Welcome to the BASF first quarter results conference call. As a reminder, all participants are in listen only mode, and the conference is being recorded. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero. This presentation may contain forward-looking statements that are subject to risk 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, expectation, prospects, competitive environment, regulation, supply and demand. BASF has based its forward-looking statements on its views and assumptions with respect to future events and financial performance. Actual financial performance could differ materially from that 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. Ladies and gentlemen, at this time, I'd like to turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead, madam.
Thank you so much. Good morning, ladies and gentlemen, and welcome to BASF's first quarter 2013 conference call. BASF had a good start into the year. Sales and EBIT before special items increased by 5% and 10% respectively. With me on the call today to explain the results are Hans-Ulrich Engel, our CFO, and Manfredo Rübens, president of the finance division. Hans will explain the financial highlights and important milestones as well as review the Q1 2013 segment results. Afterwards, Hans and Manfredo will be happy to take your questions. As you know that we have our Annual General Meeting today, right. Starting right after this call, today's conference call will be limited to one hour. For your information, we have posted the charts and the speech as well as the press documents on our website at basf.com/share.
Now with this, I would like to hand over to Hans.
Thank you very much, Maggie. Ladies and gentlemen, good morning, and thank you for joining us. BASF started into the year with a solid first quarter despite a rather moderate global economic development. Please let me remind you that the basis of comparison with prior year are the restated numbers we published end of March, reflecting the IFRS and IAS changes as well as our new segment structure. In Q1 2013, we increased sales by 5% to EUR 19.7 billion. This growth was mainly attributable to the excellent development of our agricultural solution segment and higher volumes in oil and gas. Our chemical activities saw volumes and prices flat, reflecting the overall challenging market environment. In particular, growth in China following Chinese New Year has come in below expectations.
We were able to increase EBIT before special items by 10% to EUR 2.2 billion. Special items amounted to -EUR 45 million. In the prior year, we reported a positive special item of EUR 588 million due to a disposal gain of EUR 645 million for the sale of our fertilizer activities. As a consequence, EBIT for Q1 of this year came in 17% lower. EBITDA declined versus prior year quarter by EUR 450 million to EUR 2.9 billion for the same reasons just explained. For the same reason, net income, and the same reason being the gain from the fertilizer divestiture, net income came in 15% lower at EUR 1.4 billion.
Net of this effect, adjusted earnings per share increased to EUR 1.67 in Q1 2013 after EUR 1.54 in Q1 2012. At EUR 2.0 billion, operating cash flow was strong and surpassed the level of the previous year's first quarter by about EUR 500 million. Free cash flow reached EUR 1.2 billion and was up by EUR 400 million. Since our last reporting day, we continued to further optimize our portfolio. We are on track with the integration of our two recent acquisitions, Becker Underwood and Pronova BioPharma. Key work packages such as IT, finance and human resources systems are proceeding smoothly, and we will conclude the integrations latest by the end of 2013.
Furthermore, we plan to build together with Petronas an integrated aroma ingredients complex in Kuantan, Malaysia, as announced yesterday. The investment will strengthen our positioning in the citral value chain. The joint site expansion will be in the magnitude of $500 million and will create 110 new jobs. With this investment, we will meet the globally growing demand in the flavor and fragrance industry, especially in Asia. In addition, we are implementing measures to strengthen the competitiveness of our performance product segment. Increased standardization and the entry of new competitors have changed the business environment for our plastics additives and pigments as well as for our water, leather and textile chemicals activities. To adapt to these changed market conditions, BASF aims to streamline processes, invest in new technologies, and adjust its portfolio and its organizational setup.
The measures will lead in total to a direct reduction of about 500 positions worldwide by the end of 2015. Further measures are being analyzed. Let me provide you with some more details. BASF aims to improve the efficiency and profitability of the plastics additives and pigments and resins business units in Europe. As announced on Tuesday of this week, the restructuring will encompass several Swiss production sites and the research center in Basel. It will lead to a reduction of up to 350 positions in the Basel area by the end of 2015. As already announced in early April, we merged the water and the oilfield mining activities into a new global business unit. We also intend to divest the industrial water management business.
The leather and textile chemicals business, BASF will increase its focus on the growing Asia-Pacific region and high value adding applications. The global R&D activities for leather and textile chemicals will be concentrated in Shanghai, China. These steps will strengthen the competitiveness and the profitability of the performance products segment. Let me now discuss the Q1 2013 business development by segment. The restated numbers for the first quarter 2012 serve as a basis for comparison. In Chemicals, sales in the first quarter 2013 decreased mainly due to lower volumes. Prices, in turn, increased slightly. Higher earnings, especially in Petrochemicals and Monomers, led to a considerable increase in EBIT before special items. In Petrochemicals, sales declined as volumes were lower due to the planned shutdowns as well as maintenance work.
