Good afternoon, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF 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 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 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.
Yes, thank you very much and good afternoon, ladies and gentlemen. I would like to welcome you to our conference call on BASF's new segment structure and IFRS reporting changes. With me on the call today are Hans-Ulrich Engel, our Chief Financial Officer, and Manfredo Rübens, our President of Finance. As you all know, BASF implemented its new segment structure as of January 1st, 2013. It is designed to optimize BASF's organization in order to better serve its customer industries and enhance its operational and technology excellence. Also, since the 1st January 2013, BASF applies to new IFRS 10 and 11 standards as well as IAS 19 Revised. For your information, we have posted the charts, the speech and the press documents on our website at basf.com/share.
In addition, you will find a short report outlining the BASF group and segment figures 2012, adjusted to changes in IFRS 10 and 11 and the new segment structure. With this, I would like to already hand it over to Hans.
Yeah, thank you very much, Maggie, and good afternoon, ladies and gentlemen. From my side, thank you for joining us today. Let me start with an overview on the topics we would like to discuss today. First, in November 2012, we announced changes to BASF segment structure which came into effect on January 1st, 2013. Today I will explain these changes and how the former Plastics Segment has been split between the Chemicals Segment and the Functional Materials & Solutions Segment. From January 1st, 2013 on, we have applied the new accounting rules IFRS 10 and 11 and IAS 19 Revised. We will give you an overview of these new requirements and their impact on BASF Group. Third, we will show you the impact of BASF's new segment structure and the accounting changes on BASF Group reporting.
Fourth, we will also address the impact of these changes on our 2015, 2020 We Create Chemistry strategy targets. Let me say the following at the outset. Unfortunately, most of what we will cover is old news as we had covered it already in our annual report 2012. To a large extent it is very technical, but we thought it might make sense to provide you with some more details to help you with your work. With that, let's get into the new organization. An important part of BASF's We Create Chemistry strategy is to focus more on our customer industries and to adjust our business models accordingly. With the new segment organization, we are doing just that.
We are bundling units close to our customer industries on the one hand and the classical chemicals backbone of the Verbund on the other hand. What did we actually do? We split the Plastics segment between the Chemicals segment and the renamed Functional Materials and Solutions segment. At the same time, we have aligned the products within the Chemicals segment even more closely along the value chains. We now have five instead of six segments and 14 instead of 15 operating divisions. The Chemicals segment now consists of the following three divisions, Petrochemicals, Monomers, Intermediates. In the Functional Materials and Solutions segment, we established a new division, Performance Materials. BASF develops its organization along the three basic business models of its strategy, which are classical chemicals, customized products, and functionalized materials and solutions. The separation of businesses with distinct business models helps to enhance the management focus.
With this approach, we bring together competencies, technology and operational excellence in the upstream part of our portfolio and a materials platform, application know-how and customer proximity in the downstream part. The key success factors of the models are described on the chart. To leverage the potential of our broad portfolio, it is important to work on an interdisciplinary basis and to have a deep understanding of customers and value chains. Let me characterize the differences. The classical chemicals business is the part of our portfolio that forms the core of our production for Verbund and the starting point for most of our value chains, encompassing basic chemicals such as cracker products or ethylene oxide. Customized products comprise industry-oriented differentiated offerings, which are usually linked and backward integrated to the value chains of our production for Verbund.
In Functional Materials and Solutions, we integrate more closely our R&D expertise, our technological know-how, and our global access to key industries across disciplines. In this way, we aim to develop specific business areas in which know-how in chemistry plays a crucial role in developing innovative solutions. With a new segment structure, we have made a further visible step in order to separate the more customer-focused units from the Verbund backbone units. What does it look like? Here you see our segment structure as of January 1st, 2013. The Plastics segment was dissolved. Some parts have been integrated into the Chemicals segment and some into the Functional Materials and Solutions segment. The large volume monomers like MDI, TDI, caprolactam, as well as basic polyamide polymers, have been transferred to the Monomers division in the Chemicals segment.
The businesses that are developing tailored solutions for customers, for example, polyurethane systems and engineering plastics, are now combined in the new division Performance Materials, which bundles our materials competency. Let's turn first to the new division of our chemical segment, which we have aligned according to the chemical building blocks and value chains. Petrochemicals division with the ethylene, propylene, and butadiene value chains. The Monomers division with major building blocks for our polymers, mainly based on aromatics. The Intermediates division with a methane value chain. In petrochemicals, the changes are limited. The propylene oxide production from polyurethanes, which is cracker-based, has been added to the activities of petrochemicals. Thus, all derivatives of propylene are now bundled in petrochemicals. We want to create technological synergies, thus supporting the growth of downstream businesses. With this allocation, we strengthen our C3 value chain integration and for Verbund structures.
