Good morning, ladies and gentlemen. This is the Chorus Call conference operator. Welcome to the BASF Interim Report First Quarter Results 2012. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Anyone who wishes to ask a question may press star and one on their telephone. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero. This presentation includes 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. This presentation contains a number of forward-looking statements, including, 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 with respect to future events and financial performance. Actual financial performance of the entities described herein 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. Forward-looking statements represent estimates and assumptions only as of the date that they were made. 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 would like to turn the conference over to Magdalena Moll, Head of Investor Relations. Please go ahead, madam.
Yeah, thank you very much, Jason, and good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our first quarter 2012 conference call. BASF had a good start into the year 2012. With me on the call today to explain the results are Hans-Ulrich Engel, our Chief Financial Officer, and Manfredo Rübens, President of the Finance Division. Hans will summarize the key financials, highlight important milestones of the first quarter, and review the segment results for you. Afterwards, Hans and Manfredo will be happy to take your questions. Since we have our annual general meeting immediately after this call, we have limited today's conference call to one hour. We have posted the speech and the charts as well as all the press documents on our website, basf.com/share. 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. After a rather slow fourth quarter 2011, we have seen a significant improvement in business activity since the beginning of the year. However, in line with our assumptions, demand in our chemical activities could not match the level of the exceptionally strong first quarter 2011, which benefited from high consumption and restocking effects. The market environment for our agricultural solutions as well as the oil and gas businesses, on the other hand, was quite favorable, leading to a good start into 2012. In the first quarter, we increased sales by 6% to EUR 20.6 billion. Overall, volumes were flat.
Volumes in our chemical activities declined by 5% due to lower demand as well as the modification of an earnings neutral swap for cracker products. We were able to successfully raise prices by 5%. Higher raw material costs could not be fully passed on to the market. EBITDA amounted to EUR 3.9 billion, up 16% versus the first quarter of last year. EBITDA as well as EBIT were positively impacted by the disposal gain of our fertilizer activities in Belgium and France in the amount of EUR 645 million. EBIT before special items came in at EUR 2.5 billion, 7% below the record first quarter of last year. Net income was EUR 1.7 billion, 28% lower than a year ago.
Last year's result included a capital gain of close to EUR 900 million from the sale of our stake in K+S. Adjusted earnings per share were EUR 1.57 in Q1 2012 after EUR 1.94 in Q1 2011. In the first quarter, we achieved important milestones. We significantly strengthened our activities in battery materials through several small acquisitions. In January, we announced the acquisition of a stake in Sion Power, the global leader in the development of lithium sulfur batteries. In February, we bought Ovonic, the global leader in nickel- metal hydride battery technology. We also signed the purchase agreement for Merck's electrolyte activities. The transaction was closed last week. Just yesterday, we announced the acquisition of Novolyte Technologies, a manufacturer of electrolyte formulations for lithium batteries.
With production sites in Europe, the United States and Asia Pacific region, we are now positioned as a global supplier in the electrolyte formulation business. Last but not least, our battery material plant in Ohio is on track to start operation in Q4 this year. All these measures support our goal to become the leading supplier of battery materials. Last month, we signed a heads of agreement with PETRONAS for the expansion of our existing joint venture in Kuantan, Malaysia, and the construction of a number of new downstream plants at PETRONAS' new integrated RAPID complex in Southern Johor, next to Singapore. The projects are to be implemented between 2015 and 2018. In total, we plan joint investments of EUR 1 billion. Finally, at the end of Q1, we completed the sale of our fertilizer activities.
We realized a disposal gain of EUR 645 million, which was booked as special item in other. Now I will explain the financial performance of our business segments in more detail. The basis of comparison is the first quarter 2011. In the Chemical segment, we generated higher sales. The Styrolution joint venture contributed positively to the top line because feedstock sales to the joint venture are now reported as third-party sales, which are shown as structural effect. Volumes dropped mainly due to an earnings neutral swap agreement for propylene, which became effective in Q3 2011. On a comparable basis, volumes increased slightly. Due to ongoing high raw material prices, EBIT before special items did not reach the high level of Q1 2011. In Petrochemicals, sales increased significantly. Prices for cracker products move up above prior year.