Sales prices increased slightly, driven by ongoing high raw material costs. Cracker margins improved in Europe and North America. In Asia, they were unsatisfactory due to low demand. EBIT before special items was up significantly. Please note that there will be a scheduled turnaround of our cracker in Antwerp in May, June 2013, which will impact EBIT before special items by a double-digit million euro amount in the second quarter. Sales in Monomers increased due to higher volumes and prices in the isocyanates business in all regions. EBIT before special items was up significantly. Higher isocyanates and ammonia margins compensated for declines in caprolactam and polyamide margins. Sales in Intermediates increased, benefiting from higher demand. However, unfavorable supply-demand balances, plus high costs for several key raw materials led to margin pressure in all regions. Nevertheless, EBIT before special items rose slightly due to higher volumes.
Now to Performance Products. Sales in Performance Products were slightly down. Volumes were stable, but prices softened and we faced negative currency effects. The Pronova BioPharma business, which we acquired in February, made a positive contribution to sales and earnings. EBIT before special items declined due to weaker margins and increased R&D expenses, but more than doubled compared to Q4 2012. In Dispersions and Pigments, sales came in below prior year quarter. The European dispersions business suffered from the cold weather period. We experienced softer demand for pigments from key customers in all the main regions. Resins faced lower demand in North America and price pressure in Asia. Higher raw material costs could not be passed on to our customers, resulting in a significant drop in EBIT before special items. In Care Chemicals, sales were stable.
Volumes increased thanks to higher demand for hygiene and personal care product ingredients. Prices decreased primarily due to the pass-through of lower raw material costs, especially for lauric oils. Higher margins for personal care ingredients lifted EBIT before special items. In Nutrition and Health, sales increased because of the consolidation of Pronova. Volumes and prices were affected by weaker demand in animal and human nutrition. Pressure on vitamin prices continued. EBIT before special items came in significantly lower than a year ago. Special items of EUR -10 million mainly resulted from the depreciation of the inventory stepped up for the acquired Pronova business. In Paper Chemicals, lower demand for paper products led to a significant sales decline in all regions. We experienced intense competition, particularly in Asia and North America. EBIT before special items decreased considerably due to lower volumes. Sales in Performance Chemicals were stable.
A slight increase in volumes and prices was offset by negative currency effects. Fuel and lubricants, plastic additives and water solutions experienced a drop in sales. Oil field & Mining Solutions contributed positively to sales. EBIT before special items decreased compared to the previous year's first quarter. Now to Functional Materials and Solutions. Functional Materials and Solutions sales were stable. Overall, volumes were up, especially in the newly created Performance Materials division. EBIT before special items declined, mainly due to lower earnings in our catalyst division. Sales in catalysts were slightly down due to lower rare earth prices, which were passed through. While demand grew for refinery and mobile emission catalysts, our business with chemical catalysts developed weaker than in the prior year.
Demand growth for mobile emissions catalysts in Asia and North America overcompensated lower demand in Europe. However, lower chemical catalyst sales as well as startup and R&D costs incurred by the battery materials business led to a decline of EBIT before special items. Sales in construction chemicals declined in the seasonally weak quarter. Demand in Europe and North America decreased significantly, mainly due to the long, cold weather period. We saw continued structural weakness in Southern European markets. Margins improved, supported by selective price increases and lower raw material costs. Thanks to our global restructuring program, EBIT before special items came in slightly higher. In coatings, sales were slightly below the prior-year quarter. OEM coatings demand grew strongly in the Americas and Asia. In Europe, it was stable due to our strong business relations with premium car manufacturers. Demand for refinish coatings was up in Asia and South America.
Sales for decorative paints were impacted by weaker demand and negative currency effects in South America, as well as the divestiture of the Relius business in Europe. EBIT before special items matched the level of the previous year. Sales in the new performance materials division were up on higher volumes for Polyurethane Systems, Engineering Plastics, and Polyurethane Solutions. Our business with premium automotive manufacturers in Europe continued to perform well. Volumes for Styropor and Neopor foams, which are mainly sold to the construction industry, were weak due to long, cold weather period in Europe. Nevertheless, we were able to slightly increase EBIT before special items. Now to Agricultural Solutions. Agricultural Solutions delivered an excellent quarter. Sales rose strongly, driven by high demand for our products in the Northern Hemisphere. Slightly higher prices were offset by currency effects.
The integration of the former Becker Underwood business led to a positive portfolio effect. With an EBIT before special items of almost EUR 500 million, Q1 2013 marked an all-time record. Special items of -EUR 6 million were mainly related to the depreciation of the inventory step-up for the former Becker Underwood business. In Europe, we realized considerable sales growth due to high demand for herbicides and fungicides. We saw strong sales in France, Germany, and Eastern Europe despite the delayed spring season. North America delivered an excellent performance, and thanks to strong herbicide demand and excellent sales of our Xemium fungicide. Sales rose by more than 30%, excluding the contribution of Becker Underwood. Sales in Asia were up slightly. The strong growth of our fungicide and herbicide business in India and China was largely offset by negative currency effects.