Now on to monomers. The new division monomers combines the core of the former inorganics division, such as sulfuric acid, nitric acid, chlorine activities, and the ammonia value chain, with the building blocks from the former performance polymers and polyurethanes divisions such as MDI, TDI, caprolactam, adipic acid to name only a few. It also includes ammonia and sulfuric acid, which are required to produce caprolactam from cyclohexanone. Nitric acid is used in the production of nitrobenzene, a precursor for isocyanate. Chlorine is also part of the division. In this way, we've brought the main activities related to the benzene value chain up to the two polyurethane precursors, TDI and MDI, together into one division, reduced interfaces, and will benefit from a more integrated technology steering. Electronic Materials is set up as a separate business unit in the monomers division, where it has a strong raw material integration.
The intermediates division comprises all methane-based chemicals in our Verbund, with the exception of the ammonia value chain, which is part of our monomers division. The value chain from acetylene off gas to methanol, formaldehyde, and methylamine is now part of intermediates. The acetylene value chain will remain in intermediates, as well as the formamide and formic acid value chains. Because the acetylene value chain includes butanediol, which serves as a monomer in the production of PBT plastics, we also transferred the production of PBT resins previously within performance polymers to the intermediates division. The benefits for the C1 value chain are that all products and byproducts of the butanediol value chain are in one division. We reduce cross-divisional interfaces, and we can offer a broader portfolio of inorganic intermediates for the pharmaceutical industry, complemented by other products from BASF's portfolio. Now to functional materials and solutions.
In Functional Materials and Solutions segment, the new division Performance Materials combines the polymer materials platform for chemistry-enabled customer solutions. We allocated to this new division the following businesses: the downstream businesses of engineering plastics and specialty polymers of the former Performance Polymers division and the Polyurethanes division, polyurethane systems, TPU, Cellasto, and polyol businesses. The epoxy systems business from the former Intermediates division and styrenic foams from the former Performance Polymers division. The focus of the new division Performance Materials is on strengthening our one face to the customer approach and intensifying our approach to key industries, for example, automotive, construction, electrics and electronics. All other segments and operating divisions remained unchanged. With this, I hand it over to Manfredo Rübens, who will give you more insights into IFRS 10 and 11 and IAS 19 Revised. Your turn, Manfredo.
Thank you. Good afternoon, ladies and gentlemen. Now to the new reporting standards, IFRS 10 and IFRS 11, which need to be applied mandatorily in the EU from 2014 onwards, but which we have adopted early already for the fiscal year 2013. Let me first briefly explain the three consolidation methods before I get into the new IFRS requirements and their impact on BASF Group's reporting. The full consolidation method is applied for companies where we control the entity. This means that we consolidate 100% of all financial figures, assets, liabilities, and sales down to income before minority interests. All intra-group transactions are eliminated. In cases where we hold, for example, 60% of the shares and control the company, we still include 100% but show third-party interests after taxes in the income statement as a separate line item.
For jointly controlled entities where we hold, for example, 50% in a joint venture, we have elected to use pro rata consolidation in the past. This means we consolidated the financial figures in the income statement and balance sheet proportionally according to our holding. Finally, we account for associated companies where we have a significant influence using the equity method. This means that we show our proportion of net income in the financial result. In the balance sheet, we report a financial asset which changes according to the equity changes of the respective company. Net income increases the value of the financial asset, while net losses and dividends decrease it. IFRS 10 on consolidated financial statements outlines the requirements for the preparation and presentation of consolidated financial statements and requires an entity to consolidate the other entities that it controls.
The most important change is the definition of control, since it now focuses more on the actual power over an investee's relevant activities rather than who has the majority of the voting rights. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. I apologize for the technical language. An entity can only fully consolidate the financial statements of another entity if it has such a control over this entity. The new IFRS 11 on joint arrangements also brings a change. IFRS 11 outlines the accounting by entities that jointly control an arrangement. Joint control is the contractually agreed sharing of control. Arrangements subject to joint control are classified either as a joint operation or as a joint venture. Joint ventures where the investor has the rights to net assets are to be consolidated as equity.
The option to apply the pro rata consolidation also for joint ventures, which BASF has used in the past, was removed with this new standard. This means that a number of joint ventures which we have consolidated pro rata in the past now have to be accounted for at equity. Joint operations where the investor has the rights to assets and the obligations to liabilities will continue to be consolidated pro rata. Let me now show you how the new requirements of IFRS 10 and 11 result in the reclassification of companies within BASF Group. At the top of this chart, you see the different classifications of BASF holdings in companies according to the old accounting standards. We distinguish between 308 fully consolidated subsidiaries where we have control and generally a shareholding of more than 50%. 22 pro rata consolidated joint operations and joint ventures.