Prices for all other product lines were below the very high prior year level. Margins declined because we could not fully pass on the high raw material cost to our customers. Overall, EBIT before special items was considerably lower. In Intermediates, sales decreased slightly. Demand was high from key customer industries such as plastics and coatings, but did not match the very good level of the previous year. Thus, volumes and margins declined. Consequently, EBIT before special items came in lower. Sales in Inorganics were stable. EBIT before special items did not match the very good level of Q1 2011, mainly due to lower margins in basic products. In our Plastics segment, sales decreased. Price increases could not compensate for considerably lower volumes. The record margins for polyamide precursors and polyurethanes generated in Q1 2011 could not be sustained.
Earnings were substantially below the excellent level of the previous year. In Performance Polymers, sales were slightly lower. Slow textile fiber demand in Asia led to lower volumes and margins for Caprolactam. On the other hand, continuously strong demand from the automotive industry, particularly in North America, lifted sales in Engineering Plastics. Foam sales exceeded the prior-year quarter based on healthy demand from the construction and packaging industries. However, EBIT before special items dropped substantially, mainly due to a margin decrease. Sales in Polyurethanes were down moderately. Sales to the appliance and construction industries weakened, but demand from the automotive sector remained robust. The scheduled turnaround of our Geismar site negatively impacted volumes. We continued to pursue our value before volume strategy and successfully implemented price increases for TDI and MDI. As a result, we saw margins in both TDI and MDI recover during the quarter.
EBIT before special items was significantly below prior year, given lower volumes and margins. Sales in Performance Products were stable. Demand for several product lines was lower than a year ago. In the prior year quarter, we benefited from tight markets in several products. However, price increases and positive currency effects compensated for lower volumes. As we could not fully pass on higher raw material costs, margins were softer and EBIT before special items declined. Dispersions and Pigments, sales rose significantly, driven by higher volumes and prices. Pigment sales were strong in North America, but softer in Asia and Europe. Due to higher costs of idle capacities and an unfavorable product mix effect, EBIT before special items fell short of the prior year. In Care Chemicals, sales decreased. The challenging competitive environment led to lower volumes overall. Specialties, however, continued to perform strongly.
Since price increases could not fully offset higher raw material costs, EBIT before special items fell significantly. Sales in Nutrition and Health increased slightly due to continued good demand in nearly all businesses. Pharma showed lower volumes. Margins in Vitamins were affected by higher raw material costs, which could not be passed on fully. EBIT before special items was down on softer margins. In Paper Chemicals, we made substantial progress in our restructuring efforts. We were able to increase sales, although the market remained challenging. EBIT before special items improved, benefiting from higher selling prices and fixed cost reductions. Sales in Performance Chemicals slightly increased. To compensate for higher raw material costs, we raised prices. In a competitive market environment, volumes were below the previous year. As a consequence, EBIT before special items decreased. In our Functional Solutions segment, we slightly increased sales.
Demand from the automotive industry, especially from premium car manufacturers, improved further. Lower precious metal prices and volumes, however, had an offsetting effect. EBIT before special items improved. Sales in Catalysts dropped slightly due to lower prices and volumes in precious metal trading, while we experienced high demand for mobile emissions and chemical catalysts. EBIT before special items increased due to the good volume growth in mobile emissions and chemical catalysts. Sales in Construction Chemicals grew by 7%. Demand in Asia and South America remained favorable, and North America showed a first positive development. Business in Europe was affected by the cold weather and continuing weakness in Southern Europe. We increased prices in all regions. EBIT before special items slightly increased in this seasonally weak quarter.
In Coatings, sales were up due to the continued high demand, in particular from premium car manufacturers as well as good business in Asia and North America. In Decorative Paints, sales declined due to lower volumes. We realized price increases across all regions and for all major product lines. EBIT before special items almost matched the good level of the previous year. Sales in Agricultural Solutions rose significantly. We were able to grow volumes in all indications and implemented a 3% price increase, thus maintaining the positive pricing momentum from the previous two quarters. EBIT before special items was up significantly. The start of the new season in the northern hemisphere was strong. In Europe, the recent launch of our new fungicide, Xemium, is already a success. First quarter sales in the three major fungicide markets, France, Germany, and U.K., confirm that Xemium has blockbuster potential.