South American sales decreased compared to the strong previous year quarter, as some product lines saw high competitive pressure towards the end of the season. Following the very positive first quarter development, we are confident to once again increase sales and earnings in 2013. Our optimism is backed by our innovative product portfolio, sound demand growth, and the performance of the acquired Becker Underwood business. Now to Oil and Gas. Sales in Oil and Gas grew strongly, mainly due to higher volumes in exploration and production, as well as in natural gas trading. EBIT before special items came in slightly lower at EUR 630 million. Please note that due to the changes in IFRS 10 and 11, sales from our onshore production in Libya are no longer reported in the top line.
Instead, the equity income is considered in the EBIT line since January 1st, 2013. The significant sales increase in Exploration & Production was driven by higher volumes due to the startup of additional wells of our Achimgaz joint venture late in 2012, and by higher offshore production in Libya. The higher volumes more than compensated for a lower oil price. Overall, EBIT before special items in Exploration & Production increased as the additional more than offset the negative impact from the lower oil price. Sales in natural gas trading grew strongly, mainly caused by significantly higher volumes. This was driven by an increase in demand due to the long, cold weather period as well as higher spot market sales in Europe. Margins, however, decreased due to stronger competition.
Earnings came in below the very high level of the prior year's first quarter. Net income in Oil and Gas decreased slightly to EUR 397 million. Now to Other. Sales in Other increased to EUR 1.1 billion, mainly due to higher sales of the ELLBA joint venture. EBIT before special items came in at -EUR 182 million. The improvement versus a year ago was also triggered by a swing in provisions for our long-term incentive program. Special items of -EUR 28 million were mainly related to the relocation of our plant biotechnology activities to the U.S. and subsequent organizational measures. In the prior year first quarter, the EUR 645 million disposal gain from the sale of our fertilizer activities led to a positive special item in Other of EUR 578 million.
Cash provided by operating activities was EUR 2.0 billion in the first quarter of this year, an increase of about EUR 500 million versus Q1 2012. The rise in net working capital led to an outflow of more than EUR 700 million, mainly related to an increase of trade accounts receivables. This was mostly offset by an increase of liabilities in the magnitude of EUR 600 million related to the disposal group for the assets to be swapped with Gazprom. This is reported under miscellaneous items. Cash used in investing activities amounted to -EUR 1.6 billion. This includes cash outflows for acquisitions of EUR 514 million, primarily for Pronova BioPharma. In Q1 2012, the divestiture of our fertilizer activities had led to a cash inflow of EUR 680 million.
CapEx amounted to EUR 831 million compared to EUR 700 million in the previous year's quarter. Free cash flow came in at EUR 1.2 billion compared to EUR 800 million in Q1 2012. Now have a quick look at the balance sheet. Total assets compared to year-end 2012 rose by EUR 4.0 billion to EUR 66.7 billion. The Pronova BioPharma acquisition resulted in a net increase in long-term assets by about EUR 550 million. This was due to an increase in both intangible assets as well as in property, plant, and equipment. Intangible assets contain goodwill of EUR 158 million related to Pronova. BASF's inventories remained fairly constant. Accounts receivable, however, were up by EUR 1.5 billion, reflecting in particular the strong sales in agricultural solutions.
Our financial indebtedness increased from EUR 12.8 billion at year-end 2012 to EUR 13.3 billion by the end of the first quarter 2013. Given favorable market conditions, we issued long-term bonds with a total amount of EUR 1.2 billion. Net debt amounted to EUR 10.9 billion, a decrease of roughly EUR 300 million versus year-end 2012. At 41%, our equity ratio remained on a strong level. Now let's come to the outlook for 2013. We keep our macroeconomic assumptions for the year unchanged. However, uncertainties have increased during Q1, mainly because growth in China was below expectations and new concerns in the Euro area came up. On the positive side, U.S. growth has been more robust than expected and sentiment in Japan is currently improving.
We expect global chemical production to grow by about 3.6%. However, in Q1, growth still has been below. Today, we confirm our outlook 2013 for the BASF Group based on the restated figures we provided in March of this year. We strive to increase volumes in 2013, excluding the effects of acquisitions and divestitures. We want to exceed the 2012 levels in sales and EBIT before special items. Expected increase in demand, together with our measures to improve operational excellence and raise efficiency, will contribute to this. Last but not least, we aim to earn a high premium on our cost of capital once again in 2013. With that, thank you for your attention, and Manfredo and I are now happy to take your questions.
Yeah. Thank you, Hans. I would now like to open the call for questions. Ladies and gentlemen, I ask you to please limit your questions to only one at a time so that we can take as many questions as possible. Of course, you're always welcome to rejoin the queue for a follow-up question. We would like to start with the first question coming from Jean de Watteville, Nomura. Good morning, Jean. Hello, Jean?