Finally, 14 at equity consolidated associated companies. As of January 1st, 2013, we apply the new IFRS 10 and 11 accounting standards. This leads to a reclassification of four fully consolidated and 14 pro rata consolidated companies, which are now accounted for using the equity method. What does this mean for the financial reporting of BASF Group? Under the new rules, we will report significantly lower sales, EBITDA, EBIT, and also taxes. IFRS 10 and 11 will, however, have no influence on net income. The main impact results from equity consolidating the formerly fully consolidated Wintershall AG, holding BASF 51 share in our Libyan onshore oil activities, and the 50/50 joint venture BASF YPC with our Nanjing Verbund site in China, which was previously consolidated pro rata.
Starting in the first quarter 2013, we will report the line item income from companies accounted for using the equity method as part of EBIT. This line will also include the equity results of the associated companies which were previously reported as financial result below EBIT. On the chart you find for your reference some more explanations of the impacts on the income statement, the balance sheet, and the statement of cash flow. All major KPIs will be impacted as well as personnel expenses and the number of employees. Before I walk you through the numbers, let me first highlight some changes due to the revision of IAS 19 Revised. In comparison to IFRS 10 and 11, it has only limited influence on BASF reporting. IAS 19 Revised on employee benefits is applicable as of January 1st, 2013.
The revision affects BASF as follows: asset returns on plan assets recognized in other financial income will no longer be calculated on the basis of return expectations. Instead, they will be calculated by applying the typically lower discount rate for pension obligations. For the avoidance of doubt, the difference between these standardized asset returns and the actual asset performance will, as in the past, be recognized as other comprehensive income in equity. Overall, IAS 19 Revised reduces BASF's 2012 financial result by around EUR 80 million, net income by EUR 60 million, and BASF's EPS by 0.06 EUR per share. In 2013, the negative impact on the financial result is expected to be around EUR 100 million. Let us now look at the combined impact of the new segment structure, IFRS 10 and 11, and IAS 19 Revised.
I will explain this by highlighting some key figures of the full year restated statement of income, balance sheet, and statement of cash flows for 2012. In the brochure we have posted on our website, you're also getting many more details and also on all quarters of 2012. As mentioned earlier, the overall changes to income statement figures are substantial, but have almost no impact on net income. Sales are reduced by EUR 6.6 billion, predominantly due to the mentioned equity consolidation of Wintershall AG and C Nanjing. Mainly due to the reclassification of Wintershall AG and consequently the elimination of oil taxes, EBITDA is reduced by EUR 2.5 billion. EBIT before special items and EBIT are both reduced by EUR 2.2 billion. As explained earlier, the equity income will now be reported in EBIT.
Based on 2012 restated figures, equity income amounts to EUR 361 million. Of this, EUR 171 million relate to the equity income of associated companies, which were also previously reported under the equity method, but as financial income. The financial result is reduced by EUR 225 million, mainly due to the just mentioned reclassification of the income from associated companies as well as the mentioned negative effect in the amount of EUR 80 million of IAS 19 Revised. Income before taxes and minority interests is reduced by EUR 2.5 billion. Income taxes are EUR 2.3 billion lower since Libyan oil taxes are no longer reported. The net income reduction of EUR 60 million is due to the IAS 19 revision, leading to the EPS reduction of EUR 6 a share in 2012.
The lower EBIT after cost of capital is predominantly a result of the accounting for compensable Libyan oil taxes. Non-compensable oil taxes have already in the past been eliminated in this calculation. The balance sheet total is reduced by EUR 1.6 billion. Property, plant, and equipment, as well as working capital decrease while financial assets increase. These effects result from the 18 companies which were previously co-consolidated fully or pro rata and are now accounted for at equity. The reduction in equity is also a consequence of IFRS 10 and 11, as the minority interests of joint ventures are no longer reported.
In the cash flow statement, we see a slightly lower operational cash flow since the income from the companies is now accounted for under the equity method, will only be included when dividends are paid. Furthermore, cash used in investing activities and cash used in financing activities declined slightly as a result of the elimination of investing and financing cash flows of companies previously consolidated fully or pro rata. Free cash flow remains unchanged. In the chemical segment, we have significant changes. The added businesses of the former plastic segment increased sales, EBITDA, EBIT before special items and EBIT, as well as EBIT after cost of capital. However, the change from pro rata consolidation to the equity method for BASF-YPC Company, our Verbund site in Nanjing, reduces these increases.
The integration of the new division performance materials into the functional materials and solutions segment leads to an increase in all line items of the segment. Catalysts sales figures decrease due to effects from IFRS 10 and 11. The oil and gas segment is not influenced by the changes of the segment structure. The changes are solely due to IFRS 10 and 11. Sales decrease by approximately EUR 4 billion, mainly in exploration and production due to the deconsolidation of Wintershall AG, but also in natural gas trading, as a number of jointly controlled gas trading houses are now being equity consolidated. EBIT before special items and EBIT more than half due to reporting changes on Libyan oil taxes. Net income remains unchanged. EBIT after cost of capital declined by roughly EUR 350 million as a result of the accounting of compensable Libyan oil taxes.
