year. While we incurred negative special items of EUR 164 million in the fourth quarter of 2012, we recorded positive special items of almost EUR 200 million in the fourth quarter of last year.
The two main factors were, following a change of control of our joint venture, GASCADE Gastransport GmbH, the subsequent deconsolidation led to a special gain of EUR 429 million in oil and gas. This was lowered by negative special items due to the restructuring measures in Performance Products. EUR 1.1 billion, net income came in 16% higher than the prior year quarter. Adjusted earnings per share were EUR 1.02 compared to EUR 1.35 in Q4 of 2012. The prior year figure included a reversal of a tax provision. Before I highlight some of the major milestones we achieved last year, let me briefly review our full year 2013 results. Last year, sales and earnings improved despite weaker global economic development and lower industrial production than in 2012.
Sales increased 3% to EUR 74 billion, primarily driven by higher volumes in oil and gas and Agricultural Solutions. In our chemicals business, sales decreased by 2% because volume growth of 2% was more than offset by negative currency effects. EBITDA improved by more than EUR 4 million and amounted to EUR 10.4 billion. EBIT before special items rose by 8% to EUR 7.2 billion. This was primarily attributable to an excellent performance of our Crop Protection business, a higher contribution of Functional Materials and Solutions, as well as an earnings improvement in Other. The devaluation of almost all major currencies against the euro had a negative earnings impact of roughly EUR 300 million, most pronounced in our Performance Products business. Special items in EBIT amounted to +EUR 83 million, almost flat year-over-year.
EBIT came in at EUR 7.3 billion, an increase of more than EUR 500 million compared with 2012. Income taxes grew by EUR 630 million- EUR 1.5 billion. The tax rate increased significantly from 15.2% to almost 23%. 2012 included tax credits from impairment charges on a Norwegian oil field development project, as well as the reversal of tax provisions. As a result, net income remained at the prior year level of EUR 4.8 billion. Adjusted EPS was EUR 5.73, 5% lower than a year ago. Operating cash flow reached a record high of EUR 7.9 billion, up EUR 1.3 billion versus 2012. At EUR 3.2 billion, free cash flow exceeded the prior year figure despite a significant increase in CapEx.
In 2013, we continued to shape our portfolio for future growth. We strengthened our downstream business through the acquisition of Pronova BioPharma and became a leading player in the attractive growth market of highly concentrated Omega-3 fatty acids. We made a series of smaller transactions in enzymes to build a technology platform in our strategic growth field. This included the acquisition of Henkel's detergent enzyme technology, a research and licensing agreement with Direvo Industrial Biotechnology, as well as the R&D collaboration agreement with Direvo Industrial Biotechnology for the development of highly efficient feed enzymes for animal nutrition. In October, we successfully completed the acquisition of Verenium, which further strengthened our R&D capabilities in enzymes. We also made progress in the development of our oil and gas business.
We completed the transaction with Statoil, leading to a rise in Wintershall's daily production in Norway from roughly 3,000 barrels to almost 40,000 barrels per day. In December, we signed the swap agreement with Gazprom, through which Wintershall will further expand its production of oil and gas and exit the gas trading and storage business. We expect to close this transaction in mid-2014. It will take retroactive financial effect as of April 1, 2013. Sales and earnings of BASF's natural gas trading business will continue to be reported in the oil and gas segment until closing. Ladies and gentlemen, last year we spent a total of EUR 1.5 billion for acquisitions, well below our long-term average spending. At the same time, we have significantly increased our CapEx spending. In 2013, we invested EUR 4.4 billion in property, plant, and equipment.
For 2014, we plan capital expenditures in the same ballpark. For the next five-year period, 2014 to 2018, we have earmarked total investments of EUR 20 billion. They are 20% for oil and gas, and 1/3 each for the chemicals segment and our downstream activities. The remainder is for R&D and infrastructure. This level of CapEx reflects our major investments such as TDI here in Ludwigshafen, MDI in Chongqing, Acrylics in Nanjing and Kamarsari, as well as Aroma Chemicals in Guangdong and Ammonia on the UF Gulf Coast. In oil and gas, we are investing in the development of our gas and oil fields in Russia and Norway and Argentina, as well as in the exploration of new oil and gas reserves. Innovations, as you know, are an important success factor for BASF's long-term profitable growth. We therefore have increased R&D spending again year over year.
Last year, we stepped up our investments in R&D by roughly EUR 100 million- EUR 1.8 billion. For 2014, we plan a similar increase. To illustrate that this money is well spent, I will give you an example of crop protection. The success of our crop protection business is based on highly innovative solutions. Last year, we spent about EUR 470 million on R&D, roughly one quarter of our total R&D spending. We have continually increased the value of our crop protection innovation pipeline in recent years. For products launched between 2010 and 2020, we now foresee a peak sales potential of EUR 2.1 billion, an increase of EUR 400 million compared to one year ago. Main drivers were our blockbusters, Xemium and Kixor.
For our broadband fungicide, Xemium, we now expect peak sales of more than EUR 600 million, up EUR 200 million versus the prior year. We were also able to raise the peak sales potential for our herbicide, Kixor, to more than EUR 300 million, an increase of EUR 100 million. As you know, at BASF, we continuously work on our cost base and see how we can become leaner, more efficient, and more productive. Our Operational Excellence program, STEP, is well on track to deliver the targeted EUR 1 billion earnings contribution by 2015. We already achieved a total of roughly EUR 600 million by the end of 2013, more than originally forecasted. In addition to the group-wide Operational Excellence program, we are restructuring the Performance Products segment.
In the last 12 months, we have announced a number of measures to strengthen the competitiveness of this segment. We are improving the setup of our business with plastics, additives, pigments, water, leather, and textile chemicals, leading to a reduction of about 500 positions worldwide by 2015, primarily in Switzerland and the U.K. In pigments, we have optimized our global production network. This includes the closure, restructuring, and evaluation of strategic options for production assets in Europe. As a result, approximately 650 positions will be reduced globally by 2017 latest. At the same time, we will invest EUR 250 million to strengthen our production network with a particular focus on Asia-Pacific. In paper chemicals, we are adjusting production capacities as well as marketing and sales in response to decreasing market demand.
As a consequence, approximately 250 positions will be reduced by the end of 2015. As you can see, we have taken significant actions to improve the profitability of this segment. All in all, the announced measures will lead to a reduction of 1,400 positions globally, of which the lion's share will be in Europe. We will continue to analyze further measures to enhance the competitiveness of this segment. Let's talk about financials. We stand by our dividend policy to increase our dividend each year or at least to maintain it at last year's level. As announced last Thursday, we will propose to the annual shareholders meeting to pay out a dividend of EUR 2.70 per share, an increase of EUR 0.10 or approximately 4%.
Over the last 10 years, we have raised our dividend by an average of almost 14% per year. Based on the share price at the end of 2013, we are once again offering an attractive dividend yield of about 3.5%. Despite a below share price performance in 2013, we continued to deliver consistent long-term value for our shareholders. Over the past 10 years, the average annual return on BASF stock was almost 18%, clearly outperforming the German and European stock markets as well as the MSCI World Chemicals Index. Let's now talk about the outlook for 2014. First, the conditions we expect. At 2.8%, we expect the global economy to grow somewhat faster than in the previous year. The recent stabilization in the Eurozone is most likely to continue.
