Ladies and gentlemen, thank you for standing by. Good morning, ladies and gentlemen. This is Chorus Call conference operator. Welcome to the BASF Analyst and Investor Conference Call on the interim report first quarter results 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 would like to ask a question, you may press star followed by one on your touchtone telephone. When preparing to ask your question, please ensure that your phone is unmuted locally. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. This presentation may contain forward-looking statements that are subject to risks and uncertainties, including those pertaining to the anticipated benefits to be realized from the proposals described herein.
Forward-looking statements may include, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, and supply and demand. BASF has based these forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from the projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts, and projections, and financial performance may be better or worse than anticipated. Given these uncertainties, readers should not put undue reliance on any forward-looking statements. The information contained in this presentation is subject to change without notice, and BASF does not undertake any duty to update the forward-looking statements and the estimates and assumptions associated with them, except to the extent required by applicable laws and regulations. I would now like to turn the conference over to Magdalena Moll, Head of Investor Relations.
Please go ahead.
Yeah, thank you very much, and good morning, ladies and gentlemen, and welcome to the BASF Q1 2015 Conference Call. In Q1 2015, our chemical business delivered strong earnings despite a slow start into the year. Earnings in Oil and Gas declined slightly as higher volumes could not offset the negative effect of the oil price decline. Agricultural Solutions was able to maintain the positive momentum of the fourth quarter of 2014. With me on the call today to explain the results are Hans-Ulrich Engel, our Chief Financial Officer, and Manfredo Rübens, President of the Finance Division. Hans will start to explain the financial highlights and important milestones. Manfredo will review the segment results of the first quarter. Hans will conclude with the outlook 2015. Ladies and gentlemen, both gentlemen will be happy to take your questions.
Today's conference call is limited to one hour since our annual general meeting is starting right after this call. We already posted a longer version of the speech on our website at basf.com/share, together with our press document. With this, I would like to hand over to Hans.
Thank you, Maggie. Good morning, ladies and gentlemen, also from my side, and thank you for joining us. I'll start with giving you a brief overview on our quarterly results. Since our last reporting date in February, the macroeconomic environment has not materially changed. In Europe, the economies continue to show a mixed picture. While many indicators point to strengthening growth in Germany and Spain, momentum in Italy and France is still weak. The macro environment in the U.S. was softer, and as we heard yesterday, actually a lot softer than expected due to the harsh winter and the strong U.S. dollar, which had a negative effect on export performance. Concerns about economic growth in major emerging markets such as China and Brazil persist. Russia has entered into recession. India, however, is showing stronger growth.
Overall, we expect that global economic growth remains on track and can gain momentum as the year progresses, supported by lower energy prices and interest rates. Compared to the first quarter of last year, the euro depreciated significantly against the US dollar and most other major currencies. Moving to BASF's business performance in Q1 2015 in comparison to the restated numbers for the same period of last year, first, let me take a closer look at the volume development. In the three segments of our chemicals business, volumes did not quite match the high level of the prior year first quarter, when we had 7% volume growth compared to -1% this year. Many of our operating divisions experienced a wait-and-see approach of their customers in January and February as a result of the low oil price.
However, volumes picked up towards the end of the quarter. Our other two segments, Agricultural Solutions and Oil and Gas, reported significant volume increases. Let me now comment on the financial performance of BASF Group. Sales in the first quarter increased by 3% to EUR 20.1 billion. We saw an 8% price decline following the sharp drop in the oil price. This was nearly offset by pronounced positive currency effects. EBITDA slightly declined by 2% to EUR 2.9 billion. EBIT, before special items, came in almost on prior year level and reached EUR 2.1 billion. Except for oil and gas, earnings improved significantly in all operating segments. This was supported by positive currency effects. Additional earnings support came from lower raw material costs, strict fixed cost management, as well as restructuring measures.
We improved our margins in the Performance Products and Functional Materials & Solutions segments. Let me briefly comment on the earnings development in other, which was negatively affected by several factors, above all, a higher provision for the LTI, the Long-Term Incentive program. The BASF share price increased in Q1 2015 from EUR 69.88 to EUR 92.55, and has clearly outperformed all major indices. With a sort of 32%, it surpassed its benchmark, the MSCI World Chemicals Index, by more than 20 percentage points. This contributed to an increase in LTI provisions by EUR 230 million compared to Q1 2014. A negative currency result and the missing earnings due to last year's divestiture of our shares in Styrolution and Ellba Eastern further contributed to the earnings decrease in other.