Regional sales split is affected primarily for Europe and Asia Pacific. In Europe, the effect is again mainly due to the Wintershall companies. The biggest negative impact in Asia Pacific is due to BASF-YPC Company Limited, Nanjing. Furthermore, two jointly controlled companies in our catalyst division are now equity consolidated. Restated CapEx is lower by EUR 134 million as investments of our equity consolidated joint ventures are no longer reported. The changes within the segments are due to the dissolution of our plastic segment. Therefore, you see percentage increases for chemicals and functional materials and solutions. The currency impact on BASF Group figures changes due to two major factors. The crude oil sales of Wintershall AG are mainly denominated in US dollars, and the sales of BASF-YPC Company in renminbi are in renminbi.
As you know, the RMB is based on a currency basket where the U.S. dollar plays a major role. Due to the now equity consolidating these companies, the EBIT U.S. dollar sensitivity of BASF Group on sales and EBIT decreases. The oil price sensitivity of the oil and gas segment is also reduced. With this, I hand back to Hans, who will talk about the impact on BASF's outlook for 2013 as well as on our We Create Chemistry strategy targets.
Yeah, thanks, Manfredo. Let me start with the outlook for 2013. The adjustments made have no impact on the guidance we gave four weeks ago, now considering the restated figures. 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 higher premium on our cost of capital once again in 2013. With that, ladies and gentlemen, to the We Create Chemistry financial targets. As you know, in November 2011, we presented our We Create Chemistry strategy and outlined our mid- and long-term targets.
Those targets, however, did not consider the changes in IFRS 10 and 11 discussed today. Due to the fact that the impact on sales and EBITDA is significant, we will adjust our financial targets accordingly. Based on the technical changes of IFRS 10 and 11, we have a sales reduction in 2012 of EUR 6.6 billion. Therefore, we will adapt our current 2015 sales target from EUR 85 billion - EUR 80 billion, and accordingly also the 2020 sales equally by EUR 5 billion from EUR 115 billion - EUR 110 billion.
When we developed the We Create Chemistry strategy targets for 2015 and 2020, we assumed that we would have changes with respect to the Libyan oil taxes as a result of moving from a so-called concession agreement to an EPSA, exploration production sharing type agreement. Based on that, we use significantly lower oil taxes for the Libyan business for the period up to 2020. Full adjustment of the IFRS 10 and 11 accounting effect of EUR 2.5 billion on the EBITDA would thus not be appropriate as the major part of this effect is based on the Libyan oil taxes. Consequently, we only adjust the EBITDA target for the assumed EPSA tax, exploration production sharing agreement tax effect, and the missing EBITDA contribution from the companies consolidated at equity.
Again, please keep in mind that we will report only the net income for the 18 companies as equity income, but no longer the EBITDA. The adjustment for 2015 is EUR 1 billion to a total of EUR 14 billion, and the same amount, in other words, EUR 1 billion also for the year 2020 from EUR 23 billion to EUR 22 billion. Finally, an adjustment of the EBIT after cost of capital goal is also necessary. As you have heard from Manfredo, the IFRS effect in 2012 on this important KPI is about EUR 400 million.
Since this difference would have increased over time, we adjust our target for the EBIT after cost of capital by EUR 500 million to EUR 2.0 billion with which we want to earn on average per year based on a pre-tax cost of capital rate of 11%. The accounting changes will have only a slight impact of EUR 60 million on net income, and this is the accounting effect that comes from IAS 19 Revised, as you've heard. In other words, an impact of less than EUR 0.10 on the EPS was already stated during the analyst conference in the end of February. We do not adjust our 2015 EPS target of EUR 7.50 per share.
What we have not included in our adjustments, and this is important to note, what we have not included in our adjustments at this point in time is the asset swap with Gazprom, a transaction which is expected to close by the end of this year. The swap will lead to the divestiture of our natural gas trading and storage business, as well as part of our E&P activities in the North Sea. Together, these activities contributed about EUR 10 billion to sales in 2012 and roughly EUR 500 million in EBITDA in the year 2012, significant impact there. Now let me close with the overview of our 2015 and 2020 adjusted financial targets, which you can see on this slide.
First of all, with respect to our growth targets, which is to grow at least 2 percentage points above chemical production, there is no change with respect to the premium on the cost of capital. I've explained already that due to the IFRS 10 and 11 changes, we'll adjust that target from the prior EUR 2.5 billion on average per year to EUR 2.0 billion on average per year. Our sales target for 2015 goes from EUR 85 billion - EUR 80 billion. The sales target for 2020 goes to EUR 110 billion. With respect to EBITDA for the year 2015, a reduction of EUR 1 billion from EUR 15 billion - EUR 14 billion.