Our crop protection business in the Eastern European growth markets also developed favorably. In North America, the early start of the season supported sales growth, especially in herbicides. Our plant health business also developed well. Sales in Asia came in slightly lower as the increased demand in China could not fully compensate for a weaker season in Japan. South American sales increased due to strong demand for fipronil-based products for sugarcane applications. Sales in Oil and Gas increased strongly, driven by natural gas trading as well as exploration and production. EBIT before special items rose sharply. Sales in Exploration and Production were up by 25%, primarily driven by higher prices and volumes. With an average of $119 per barrel Brent, the oil price was considerably above the level of the prior year's quarter.
Volumes also grew as a result of higher oil production in Libya and higher gas production in Russia and the Netherlands. As a result, earnings soared. In natural gas trading, sales grew substantially given higher volumes and prices. Due to the cold temperatures in Europe in the first quarter, we were able to significantly expand trading volumes. Earnings strongly improved due to higher natural gas volumes as well as from operations of the new OPAL pipeline. Non-compensable taxes on oil production amounted to EUR 451 million compared to EUR 280 million in the first quarter of the previous year. Net income was EUR 416 million, an increase of EUR 110 million versus Q1 of last year. Let me give you a brief update on the situation in Libya. In Q1, we achieved to increase our production to roughly 70,000 barrels of oil per day.
At this point, we cannot predict when we will be back at a production level of 100,000 barrels per day. The technical condition of the infrastructure remains the bottleneck. In Other, sales decreased by almost 30% due to the deconsolidation of Styrenics following the formation of the Styrolution joint venture with INEOS. EBIT before special items declined to - EUR 330 million, mainly due to the missing contribution from Styrenics and a higher provision for the long-term incentive program. Special items were positive due to a EUR 645 million disposal gain from the sale of the fertilizer business. Cash provided by operating activities was EUR 1.6 billion in the first quarter of this year. The rise in working capital of roughly EUR 430 million reflected increased raw material prices compared with one year ago. Cash from investing activities amounted to EUR 159 million.
This includes a cash inflow of roughly EUR 680 million, primarily resulting from the divestiture of our fertilizer activities. The prior year figure contained proceeds of almost EUR 900 million from the K+S disposal. CapEx rose by EUR 173 million to EUR 720 million compared to the previous year's quarter. Free cash flow came in at EUR 900 million compared to EUR 1.7 billion in the first quarter 2011. From the beginning of this year, we were able to reduce net debt by EUR 1.5 billion to EUR 9.4 billion. Our outlook for 2012 remains unchanged. We strive to increase volumes in 2012. We aim to exceed the record levels of sales and EBIT before special items achieved by BASF Group in 2011. As stated at our analyst conference at the end of February, in the first half of 2012, we will most likely not achieve the exceptionally high results of the comparable period in 2011.
However, based on our assumption that the chemical demand will pick up in the second half of this year, we expect to outperform the second half year results of 2011. Finally, we strive to earn a high premium on our cost of capital again in 2012. Ladies and gentlemen, as Maggie already said, please understand that our earnings call has to be rather short today due to our annual general meeting this morning. Two of the key topics at this annual general meeting will be the approvals for a dividend of EUR 2.50 per share, which is an increase of EUR 0.30 over prior year, and a new share buyback program for up to 10% of BASF shares over the next five-year period. With that, Manfredo Rübens and I are looking forward to your questions.
Thank you, Hans. I would now like to open the call for questions and ask you for this time today 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 invited to rejoin the queue, and then we will take you for a follow-up question. With this, I would like to start the first question with Thomas Gilbert from UBS.
The operating earnings in Asia are down 47%, obviously small in agriculture, small in oil and gas. Is that the key region where you expect demand to pick up again? Can you sort of talk through which business you think mostly had this temporary dip in the earnings decline? Thanks for answering that question, please.
Yeah. Thomas, thank you for your question. Region Asia, if you look at the developments there in the first quarter, first thing you see, relatively slow start into the year, Chinese New Year this year already in January, certainly impacting the January results. If you look at it from a quarter-over-quarter perspective, compared to Q4 of last year, you see an improvement in our earnings in Asia. You are asking with respect to businesses, you're pointing out that Agricultural Solutions is small. Absolutely. That's right. Oil and Gas, we don't have in Asia. Where have we seen weaker business?
We've seen that in particular in petrochemicals with relatively low margins as a result of weak demand in the first quarter and of relatively high raw material prices. If you look at the naphtha price development that we've seen, that was actually at record highs during the first quarter driven by the oil price while cracker margins as a result of that were relatively low. We also expect to see improvements there as we've seen that already during the course of the first quarter. We've seen demand picking up during the first quarter towards the end of the first quarter. If I look at the beginning now or the month of April, we see that trend continuing.