At 3.7%, we anticipate higher global industrial production, primarily driven by strong growth in the emerging economies. We assume an average oil price of $110 per barrel of Brent, as well as an average exchange rate of $1.30 per euro, and expect exchange rate volatility in emerging markets to continue as we have seen in January and February already. Our assumptions for the chemical industry are as follow. Stronger growth in key customer industries will presumably lead to solid demand for chemical products. We expect global chemical production, excluding pharma, to grow at 4.4% and thus remain roughly at the level of last year. In Europe, we do not anticipate a significant upturn and predict growth of only 1.1% this year.
While production in Southern Europe will likely stagnate, we foresee slight growth in Germany, France, and the U.K. Due to robust growth in the automotive industry, the construction sector, and other key industries, we estimate the United States to grow at 2.8%, a bit slower than last year. In Asia, excluding Japan, solid demand growth from our key customer industries will lead to good growth for the chemical industry in 2014. Nonetheless, we anticipate growth that is somewhat weaker than in 2013 as a consequence of the consolidation expected in China. In Japan, we expect higher growth in the chemical industry as a result of an increase in industrial production. Chemical production in South America is predicted to grow somewhat faster than last year.
Needs to be seen, however, Brazil, the largest market in the region, will grow only slightly and continue at a rate below the country's long-term average. Based on these assumptions, our outlook for 2014 is as follows. We aim to increase our sales volumes, excluding the effects of acquisitions and divestitures. Nonetheless, sales will decline slightly compared with 2013 due to the divestiture of the gas trading and storage business planned for the mid of this year. Last year, the business to be divested generated sales of almost EUR 12 billion. We expect a slight increase in EBIT before special items, especially as a result of a considerably higher contribution from the Performance Products and Functional Materials and Solutions segments. We aim to earn again a high premium on cost of capital in 2014.
Now let me give you some color on our outlook for the individual five segments. In Chemicals, EBIT before special items is expected to be slightly below the 2013 level due to start-up costs for several new plants that will begin operations during this year. As a result of our restructuring efforts and improved demand, we anticipate EBIT before special items in Performance Products to be considerably higher than in 2013. We strive to increase earnings in Functional Materials and Solutions considerably, mainly driven by higher volumes for our specialties and system solutions. In Ag, we expect a slight increase in EBIT before special items despite lower crop prices and an increase in R&D costs.
Despite the missing earning contributions from our gas trading and storage business in the second half of this year, due to the planned asset swap with Gazprom, we expect EBIT before special items for our oil and gas business to improve slightly. The first full year inclusion of the Norwegian activities acquired from Statoil and the further expansion of our Achim gas production will support these increases. With this, I would like to hand over to Hans.
Good afternoon, ladies and gentlemen. Also from my side, I will quickly highlight for you the development of our segments. I will focus there on the fourth quarter of last year. Let me get started with chemicals. In chemicals, fourth quarter sales decreased as higher sales volumes in all divisions could not compensate for lower prices and adverse currency effects. Fixed costs came down. EBIT before special items rose by 15% to EUR 510 million, primarily as a result of substantially higher earnings in petrochemicals. Performance Products were stable as higher volumes could compensate for lower prices and strong adverse currency effects. EBIT before special items increased by 18% to EUR 216 million due to higher volumes and better margins.
We incurred special items of around EUR 150 million, primarily related to our ongoing restructuring program. Now to Functional Materials and Solutions. Sales in this segment decreased slightly. Higher volumes, currency effects. Healthy demand from the automotive industry led to volume growth. Demand from the construction industry remained sluggish, particularly in Southern Europe. Special items went up 4% to EUR 238 million. Now to Agricultural Solutions. Despite significant adverse currency effects, we were able to increase sales in Agricultural Solutions in the seasonally slow fourth quarter. This was driven by the contribution from last year's Becker Underwood acquisition, as well as slightly higher volumes and prices. EBIT before special items doubled. 2013 was another record year for Agricultural Solutions. Sales rose by 12% to EUR 5.2 billion.
EBIT before special items grew by 18% to more than EUR 1.2 billion. At 26.6%, our long-term average EBITDA margin target of 25% was clearly surpassed. In the oil and gas segment, sales grew significantly. This was mainly due to increased volumes in Norway, Russia and natural gas trading. EBIT before special items grew by 31% to EUR 535 million. Better volumes, a higher contribution from Argentina due to the new gas price scheme, as well as price revisions in natural gas trading lifted earnings. Net income grew substantially from EUR 260 million- EUR 652 million. With that to cash flow. At EUR 7.9 billion, we once again generated strong cash flow from operations in 2013.
EUR 1.9 billion of which in the fourth quarter. We stepped up capital expenditure. In 2013, we spent EUR 4.7 billion, an increase of more than EUR 700 million versus 2012. At EUR 3.2 billion, free cash flow generation was again excellent. The net amount of acquisitions and divestments resulted in a use of cash of EUR 1.1 billion. The issuance of several bonds, as well as the $1.25 billion U.S. private placement in October 2013, led to changes in financial liabilities of approximately EUR 800 million. Dividends paid to our shareholders and minority interest holders amounted to EUR 2.7 billion. Finally, let's now have a look at our balance sheet. Total assets rose by EUR 1.7 billion- EUR 64.4 billion.
Long-term assets increased by EUR 1.9 billion, mainly as a result of capital expenditures and acquisitions. Short-term assets declined by roughly EUR 200 million, mainly attributable to lower assets of the disposal group Natural Gas Trading. Provisions for pension obligations declined by EUR 1.7 billion as a result of increased discount rates. Our financial indebtedness rose by approximately EUR 1.6 billion- EUR 14.4 billion, reflecting the issuance of several bonds and private placements in the U.S. and Europe.
Net debt amounted to EUR 12.6 billion, an increase of roughly EUR 1.4 billion compared to the end of 2012. Our net debt to EBITDA ratio was at 1.2. Equity grew by EUR 2.2 billion. Net income amounted to EUR 4.8 billion, which exceeded dividend payments by EUR 2.5 billion. Our equity ratio remained at a healthy level and increased from 40.8%- 43.2% at the end of 2013. I thank you for your attention, and we will now be happy to take your questions.
Yes, ladies and gentlemen, I would like to thank Kurt and Hans-Ulrich for their presentations, and we are now moving to your questions. As you know from last year already, we have a new microphone system, and first of all, I would like to ask you to take the cards that are attached to your name tags, and on the right-hand side of your microphone, you find a small slot. Now it is important that you firmly insert the cards into the slot in the direction of the arrow. Then please immediately press the speak button. This automatically puts you in the queue, and I see you here on the screen, and actually, we can get going. I also would like to ask you to please limit your questions to two, maximum three, because I'm generous today.
Then you please re-queue so that we can take as many questions as possible. With this, actually, we are starting with the first request from Oliver Schwarz, Warburg Research.