We leave, as explained, the EPS target unchanged at €7.50, and the EBITDA target for the year 2020 also reduced as the one for the year 2015 by EUR 1 billion from EUR 23 billion - EUR 22 billion. With that, first of all, thank you for your attention. Apologies again for the very technical information that we are providing here, and we are now happy to take your questions.
Yes, thank you very much, Hans. We, ladies and gentlemen, are now moving on to your questions. I would like to ask you that you please limit your questions to only one at a time. As you know, of course, you are always very welcome to rejoin the queue for follow-up questions. We are currently starting with three questions, one from Tony Jones, Redburn, then comes Paul Walsh, Morgan Stanley, and the third one is Andrew Benson from Citi. Now go ahead, please, Tony.
Oh, good afternoon, everybody. Just one question for me. It's on the reorganization. Aside from changing the structure between classical and functionalized materials, is there anything practically changing from a behavioral sense? Is there any change to metrics or incentives or employee targets? Because presumably things like tailored products and customized services, presumably that kind of thing already happened. I'm just interested to see if you're doing anything further deeper down in the organization. Thanks.
Tony, this is Hans. Thanks for your question. Now, is there anything changing with respect to metrics or anything deeper down in the organization? I'd say the key change that we have is the even stronger focus on the respective industries and customers. Working even more closely together with them in line with the industry targets that we have with the industry focus groups that we have built over the last years. A change in metrics, no. Again, an even stronger focus on the way how we are collaborating, cooperating with our respective customers.
Thanks very much, Hans. That's very clear.
The next question comes from Paul Walsh, Morgan Stanley. Good afternoon, Paul.
Yeah, good afternoon, everybody. Thanks very much for taking my question. It was relating to the cash flow effect of the accounting changes. Hans, earlier you talked about the dividends that you need to get in order for the cash flow effect to be consistent with what you had in the past. Are there mechanisms in place for you guys to ensure that you can get the repatriation of those cash flows so that you can actually book them given the accounting changes, particularly thinking about oil and gas and Libya?
Now, Paul, with respect to that question, is there anything changing with respect to what we do with dividends, where we decide on what we leave in the respective countries to fuel growth or what we repatriate? There is no change really as a result of the accounting standards. Because if you think it through, ask yourself the question, is there anything really changing in practical terms? There isn't a whole lot changing. It's really technical adjustments due to the respective IFRS changes that are reflected in our figures, but will not have an impact on the way how we're running our business.
Okay. The bottom line is you feel comfortable that you can actually get the cash out from some of those JVs, given the accounting changes.
Exactly where we have to. Again, the way we run it typically is, and that always depends on the amount of CapEx that's required in the respective country to use it and invest in our activities there.
That's great. Thanks a lot.
Sure.
We're now moving on to the next question from Andrew Benson from Citi. Good afternoon, Andrew. Andrew, are you on the line?
Oh, sorry. Yeah. I'm just unmuted. Hi. Good afternoon. You're on slide, I think, 24 of 27.
Can you speak up a little bit, Andrew? It's hard to hear you.
All right. I'll try. Is that better? Is that better?
Much better.
The slide 24, just on your projections, the impact because of, you know, Libya, et cetera, was a EUR 2.5 billion reduction at the EBITDA level. Projecting forward, it's only a EUR 1 billion. I wanted to understand why the delta in 2015 and 2020 had only been reduced by EUR 1 billion.
Yeah. Let me take that, Andrew. The reason there is that when we did our We Create Chemistry strategy, we assumed that we would have an EPSA type arrangement, so Exploration Production Sharing Agreement, which would have already reduced the amount of non-compensable oil taxes significantly, simply a different contract regime. You may remember that prior to the year 2011 in Libya, we were at a point in time where we had completely renegotiated the contract regime there. It was the concession agreement, which we still have today, due to the situation in Libya that unfolded in the year 2011.
We had, by the end of 2010, a fully negotiated and actually initialed, subject to approval of the relevant authorities in Libya, so-called EPSA4 agreement. That would have reduced because it's completely different setup there, that would have reduced the oil taxes in Libya significantly. What we are showing here, this is the reason why we are adjusting by only EUR 1 billion the EBITDA. What we are showing here now is the delta between the scenario that we had assumed for our We create chemistry strategy and what's now currently happening as a result of the IFRS 10 and 11 changes.
Okay.
In other words, it would have been an opportunity, let me put it this way, to take our targets further down. But the way we operate at BASF, we're looking at the assumption that we used when we put the strategy together. There we have this delta compared to the EUR 2.5 billion in the year 2012 of just EUR 1 billion.
No, I'm not sure I understand the changing contractual arrangements, but I understand that delta effect.
I mean, if there is requirement there, Andrew, to provide more color on the difference between current concession and EPSA agreement, I'm sure we can do that.
All right. Thanks.