Hello, this is the operator. One moment while we open Mr. Jean de Watteville from Nomura's line. Thank you.
We have a technical issue here.
Hello, Mr. Jean de Watteville, can you hear us?
No, obviously not. Let's move on to the next question from Thomas Gilbert from UBS.
Maybe for the year, you talked about the shutdown in Antwerp. As things stand, if you look at the global cracker sites, the Verbund sites [crosstalk]
Thomas, just, this is Hans. Can you start from the beginning? Because we didn't get the first part of your question.
I'll keep it short. I just would like to know everything else being equal and looking at your schedule for the year for plant shutdowns, whether you expect an improvement in operating rates for the Verbund sites this year or not. As I'm looking at the schedule, the maintenance shutdowns 13 over 12, does it look like you have fewer of those year over year or more of those? Just to get an idea about the plant performance and the operating rates in the upstream. Thank you very much.
Thomas, plant shutdowns, plant turnarounds, less than what we had in the year 2012 in 2013. What this will mean for operating rates, everything being equal, means slightly higher operating rates. You know that in the end, the operating rates will completely depend on the demand situation. The impact from the plant shutdowns that we expect in the year 2013 compared to 2012 will be lower.
Port Arthur, the three gas- fed lines are running flawlessly now?
That's a very specific question, which I can answer with a very specific yes.
Thank you.
Thank you very much. Now we move on to Martin Rödiger from CA Cheuvreux.
You said that the business after Chinese New Year was below your expectations. My understanding based on the conference call for Q4 was that January was obviously a very strong month and then your business worsened. Is that correct? What do you see for the business in April?
Are you referring to the business in Asia or to the business in general, i.e., globally?
In general, that means globally.
Okay, good. What did we see on a global basis? We came out of a rather weak or very weak second half, and this was weakness beyond what you would expect due to the fact that you have the holidays in the end of the year. We went into January and had a what I would call a catch-up effect there. Very strong development in January. With respect to Asia, what we said at that point in time difficult to read because what's really going on January and February, because you have the shift there in Chinese New Year from January in 2012 to February in 2013.
Business in March I would say pretty much on a comparable level to what we had seen in February. This is also true for now going into the months or in the month of April. No major developments to report there in either direction, so not a significant strengthening of the business but also not a weakening in our business, if I look at it from a global perspective and across the entire portfolio.
Thank you.
Yeah. Now we are coming to Christian Faitz from Macquarie.
Thank you. My Asia question was just answered. Automotive OEM, you mentioned that in your direct OEM businesses, Catalysts and Paints, Automotive OEM was relatively flat in Q1. Do you see any impact from weaker automotive volumes in Germany, for example, as of late? How do you see that end market developing?
Yeah. If we look at automotive and think about all the SS portfolio, what comes to mind is obviously OEM coatings, but also our mobile emission catalyst business, as well as businesses such as engineering plastics, polyurethane systems. If I look at that whole universe there, overall, in sales to the automotive industry, we see a slight increase. That is driven by the developments that we have in North America, with continued strong figures there, both on the sales and the production side, and by the growth that we have in the automotive industry in Asia Pacific. Europe is relatively weak. We don't expect that to change during the year 2013.
When I say relatively weak, our business, in particular in coatings, focused on the Premium segment, is doing, I would say, okay. No significant increase there, but also not a significant loss in volume. Overall, business with the automotive industry, okay, with the caveat that there is weakness obviously in the European part of the business, which in general is overcompensated by the developments in North America and Asia Pacific.
Thanks. Very helpful.
The next question now comes from Tony Jones from Redburn. Good morning, Tony.
Good morning, everybody. Tony Jones, Redburn in London. I just wanted to ask about downstream profitability. In the last couple of quarters, we've seen BASF reorganize to focus the businesses on going to market in a different manner, and we've also heard more about restructuring in performance products, functional materials. If I look at my model, I'm forecasting very little or practically no improvement to EBIT margin, certainly in the second half and very little in 2014. I'm wondering whether you can help us in terms of when we should start to see some of the positives from these measures start to come through in terms of improved margins?
Mm-hmm.
Anything you can help there would be good, aside from it just being the positive effects from higher organic growth. Thanks.
Okay, Tony, I hope we will be able to disappoint you and your model there. If I look at our downstream businesses, and you alluded to the change that we made in the segment structure and also the new operating division that we have in Performance Materials, what you see in Performance Materials is slight improvement in sales, but also improvement in EBIT in the Q1 comparison. Better business there than what we had in Q1 of last year. Downstream, Construction Chemicals, despite the fact that Q1 is seasonally weak, obviously, you see improved earnings in Construction Chemicals.
My expectation is that once the season kicks in, we all know long winter in Europe, long winter in North America, that we will see further benefits from that. We have an improved results in our Care Chemicals division compared to where we were in Q1 of last year. This you all have on the positive side. You're seeing what we're doing in the Performance Products segment. We've announced earlier in the week a number of significant restructuring measures, and also said that further analysis is underway. Pretty clear what that's supposed to mean.