EBIT decreased by 10% to EUR 2.0 billion due to negative special items of EUR 75 million, which include a provision of about EUR 100 million for the anniversary bonus we pay to our employees. In the first quarter of 2014, special items had totaled +EUR 109 million, driven by the gain from the divestiture of selected E&P assets in the North Sea. Income taxes grew by 6% to EUR 543 million. The tax rate increased to 29.7% from 25.1% in the first quarter of 2014, when we incurred a tax-free disposal gain for the aforementioned transaction in Oil and Gas. At EUR 1.2 billion, net income came in 20% lower. Adjusted earnings per share amounted to EUR 1.43 in Q1 2015 versus EUR 1.63 a year ago.
We generated a strong operating cash flow of EUR 2.4 billion, exceeding the previous year's level by almost EUR 650 million. Free cash flow reached EUR 1.1 billion compared to EUR 800 million in Q1 of 2014. Ladies and gentlemen, let me briefly highlight a few milestones of the first quarter 2015 on our path to implement our We Create Chemistry strategy. As announced in February, we made the final investment decision together with our partner Yara to build a 750 KT ammonia plant at the US Gulf Coast. Located on our Verbund site in Freeport, Texas, the plant will satisfy our internal demand and strengthen the competitiveness of our polyamide VI value chain. We expect completion of construction by the end of 2017.
We continue to look into other shale gas-related opportunities, such as the methane to propylene project in Freeport, as already communicated. Furthermore, we intend to build a new world-scale plant for 2-Ethylhexanoic Acid. Well, that's a difficult one. 2-Ethylhexanoic Acid at the site of our joint venture with Petronas in Kuantan, Malaysia. Construction is expected to begin in Q2 of this year. Startup is planned for Q4 of 2016. In Chongqing, China, we completed construction of our new polyamide VI plant. This investment reduces our merchant market exposure of caprolactam, which is used as the key raw material, and it allows us to participate in the growing Chinese engineering plastics market with local production. In our Performance Products segment, we will enhance BASF's leading position in PVP, specialty primarily sold into the pharmaceutical, personal, and home care sectors.
We plan to increase global production capacities by up to 6,000 metric tons over the next four years. We will do so by revamping existing plants in Ludwigshafen, Germany, and Geismar, Louisiana, and introducing the PVP technology at our site in Shanghai, China. With that, I will turn it over to Manfredo, who will comment on the segments.
Sales in chemicals came in considerably lower as positive currency effects could not fully offset significantly lower prices, slightly decreased volumes, and structural effects. Especially in Europe, we experienced a margin improvement due to lower raw material costs. EBIT before special items went up significantly. Before moving on to the next segment, please allow me to remind you that a number of new plants in chemicals are expected to come on stream in 2015. We project the bulk of the forecasted EUR 150 million-EUR 200 million in startup costs to materialize during the remainder of the year. Sales in Performance Products were up slightly. While volumes and prices slightly decreased, we experienced significant positive currency effects. EBIT before special items increased considerably due to margin improvements and restructuring measures. Sales in Functional Materials & Solutions came in considerably higher.
We saw good demand globally, especially from the automotive industry. However, a decrease in precious metals trading led to slightly lower volumes. Prices were almost stable. Positive currency effects supported both sales and earnings. Combined with improved margins, EBIT before special items increased strongly. We incurred a positive special item due to the divestiture of our EPS business in the Americas. Agricultural Solutions had a good first quarter. Sales increased significantly. We experienced high demand for our products in all indications and were able to grow volumes by 6% while raising prices by 4%. Our business particularly profited from the good early demand in Europe and North America. Sales also benefited from currency effects. The startup of new plants in China, Brazil, and Germany led to higher fixed cost. Nevertheless, EBIT before special items grew considerably. Sales in Oil and Gas increased considerably.
Volumes in exploration and production and natural gas trading were up significantly. The average price for Brent Crude oil decreased by 50% from $108 per barrel in the previous year's quarter to $54 per barrel in the first quarter of 2015. Fixed cost increased. EBIT before special items declined from EUR 466 million to EUR 437 million. Net income decreased by 16% to EUR 359 million. In the same period last year, we incurred a one-time gain from the divestiture of selected E&P assets in the North Sea. Sales in Other decreased significantly, mainly on lower volumes. The outage at Ellba Moerdijk had a negative impact.