Thank you. Very clear. Thank you very much.
Our next question is coming from Jeremy Redenius from Sanford C. Bernstein. Good morning, Jeremy.
Hi. Good morning. I see personnel costs are up 9.6% this quarter. Could you please talk about how much of that is recurring throughout 2012? I ask because I saw part of it was from the long-term incentive program, and then also I noticed back in your annual reporting that the contractor headcount was really high versus history. I'm wondering if that might imply that there's some temporary nature to that increase?
Yeah. I think, Jeremy, you're pointing to the key topic already, with the LTI in the first quarter that has a significant impact on the personnel cost. You know, that is a sort of volatile area, the LTI, depending on share price development, and we've seen a significant positive share price development during the first quarter. If I recall that correctly, we moved from EUR 53.80 roughly to more than EUR 65 by the end of the first quarter, and as a result of that, significant impact there in our personnel cost. You should expect that, from my point of view, to be at a lower rate going through this year.
Is there a more underlying estimate that you could give us?
Well, the more underlying estimate, I'd look at something in the order of magnitude of roughly 4% during the course of 2012.
Al right. Thank you very much.
The next question is now coming from Tony Jones from Redburn.
Good morning. Thanks for taking my question. A quarter after the trough, usually you do struggle a bit to pass on the high input cost as you've talked about today. The next quarter, you usually correct for it quite quickly, but that's usually predicated upon trading conditions sequentially improving a little bit. Could you just talk through with a month more or less of Q2 over and your visibility, what do you think about order book and customer activity and sentiment? Combined with it, do you still think there is appetite to raise prices and deal with the margin compression problem? Thank you.
Is there appetite, Tony, to raise prices? Absolutely. There's no question about that. What do we see in trading conditions? We've seen during the course of the first quarter already that towards the end of the second month going into the third month we see that demand is picking up. If you compare it to the fourth quarter of last year and if you compare our EBIT before special items performance in Q1 to Q4 you can actually see that because we're roughly EUR 1 billion stronger in our EBIT before special items than we were in Q4, which obviously is seasonally a weaker quarter.
Nevertheless, we saw demand picking up, and that also continues going into Q2. That should provide us with the opportunity to keep raising prices. You see that our prices on a group level in the first quarter were roughly 5% higher. Our raw material costs in the first quarter are in the range of, I'd say, roughly 10% higher than Q1. We absolutely have to go for further price increases.
Thank you.
The next question is now coming from Norbert Barth from Baader Bank.
Yes, hello, Norbert Barth speaking. Question on the agro side. I think the volume increase of 3% looks a little bit low compared also to competitors and also what you stated that there was some early start. What did you lose market share? And perhaps you can also give the split to the three different product lines. It looks that especially fungicide was heavily hit. Can you a little bit explain the trading situation there?
Yeah, Norbert, thank you very much for your question. First of all, let me say, and then Manfredo will answer your question, that we are rather happy with the performance of Agricultural Solutions business in the first quarter. With that, I hand it over to Manfredo.
Yeah, Norbert. I think we cannot comment on the competitors, obviously, but we were very happy with the start that we had in the business. It's really about profitable growth. You mentioned the volumes, but also look at the prices. If you do a little comparison there, you see that on a profitability, from a profitability standpoint, we've done very well. We have increased prices now for the third consecutive quarter. This is also on the back of the innovation. You know that we have a couple of new products being introduced into the market, the fungicide Xemium, and also the herbicide Kixor.
I think those new products in an environment which is very favorable for ag with fairly high soft commodity prices, volatile, but on a very favorable level, there is a lot of preparedness by the growers to invest into the products, particularly also the new products that we have. We are very confident that we're running towards an excellent year in AgChem. Going through the indications, I think we've seen a fairly early start in the herbicide segment, particularly in North America. The fungicide season is developing. It's, we see also strong demand again. We go for innovation, we go for prices. We don't go really for the market share as maybe some of the other competitors do.
Do you have figures for fungicide, what the volume development was? What the split was?
Hold on.
Norbert, we look this up and get back to you.
Yeah. Okay, thanks.
Yeah. On the fungicide, what you may wanna take into consideration there is also the drought situation that we have in the southern part of Brazil and in Argentina, which certainly has an impact on the fungicides business in the first quarter. We'll look that up and get back to you.