I think, once we've had the necessary discussions there with the employee representatives, we can then probably by the end of Q2 or in our Q2 earnings conference, we can give you more specifics on that. All of that will lead to or support the margin improvement that you are looking for.
Thank you. That's really helpful. Can I just ask one very quick follow-up? On the last comment you made about performance products, presumably, if this is something that you're going to implement in this quarter, maybe Q3 also, we should start to see the benefit coming through pretty early from 2014, maybe Q1, Q2 next year? Or will it even be faster than that?
We'll strive to implement as quickly as possible. Understand that at this point in time, and I already alluded to the fact that we still have to have, for some of these restructuring measures, in particular in Europe, discussions with employee representatives. I need to be rather cautious in answering your question.
Right. Many thanks. Thank you.
Sorry for that.
The next question is now coming from Norbert Barth from Baader Bank. Good morning, Norbert.
Yes, good morning. A question regarding the Agrochemicals business. Despite this hard winter, you had a volume increase of 13% outstanding, I believe. Nevertheless, do you have any guidance feeling what this hard winter was then delay from in the Q1 to Q2 season? Perhaps also, why was especially in South and Latin America, the Agrochemicals weak? Can you explain a little bit by products what happened there?
Yeah, sure, Norbert. Since overall Agricultural Solutions had such great performance, we decided prior to the call that Manfredo can answer all these questions.
Yes. Good morning, Norbert. Well, first of all, crop protection market is growing strongly. Fundamentals are intact and crop prices are high. We believe that, despite the slight slowdown that we saw at the end of the first quarter, which was weather-related in the U.S. Corn Belt in Europe, we're going to see strong growth. As always in this business, it is only after the summer that we can have a clear picture about this, so we have to wait until then. On your South America question, we saw also at the end of the first quarter some increasing competitive pressure, and this led to a slightly reduced sales number for the first quarter compared to the very strong prior year quarter.
If that helps, we ended the season in South America at low infield inventories.
Was it in the special product in South America, the weakness, or was it overall?
We saw some pressure in insecticides and fungicides.
Okay. Thanks.
Maybe one additional comment on the insecticide side. There is simply additional pressure coming now from generic materials.
Okay. Thank you.
No problem.
Our next question comes from Laurence Alexander from Bank of America. Good morning.
Good morning, Maggie. Good morning, gentlemen. My question is on the investment announced yesterday with Petronas. $500 million looks like a pretty big number. I was wondering if you could dimensionalize in terms of capacity what this new site is going to bring versus what you currently have in places like Ludwigshafen. Thank you.
Now first of all, $500 million looks like a big number. Yes, sure. Look at what this is. This is really what I would call highly complex chemistry that needs to be put in place there. It will form the basis for aroma chemicals, Vitamin E and A, for L-Menthol and a number of other products. It will become, let's say, the new, how do I put that? The new hub for our aroma chemicals in Asia, for our Vitamin A and E production in Asia and for L-Menthol.
Investments in these type of fine chemicals typically, if you think about the synthesis that needs to happen there, come with significant cost, but they also will generate very nice returns. Now, you're asking me with respect to putting this in perspective with the production that we have in Ludwigshafen. Laurence, I have to come back to you on that one, and provide you there with the figure. I don't have that handy currently.
Okay, thank you.
The next question then comes from Jeremy Redenius, Sanford C. Bernstein. Good morning, Jeremy.
Hi, good morning, everybody. This is Jeremy Redenius from Sanford C. Bernstein. Thanks for taking the question. I was noticing on the personnel costs in employee headcount. It looks like employee headcount's up a couple %, but personnel costs are down about 4%. I'm wondering if you could talk me through the drivers and the reduced personnel costs, trying to understand how much of that is actually sustainable versus how much is related to changes in things like the long-term incentive program. Thanks very much.
Jeremy, what you're seeing there is a significant impact that we have as a result of the development of our long-term incentive program. We had to build a reserve there in Q1 of last year. While we were able to reduce the reserve in Q1 of this year due to development of the BASF share price in Q1. That is actually driving a reduction in personnel cost that you see, which is significant and as you say, not in line with the increase that we have in our personnel figures.
I think it is safe to assume that you would see the usual cost increases on the personnel side, net of the LTI impact. When I say the usual increases, I would put this in range of 2%-3%.
I'm sorry, you broke up a little bit there. You said usual increase of 2%-3%?
The usual increase of 2%-3%, maybe more on the 3% side. Yep.
Great. As wage inflation effectively.
Correct.
Great. Okay. Thank you very much.
Now we're moving on to the next question from Laurence Alexander, from Jefferies.