The divestment of our shares in the Ellba Eastern Joint Operation in Q4 2014, as well as the decrease in raw material trading, also affected sales negatively. EBIT before special items declined strongly from EUR -203 million to EUR -613 million. This earnings decrease was mainly driven by a higher provision for our long-term incentive program, which was caused by the strong share price increase in Q1 of this year. Negative currency results, the already mentioned other effects, and the divestiture of our shares in Styrolution last year also contributed to the earnings decline. EBIT declined as well, as the anniversary bonus for employees resulted in a special item of about EUR 100 million. Let me now come to the cash flow development.
Cash provided by operating activities was EUR 2.4 billion in the first quarter of this year, an increase of almost EUR 650 million versus the first quarter 2014. In particular, lower inventories led to a reduction in net working capital. We recorded a cash inflow of EUR 309 million. At EUR 1.5 billion, cash used in investing activities exceeded the prior year figure by EUR 700 million. Payments related to tangible and intangible assets amounted to EUR 1.3 billion. Acquisitions and divestitures resulted in a small net cash inflow. In the previous year's first quarter, we had realized a significant cash inflow from the divestiture of selected E&P assets.
Financing activities led to a cash outflow of EUR 400 million compared to an inflow of EUR 389 million in Q1 2014, which was related to the issuance of bonds. Free cash flow increased by EUR 341 million and came in at more than EUR 1.1 billion. Now to the balance sheet. Compared to the end of 2014, total assets grew by EUR 7.7 billion to EUR 79.1 billion. More than half of the increase was caused by currency effects, mainly related to the appreciation of the US dollar. Investment projects contributed to an increase in the value of property, plants, and equipment by EUR 2 billion to EUR 25.5 billion. We experienced a substantial increase in accounts receivable of EUR 2.4 billion.
This was mainly caused by the seasonally strong business in Agricultural Solutions. Cash and cash equivalents increased by EUR 0.6 billion to EUR 2.3 billion. On the liability side, provisions for pensions and similar obligations increased by EUR 2.3 billion due to, again, lower discount rates. Financial debt rose by EUR 0.7 billion to EUR 16.1 billion. Net debt increased by roughly EUR 100 million to EUR 13.8 billion. Equity grew by EUR 1.8 billion to EUR 30 billion, and at 38%, our equity ratio remains on a healthy level. Our target to maintain a solid single A rating is unchanged. With that, back to Hans.
Thank you, Manfredo. Let me come to the outlook now for the year 2015. Overall, we expect to perform well in a market environment that remains volatile. Our macroeconomic assumptions for the year remain unchanged, and today we reconfirm our 2015 outlook for BASF Group as given on February 27 of this year. Overall, we will continue to grow volumes and sales in 2015. Sales will likely be slightly higher than in 2014, mainly driven by higher sales in the Functional Materials & Solutions and Performance Products segments. We expect EBIT before special items to be on the level of 2014. Higher earnings in our chemicals business and in the Agricultural Solutions segment are anticipated to compensate for considerably lower earnings in Oil and Gas.
We aim to earn again a central premium on our cost of capital, but on a lower level than in 2014, when we had a number of special effects from divestitures. I thank you for your attention, and we are now happy to take your questions.
Yeah. Thank you, Hans and Manfredo. With this, I would like to open the call for questions. I ask you, ladies and gentlemen, to please limit your questions to only one at a time so that everybody has a chance to ask a question. Of course, if we have time, you're always welcome to rejoin the queue. I would like to start with Lutz Grüten from Commerzbank. Good morning, Lutz.
Yeah. Hi, good morning. Thanks for taking my first question. It's regarding the cash flow, plus 36%. You've mentioned that inventories have been reduced in the first quarter. Is it fair to assume that there's a further reduction on the way on net working capital when the maintenance shutdowns will occur? And could you please remind us when these planned maintenance shutdowns will show up in the second or third quarter? Thank you.
Yeah, Lutz, this is Hans. Thank you for your question. Yes, as you noted, we had a nice cash inflow as a result of what we announced, by the way, last year, strict management of our working capital. We've seen the inventory reductions that we wanted to achieve in Q1. We set ourselves clear targets for the entire year with respect to working capital management. As said, results of that you see already in Q1. Expect our turnarounds to be relatively evenly distributed over the four quarters of this year.
Yes, of course, we will have to manage our inventories accordingly to prepare for the respective shutdowns, but you shouldn't expect anything there out of the ordinary.