Yeah, thanks.
Welcome.
The next question comes from Lutz Grüten, from Commerzbank.
Yeah, good morning. Thanks for taking the question. Just a quick one regarding the NEXT Program and the achievement in the first quarter. I think by end of last year, you have achieved already EUR 600 million. Could you just confirm the full year target, end of 2012 and the achievements for Q1, please?
I can actually confirm that end of last year was EUR 800 million. The target for the year 2012 is EUR 1 billion. I'm very confident that we will keep at least that.
One number off on Q1, please?
One number on Q1. In addition to the EUR 800 million, I don't think that we've disclosed NEXT on a quarterly basis in the past. You can assume that we added what we wanted to add during the first quarter on top of the EUR 800 million.
Al right, thanks.
Welcome.
The next question now comes from Jean de Watteville from Nomura.
Oh, it's good again.
Good morning, Jean de Watteville from Nomura. Thanks for taking the question. I'm just curious about inventory management and industrial operating rates in the industrial divisions. How did that evolve in Q4 versus Q1? The reason I asked the question is obviously we can see inventories were down in Q1 versus Q4 despite the price increases, and also working capital outflow was pretty limited if you take into account seasonality in ag. I'm just wondering whether you kept operating rates at low levels and continue to reduce inventories, and that could be an explanation of some of the margin pressure? Thanks for your comments.
Jean, obviously, working capital is something that we always have on our mind. If you look at our net working capital, that's quite a significant number. If you look at our inventories, they are right around EUR 10 billion. You are right, they came down. Frankly, from my perspective, that makes me relatively happy because it shows that we manage our inventories in the right way. Have we managed our operating rates accordingly? Of course, we have. We always do that. That's part of just the regular housekeeping that you do. But I can also tell you that overall run rates have certainly not come down in Q1 compared to Q4.
They were flat?
They were actually slightly higher.
Slightly higher. Thank you very much.
Al right. With this, we are coming now to Martin Roediger from Cheuvreux.
Thank you very much. On Libya, sorry if you have already talked about that because I dialed in too late. What was the average production rate per day in Libya in the first quarter? What should we expect for the second quarter?
The average production rate came in actually higher than what we had expected when we talked about it at our annual press conference at the end of February. We are running at this point in time at an average production rate in Q1. We ran at 70,000. We had expected to be in the order of magnitude of 60,000. We had a very strong production month in March for a number of reasons. One of the reasons was that another field being operated by another company didn't produce as much as expected, and as a result of that, there was more capacity in the export pipeline than what we had figured in when we talked about the 60,000 barrels.
We came out at 70,000 barrels per day. That is also what we see at this point in time on average for the full year 2012. It all depends on the availability of infrastructure. That is still a challenge and the bottleneck, and that may make this number a little volatile.
Thank you.
Welcome.
The next question now comes from Richard Logan from Goldman. Good morning Richard.
Good morning, and thanks for taking my questions. Yeah, it was just coming back to the pricing relative to raw material costs. I think you mentioned across the divisions, Nutrition and Health, Care Chemicals, Performance Products, and Petrochemicals, those were the divisions that, where you weren't able to fully offset raw material cost increases. Going into the second quarter of those divisions, where do you feel most confident with regards to being able to fully offset? Also just more broadly, I mean, do you anticipate that you'll be able to fully offset raw material cost increases across the group in the second quarter? Thanks.
Richard, excellent question. Had I the crystal ball, it would be actually easier to answer that. What do we see? We see, as I said earlier, demand picking up. That should provide us with more or better space to increase prices. We have to, as I said, because one of the reasons why margins were depressed was obviously we weren't able to pass on raw material prices fully. As you know, the further you go downstream, the longer it typically takes. The further upstream, the faster we are able to adjust our prices to raw material movements. I can assure you, we are pressing for the price increases that we need to have.
Okay. Al right. Thank you.
Now we come to Ronald Köhler from MainFirst.
Yes, hello. I would like to take a question on others. Obviously, now you have deconsolidated Styrenics, and you sold fertilizer. You have still reported EUR 122 million in that, let's say, fertilizer line in the others as a positive contribution. I just wanted to ask, what is the roughly run rate, let's say, of remaining contributions out of that line? In addition to others, I guess you had hedging losses in the first quarter as euro was weaker. Can you confirm that? Can you give us a kind of magnitude for FX hedging losses?