Thank you. My two questions are related to the oil and gas business. You gave us the number of revenues for the deconsolidated business. Would you be prepared to give the earnings or EBIT contribution as well that's going to be divested on, let's say, on an annual basis? Secondly, as GASCADE Gastransport GmbH was deconsolidated and is now showing up in the at equity result, would you be prepared to give us an impact in Q4 on sales and EBIT, please?
Happy to take these two questions. First of all, EUR 12 billion in sales for the businesses that we have currently in the disposal group that will be part of the swap. An EBIT range of roughly EUR 400 million that goes with that business, which translates then into an EBITDA in the order of magnitude of roughly EUR 500 million. From the Gascade deconsolidation, since that took effect on December 31, 2013, there is no effect in Q4 other than the special item that you've seen of roughly EUR 430 million.
If I may, could you specify how much that will be in the future, perhaps, if there's no impact in 2013?
On an EBIT level figure, less than EUR 50 million on an annual basis.
Excellent. Thank you.
We are now moving to the next question of Tim Jones, Deutsche Bank.
Thanks. Two questions, if I may. Firstly, while we start on the theme of numbers, if you look at your Libyan business, if it was running at a normal rate and wasn't experiencing the problems that it's experiencing, what would be the rough EBIT that that business would be generating at current oil prices? That's the first question. Second question, can I ask you a question about cash return? Your payout ratio on dividend is around 50% now. Is that a level we should mark you up to going forward for the next few years? If I can ask a third link to that, can you just update us on your thoughts on buybacks, particularly given some of your global peers seem a bit more aggressive on cash return to shareholders. Any thoughts you have on whether BASF would look to do buybacks this year?
Thank you.
Yeah, thank you, Tim. Libya is about EUR 100 million+ EBIT effect, and there is no production going on as we speak onshore. That is important to keep in mind, and we cannot foresee at this point in time when production will be resumed. Cash returns, I think we have a pretty aggressive dividend policy to grow the dividend year-over-year, which we have achieved quite nicely overall. We don't have a payout ratio. We don't look at payout ratios. It's more, I'd say, secondary aspect to look at and find out what the payout ratio is. It continues to be the policy to grow the dividend year-over-year. I cannot tell you today what the size of the step will be for 2014.
In terms of cash returns, buybacks, we have stopped in 2008, after we have bought back more than 20% of our stock, and we rebalance really our balance sheet and our leverage ratio. Since then, we have refrained from doing it. We have the possibility to do buybacks. At this point in time, if you look at the use of capital, we have increased CapEx. We do a little bit of M&A. We have a very healthy free cash flow. Again, a nice improvement in 2013. Looking at our overall balance sheet. This is actually going to the CFO, at least my impression is there is not a big room for a substantial buyback, a meaningful buyback, and doing something some symbolic doesn't make any sense at all.
Just to buy back a few hundred million EUR, I don't think this makes any sense at all. Yeah. Hans just reminded me to talk about offshore Libya as well. That is important when you look at your models, because there are these famous lifting or what we call offshore liftings, which is always a major EBIT impact for the oil and gas business, for E&P business. That happened last year in Q1. It's supposed to happen this year in Q2. That is a shift of earnings of roughly EUR 100 million, and I'm not sure if you already considered this when you build your models for the oil and gas business.
We're moving on to the next question from Christian Veit from Macquarie Capital.
Yes, thanks for taking my questions. First of all, in the U.S., Port Arthur, can you remind us of what percentage of the crackers run with lighter feed at present? Because you mentioned the enhanced profitability there. Second of all, related to that, in your European crackers in Antwerp and Ludwigshafen, can you talk about current profitability, overall profitability for the crackers? Thirdly, why do you expect significant sales growth in agricultural solutions in 2014, while you only expect a slight increase in EBIT? What's the rationale behind that outlook? Thank you.
I start with the Ag question. We have pretty strong currency headwinds in Ag, and we feel this quite clearly, especially in South America. You witnessed this, what happened there with the currency, for instance, in Argentina. That has to be factored in when you think about Ag. Underlying the earnings potential and the innovative power, I talked about this, are extremely solid. These are fluctuations we simply see in the day-to-day business. The other questions I would hand over to Hans.
Happy to take your first question first, which was on the cracker feed in Port Arthur. At this point in time, we can use in the range of 80%-90% of total intake in the form of lighter feeds. The way we run it is actually on models that we run there and make decisions on a daily basis what is most economic with respect to intake, but also with respect to yield of the cracker. 80%-90% is the range that we can now use as lighter feed. On the profitability on the cracker margins, if we quickly look in the three key regions, I'll start in Asia. They continue to be relatively weak.
I go west from there to Europe, and I say, stable. As you can see in the results that we've generated in North America, we're quite happy with the cracker margins in the U.S.
This brings us to the next question of Andrew Benson from Citi.
You talk about start-up costs in the chemicals division as a key impediment to EBIT progress this year. Can you just dimensionalize what you're talking about there and give an idea of the underlying expectations? Secondly, I just want to qualify the target that you've got for this year of slight EBIT growth. That incorporates the portfolio changes that you're expecting in mid-year. Just can you provide some qualifications on expectations for financing charges, assuming no significant portfolio changes this year?
The guides we provide for 2014, this provides the portfolio changes we described before, the swap of the gas trading business. Start-up costs are of magnitude EUR 150 million-EUR 200 million approximately.
The next question comes now from Ronald Koehler, MainFirst.
Yes. Thank you. My first question is also on oil and gas in Argentina specifically. There was a change of this gas scheme, as I understand. Could you a bit elaborate what that is? Is there kind of still a spillover effect? Because I think it was implemented in the second half of the year. Additionally, obviously, we have seen the peso devaluing quite significantly. What does that mean for your Argentina income in oil and gas in 2014? Second question is on working capital swing. You obviously had a lot of cash inflow from lower working capital. Can you a bit explain what was the driver behind that? Also give us a kind of an outlook for 2014.
Should we now expect, let's say, stable growth with volumes or a bit elaborating that? Third question is on outlook and volume improvements. I read it quite often that you expect higher earnings driven by good volumes. So what makes you confident that you will get these volumes? Is it your GDP outlook which drives that? Or is it, let's say, your own new capacities coming on stream which drives that?
Yeah. I think Hans will talk about the working capital. Argentina important country for us in oil and gas. Actually, it's put into perspective, it's much more important than Libya today, even if Libya were running at full capacity. The government finally realized that the official gas price they offered to the industry was not sufficient to create new investments. For that reason, they came forward with an approach where they basically said, "We offer you a higher price, which is quite attractive if you invest," which we have done over the last 12 months. That already had a positive impact in 2013. We haven't quantified the effect, but it makes our business in Argentina more palatable and more enjoyable. That is a positive side of the story.
The negative side, obviously, is the currency effect, which hits us quite hard. Currency has two effects. One is on current earnings, which are simply translated at a different rate. Even if the business in oil and gas is somehow dollarized, you still have a currency effect here. The second effect is, we have cash sitting in Argentina. You might call it trapped cash. We cannot invest that cash in U.S. dollars as we would like to do, or euros. It's invested in peso, and that doesn't really make it a great investment at this point in time. What do we do?