That's helpful. Thank you.
Welcome.
Okay. Our next question comes from Paul Walsh from Morgan Stanley.
Thanks a lot, Maggie. Morning, everybody. My question was pretty simple. I mean, if I look at the divisional beats across the first quarter, they're obviously very, very strong. I'm just wondering what's holding you guys back from projecting a more positive message around margin development and EBIT development this year. I understand it's early in the year, but I'm just curious to know if any of that strength across the divisions is somewhat temporary or you're expecting it to fade. Really, that's the only question I have.
Yeah, Paul, excellent question. Let me answer it as follows. You've seen in Q1 a lot of what I call noise. You can also call it volatility. You look at raw material price developments, and you know how our upstream segments are depending on raw material price developments that have been very favorably in January, not so favorable in March. Or, sorry, in February. Then again, favorable in March. Interesting development there. You've seen what the oil price has done in the meantime. It's moved to, I think, yesterday, the close was at $65-$60, somewhere in that order of magnitude. We've seen naphtha prices all over the place, EUR 370 as a low, EUR 550, which is the current price, as a high.
What do I want to say with all of that? There is no room to actually change our guidance at this point in time. We've delivered what I would call a good first quarter in a volatile environment. We've seen actually that demand also showed an interesting pattern. January and February, relatively weak, and then we've seen an uptick in demand in March. That's an interesting one because in I'd say almost all prior quarters the development was a strong first month and then a weaker third month in the quarter. A lot of factors out there that lead us to say we stick to our guidance and we feel good with that.
Just, did you see a good pickup in China after New Year or not?
The pickup, how do I put that? Maybe not as pronounced as we would have expected it.
Okay. Thank you very much, guys.
Welcome.
We are now moving on to the next question from Thomas Gilbert, UBS. Good morning, Thomas.
Good morning, Maggie. Good morning, Hans. A very boring one. Sorry, if everyone knows this and I don't. On the currency side, is it fair to say that the segments get the fully unhedged benefit of the currency while you lump all the unfavorable hedging of the company in the other line? Will you reallocate that back at the end of the year? How should we think about, you know, if the exchanges prevail, I mean, how are the hedges rolling off this year, and how does it affect the other line? Sorry for all this very technical question?
No, Thomas, I would not call that a boring question at all before we've seen what currency has done in the first quarter. It's an excellent question, and Manfredo is here to answer it.
Yeah. To your first part of the question, on whether the segments get the unhedged result, that is not right. Because think about this, the segments can basically, or our operating divisions can basically internally hedge their exposures the way they deem right. At the end of the day, we take those exposures then against the corporate exposure. From a corporate perspective, we then hedge what we believe the hedging position of BASF should be overall. The segments are basically running also their exposures.
Some of those aspects you then see reflected in other, as you rightfully stated. Be reminded that all booked exposures that we have are fully hedged. The effects that you at the end of the day see in other relate predominantly to future to our planned exposure hedging that we also have described in at earlier times.
Bottom line is your segment guides you to the currency forecasting at BASF. Anyway, thank you very much.
Good. Now we move on with the next question from Andreas Heine from Barclays.
Yes, good morning. It's basically again on FX. You have given an FX sensitivity for the year, so one cent EUR 50 million. If you would use this sensitivity for the first quarter, would that give the right understanding what the FX impact in the various segments has been? Or have you seen different movements in the first quarter?
Andreas, the general answer is, does Q1 reflect what we give as general guidance for the US dollar? To be reminded, this is for the US dollar only.
Mm-hmm.
Yes, yes, it does clearly reflect that. When you look into the various segments and the various operating divisions, the exposures can differ there depending on where they have their respective businesses in what currencies they do their businesses. We fully stick to the 1 cent on a full year, 1 US dollar cent to the euro on a full year basis, equal to EUR 50 million in EBIT.
Now we're coming to the next question from James Knight, Exane.
Morning. I may have a boring question as well. If you look at the cash flow notes to it, you mention higher provisions, especially for rebates. Are those rebates concentrated in any segment? Am I being a bit too cynical, maybe linking them with the very strong start in ag? Thank you.
That's not at all cynical. You came to the right conclusion there. The rebate programs are typical in the ag business, and they are primarily in North America. I think that pretty much answers it.
Okay. Are they significantly higher year-on-year? I mean, why comment on it otherwise?