We're now moving on to the next question, Rhian O'Connor from Credit Suisse.
Apologies. Thank you very much for taking my question. It's to do with Wintershall and the deconsolidation of that business. On slide 12, you mentioned the four companies which were fully consolidated and are now going to equity method consolidation. I assume that from what you said, Wintershall is one of those. I'm kind of confused about why on slide 16 you said decrease in sales and decrease in EBITDA, mainly due to Wintershall AG. I thought Wintershall was a wholly owned subsidiary, so why have you deconsolidated some of the sales and profits of that business? Can you take me through that bit, please?
Yeah, sure. The reason for that is that Wintershall AG is not the holding company for our oil and gas activities. Wintershall AG is the subsidiary that has the rights for exploration and production in Libya. In other words, it is a subsidiary in the Wintershall group of companies, and it is that company that is affected. It is not the entire Wintershall group or Wintershall holding company. Please keep in mind that Wintershall AG, the company that has the activities in Libya, is a joint venture between BASF and Gazprom, with about equal participation rights between BASF and Gazprom.
Very-
Not the top company, one company having activities in the Wintershall group in Libya.
Perfect. Very clear. Thank you.
Welcome.
Our next question comes from Jaideep Pandya, from Berenberg Bank.
Yeah, thank you. Could you give us some color on what would be the future tax rate? Because your restated tax rate is fairly low, so should we expect this level to continue?
Don't expect the level to continue that you see in the year 2012. Keep in mind that in the year 2012, we had a reversal of a tax provision. We explained that in the last earnings conference already. Expect a tax rate going forward in the mid-20%s, which is in line with what we've said in the past with respect to our underlying tax rate without the non-competitive lower tax.
Thank you.
Now we are moving on to the next question. Star zero for operator assistance, star one for help, star three for. Star zero for operator assistance, star one for help, star three for. Star zero for operator assistance, star one for help, star three for. Star three parties in the conference.
Norbert Barth, are you here? No. Okay. I don't mind. Andreas Heine.
I hope that the
The next question.
I hope that the operator didn't cut the line.
Hello?
The next question is from Andreas Hein from Barclays.
No, no. We missed him, Barth. Norbert Barth was actually the one.
Yes, his line was making this noise, actually.
Okay.
Yes.
Okay, good.
We go on to the next one.
Okay. We move on to Andreas Hein. Thank you.
Thank you.
Yeah. I've a question regarding the profitability of the Chinese joint ventures. The difference in the EBIT is mainly explained by your oil business and not by the Chinese joint venture. Either they have not earned anything in 2012, or the EBIT and net earnings are basically the same as you don't pay interest and taxes. Could you explain this to me, why that is?
Yeah, Andreas, this is Hans. The overwhelming effect that you have in the restated figures is obviously coming from the oil and gas business for the reasons already stated. When you take a look at the brochure that was just published a few minutes ago and is available on all the information on the internet, we'll also walk you through there region by region through the respective accounting changes. Also quarter by quarter, you can see there the kind of impact that we have in Asia Pacific, and there it is predominantly the YPC joint venture that we have.
You see that there is an impact, but this is much smaller obviously than what we have as an impact in the oil and gas business. When you look at the impact there, just keep in mind that this is actually lower than what you would expect, because we're moving now the equity income that we would show for the deconsolidated companies. We're moving that into EBIT, so that's actually a mitigating effect that you see there.
Mm-hmm.
That way, you have a pretty good idea on what happened with the respective Asian joint ventures in the year 2012.
Is the difference also lower because you pay lower tax? Because effectively then, the difference between EBIT and net earnings
Pro rata is not that big anymore.
there is certain tax incentives, tax exemptions that are playing a role in China for the newer activities there over a certain period of time, and yes, that also has an impact.
Thanks.
Welcome.
Now, since we had a cutoff in our line to the operator, I would like to ask the operator now to continue with the questions because we can't see it electronically anymore. Could you please call the next question?
Thank you. The next question is from Mr. Norbert Barth of Baader Bank. Thank you.
Yes. Hello. Can you hear me now?
We can. Go ahead.
Oh, okay. Yes, hello. Perhaps more kind of statement and also perhaps question for if you can get some voluntary information. I don't know what you are thinking about these new consolidation standards, but I think from an analyst point of view, we are losing some transparency about sales and even more important on operating earnings level. So one question would be if you had in mind, perhaps provide this figure voluntarily on at least a sales EBITDA, EBIT level. I want to explain also why, because, you know, analysts always are often comparing also for peer group comparison multiples like EV, EBITDA, EV, EBIT. So if we have not this information anymore, it looks perhaps that there's something missing and makes the peer group comparison even more difficult.
It would help if you could give us these figures, which are not consolidated anymore on a voluntary basis.