Good morning. Two themes we've heard from other companies this earnings season has been caution on naphtha cracker, naphtha derivative demand in Q2 and in the personal care markets, a lot of customers seeing downshifting away from high-end product lines. Can you comment about your perspective on those trends and how that might affect your business over the next couple of quarters?
The second part of your question was on personal care. The first part you broke up there. What was that?
Oh, sorry. Was on, naphtha derivatives. A lot of companies have been flagging caution on naphtha derivatives in Q2.
Okay. Now, on the naphtha derivatives in Q2, I'd say remains to be seen. We're not unhappy with the start that we've seen here going into Q2, i.e., in the month of April. Europe and North America looking okay, similar to end of the first quarter. Asia still demand lower than what we had actually expected. On the margin side, you're seeing that in our chemical segment and also in the comment that we made with respect to our operating division of chemicals. That actually looked good in Q1. Depending on how the naphtha price develops, let's see what Q2 actually will bring.
I'd say overall, we are cautiously optimistic for Q2 with respect to petrochemicals, i.e., naphtha derivatives. If I recall correctly, when I checked the naphtha price this morning, it was right around EUR 800. Let's see how that develops. As we all know, that will depend on oil price development, which has also come up slightly compared to the low that we've seen in the last week. I'd say pretty much a question on what naphtha price is doing there. Second part of your question was on [crosstalk] Care Chemicals.
What are we seeing there? Care Chemicals actually in Q1 at BASF better results than in Q1 of the year 2012. Is there a downshifting? Our customers looking very closely at their formulations and what they can do. Certainly, that is a trend that we're seeing not only in 2013. We've also experienced that in 2011 and in 2012. I think that's something that we have to deal with dealing with that industry. Can that continue to the extent we've seen that in 2012 in particular? Not clear to me.
Thank you.
We are moving on with the next question from Andreas Heine. I would please ask you to stick to one question so we can get through.
I have a question on Nutrition. We hear now for a number of quarters that there's a year-over-year decline in margins and pressure. Could you refer a little bit how you see this sequentially as you have increased prices for important vitamins in the first quarter? Do they come through, and can we expect sequentially an improvement?
Yes, unfortunately not. If you look at the vitamin price development, and here you have to see that the biggest impact is actually coming from Vitamin E in our portfolio. You see Vitamin E in Q1 of this year hitting a new low. If I recall that correctly, the average price for Vitamin E in Q1 was somewhere around EUR 9.40 or EUR 9.50 per kg. You see this decline quarter-over-quarter in 2012 and going into 2013. We have announced price increases in particular for E. Whether or not they will stick remains to be seen.
Mm-hmm. Thanks.
Sure.
We are now moving on to Markus Mayer from Kepler Cheuvreux. Markus?
Yeah. Good morning. As Andreas already asked the nutrition question, we have to ask the catalyst question. You stated that emission catalysts were good, and you already elaborated how you see them. What is the outlook for the year? On the refinery and chemical catalyst, you said chemical catalysts were weak. Can you elaborate on the reason, and what is the outlook for chemical and refinery catalysts throughout the year?
On the refinery catalyst, we actually have seen an improvement compared to Q1 of 2012. On the chemical catalyst, the business there was weaker. When I say weaker, this is on the sales side, not on the margin side. Now, with respect to chemical catalysts, there is a high dependency on turnaround seasons. This is when chemical catalysts get exchanged. Based on what my catalyst folks tell me, less turnarounds in the first quarter 2013 compared to 2012, where we had an absolute stellar performance of the chemical catalyst business. That was a record quarter for chemical catalysts that we are comparing to.
This quarter, I would call a rather normal quarter with respect to catalyst, maybe slightly lower than normal. As I wanna say, no indication there that that business will be weaker in 2013 on a full year basis than it was in 2012.
Okay.
Sure.
Thanks.
Our next question now comes from Paul Walsh. Good morning, Paul.
Good morning, Maggie. Good morning, Hans. My question really related to some of the geographical developments that you've seen sequentially. You talked about China being somewhat disappointing, but I see that your Asian margins have actually come up quite significantly versus the sort of run rate that we've been seeing now for the last four or five quarters. We've also seen significant margin improvements in your North American business, which I take it comes down to the Port Arthur cracker. I wondered if you could just talk around specifically those two geographies in light of the margin improvement specifically. I know the volumes might not be coming back, but just at the margin, please.
When you look at margin, I start with North America. I'd say there are two key drivers for the significant improvement. Driver 1 is that we had in Q1 of last year the big turnaround. This was not the cracker. That was the big turnaround, six weeks that we had at our Geismar-Verbund site in Louisiana. A lot of fixed cost that had an impact on our margin, and there weren't the sales that you would normally expect. That's driver number one. Driver 2 is overall margin improvement in petrochemicals in Q1 2013 in North America.