They are not significantly higher, the rebates, than in prior years. They are slightly higher, reflecting the higher sales and again the impact of foreign exchange.
Okay, thank you very much.
Welcome.
We're now moving on to Andrew Benson from Citigroup.
Yeah, thanks very much. I just wanted to explore the agriculture a little bit more 'cause your performance has been stand out relative to the others. I was wondering how you would see the rest of the year or whether there's any particular aspect of phasing which drives the business to the first quarter as opposed to the first half or whether you simply think that new products are helping you outperform.
I think, Andrew, first of all, I should reiterate what we always say. Just looking at one quarter doesn't give you the full picture. We had a very good start into the season in Europe but also in North America. We've seen a volume increase, we've seen price increases. I'd say to really come to conclusions here, too early to say the season in the northern hemisphere is in full swing. Let's take the first two quarters and then take a look at what kind of development we see overall. We're definitely happy about the performance that we've seen in Q1. Now, let me maybe say one more thing with respect to not just looking at one quarter.
You may remember that we had not such a great performance in Q3 of last year and we got actually hammered for that. We have had a very good Q4 and we have what looks in comparison to competition like a good to very good Q1 2015. That forms a solid basis for what we had had said with respect to our expectations for the full year, which is to see a nice increase in earnings in our ag business. What is certainly contributing to that are launches that we made in, let's say, the relatively recent years. Xemium comes to mind, Kixor comes to mind.
We have good product offerings, in particular in herbicides, with Kixor, but also with dicamba. That seems to be a good basis to go forward with, and we certainly keep investing and funding R&D in our AgChem business. In addition to that, seeing the overall development with respect to soft commodity prices, we will take the measures that we need to take to make our business as effective and as efficient as possible, and that will also include fixed cost containment measures.
We're now moving on. Thank you, Andrew. We're now moving on with the next question from Jeremy Redenius from Bernstein.
Hi, good morning, everybody. This is Jeremy Redenius. Could you talk about the price developments throughout the quarter? I'm particularly interested in Performance Products, functional materials, and in the ag business. Thanks.
Price developments in Performance Products and in Functional Materials & Solutions. We've seen overall, Jeremy, slight price declines in Performance Products, and it's what we explained already when we did our annual press and analyst conference in the end of February. The further upstream you are, the closer your pricing is related to raw materials. The further downstream you go, the lower the impact from raw material, in particular, oil price-related pricing. You see exactly that in Performance Products. We have a slight price decline of - 3%, which can be explained with what we're seeing in raw material pricing.
In Functional Materials & Solutions, we have a price decline of - 1%. Now when I take a closer look at what's happening there in Functional Materials & Solutions, then that price decline is almost 100% driven by precious metal pricing. You've seen how precious metal have developed with platinum in the 1,150 range, so lower than where we were last year, and that's what you see reflected in the price for the entire segment. In Agricultural Solutions, which I would describe as the furthest downstream segment, you see a nice price increase there of 4%. I think that's probably what I can provide as an explanation.
Sorry, I was also asking just was there particularly in Performance Products was there deterioration through the quarter, or was it straight down 3%? I was just more interested in the trajectory through the quarter.
No, we didn't see price decreases through the quarter. No, I wouldn't say any type of significant price movement there.
Okay. Thank you very much.
Welcome.
Now, the next question is coming from Tony Jones from Redburn.
Good morning, everybody. I just wanted to go back to currency again. Quick calculation this morning suggests that the gain from euro dollar was around 250-260 in the quarter, and then offset by around 50 from other currencies. A strong net gain around EUR 200 million dropping through to EBIT. Does that sound reasonable, and should we be modeling that sort of effect drifting also into Q2? Thank you.
The 250 figure that you mentioned, Tony, I'd say sounds very reasonable to me.
The offsets, you know, the 50 offset from other currencies, or is there no offset?
Well, the 250 is, I think is a good figure for the entire EBIT impact that, we see improvement.
Oh, even better than I thought. Thank you very much.
Welcome.
We are moving on to Peter Clarke, Société Générale.
Yes, good morning. Just looking at the Asia margin again, obviously it's had a lot of focus. For the first time you're up year-on-year for quite a while. I've heard what your comments are about the volatility, what's happened in China, a slightly weaker than expected after the new year, but obviously very strong into it. Just wondering how you see that moving ahead. I'm just wondering within that actually, whether there was some Forex benefit on that Asian business that helped the margin in such a way it reports. Thank you very much.