We look for a natural hedge, and the best way to hedge your liquidity in Argentina is to invest it in oil and gas assets, which we have done over the last 12 months. We have initiated additional projects and investments.
Working capital?
On the working capital, I mean, we've talked about working capital a few times in this round here. It's of utmost importance to us to run our working capital as lean as we can. We've done that, I think, successfully in the year 2013, and you see us using a lot less cash for working capital purposes than what we used in the year 2012. There is also another impact that you see in our working capital, which is the result of netting accounts receivable and accounts payable in our disposal group. This is something that we've done in 2013 that also had a positive impact on our overall working capital.
Overall, I think an assumption of using capital in line with a growing business is a fair assumption.
Could you quantify the amount of working capital released by the disposal groups?
I have to look that up for you and get back to you.
Volumes?
Does that question-
Volumes. Why are we confident with regard to volumes? It helps if you have a little bit economic tailwind, but we are not sitting here waiting for the economy just to pick up, and then we sell more. It's really about being pushy in the marketplace and going for higher volumes. We had, and you know this, a little bit of a setback in China in 2012, where we were not at a growth rate which was, from our point of view, acceptable. There was a little bit of a lack of transparency, whether that was a market or our market share. I think it was, to a high degree, the market. Nevertheless, we became a little bit more volume-focused without giving up on our what we call value before volume strategy.
It's still a price-oriented, profit-maximizing strategy. We will learn later about our cooperation with Adidas, and I'm very thankful about the representatives being here today, and you see how we try to develop businesses to push volumes at the end of the day and increase our business.
Now we're moving on to Paul Walsh from Morgan Stanley.
Thanks, very much. Good afternoon, everyone. Two questions from me, please. With regards to the major CapEx projects that are ramping up this year, I think it's TDI, MDI, and the SAP facility in Brazil. Can you talk about some of the timing of that ramp-up and ultimately the opportunities? Because those are two markets drawing a lot of attention from the supply-side fears elsewhere. Then my second question relates to the 2015 targets. Can you talk a little bit about you know, the likelihood of moving towards those targets in 2015 and the moving parts that are necessary for you to get there? Thank you.
Yeah. Thanks for the question, Paul. TDI is under full construction, on budget, on time here in Ludwigshafen. We expect completion early 2015, from today's point of view. MDI, that is China, it's a little bit more complex project because there we are part of a larger chemical investment. It's not just BASF's investment with other adjacent and supporting facilities as well. That needs to be seen how this works out. We are working full speed and full energy to complete this project as soon as possible, so the 2014 timeframe, 2015 timeframe. That is a little bit more uncertain than what we see here in Ludwigshafen. Acrylics in China will go on stream this year.
Acrylics in Brazil is under construction, end of this year, early 2015. Question about capacity and timing with regard to the market. You know that isocyanates for BASF always have been a good growth story. We see isocyanates growth above GDP levels, as to come back to your question, Roland, earlier on. There are always temporary adjustments necessary when you talk about how to bring a product into the market. But overall, we are very confident that the market will be able to absorb those new capacities. You know about our approach, for instance, here in Europe with TDI, where we are not just sitting and building a new capacity, 300,000 tons, largest single train reactor in the world.
At the same time, we will shut down our 80,000 tons in Schwarzheide, and we acquired a business from a company in Poland, which means we will get that business without getting their production, which will be closed out. Which essentially already fills up one half of the new TDI plant here in Ludwigshafen. In acrylics, we have, I'd say, probably one of the best franchises in the industry. We have very good technology. We are heavily downstream-oriented, meaning we are at the same time building super absorbent plants, which also show very good growth rates in emerging economies where you have a growing middle class which cannot afford to buy these products. The 2015 targets, you know, are very challenging targets.
It's supposed to be challenging for 2015 in terms of growth and in terms of earnings. Earnings certainly more important than just growth, but both are dependent on each other. What we can say today, we work extremely hard. We have rolled up our sleeves to achieve what we promise to achieve. We have lots of restructuring programs on the way. We are extremely cost-conscious. We try to improve our capital base, as Hans just explained. I think from today's point of view, it's more challenging to achieve those targets than, let's say, two years ago. That is quite clear because we have essentially had two years in chemical growth globally, which were slower than expected, especially Europe, which had almost zero growth in 2014. 2013.
Keep in mind, Europe is still the largest market for BASF. We always talk about emerging markets, but it's still 50%, roughly, what we sell and produce here in Europe. It's more challenging today than two years ago. As I said before, we rolled up our sleeves. We work extremely hard, and if we get a little bit of tailwind, you asked about the moving parts, a little bit of tailwind would certainly help. A little bit of recovery of some of the margins and some of the upstream products would also help. We have had some products which tanked. Caprolactam is one good example, where the margins really came down quite dramatically. All these are moving parts. I think it's really simply too early to make more specific forecasts for 2015.
We work extremely hard to achieve what we promised.
Thank you.
The next question comes from Andreas Heine, Barclays.
Yeah. Three questions if I may. The first is, in North America, you had a very strong increase in earnings. Was that because 2012 was exceptionally weak or was 2013 exceptionally strong? And how do you see this going forward? Then secondly, can you say anything how the year started in 2014, regions and value chain-wise? And last but not least, I'd like to try to ask a question whether you can give any update on RWE Dea and your interest in that. Thanks.
Nice questions, Andreas Heine. U.S. earnings. We had a press conference this morning. I said the earnings growth in 2013, there's only one reason, because Hans-Ulrich Engel leads that organization over there, but he will become more specific in a second what happened or what he did in particular. The year started from our point of view in a way that we have no reason to divert from our guides, which we have provided. We have seen volume growth in January and going into February. We still see currency headwinds that plays a major role, both in terms of top line, but also bottom line. We talked about the big effect, EUR 300 million last year, predominantly in Performance Products, which is really a detrimental factor.
We see raw material prices after a little bit of a pick-up in January, stabilizing or moving sideways, which from our point of view, this seems to be good news, put it that way. I think it's far too early to speculate about raw material prices going into Q3 or Q4. It's certainly also oil price linked. Regionally, we had a very good start in North America. China is a little bit harder to read because obviously we had Chinese New Year relatively early this year, end of January. South America is a little bit of a disappointment at this point in time, but please keep in mind that is roughly 5% of our total business, and the reasons are easy to understand, the currency turmoil in Argentina and relatively low and disappointing growth in Brazil.
I think they got a problem over there. Europe, I said in my little speech, we expect that Europe will continue to recover, albeit at a still very low level. We are now talking about 1.5%, I believe, chemical production growth in Europe, which is virtually zero from my point of view. We certainly try to grow faster than that, but we don't expect strong tailwinds in Europe. In terms of industry, we are quite optimistic for automotive. We think that the global automotive production could grow at something like 5% this year. That would bring, for instance, U.S. production levels back to where it were or was before the crisis started in the U.S. We are well-positioned to grow with the automotive industry.