Ronald, Manfredo will take that one.
On the fertilizers, you have to realize we had the transaction, the divestiture of the fertilizer business at the end of the first quarter. We still in the first quarter had a remaining contribution from fertilizers. This is basically what you see in that area. On the other hand, you have to realize that we had divested Styrenics, there is a missing contribution compared to prior year, month, quarter, on the Styrenics part. That the contribution from Styrenics was higher than the contribution from the fertilizer. Or the missing contribution, I have to say. The missing contribution from Styrenics was higher than the contribution from fertilizers.
The question is a little bit more ongoing, so which means how much kind of ongoing business EBIT line you will still have? Will it go to roughly zero, or will there be some income from the other?
No, there will be very little income, basically zero.
Okay.
Yeah. On the FX hedging, what you see is basically a negative deviation compared to prior-year quarter, but it's a reduction of the profits or the hedging gains that we had.
Which means you still had hedging gains or are there hedging losses in?
Well, that really depends on the development of the currency, so I can't really say. We typically, if you look at our...
I mean, in the first quarter, did you have hedging gains or losses?
We had slight losses. Very slight losses.
Okay, thank you.
Mm-hmm. Yeah.
Now we come to the next question. This is Jaideep Pandya from Berenberg. Good morning Jaideep.
Good morning, and thank you for taking my question. Coming back to the number you said, raw materials rising 5%-10% roughly for the group, and you increasing prices by 5%. Could you give us a little bit more color? If you just looked at your downstream, what is sort of the negative squeeze that you have? Because you clearly have some right now. I mean, is this a more, you know, a structural issue that worries you that you always have to sort of, you know? There's always an inherent lag. I understand the problem with the specialty chemicals about the lag, but is it something that you structurally can change in your? Or i.e., do something more better, i.e., is what I'm trying to ask here. Thank you.
Is that to a certain extent structural? Yes, it is. You've seen that over the years happening, that the further you go downstream in the portfolio, the longer it takes to pass on the raw material costs. What do you do? You've seen us doing that over the last years. You focus more and more on businesses that allow for differentiation, among other things, through innovation, and as a result of that, at value pricing.
This is what you clearly see us doing, and what you see also as a main focus or thrust of our We create chemistry strategy, where we've clearly addressed that we want to move more and more in the direction of functionalized materials and solutions. I think a good example for that are the battery materials, and also water chemicals and water technologies, just to give you an idea there.
Can you just maybe give a little more color on how much negative squeeze you had in downstream?
We don't differentiate there in our portfolio and break it up between the various segments.
Okay, thanks.
Now we come to Annette Weber from BHF Bank. Good morning, Annette.
Yes, good morning. I've got to come back on the volume trends that you have observed in Q1. Some of your competitors hinted at relatively volatile movements in terms of the year-over-year volume growth in Q1. I was wondering whether you could possibly provide us with a more concrete numbers when it comes to the year-over-year volume growth that you have seen on a kind of monthly basis in Q1, and what you are seeing in this respect for April? Thanks.
I mean, year over year, if you look at that Q1 to Q1, you see that in our chemical activities, so including the segments Chemicals, Plastics, Performance Products, and Functional Solutions, you see volume declines in a range between 4%-9%. Keep in mind there that we have a special situation as a result of an optimization.
Mm-hmm.
Our supply chain with cracker products, that has quite a significant impact in the Chemical segment, in the order of magnitude of roughly 5% on the volumes. Maybe one word of explanation on that. What we had in the past was a swap, where we swapped polymer grade with chemical grade propylene. We now swap like for like, and as a result, that doesn't show up as sales any longer as it did in the past. That leads to this significant volume reduction for the BASF group, without which we would have been positive on the volume, where we're showing 0% at this point in time.
If you look at it, Q4 over Q1, you are seeing volume improvements across the portfolios of Q4 to Q1. Volume improvements across the portfolio. The volatility that you are addressing is correct. The visibility is still rather low, but the trend that we are seeing, and that goes across the portfolio, take out those parts that are seasonally impacted, such as, for example, the natural gas trading, and also the Agricultural Solutions business, so focus on the chemical activities. Trend there is increasing volumes also going into Q2.
You mean increasing volumes only, increasing year-over-year?