Driver 3 is an extremely strong North American agricultural solutions business, which is a high margin business. They are the three reasons that you have for North America. With respect to Asia, the comment is more one that relates to the improvement in economic environment that we had expected to see. If I have my numbers down correctly, I think we've seen a 5% volume increase in our Asian business. We actually had expected this to be slightly higher than that, China not being quite where we thought it would be. You've seen the GDP figures being announced for Q1 for China, which were a bit of a disappointment, lower than what the consensus was.
You've seen that exports from China are lower than what expectations were. This is something that in the end you then also see in our business. Let's see what Q2 will bring. At this point in time, our comment with respect to China is we didn't see the uptick in the business or the improvement in business that we had expected after the Chinese New Year, or in other words, the strong improvement that we had expected. We do not yet see that. Let's see what Q2 will bring.
Just Hans, just sort of follow up on that. Look, the margins were ahead though in Asia versus the sort of run rate that we've seen for previous quarters. Is that just the case of raw material costs coming down therefore and selling prices not down by as much?
Well, that is also part of the explanation. Another part of the explanation is a very strong and attractive isocyanates business that we have in Asia, MDI and TDI generating nice margins, so that's also obviously one of the contributors.
Thank you very much.
Sure.
Now we're moving on with Peter Spengler from DZ Bank. Good morning.
Yes, good morning, everybody. Could you provide us with an update on the Statoil deal, especially on the timeline? When can we expect the first proceeds this year?
Statoil contract signed in the fourth quarter of last year with an expectation to close the transaction mid-2013. At this point in time, we see ourselves and Statoil being on track. The regulatory approval process runs as expected, preparations for closing, the discussions that we have with the employees running the Brage platform, all of that, as I say, running as expected. Had a review earlier this week together with Statoil management.
Okay.
Came away from that with a clear understanding that we will close as we had expected. Keep in mind, though, and that's maybe one of the drivers of your question, the economic results of the transaction. In other words, sales and EBIT and profit you will only see from the point in time on where we close, even though the transaction will be retroactive to January 1st, 2012. Everything that we have prior to closing will lead to a purchase price adjustment, and only from the point in time on where we close, you will see the contributions from the Statoil transactions in our P&L.
Okay, thank you very much.
Our next question now comes from Andrew Benson.
Thanks, Maggie. Most of the questions have been answered that I have, but the one that hasn't is perhaps a peculiarity of us, is the D&A charges. We had expected them to go up. You've got a few acquisitions in there. We'd expected some step-up charges as well. But the depreciation charges is down, and that's despite a fairly substantial addition to assets as well. Can you just talk through how the D&A charges are likely to develop this year?
Mm-hmm. Sure. Manfredo will do that.
We saw in the first quarter a slight decline in D&A, which has to do also with the disposal group that we created on the Gazprom asset swap because you no longer report depreciation on that. Other than that, you will see depreciation go up maybe slightly due to the acquisitions and the capital expenditure that we have, but no major changes, I would assume.
How big was the Gazprom factor?
Excuse me?
How big is the Gazprom f-factor?
It's a low two-digit number.
All right. Thank you very much.
In total, we expect around EUR 3.5 billion.
Thanks very much.
The next question comes from Rakesh Patel from Goldman Sachs.
Hi there. Just a quick question, if I may. You've talked a bit about sort of the macro environment in Q1 being somewhat lower than your expectations, but you've managed to deliver quite a significant EBIT growth of around 10% before special items. I wondered if actually, if we was all being equal and we assume your assumptions to be right, that we should expect quite a significant acceleration in EBIT in coming quarters, bearing in mind the cracker shutdown in Q2. Thanks very much.
Maybe I'll answer that question by way of simply pointing to the outlook that we've given for full year 2013. In this, we are striving for an increase in sales, an increase in earnings. If you look at our outlook across the entire portfolio, this is, I have to say, ambitious and a challenge for the organization in the economic environment that we are in. If I take Q1, we have, at least on a quarterly basis, delivered on what we intend to do in the year 2013, and we see no reason to deviate from the outlook and from the guidance that we've given.
That's great. Thanks very much.
Okay, now we're trying Jean de Watteville again from Nomura. Maybe it works now.
Oh, yes. Hi, can you hear me now?
Yes, Jean, we get you now. Thank you.
Right. Can I exceptionally try two questions?
No, no.
I mean, you can try.
All right. Okay, I'll try. The first question is very simple. The new, hopefully, the new C12 plant in Malaysia, how much of that will be incremental Vitamin E and A capacity or precursors? That's the first question. The second question is on the restructuring initiative that you've announced in the Performance Products Division. There's a lot of different steps about refocusing the textile business, reducing cost and R&D, the Basel side, et c. Can you just indicate to us how much restructuring charge you intend to book and how much CapEx you intend to invest as you refocus the business? If there will be any reduction of capacity or the size of business as you focus on the higher margin businesses.
These are my questions. Thank you.