Yeah, I know, but thanks for your comment and the implicit question therein. First of all, certainly, and there we agree with what you're saying. Is this really helping transparency, these type of accounting changes? Probably not really, but then, what alternative do we actually have then following them? There is none. With respect to transparency, I think once you have the time to go through the information that we are providing, in the comparison, in what I refer to as the little booklet or brochure, that should help to understand, do we understand better? Again, it is very, very technical at this point in time.
Frankly, even internally, it takes us a bit of time to get used to the new figures. Will we provide more information voluntarily? I am not 100% sure that we will do that, but here's what we'll do. We'll take this into consideration.
Okay. That would really help. Yeah.
Okay.
Operator, next question, please.
Thank you. The next question will be from Jaideep Pandya of Berenberg Bank. As a reminder to participants, if you would like to register for a question, you may press star and one on their telephone. Jaideep Pandya, you may go ahead. Thank you.
Yeah, thanks for taking a follow-up. It's just on your premium to cost of capital that you have. In your annual report, you have a target of EUR 2.5 billion to be achieved per annum was an average, but you've reduced that to EUR 2 billion. Likewise, for 2012, it was EUR 1.5 billion. Could you give us a reason why you have reduced it, and what is the restated figure for 2012? Thanks.
Yeah. Certainly. Manfredo, do you wanna take that?
Yeah, I'll take that. You can see in the brochure that restated figure. Let me just see where I find it. It has also dropped. The reason it dropped for almost EUR 400 million, the premium, is related to not the non-compensable, but the compensable oil taxes that we had for Libyan operations in the year. Now remember that we had in the past fully consolidated Wintershall AG, and now we are moving to the after-tax proportional net income, or the net income of our proportion, which is now included in EBIT. This is a technical change that we have, which previously was part of the premium calculation. Now we take that out and adjust therefore by about EUR 500 million.
Okay. Very clear. Thanks.
We're coming to the next question.
Yes, the next question is from Andreas Hein of Barclays. Thank you.
Yeah. Again, one question regarding the gas trading. If you put gas trading on the discontinued line in the balance sheet, I would like to know how you will report this gas trading in 2013. Will we still get sales, EBIT, and so forth, or will it only shown as earnings from discontinued operation? That's one. Related to this, if you have sold gas trading, I think the pipelines are still with BASF. Will you in the future, after the swap is closed, still have the division gas trading showing then the income from the pipelines, or will that be skipped?
First part of your question, we'll show for the year 2013 the results of the gas trading business unchanged. We show it as part of our operating division, Oil and Gas, or the segment Oil and Gas. There won't be a change there. You'll get the same type of information for 2013 as you get in the past for the Oil and Gas segment. Second part, yes, the pipeline is not included in the transaction now, Andreas. What we'll do with that on whether or not we'll show that separately under gas trading in the future is not yet finally decided.
If I look at it at this point in time, I'd say a high likelihood of that business being included in the oil and gas business as part of E&P, because it doesn't really have a major impact. If everything else goes, and we alluded to roughly EUR 10 billion in sales and roughly EUR 500 million in EBITDA based on the 2012 impact of that business, it probably doesn't make an awful lot of sense to show the remaining pipeline business separately.
Mm-hmm. Fair point. Thanks.
Sure.
We're moving on to the next question, please.
We have a question from Mr. Thomas Gilbert of UBS. Please go ahead.
Yeah. Thank you very much for taking my question. Interesting lunch menu, I have to say. The question is regarding net tangible fixed assets. Would you be able to share with us, either over the phone or via email, the assets at cost restated as well, so net of depreciation, so that the net went down EUR 1.56 billion? Just wondering what the assets at cost are restated, please. Thank you very much.
Mm-hmm. Manfred, you wanna address that?
Sorry, I didn't get that question. Could you repeat that, Thomas?
I'm just looking for the gross tangible fixed assets restated rather than the net tangible fixed assets restated, so before accumulated depreciation, please.
I think we never provided growth assets.
Oh, you do in the annual report. Every company does that, in the annex to the annual report.
We don't have that in this, in the printout or in the brochure. We have to think how we can get this information across.
Okay. Thank you very much.
We move on to the next question, please.
The next question is from Mr. Norbert Barth of Baader Bank.
Yes, hello once again. A question regarding the joint operations which will continue to be consolidated pro rata, that are eight companies. Can you name that eight companies and perhaps give a feeling what sales and perhaps EBIT volume that is?
Yes, we can, Norbert. Let me start out by just giving you some of the companies so that you have an idea. We have the HPPO activities in there together with Dow. We have the Ellba joint ventures in there. That's together with Shell. We have as another major activity the joint venture with Gazprom Achimgaz in Western Siberia in there. That gives you an idea on the type of joint ventures. Maybe, Manfred, you can provide the information on sales there in a second.
As we had explained, these are arrangements where both parties have rights to the production, typically here in all of these on a 50/50 basis, and they will be reported in a very similar fashion, I would say, to the pro rata consolidation that we've done in the past.