Increasing quarter-over-quarter. Q1 to Q1, we have this decline that I explained.
Mm-hmm. Mm-hmm.
Factor in the impact of the swap, which gets you...
Mm-hmm
...the chemical activities to roughly flat volumes quarter-over-quarter. If you compare Q4 to Q1, you see so Q4 2011 to Q1 2012, you see volume improving.
If you looked at March, for example?
You see in that trend, as I said, volume improving. As you know.
No, March this year versus March last year.
March this year versus March last year, we are back to the Q1 to Q1 comparison.
Mm-hmm.
Their volumes are overall down. Factor in the impact of the swap, they are flat, roughly flat.
Annette, now we have to move on.
Okay. Thanks.
Next one is Paul Walsh from Morgan Stanley.
Thank you very much, and good morning. I just want to come back to the Chemicals and Plastics businesses. Like some of the?
Could you speak up a little bit? It's very hard to hear you.
Is it possible to hear me now?
Much better.
Okay, thank you. I just wanted to come back to the Chemicals and Plastics businesses, because clearly the margin pressures there were most acute in the first quarter. Are you seeing cash margins for products? You talked about polyurethanes being tough, Caprolactam, Adipic acid, in Plastics, and obviously we know that cash margins were weak in Chemicals. It does look like that situation has improved as we've moved through the first quarter. I just was wondering if you could give some insights as to how you see those two divisions performing sequentially moving into the second quarter? Thank you.
Yeah. What we've seen there, here I start with Q4 2011, was a situation where volumes came down, moved into Q1. Volumes, as I explained earlier, increasing. We see this going forward also in Q2, also in these two segments, so Chemicals and Plastics. On the margin side, we also see improvement. Please factor in that, I think you mentioned the polyurethanes in particular. Please factor in that, in Polyurethanes, we were affected by a scheduled turnaround that we had in our Geismar, Louisiana, U.S. site, where MDI and TDI, as a result of that scheduled turnaround, was down for, if I recall that correctly, roughly seven weeks.
That certainly had an impact on our cost position there, and with that, on our margin position. Both plants, the MDI and the TDI plant, are back up running in full swing, since the fourth week of March, and that's how we go into the month of April.
Are you able to quantify the impact of the downtime in Geismar in the first quarter?
Don't disclose that.
Are we talking tens of millions or?
We're talking six to seven weeks downtime of a scheduled turnaround.
Thank you.
Now we're coming to Andrew Benson from Citi.
Yeah, thanks very much. Can you try to define the impact that cheap U.S. shale gas may have had on your business and how you think that may evolve looking out?
Yeah. What kind of an impact does shale gas have on our business? At this point in time, it has a, I'd say, positive impact on our North American business. If you look at natural gas prices in North America, I think we're looking at an average natural gas price slightly above $4 per million BTU in the year 2011. First quarter price in 2012, if I recall that correctly, is somewhere in the order of $2.50 per million BTU. Spot price yesterday, I believe, was somewhere around $2.10. That is actually all significantly cheaper than what we see in Western Europe or in Asia Pacific as an example. Do we benefit from that? Yes, we do. We do through overall a lower cost position on an important feedstock for our production and on an important energy source for our sites in North America.
Okay, thanks.
We are coming to Geoff Haire from HSBC.
All my questions have been asked. Thank you.
Well, we are coming to Peter Clark from Société Générale.
Yes. Good morning. Thank you. One little question, digging into the coatings business and particularly decorative coatings. Just wondering in Latin America if price was enough to offset the volume decline you saw and underlying sales growth was ahead in that business. Then looking ahead, just do you feel for the outlook for volumes in that business and consumer businesses in Latin America generally. I'm thinking in Deco, of course, one of your competitors has been pretty aggressive and claims they are now a leader in Brazil. Just wondering, you know, do you sense that you've lost a little share, or is it just a feeling that the market's gone a bit softer? Thank you.
I think what we had was a seasonal or weather-related impact in our Deco business in South America in the first quarter. Brazil, and that is the key market, has seen a lot of rain that impacted our business. The other impact that I think we saw had to do with the distributors destocking in the first quarter. With respect to market share, I am not aware of market share losses in the South American, and here, in particular, in the Brazilian market.
Oh, okay. I would be right in thinking you expect that business to recover somewhat as we go through the year in terms of the volume you saw? The hit in Q1.
That is, our expectation, yes.