Yeah, thanks for your question, Peter. The margin in Asia, first of all, we see in certain areas, margin improvement. If I think, for example, about the cracker margin that has developed nicely in Asia, in 2014. When I say nicely, I look at the improvement. Are we happy with the margins in Asia, the cracker margins? No, we're not. They have improved through the course of 2014. They are higher in Q1 than they were in prior quarter. They're actually a bit lower than what we've seen in Q4. There are other areas, and this is in particular in the downstream areas.
In our catalyst business but also in our coatings and in performance materials business, where we see margin improvement. Currency plays a role, also in the margin improvement, but does not fully explain what we've seen. There's also the market and the demand supporting overall the margin improvement that we've experienced in Asia.
Okay. You're confident that sort of thing can continue?
We are certainly working on that.
Okay. Thank you. Next comes Laurence Alexander from Jefferies. Good morning, Laurence.
Good morning. Can you clarify two of your segment comments? You flagged North America cracker margins being down. Was that just Port Arthur? On the comment about MDI margins, was there any regional dispersion there?
Yes, the comment on North America relates to the Port Arthur cracker. In fact, there are two impacts that were caused by the cracker in Port Arthur. We had technical issues for about four weeks, where the cracker couldn't run it at full capacity. We've experienced an environment where cracker margins came down significantly from the high they had in, I'd say, if I recall correctly, Q3 of last year. Cracker margins compared to the high in the order of magnitude of 55%-60%. These are the two impacts from the Port Arthur cracker. Sorry, the second part of your question was what again?
Oh, just on the comment around elevated MDI margins, was there any regional differences?
Yep, there are regional differences. Asia, I would describe as weak. Europe, we saw a strengthening of the MDI margin, and North America, margin continues to be on a relatively high level.
Thank you.
Welcome.
Now our next question comes from Christian Faitz from Kepler Cheuvreux.
Yeah, good morning. Thanks. Could you give us a rough quantitative idea how the positive FX element contributed to the profit improvement in your three chemical divisions, so on the EBIT line? Thank you.
Christian, this is an excellent question. I think the fact that we are providing the FX impact on an EBIT level that should actually be sufficient. I would not like to go and break this down on the segments. Let me say this maybe. You see, we provide by segment the FX impact, and that may help you in doing the calculations.
All right. Thanks.
Welcome.
This next question comes from Mutlu Gündoğan from ABN AMRO.
Yes, thank you and good morning to all. A question on the petrochemical business. You had some production issues in Ellba, that's known, and also in Port Arthur. Could you give us the impact on the EBIT of those production issues? Relating to the plant in Moerdijk, when will you expect that plant to restart again? Thanks.
On the Ellba plant in Moerdijk, let me see. I believe it is mid-2016, but let me check that, and I'll get back to you in a second with the correct answer. As you may know, we're not the operator of the plant, so that's why I just wanna make sure that I speak to whatever guidance was given there by the operator. Please understand. Now here I have the information, end of Q1 2016. So let's say end of Q1, beginning of Q2 2016.
Please understand that I will not give you details on the impact of the outage in Moerdijk and the Port Arthur cracker. Expect something that in combination of the two probably I'd call that mid double digits.
That's very helpful, Hans. Thank you.
Sure.
now we're coming to Jaideep Pandya from Berenberg Bank. Good morning, Jaideep.
Thanks. Good morning. Thank you. Just a question really on the other line. So if I just strip out the Long-Term Incentive program, then the other line was around EUR 327 million, and the street was sort of modeling before the numbers came today around EUR 650. Could you just tell us or help us model the other line for the full year, basically, because, you know, you've basically done your whole year last year in Q1 this year. Just wanna understand how this year is gonna pan out in the other line. Thank you.
Okay. Jaideep, Manfredo will take that.
The guidance that we've given, the outlook was a slight increase in the year 2015 compared to the last year, and we stick to our guidance. Last year, we had about EUR 570 million in the EBIT line. Expect something between EUR 600 million and EUR 700 million for the year.
Sorry, just to make sure. You're basically guiding for like, EUR 80 million for the rest of the year in the other line?
Well, take out the special effects that we have.
Okay. All right.
I would consider the LTI provision. We don't show that as a special item, but it's a special development that we have.
Yeah.
We always said we can't forecast what's happening with respect to LTI since it does not just depend on share price development. It also depends on the relative development that we have of our share price to MSCI World Chemicals Index. That is extremely difficult to forecast.