Okay, good. Question number one is actually a very clear question and a thought question, but please understand that for, how do I put that, competitive reasons, I will refrain from giving you an answer. Sorry for that. On your second question, at this point in time, what we've done, Jean, is, we've said that, here are the restructuring steps that we're taking. Giving you at this point in time, the answers to your questions, which are fully justified, is difficult for the reason that I've alluded to earlier, which is we're still in discussions with the works councils in the various countries that are affected by these restructuring measures.
Only once we've done that, will we be in a position to talk about what the actual restructuring charges, what the expected improvements as a result of these restructuring measures. At this point in time, we said between now and 2015, there will be 500 positions that will be reduced as a part of what we've announced so far. We've also said we are still in the phase of analyzing. In other words, expect that there will be additional measures to come, and once we've had our discussions, that's the way we handle things like that at BASF with the employee representatives, we will then talk about the full picture.
All right. Fair enough. Thank you.
Now, we have three more questions, one from Peter Clark, from Société Générale.
Yes, good morning. Thank you. It's a follow on from that question, actually. It's on the restructuring and Performance Products. I mean, it looks again, obviously a lot of it's focused on the old Ciba business, where you'd already taken out a lot of costs. I seem to remember EUR 450 million or something over the years. Again, it's focused really on the plastics additive side of that, which was probably the key franchise within Ciba. You mentioned the increased competition. Just want to, if you can give a bit of color, what's happening in that plastics additives business in particular within the Performance Products restructuring. Thank you.
Yeah. On that question, in particular, there is a lot of competitive pressure, in particular, from Asian competitors, that we simply have to react to. Let me also say that the restructuring measures go beyond the plastics additives business. There is restructuring measures in our dispersions business, in the resins business, in the water business. As I say, significantly beyond just plastic additives. I think, we've got what, two more?
One?
Two more.
Okay. We have quick questions and move on to Ronald Köhler from MainFirst.
Yes. Thank you. My question is actually on miscellaneous items in the cash flow statement. Obviously, it was a big swing factor, and you mentioned something before with Gazprom. I have honestly not fully understand that. How much of that is kind of operational and how much is one-off? Can you please explain that a bit more in detail?
Okay. Manfredo?
Yeah. Last year we had in this miscellaneous line the reclassification of the divested income from fertilizers into the cash flow from investments. This is a big part of the swing. The second part this quarter is related to higher liability that we have in the disposal group, and those have a positive cash effect. From that standpoint, that explains, yeah, this miscellaneous topic.
If I would like to look for an operational cash flow, should I just strip out that miscellaneous and take that as a kind of one-off, or how should I treat it?
Take last year's item that we actually deducted in the operating cash flow, which is the gain, take that out. For 2013, Q1, that is all happening in the operating business. Leave that in, and it shows you that we've used less, significantly less cash for our net working capital than we did last year.
Okay, good. Thank you.
The last question now come from Jaideep Pandya. Jaideep?
Yeah. Thank you so much, actually the question is on your 2015 targets. If I look at your EBITDA margin currently, it's about 14.5% and your new 2015 targets imply an EBITDA margin of roughly 17.5%. Could you just give us a little bit more color? I mean, do you count on fundamental improvement in some of your downstream businesses, or is it the restructuring? I mean, could you provide us some kind of a bridge? How do I bridge that? Thank you.
Great question as the last question. You're absolutely right. If you look at where we were year-end 2012, there is a way to go to achieve our 2015 targets. It will come from various measures and from, yes, the restructuring measures that we are taking will help. Look at the investments that we are doing. The planned startups that we are expecting in 2014. MDI in China, the TDI in Europe, just to name two there. Look at the transactions that we've entered into with Statoil and with Gazprom. I mentioned the restructuring measures already.
A general improvement in the economic environment, because if you look at our 2015 targets and the assumptions, they are above the economic environment that we're finding ourselves in right now. Overall, I see us being on the right track to achieve our 2015 targets. Admittedly, this requires rolling up our sleeves and doing what we need to do, but I assure you we'll do that.
Thank you. Thank you.
That was a wonderful final statement, ladies and gentlemen. Before we close, I would like to say one thing we would all like if you could join us at our Investor Day in Asia Pacific, which will take place pretty soon, namely on June 5 - 6 in Shanghai and Nanjing. Martin Brudermüller, our Vice Chairman, and his senior executive team, they will discuss the Asia Pacific Strategy 2020 with you. On the second day of our visit, we will go by train to our Verbund site, Nanjing, and visit the Verbund as well as our specialty chemical sites. There you will get further insights into BASF's activities and positioning in China per se. We will send out a reminder of the invitation this coming Monday, but please use the opportunity and register for the event on our special website.
With this brings us to the end of our conference call today. We will next report on our second quarter 2013 on July 25, 2013. The team here, Hans-Ulrich Engel, Manfredo Rübens and I, we thank you very much for joining us. Should you have any further questions, then please contact any member of the IR team, and we will be happy to help you. Have a good day and goodbye.