Thank you.
We come to Laurent Favre from Merrill Lynch.
Yes, good morning, and thank you for taking my one question on taxes. If I look at the notes on adjusted EPS, and I look at adjusted taxes, excluding the Libyan exceptional tax and excluding, of course, the fertilizer disposal and the K+S disposal, looks like taxes were down 7%, which is a lot less than earnings outside of Libya. I'm just wondering if you could tell us if there was anything exceptional in taxes in Q1, or if it was Q1 last year? Any comment on that side would be very helpful.
Yeah, I'll take that question. You stated correctly, we have an increase in the tax rate from last year first quarter of 24.7% to 39.6% in the first quarter of this year. The two impacts you also highlighted, one is the almost tax-free disposal of the K+S shares in the prior year quarter, and we have some impact also from the sale of the fertilizer business in this quarter. The second major impact is the oil and gas or the Libyan production that has picked up in higher oil taxes in the first quarter of this year compared to the prior year. Other than that, there were no major special effects that we have in the numbers.
If you adjust for the oil taxes, then you get to a tax rate of 29%, which is given the special effect from the divestiture in the first quarter of the fertilizer business. On the high side, we still look at an underlying tax rate for the year in the magnitude somewhere between 20%-25%. This is a good estimate.
Okay, thank you.
We come to Markus Mayer from Kepler.
Yeah, good morning. Thanks for taking my question. More product question. Do you expect a major disruption at the European automotive production due to the explosion of the Evonik Marl production site? Would you be able to switch your production to close the supply gap at CDT? Do you think that this fourth machine will restart the discussion of the advantage of a backward integration which you have, obviously?
There was a lot of background noise. Did I understand your question correctly? You're asking with respect to the incident at the Evonik site?
Exactly.
Okay.
If you could switch the new production to close this supply gap for CDT and is this then also restart the discussion of having advantage in the backward integration?
Can we switch production to CDT? Unfortunately not. We have CDT production which we're using in our own system, and then in addition to that, have sales contracts which require us to supply the remaining volumes to these customers with whom we have long-term sales contracts. Can we offer alternative solutions to the automotive industry instead of the PA 12? That's the key product here that we're talking about, the polyamide 12. There is discussion about that. As you know, in the automotive industry, long certification processes. What we'll have to do is, in close cooperation with the automotive industry, see what type of solutions we can offer to help in this very unfortunate situation. These discussions are ongoing, and of course with a high focus.
Do you think this will have been a major disruption effect on auto or European automotive players or?
That is frankly too early to say at this point in time. It reminds me somewhat of the discussions that we had last year after the natural disaster in Japan, where there were certain parts, the original thinking was they only come out of Japan. You saw how quickly the automotive industry was able to adjust to the situation there. Based on everything that I'm seeing, the automotive industry is working, as I said, with high focus on finding alternative solutions as quickly as they can. Remains to be seen.
Okay. Excellent. Thanks.
Welcome.
The next question is from Martin Evans, JP Morgan.
Yeah, thanks very much. Just on Care Chemicals. Are you disappointed by that performance, or is it just very much a short-term blip? Because obviously with Cognis in there now and the sort of hoped-for defensive nature of that business, and yet we read that volumes are down, raw materials are not being passed through fully and EBIT fell. Could you maybe just give us a little bit of a pointer as to the dynamics now in that care chemical business and what the outlook is? Thanks.
I think your question was, are you happy with that performance? The answer to that is obviously no. We understand what the reasons are for this performance in the first quarter, number of things coming together there. Based on everything that we are seeing, the beginning of the second quarter is stronger in Care Chemicals than what we've seen in the first quarter. I actually think we'll see during the second quarter that this is actually, as you put it, a blip in Q1, and that all the issues that we had there are addressed, and that happens within a very short period of time.
Okay, thanks very much.
Ladies and gentlemen, due to the fact that we are getting close to the annual general meeting, I hope for your understanding today that we are closing our conference call now. There were seven additional questions, but we have written your names down, and we will contact you immediately after the call from the investor relations team. I also wanted to bring to your attention that we will next report on our second quarter 2012 results on July 26th. For now, we would like to thank you for joining us. We hope that we have answered all your questions intensively. If there are any left open, then please do not hesitate to contact any member of the investor relations team. We will be very happy to help you. In the meantime, we wish you good luck and a lot of success with your analysis and a nice day.