We also think that the construction industry, for instance, in North America, has a good chance to grow a little bit faster. These are two important industries for BASF, and this gives you a little bit of a flavor. RWE, I cannot speculate on your question, actually. If your question is how attractive do we or how do we perceive our oil and gas business, how attractive is it, and what's the role of oil and gas within our portfolio? I could answer that question, but you didn't ask that question. Huh?
To North America and the performance there, Andreas, I would like to obviously repeat what we've experienced in the year 2013 on an ongoing basis, which is improved earnings by, I think the figure is 49%. What are really the underlying factors there? One, 2012 is not a good year to compare to. In 2012, we were faced with the big turnaround of the cracker in Port Arthur. We came out of that turnaround with some technical issues which took us quite a while to correct. 2013, we have strong performance in our petrochemicals business, which is driven by the cracker in Port Arthur.
We also experienced for the first time the full benefit of flexibilizing the feed for the cracker in Port Arthur. In addition to that, strong demand from the automotive industry. All businesses supplying automotive in North America enjoyed strong demand. We had a very good agricultural solutions business, which on top of the strong demand that we experienced in all three indications, so herbicides, fungicides, and insecticides, also then benefited from the acquisition of Becker Underwood, which we've done late in the year 2012. These are the key factors that led to the significant improvement that we saw in earnings in the last year in North America. That is certainly something that we want to build on going forward.
This brings us to the next question from Lutz Gericke, Commerzbank.
Thank you. First question regarding your outlook on China. You have mentioned that you expect somewhat weaker growth in that region or in that country due to the consolidation trend in the country. Isn't that a bit optimistic given the latest news flow we got from the macro side out of China, money supply sharply down? Is there not further downside risk for that outlook you've given for your company here? The second regarding vitamin E, heavy price pressure in the final quarter. Any chance to get that done in 2014 and having a bit more healthy supply-demand balance here?
China outlook, I think we have always been a little more cautious than the consensus forecast, whatever that means. We have seen good underlying growth for BASF in our businesses in 2013 and also going into the new year. There are always these macro factors which you talked about, and we have been looking at those factors now for quite some time. Will this come to a boiling point in 2014? Most people don't expect that to happen. Most people think, most observers think that China will be able to create a continuous growth pattern, probably at a lower level, and that is factored into our forecast, so to say.
Something dramatic, we have not included in our forecast, but I don't think that this is really the consensus view right now. Vitamin E or vitamin prices in general, prices are insufficient. That is quite clear, and this also explains the unsatisfactory earnings development in our nutrition and health business to a very large degree. We have announced price increases back in November. Those price increases take effect immediately, but we also have medium- or long-term contracts which we honor, so we cannot change all our prices on day one. Frankly, when you increase prices, you're never certain whether your customers like it. They certainly will not like it, but whether they look for an alternative, that is always a question.
We also prepare to give up some volume because we think there needs to be a stabilization in that market. We have seen these kinds of fluctuations in the past. That is very, very clear. We have talked here about vitamins at least for the last 10 years when I was sitting up here in different roles. This is nothing atypical. We have managed price recovery in the past, and that is what we are working on. No guarantee of success, but we are working very hard on it.
Thank you.
The next question now comes from Jeremy Redenius, Sanford C. Bernstein.
Hi. Thanks for taking the questions. Two questions. First of all, just reading your letter to shareholders this year and comparing the last couple of years, it looks like you've stepped up your rhetoric a bit about your concerns about energy policy in Europe. Could you perhaps put that into context for global investors? What exactly are the concerns you're expressing here, and how would you like global investors to think about that? And then second, if I look at Performance Products, Functional Materials, and Solutions, I see headcount reductions of about 1,400 FTEs over the next few years. How do you feel about the urgency of change in the organization there? Are you pushing that hard enough?
Are you seeing the results that you would like to see with factors that you can control? Thank you.
Yeah, thank you for the question, Jeremy. Let me start with the restructuring question. Yes, there is absolutely sense of urgency on our side, and we are pushing very, very hard for these changes. These changes include, by the way, the closure and shutdown of entire sites. For instance, in France, in Scotland, in the U.K. These are quite dramatic measures we are undertaking. We clearly understand, and I think the organization at this point in time also understands that we have to change, in some businesses, the way how we do business. We have to adjust capacities. We have to take out cost. This is again underway as we speak, and we are working on more ideas. This is nothing which is complete by now.
The projects or the measures we have announced continue into 2014, 2015, but I would foresee that we will have additional ideas how to further improve our business in those segments or in Performance Products segment. Letter to shareholders, so I'm glad that at least one of you read it, 'cause I'm always wondering who's really reading that stuff. There's one important reader. Yes, we are concerned about energy policy at two levels. One is Europe, one is Germany. Let's tackle Europe first. Europe has a clear goal to increase the importance of industry again, going back to 20% of GDP. At the same time, the commission came forward and said, we have to increase our emission targets, CO2 reduction targets, from 20%- 40% over 2030.
In order to achieve that, as you all know, we have no global ETS scheme. We have no global climate agreement. It's a European unilateral measure. To achieve that 40% target, energy efficiency in industry has to increase to something like 2.2% a year. To put this into perspective, over the last 10 years, we have achieved 1.7% in industry. Please keep in mind, the more you do, the more asymptotic this curve becomes, the more difficult it becomes to achieve these effects, and the more costly it becomes. If these targets are being implemented, 40%, it would require, given current state of technology and what we foresee going into the future, that the industry in Europe will shrink, not grow. Shrink.
There's a certain inconsistency in the European energy policy, and I think this is something we have to highlight, and we have to press for an implementation of these targets, which also take into consideration the effects on economic growth and job creation in Europe. That is a request. I think this is something most people could sign up to. It's kind of pragmatic. Needs to be seen whether the politicians will really follow it. If you look now at German politics, they demand that European Commission does even more and impose even stricter targets and expectations. This is all based on the German mentality that we will be able to prove to the world that we can single-handedly change the climate by doing the Energiewende. The Energiewende is well underway, includes many components. One is the shutdown of nuclear power.
That is consensus within our society. It has to be done until 2020, 2022. Then we go for renewables. We already have 25% renewables in Germany. We wanna go to 45% in 2025. We wanna go to 80%, hold your breath, in 2050. If you do renewables, you need backups. If you don't have nuclear, it's gas or coal. Right now, it's coal in Germany. We burn more coal than ever before. Therefore, CO2 emissions of Germany go up, and we have additional costs. The costs are this year more than EUR 20 billion. That is the subsidy being paid to the renewable energy producers to bring their products or their energy to the market. They have no price risk. Actually, the lower the market price, the higher the subsidies. They have no investment risk. It's a great business proposal.
We always have been lobbying for having something similar in chemicals. We could never achieve that. Now comes on top that the government finally realize that something has to be done because obviously it's out of control. What are they gonna do is now they try to redistribute the costs of the Energiewende in a fairer way. It's all about, they call it fairness. At this point in time, the small guy pays. People who rent an apartment, who don't have a roof, who put solar panels on, who don't have land to build a windmill, they pay for the energy turnaround, and industry pays as well. Chemical industry in Germany alone last year, EUR 600 million-EUR 800 million additional cost due to the energy turnaround. Additional cost for the chemical industry, it's substantial.