Mm-hmm. Okay. Thank you.
Welcome.
The next question now comes from Oliver Schwarz from Warburg Research.
Yeah, good morning. Thank you for taking my question. I wonder if you could shed some light on the increase in selling expenses and general and administrative expenses, which were both up by roughly 10%. Thank you.
Oliver, there is an easy explanation for that. We have not stopped with our strict fixed cost management. It's simply the result of foreign exchange. If you think about where outside of the Eurozone we have sales costs and where we have, let me see, SG&A costs, in particular in North America and also in Asia, and you've seen the currency developments there, that is the explanation.
Okay. Thank you.
Now we are moving on to Laurent Favre from Bank of America Merrill Lynch.
Yes. Thank you, and good morning, everybody. Two, I guess, boring questions. First one is on the minority line. I was just wondering if the Q1 level of minorities is purely reflecting the profitability of, let's say, Port Arthur and the oil and gas business, or whether within that number, there's a bit of an exceptional item as well. In other words, if we continue to, you know, if we assume that the current profitability is here to stay, should assume that minority level is here to stay as well. The second question is also on the tax rate, I guess, and again, boring.
Just wondering there again if the Q1 level, if there was anything exceptional in that Q1 number, 'cause it felt a bit high given the absolute level of profitability in Oil and Gas, at least to me. Thank you.
Okay. Now, the first part of your question, first question on minorities, you see an increase there. Yes, that's driven by Port Arthur, but to a larger extent, it's actually driven by our gas trading business and the participation there. We looked at our gas trading business and you see an increase in EBIT there of over EUR 100 million. That is actually the explanation. Maybe one word with respect to that. I'd say in Q1 the stars aligned perfectly for our gas trading business. We also had an impact there of price revisions. Don't expect that on that level to go forward, in particular not because we're now entering the low season for the gas trading business.
Long answer short, yep, it's predominantly Oil and Gas, and they are gas trading. On the tax rate, we have an increase there of almost 5 percentage points. Keep in mind, please, that last year we had tax-free income from the divestiture of Oil and Gas activities of, if I recall that correctly, EUR 130 million. We don't have that effect or comparable effect in Q1 of this year. Then we also had, as a result of our increased Norwegian oil production activities, higher tax impacts. We'll need to see how that will play out during the course of this year.
It could well be that as a result of the higher oil and gas production that we have, that we see a slight increase in our tax rate. Again, give us a quarter more, and we'll have a clearer picture on what will happen there overall.
Okay. With this kind of EBIT, we should have this kind of EPS, is the other way to think about it. I'm just asking given that there was such a big debt.
I'd say not necessarily. Again, a tax rate of almost 30% seems to be a little bit on the high side.
Okay. Thank you. Thanks a lot.
We come to Patrick Lambert from Nomura.
Hi, good morning, everybody. A quick question on Oil and Gas. In particular, I think you talked about the gas trading. Would you comment a bit more on the increase of production on the exploration part of the business and what you see for the full year in terms of growth of production that you're targeting in that segment? Thanks.
Sure, happy to do that. We had production of 136 million barrels of oil equivalent last year. The guidance that we're giving for the year 2015 is we're targeting 160 million barrels of oil equivalent for the year 2015. What are our expectations of what's driving that? The following factors. 1, as you may know, we've done a transaction with Statoil in the fourth quarter of last year, which comes with a nice amount of new reserves, but it also included 20,000 barrels per day additional production.
We were able to start up our production in Libya in the middle of February, currently producing there with roughly 30,000 barrels per day. The assumption is that we can continue on that level or even increase it. In all honesty, the situation there is so difficult that I can only tell you we have that in our forecast, but we will need to see what's gonna happen during the course of the year.
you know, what's also driving the increase in production is the development of the Achimov 1A field in Western Siberia in our Achimgaz joint venture, which should also give us additional production in the year 2015. That builds the bridge from the 136 to the 160 that we're targeting for 2015.
In Q1 2015, were you above the quarterly run rate of this EUR 160 because of Libya in particular?
We were above the quarterly run rate than that we had in 2014. Libya contributing to that, but also the additional production that we have in Norway, and to a smaller extent, incremental production in Western Siberia.
I was talking more about the 40 MBOE.
Oh, the increase?
Run rate 15. Were you above that run rate?
Uh, on, well-
Slightly?
We need to move that run rate up a little bit.
Mm-hmm.