Yeah. Norbert, in fact, there is no change to the reporting of these companies before. Those joint operations are basically continue to be consolidated pro rata, no change to those companies.
No idea on the overall level, the EBIT level.
Sure, we have an idea, Manfred.
We have a good idea, but we don't report on them in that level of detail.
Okay. Perhaps only, additionally, these four companies, can you name the four completely, which changed from full consolidation to at equity method? Who?
Wintershall AG, Heesung Catalysts Corporation, BASF, Neopentyl Glycol, and BASF SONATRACH PropanChem S.A.
Okay. That's clear.
Those are the four. The biggest, Norbert, impact that you have there is obviously Wintershall AG. That dominates everything.
Right. Okay. Thanks.
Sure.
Now, Norbert, we are curious what your next estimates will look like.
We'll see then.
Now we are moving on to the next question.
Thank you. The next question is from Mr. Andrew Benson of Citi.
Yeah. Thank you very much again. The post-tax net income of the equity contributions, those are. I'm looking at what you've done in terms of restatements. You've just included those in the division line without defining them. Is that correct? So there'll be. You know, if you will, the margins will look slightly better than they are on an underlying basis 'cause you'll only include that lump and you. Or do you intend to split that out in any way?
Andrew, what's gonna happen is, we move current equity income in a separate line in EBIT. We move from 2013 on the new IFRS 10 and 11 related equity income into EBIT. You see this in the restated figures in the little brochure that I already referred to. As I said, we're showing that as a separate income line under EBIT. That should give you then the opportunity. You also have the historic comparison, what was in there in 2012 under the old accounting regime. That should give you a pretty good idea.
Okay. Okay.
I know a lot of and I apologize for that. A lot of this stuff is frankly a bit confusing in the beginning. As I said in the beginning, we're trying to provide as much information as possible to help you. It takes a little while to digest, also us internally. I think when we have the Q1 figures, which we will release on April 26th, I think that should give.
If I just, the first quarter 2012, the restated income from operations was EUR 2,598. On the group income statement, page six, you've stripped out EUR 140. Within the income by division though, you've just incorporated that on a pro rata basis down into the division. We know what it is, but we don't know which division it goes into. Is that correct?
Let me quickly look at this. We are actually.
Maybe I can jump in here.
Yeah.
The pro rata equity net income that we have from the equity consolidation of the previously fully or pro rata consolidated companies is allocated to the respective business doing business in those entities. You will find those results in the EBIT of the various segments. We won't report on them separately. You see also, if you look at the 2012 numbers, in total, and including the associated companies, we report equity income of EUR 361 million. Due to the size of the number, it's not going to be a separate reporting line.
Yeah.
If you go to segments, but you get an idea of what this number is for the overall BASF Group results.
Yeah. The majority of that, though, is oil and gas. Is that right?
Say that again?
The majority of that equity accounted net income is oil and gas. Is that right?
That's a big part of it, yes.
Okay. Great. All right, thanks.
Sorry. Now we're coming to our final
On that, Andrew, maybe one more information for oil and gas, we've provided in the annex to the annual report. You have the information for the year 2012, per region, to net profit, and you see, you know, what's coming there. That should also help you.
Now we're coming to the final question.
Yes, the last question is from Jaideep Pandya of Berenberg Bank.
Yeah, thank you for taking my question. It's basically on your slide, where you show impact for $1 change in oil price. Obviously it has gone down, both in sales terms and in EBIT terms. Could you tell us whether you have taken the new acreage of Statoil that you have just got into account? Basically the sort of sub-question here is, what is the net change in the total barrels per day production that you are taking into account because of this change? Thanks.
Yeah. Have we taken the Statoil swap into account here? No, we've not yet done that for the reason that that transaction has not yet closed. It's expected to close by mid-year. Your second question was-
Yes.
With respect to the production and the changes there. Here I have to admit, that is still a bit of a loose end. We're still having discussions on that, on how that needs to be reflected going forward. There could be an impact there on the production, but it doesn't have to be. We're still in the process of really clarifying the answer to that. What it should not have in the end is an impact on the production reserve ratio.
Okay. Yeah, clear. Thank you very much.
You're very, very welcome.
Ladies and gentlemen, this concludes now our conference call. I would like to thank you for participating. I know this has been a lot of new information today for you, and I'm sure you will be busy adjusting all these numbers in your spreadsheets and models. I would also like to say that the members of the IR department are fully on board and are happy to help you if there are any further questions. I would also like to remind you that we will have our next reporting date for the first quarter 2013 results. This will be a conference call on April 26th. It will already start pretty early at 8:30 A.M. because this is also the day of our annual shareholders meeting.
With this, I would like to thank you again, say goodbye, and wish you all a very nice day. Bye-bye.
All right.