In our case now, BASF specifically, we produce our own energy, electricity here in Ludwigshafen. We have three power plants, which are combined power plants who produce steam, very important for chemical production, and to produce electricity. That combination is very, very beneficial, first of all, from an environmental point of view because you have very high efficiency degrees, about 90%. Normal power plant has something like 40%-45%. Secondly, it can be adjusted to capacity needs here at our site. For that production, we don't pay into the German energy money pot, turnaround money pot, so to say. The government now says, "You have to pay as well." Although we don't use public grid, we don't rely on public support. We cannot even buy from public grid because we also have to produce. We can only buy electricity, we can only buy steam.
We also have to produce steam. We need this combination. We are trapped in that respect. The current proposal which is on the table is to put additional costs onto Ludwigshafen in the order of magnitude of EUR 60 million. Sixty million doesn't look like a lot of money if you put it into perspective with the overall earning situation of BASF Group. Frankly, we have to realize majority of earnings today come from out of Germany, and we look at investments on a full cost base. If these additional subsidies are now put onto BASF, it could make certain projects and investment ideas in Germany simply not attractive economical anymore. That is a discussion we are having with the government. We urge them to slow down the implementation of the renewable strategy. That's not going to happen.
If they don't do that, please make sure that you don't burden the export-oriented energy-intensive industry in Germany because we have no way to escape. The only way to escape would then be to shut down facilities and move production to other places, which is not really what you wanna do if you have something here within our Verbund structure, which essentially works very nicely. It's a heated debate in Germany. It's a long answer. Sorry for the long answer. Government tries to do something about it. It's a political minefield because the government created losers and winners by artificially creating a completely subsidized market. I know when you want to change it. You have to take money away from people who have no entitlement mentality. Yeah. That is always very difficult in a democracy.
Interesting discussion, but it goes to the core of competitiveness of German and European chemical industry. Last sentence, there is a study initiated by Cefic, European Chemical Industry Council, done by an independent agency, Ecofys, about the implementation of EU energy policy. If that energy policy is implemented as being explained today, it would destroy the trade surplus, the big, very big trade surplus the European chemical industry has always enjoyed over the last decades. The European chemical industry is one of the, I think, the second or third largest exporter of Europe. These things have to be taken into account.
Thank you very much.
So.
with this, we're now moving on to Norbert Barth from Baader Bank. Norbert.
Yeah. Honestly, Mr. Bock, I read also the article, and I had, if Jeremy has not asked questions, I want to ask on that. Perhaps you have just met, I think, also the economic minister. Do you believe they realize what is going on, especially in the industrial world and especially here? Or do you think now the proposal is on the table and there is more or less, as it looks to me, no chance for big changes anymore? Will we see that burden? The first question on this overall situation. Second question regarding your joint venture with Styrolution. I think it performed quite okay. Do you see any change there in 2014 or coming time?
Thirdly, about the joint venture with Monsanto. It looks relatively quiet at the moment, so I don't know if it's the case because there's so not so much going on, or can you elaborate a little bit how that develop and how the pipeline looks from your point of view?
Okay, Hans will talk about the joint venture cooperation. It's a cooperation. It's not a joint venture. Politicians, I think, very clearly understand what's going on. They clearly want to support the industry. They understand that industry is core to German competitiveness and wellbeing. They try to find a solution, but this is politics. I mean, this is not just being right or wrong. It's really about implementation. I don't have to explain this to you. This is now in the making. We sincerely hope, and we try to be very constructive here as a company or as an industry. We sincerely hope that we will find a solution which avoids these additional charges because we deem them as, first of all, unnecessary to balance the system and extremely harmful to our industry.
Would you, on the other side, be willing to take, if that not comes, as you think it's the right way, to take major steps?
I don't answer hypothetical questions. We try to be constructive again, and we sense there is an understanding and a sense of facts again. This, I think, can be solved in a constructive way if people really put the competitiveness of German economy and industry at the forefront of their thinking. Styrolution, that's our joint venture with Ineos for the production of styrenics, has developed very nicely, very successful, very good management performance there. Synergies have been achieved even more than what we had projected as at the initiation of the project or the company. Yes, we have a put option which we could exercise. For the time being, I think it's simply too early to talk about this. We are a happy shareholder, put it that way.
We are very confident that the management is doing the right things. Everything else needs to be seen again at this point in time. On your question with respect to, you know, the cooperation that we have with Monsanto, I'm not sure they're really quiet about that cooperation there with Monsanto. If I think back to what we usually do, which is mid-year report on the respective progress. The progress report was in line with our expectations. We focus on corn, we focus on soybean, and we focus on wheat, and they're on yield and stress. Nothing has changed there in the cooperation with Monsanto.
Actually 2013, we achieved something that I would call a first milestone, which is the first product was introduced, which is corn DroughtGard, relatively late in the season, so we've seen only relatively small sales there, but it was well accepted based on everything that I hear in the market.
From your point of view, running as
Yeah.
At least. Okay.
Now we're coming to Thomas Gilbert from UBS for the next question.
Thank you very much. Thank you for taking two questions, and also a request to answer Andrew Benson's question on guidance for financing charges, pensions, and interest costs. The two questions. You had a press release in January where Wintershall announced an agreement with an Argentine gas company to explore shale gas drilling in Argentina. Can I just check if this company is state-owned? Who runs this business? Who spends the money? And can you repatriate the cash flow once this collaboration starts to generate cash? Just checking the political and CapEx risk. The second, staying with CapEx, very specific question. In the other segment, the CapEx is around about 3% of total CapEx.
Yet in your annual report for the next five years, you guide the other CapEx at 13%, which quadruples the run rate of the CapEx in the corporate center. Why is that, please?
Last question, I have to assume that we have a couple of projects which have not yet been specified to a degree where we know exactly where they are. They are placeholders, so to say, those that will be attributed to specific business segments over time as they become realized. Argentina, yes, we have a cooperation with an Argentine company. The field is called Vaca Muerta, the shale gas field, one of the largest in the world, dead cow. That should really be the headline for the project. It's for us a good entrance point into shale gas in Argentina, which is presumably a very attractive business proposition. Cash flow, bringing it back. At this point in time, we are not in a position to bring back cash from Argentina.
That is quite clear. There are restrictions, and we couldn't really pay a dividend for quite some time, I think for about two years. As I said before, the cash is being trapped in Argentina, and therefore we invest in hard tangible assets, which I think is the right thing to do. The assumption is certainly that over time, redistribution of money back from Argentina will be possible again. Otherwise, you wouldn't do those investments. It's not a risk-free business in Argentina, but frankly, in oil and gas, we have lots of countries which are not completely risk-free. Financing charge, you're right. We didn't really answer that question when it was asked by Andrew Benson early on.