In order to achieve our EUR 160 target. As I mentioned, we were only able to start production in Libya, and now it was either on the-
End of February.
Twenty-second or on the twenty-fourth of February. Let's say towards the end of February.
February.
We didn't produce the first seven weeks.
Okay, great. Thanks.
Welcome.
Thank you, Patrick. Now we are moving to the second round of questions. We have two more questions from Andreas Heine first and then Oliver Schwarz, and then we also have to conclude the call. First, Andreas.
It is basically on Oil and Gas again. If I refer to what you just said, then Q1 was pretty normal in Oil and Gas. If you look at how the environment of oil price, ruble and what have you is, then the Q1 gives us a clean number what we can expect per quarter if volume would not change. That's the first. Maybe also referring to the others line and what you have answered there. My understanding would, from your answer before, that the others line without any stock option and without any FX hedges is roughly -EUR 150 million a quarter. Is that right?
Yep, that is about right. As always, another difficult to say, but without the LTI impact, roughly 600 looks like a good figure. On Oil and Gas, Andreas, is that a normal quarter? I think if I recall that correctly, our average oil price in Q1 was $54, so we saw a decline there compared to prior year first quarter of 50%. In euros, it was, I believe, at EUR 80 and dropped to EUR 49.
We've seen some improvement in the meantime in the oil price, and I think with all the volatility that we've experienced there in the first three months, it's difficult to give you something where you really can say, "Okay, that's what Hans told me, and now I can put my money in the bank on that basis." That is
That is what I was not looking for. I was just that we have so many moving parts, and even if you have given us a guidance for the full year impact of the oil price-
Yeah.
The gas price has changed a lot, and we do not know exactly how the split is in Russia between domestic and export and how the binding is there. We have the U.S. dollar movement, the oil price. Basically to call this a worst case scenario, if everything comes together, the outcome is the earnings of Q1. That's basically what I wanted to know, or whether there's any funny in there which I have to have in mind if I do the forecast for the coming quarters.
I think what's clearly helping us is the split that we have between Oil and Gas, which is roughly 25% oil liquids and 75% gas. What you have in the segment, and I alluded to that carefully, is certainly an extremely strong development in our gas trading business.
Mm-hmm.
I call that perfect alignment of the stars. Don't expect that to repeat itself. When we talk about Q1 next year, don't hold my feet to the fire because Q1 next year will not be as strong in the gas trading business as the exceptional first quarter that we've seen in gas trading this year.
Thank you.
Right now we come to the final question from Oliver Schwarz from Warburg.
I want you to elaborate a bit more on the gas trading business because I may be the only one, but I still have problems forecasting right numbers for the gas trading business. After the decline in Q4 2014 numbers, as you said, driven by the Goldilocks scenario in Q1 2015 clearly excelled. Is there any, let's say, limit to the volume increase you could do over the next years or so to come? Is that basically capped by the capital you want to allocate to that business, as it is a trading business?
Yeah. We've seen very strong volume increase in Q1. I think it's fair to say that what we've seen there is an exception. I don't think that we will see this really repeating itself. We've had the opportunity to enjoy certain constellations here, which I think the only explanation that I can give on that are exceptional, so don't expect that to repeat itself.
Is there an underlying volume we would or could expect for the next years, for the full year, for example, to use as a basis of calculation, or is that just too choppy over the years or the quarters?
It depends. It depends on the opportunities out there. We've increased our spot business significantly in Q1 due to these opportunities that presented itself. Giving you a guidance here, Oliver, would actually not make a lot of sense.
Okay. Understood. Thank you so much.
Welcome.
With this, ladies and gentlemen, this brings us to the end of our conference call. We will next report on our second quarter 2015 results on July 24, 2015. Also, as a reminder, we would like to invite you to our two-day investor event on September 28 and 29, 2015. This year it will take place at our headquarters in Ludwigshafen. You know we mark the 150th anniversary of BASF, and so the investor day will focus on demonstrating the strength of BASF Group as one company, as well as providing you with access to senior and operational management. Additionally, we will be highlighting the innovation power of BASF, as well as introducing you to the Verbund site, and here we'll definitely show you all our new facilities that have come on stream.
You will receive a formal invitation for the investor day at the beginning of next week, so please check your email. With this, I would like to say thank you for joining us today. Should you have any further questions, please contact any member of our investor relations team, and we will be happy to help you. Goodbye from all three of us, Hans, Manfredo, and myself. Have a good 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.