I wasn't sure whether, Andrew, your question went in the direction of cost of capital. On that, I can tell you that that will remain at the 11% before tax as we had it in the year 2012. Other than that, financing cost for the BASF group will go down. Why? You've seen us being active in the bond market last year, and that led to overall financing cost decline in the range of 70 basis points.
Okay. Now we move on to the next question from Tony Jones from Macquarie.
Oh, hi. I've got three questions. Firstly, EBIT margin in Asia just exceeded 7% this year, but I think you talked about China doing very well. If we think about the long-term CapEx, there's around a third of your EUR 30 billion CapEx going into the region. Can you just talk through why you still believe that this is a good use of shareholder capital, given the margin at this point? Secondly, with your views on regional growth and the good cost position that we've got in the U.S., I mean, are we at a point where we should be expecting, maybe a step-up in upstream chemical CapEx for the U.S.?
Finally on wage inflation, I saw earlier this year, the German unions had agreed a rate of inflation, I think about 3.5%. I wasn't really sure how to use that number. Could you help us think about what the net inflation will be for BASF as a group? You know, whether it should be sort of similar or a lot more diluted. Thank you.
Wage negotiations are collective in Germany, so this applies to the entire industry. It's 3.7% for 14 months, which is roughly 3% for a 12-month period. This is being implemented, I think, as of April 1st. It's a cost increase for BASF, which we have to overcome by improving on productivity. The regional growth, more specifically, CapEx North America upstream, shale gas-driven. We have announced a couple of projects. Formic acid is underway. We talked about ammonia. We are contemplating other ideas as well. What we're not going to do, Tony, is to venture into upstream products to produce these base chemicals for third parties to sell them to the market. For us, it's really about securing our value streams and getting access to the cheapest available feedstock.
It's a classical make or buy decision at the end of the day. Take ammonia, for us, it was a very simple question. Is it useful to continue to buy ammonia in the market, or does it make sense to go into a joint venture with Yara and to reap additional benefits by producing based on very attractive feedstock? The conclusion is obvious, and that is the thought model which we'll apply to our value chains at the end of the day. It would be a complete change of strategy if all of a sudden we would go into building a cracker in North America to sell ethylene or produce MEG, EO. Products which actually have reduced capacity in North America about 10 years ago because it wasn't profitable. We will stick to our overall strategy.
We will continue to have a very strong Verbund structure in the chemical segment. Very profitable, very attractive. It has a good business outside of BASF, but at the same time, it's a major cornerstone for our downstream profitability. China overall profitability and why is it attractive to invest in Asia more specifically. We have big start-up costs in Asia. That is quite clear because we continue to invest quite heavily in Asia, and this also burns our bottom line. I talk about China. We have had a good year in China. We had a disappointing year in ASEAN, where we had an excellent 2012 and 2013. We did not achieve the same rate of growth. We had an extremely bad year in Japan, frankly.
Talking about profitability because the devaluation hit us really hard. Devaluation of about 50% of the Japanese yen. These factors also influence the overall profitability picture. To give you a little bit more flavor, if you look at Nanjing, our big site we operate together with Sinopec, that is according to everything we know in the market in China, one of the best-performing chemical sites in China. Very attractive. A good combination of upstream and increasingly downstream. But certainly we have room for improvement, there's no doubt about it, to bring up our profitability. One last sentence with regard to Asia. We continue to export heavily to Asia. What we present here to you is essentially the profits which are being made in Asia.
The pre-profits we make by exporting from the United States, from Europe to Asia, you don't see. These are profits which show up as regional results in North America and Asia and in Europe. These pre-profits are relevant and important. When we see our business, we look actually at consolidated results. We look at what's the profit locally, but what's the pre-profit from the exporting region. That is how we compare regions in terms of profitability. In that respect, Asia suffers a little bit because they're still relatively high exports despite all our investments, growing exports to Asia.
Thank you.
The next question now comes from Marcus Diebel, J.P. Morgan.
Yeah. Hi. Also, I'm interested in what you just said on Asia. I mean, you put in the press release that you would see an uptick in utilization rates, particularly for Performance Products also in Europe. I mean, given what you just said on the exports from Europe into Asia, do you think an increase in utilization rate is really for now just a function of a macro recovery here in Europe? And we're just gonna see flat exports also in the next few years, or do you see a decline in exports hurting utilization rates despite the macro recovery here? And second question is on pricing. Could you elaborate a bit more on your view on pricing in the three chemicals divisions in the next nine months?
Do you see a chance that we see positive pricing effects here, or you mean, on pricing relatively cautious?
The exports from Europe will continue to grow unless we make big mistakes. I talked about energy policy early on, which really drives our competitiveness as well. Our growth in Asia is a combination of local production, increasing local production. We aim to achieve local content of something like 75.5%. We are not yet there. We are slightly below. Exports are supposed to continue to grow ex-Europe, ex North America. Pricing, you're talking about the chemical segment, so this is petrochemical, it's really monomers and intermediates.
Sorry, no, the three main divisions, so Chemicals, Performance Products, and the Functional Solutions.
Okay. That is a broader question. In Basic Chemicals, it's very much a function of, we shouldn't be kidding ourselves, very much a function of raw material costs. Our assumption for the year going forward is that raw material costs will be at about the current level. That is also based on the oil price scenario which we have. Based on that, you shouldn't really see major fluctuations in terms of pricing. Again, that's today's point of view. There are always short-term fluctuations. You know, there's sometimes arbitrage between Asia and Europe, sometimes opens, sometimes closes. But this is kind of normal operational day-to-day business. In Performance Products, we have seen a little bit of a price decline in 2013. This is only partially reflecting raw material costs.
It's also reflecting increased competitive pressure, and we have talked about this here already, and that's the reason, another reason why we are in restructuring mode in some of those businesses. In Functional Materials and Solutions, this is not really a price-driven business. I mean, take catalysts. Catalysts are sold based on technology available, yield improvement, emission performance, emission reduction performance, et cetera. There we have, in general, the opportunity to improve pricing whenever we provide additional technology and value for our customer. That is really the game we are playing there. It's very difficult to give you a general answer. If you take a longer-term view of chemicals, we have seen approximately 1%-2% price decline over time within the chemical industry. That is pretty much the overall price reduction.
Okay, this brings us on to the next question from Markus Mayer, Kepler.
First of all, you said that the first months of this year were quite okay from volume development. How do you see currently the inventory level of the global chemical industry? Do you see already a restocking? Second question, in the outlook, you see acceleration of GDP growth and also industrial production growth. At the same time, you expect that chemical growth is basically flat or even slightly down from last year's level. Why is this? The last question was already answered. These two questions.
Inventories, restocking, Hans?
Okay. Current trading environment, I'd say overall, good start into the year. Slightly better than going into the year 2013. Now, is that the result of a restocking that is taking place, or is that just an expression of slightly stronger demand, which by the way, we've also experienced in Q4 if you compare Q4 2013 to Q4 2012. Frankly, that is very difficult to say at this point in time. I think we explained here that our visibility with respect to the inventories of the industries that we're delivering to is not, by far not perfect. So there's a lot of interpretation going on. I don't wanna call that guesswork. Frankly, difficult to answer that question.
It looks like demand is slightly stronger out there than what we experienced same time around last year.
With regard to chemical production growth and GDP growth, we now get into the nitty-gritty detail of statistics. The major reason is that the weight of the respective regions for calculating the GDP is different from the weight you use for calculating the overall growth rate for chemical production. In GDP, the developed countries have a much higher share. In chemical production, the emerging markets have a much higher share. Since, in relative terms, the mature economies in 2014 are supposed to grow a little bit faster compared to what the difference in the emerging markets is, you see these slight differences. This is our model for the time being. I think it's a realistic assumption to see something like 4%-5% chemical production growth going into 2014.
This brings us to the next question from Oliver Schwarz. It's a follow-up question.
Yeah. Thank you for taking some other questions from my side. Mr. Engel, I'm still trying to get my head around your outlook for the ag business. You stated that the impact of Monsanto was positive. We reached the first milestone in 2013, and so 2014, I guess, stands to benefit even more from the business. This is purely earnings-related. There's almost no sales in there. We saw you notch up the peak sales of very important products. You have Xemium, Kixor, and still we are guiding for a disproportionate increase in sales to earnings. I'm just wondering. What's behind that? You cited the currency problems, but the currency should also relate to sales, obviously.
I'm still trying to get a grip why the costs, and it's gotta be the costs, play such a dominant role in your-
Details.
In your forecasts. Yeah. Secondly, a pretty straightforward one. You mentioned that we'll see a positive one-off from the asset swap with Gazprom somewhere in the middle of 2014. Would you be so kind to quantify that impact? Thank you.
Okay. I start with the second one, which is the special item that we are expecting as a result of the asset swap that we do with Gazprom. Yes, we do expect a positive special item there. The order of magnitude is extremely difficult to forecast. There are so many factors that play a role here that it would just not be appropriate at this point in time to give you even a range. On your question with respect to Agricultural Solutions, the cooperation with Monsanto, frankly, doesn't play a role here because the income from DroughtGard is minimal and anyhow not reflected in the Agricultural Solutions business because that part is reflected in other. Again, very, very small.
I think the outlook that you see here is driven by what we expect to see with respect to product mix. That plays a key role here. To a certain extent, it is also impacted by costs that we had, marketing and distribution costs in order to prepare markets in the year 2013 that we will not see the same order of magnitude in the year 2014. That should be hopefully a good explanation.
Brilliant. Thank you.
Now we move on, but I please ask you only one question per person so that we can finish on time. Next one is Christian Veit from Macquarie.
All right. Let me see which question to ask. The slower construction end markets you flagged in the U.S., construction chemicals in Q4, was this purely weather-related, or was there structural element in there? If they were weather-related, how should we think about construction chemical sales in Q1 2014 given the polar vortex? Thank you.
No structural effects there in the fourth quarter of 2013. What we will see in the construction business, after not experiencing a real winter, 2012, 2013, and a severe winter east of the Rockies in 2014, we will see an impact in that. Despite all of that, based on all figures that I've seen for the construction market in the U.S., it is seen as positive. If you look at new housing starts, still forecasted in excess of 1 million. This will be the first time since, I believe, 2007, if I recall correctly, that we will be in that order of magnitude.
We will definitely experience a slow start into the season in construction chemicals, and we will see similar effects also in some of the businesses, such as, for example, dispersions that supply into the construction industry in the U.S.
The next question comes from Peter Spengler, DZ Bank.
Yes. Hello. Thank you for taking my question. I've actually two on your guidance.
One. Otherwise, we can't finish on time. one, Okay. Here you are. Wait. Yeah. It's all right.
Okay. Yeah, on your guidance, first on the divestiture of the gas trading business. You said you expect a slight decline of sales. Does it mean you compare two quarters in 2014 to four quarters in 2013? Or do you compare, since it's done retroactively, to the first quarter of 2013, one quarter in 2013 and nothing in this year? Secondly, on the word slight and slightly that you use twice in your outlook, could you give us an idea what slight and slightly increase means?
Yeah, happy to do. In terms of sales, a slight is between 1% and 5%. In terms of earnings, it's between 1% and 10%. If we had a 1% or 2% change, we would not call it slight. We would probably call it stable or no change to make this quite clear. We had to find a solution because the German law has changed in terms of how you provide guidance. It's not perfect, but I hope it will help you to do your work. The other question you want to do?
Yeah. On the gas trading business, I think we need to clearly differentiate between gas trading business being part of the swap that we do with Gazprom and the Gascade deconsolidation that we talked about earlier that created the special item in the fourth quarter. Now, on the gas trading business, that will have a significant impact on sales of the BASF Group, as Kurt mentioned, to the tune of
12 billion on a full year basis. You will see the sales and the earnings from that business in our result, in BASF's results, till the point in time where we swap that business out, where we divest it out. Let's assume this happens right around mid-year. Now we look at seasonality of the gas trading business. By then we have the first quarter, which is high sales quarter under our belt. I can give you probably better guidance at that point in time, but again, on a full year basis, for the gas trading business that we're swapping out, we're talking EUR 12 billion in sales, while on the Gascade part, I'd say that is a rather small figure, not to talk about.
Okay, thank you.
The last question now comes from Tim Jones, Deutsche Bank, and then, you will have plenty of time during dinner tonight to ask your additional questions. Tim, please go ahead.
Yeah, thank you. Can I ask a general question about consultants and the data that you see that's published by consultants? There are a lot of consultants in chemicals, many of us use them, but quite a few of them suggest there's a lot of capacity coming on in the industry in certain regions in the next few years. Just your experience of seeing data being published, do you think that type of data is accurate, or do you think they tend to underestimate delays or companies overstate their additions? Your thoughts on that, please.
That is a tricky question, I have to say. I mean, yes, we do also follow what consultants publish, and they try to be very accurate in announcing every single change in capacity and new investments. Experience of the last 10, 15 years tells us they have consistently overestimated capacity increases. You always underestimate the difficulty of doing an investment. There are delays, there are cost overruns, there are other issues. Hopefully not at BASF, but it happens. Projects are abandoned at some point in time. I think you have to be very, very specific when you look at these data, and we do our own internal forecasting for our important value chains, where we try to understand what are the drivers for profitability, what is the supply-demand balance.
Later this year, we will have an investors day about the chemical segment. I think this is a good point in time to explain to you in more detail how we do this and how we see the world for specific products, which is a more medium to long-term view and not about, let's say, current business, what we are discussing here predominantly today. Then there's the issue of reliability, start up. I mean, there are lots of issues why capacity is always not as high as it is announced or what you see as the nameplate capacity. A good example, and then I stop, is isocyanates, where there's a nameplate capacity, and there is constantly somewhere in the world, one or the other plant not running because it's tripping as technical issues. Yeah.
With this, ladies and gentlemen, we are concluding our discussion of the financial statements for the full year 2013, and this also brings us to the end of our live broadcast. I would like to thank all of the guests and participants who were listening in via the web or on the phone. Should you have any further questions, then please do not hesitate to call any member of the IR team, and we will be very happy to help you.