Q4 2011 Earnings Call
February 24, 2012 10:00 am ET
Magdalena Moll – Senior Vice President-Investor Relations
Kurt W. Bock – Chairman-Executive Board
Hans-Ulrich Engel – Chief Financial Officer, Head-Corporate Controlling and Corporate Audit
Peter Spengler – DZ Bank
Jeremy Redenius – Sanford C. Bernstein
Annett Weber – BHF Bank
Christian Faitz – Macquarie
Fabian Smeets – ING
Jean G. de Watteville – Nomura International Plc
James Knight – Exane BNP Paribas
Thomas Gilbert – UBS
Markus Mayer – Kepler Capital Markets
Anthony Jones – Redburn Partners
Richard Logan – Goldman Sachs
Jeremy Redenius – Sanford C. Bernstein & Co.
Martin Rödiger – Cheuvreux
Previous Statements by BASFY.PK
» BASF Management Discusses Q3 2011 Results - Earnings Call Transcript
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» BASF Management Discusses Q1 2011 Results - Earnings Call Transcript
» BASF Group CEO Discusses Q4 2010 Results - Earnings Call Transcript
Good afternoon, ladies and gentlemen, and welcome to the BASF 2011 Annual Results Conference here in Ludwigshafen. At the same time, I’d also like to welcome all, those of you who are watching the webcast or are listening on phone.
BASF posted again excellent results in 2011 despite moderate global economic growth and higher market volatility. Following a soft fourth quarter 2011, latest macro indicators signal a moderate sequential improvement of global economic momentum during the first half of 2012. And we will show you ladies and gentlemen, that BASF is in excellent shape and fit for 2012 and beyond.
With me today are Kurt Bock, our Chairman of the Board of Executive Directors; and Hans-Ulrich Engel, our Chief Financial Officer. Kurt will highlight BASF’s performance in 2011, and talk about the key strategic achievements of last year, before he will conclude with the outlook for the year 2012.
Hans will then review the fourth quarter 2011 segment results, explain some details with respect to the financial statements, and finally provide you with some projections and good numbers for year 2012. Afterwards, both gentlemen will be happy to take your questions.
Now please let me remind you that we are webcasting this event. We already posted the chart, speech as well as the press documents on our website at
. Before we start, I also would like to ask you to please turn off your mobiles and BlackBerries, because they could interfere with our microphone system.
And furthermore, I would like you to take a look at the disclosure and forward-looking statements page here on the chart behind me. And actually, disposed already to the end of my introductory statements, and I would like to hand over to Kurt.
Kurt W. Bock
Yeah, thank you, Maggie, and also a welcome from my side. Ladies and gentlemen, we’re glad to have you here in Ludwigshafen for our 2011 earnings call so to say. Also welcome those of you who join us via webcast.
BASF achieved again new record sales in 2011. In the last 12 months, we reached sales of €73.5 billion, up 15% compared with the full year 2010. EBITDA at €12 billion, and EBIT before special items at €8.4 billion also marked new record highs.
We also delivered on our promise to significantly increase EBIT before special items adjusted for non-compensable oil taxes. We achieved €8 billion, which represents an increase of 12%.
EBIT came in slightly higher than EBIT before special items due to the disposal gain from the formation of the Styrolution joint venture, which we formed on October 1.
Net income climbed to €6.2 billion, an increase of 36%. And adjusted EPS reached €6.26, up 9%, and finally operating cash flow was €7.1 billion, up 10% and a new record as well.
In the fourth quarter 2011, we saw as expected a slowdown in business activities, but we continue to pursue our value before volume strategy. Moreover, customer orders were down due to slowing demand and tight inventory management. This resulted in lower volumes and margins across most of our chemical businesses.
Sales in Q4 increased by 10% to €18.1 billion, primarily due to our successful price increases of 9 %. BASF achieved again a record EBITDA in a fourth quarter of €2.9 billion, up 7%. EBITDA as well as EBIT of €1.9 billion were positively impacted by the disposal gain of Styrolution in the amount of €593 million.
EBIT before special items declined by 14% mainly due to lower volumes and margins in several of our upstream businesses. In addition, EBIT before special items was down as the Styrenics activities were moved out of BASF into the Styrolution joint venture. Net income was €1.1 billion, up 3%, and adjusted earnings per share were at €1.05 in Q4 which is a slight decline compared with 2010.
What did we achieve in 2011. We are on track with our announced investments for future growth. Just to name a few, we successfully started up the plan of the second phase of investments at our Verbund site in Nanjing, and commissioned Nord Stream and the OPAL pipeline.
In 2011, we have completed the integration of Cognis, and we are on track to realize synergies of €290 million. Our Styrolution joint venture with Ineos successfully commenced operation on October 1 as mentioned before.
And in September, we signed a contract with EuroChem to sell our fertilizer activities in Antwerp. In January of this year, we announced that we signed also a contract to sell our 50 % in PEC-Rhin in Ottmarsheim, France, to our joint venture partner GPN, a member of the French Total Group, thus completing our exit from the fertilizer business. We also delivered on operational excellence. We finalized our NEXT program, which will lead to more than €1 billion of annual earnings contribution.
BASF already has leading positions and fast growing businesses in the emerging markets and we will continue to build on these. BASF’s sales in the emerging markets increased to €21.2 billion in 2011. This represents 34% of BASF’s total 2011 sales excluding Oil & Gas. Since 2001, we have generated a compound annual growth rate of 13% with our activities in the emerging markets.
We will further spur organic growth in these countries by increasing our sales forces, strengthening regional R&D, and investing in new production capacities. We expect that in 2020, emerging markets will contribute around 45% to BASF’s sales excluding Oil & Gas.
In 2003, we set the goal of earning a premium on our cost of capital. Since then we earned a premium every year, with the exception of the crisis year 2009, which also includes and the first inclusion of Ciba. In 2011, we again reached a significant premium of €2.6 billion on our cost of capital. We achieved this high premium despite a higher cost of capital rate: For 2011, the cost of capital rate increased from 9% to 11%, which explains the lower premium achieved. For 2012, we are also calculating with a cost of capital rate of 11%. In the coming years, we strive to earn an average premium on our cost of capital of at least €2.5 billion.
Ladies and gentlemen, as you know share return is of utmost importance to us. We stand by our dividend policy to increase our dividend each year, or at least maintain it at the previous year’s level. We will propose as you have seen this morning to the Annual General Meeting to pay out a dividend of €2.50 per share, an increase of €0.30 or 14%.
Over the past ten years, the compound annual dividend growth rate was 15.2%. This reflects an attractive dividend yield of 4.6%, based on the share price of €54 euros on December 30 of last year.
Moreover, we continue to deliver consistent long-term value for our shareholders. Over the past ten years, the average annual return on BASF stock was 14%, clearly outperforming the German and European stock markets as well as the MSCI World Chemicals index. In the last five years, which were impacted by the economic crisis, the outperformance was even better.
Let’s me turn to the outlook for 2012, which obviously is much more important to you. Obviously today the uncertainty about the development of the next 12 to 24 months is much higher than expected a year ago. Our plan for 2012 is based on the following assumptions.
First, in 2012, we expect GDP growth of 2.7%, the level achieved in last year. Second, we expect global chemical production without pharmaceuticals and industrial production to grow by 4.1%, respectively, which is below last year’s number. And finally, we assume an average oil price of $110 per barrel as well as an average exchange rate of $1.30 per euro.
In 2012, global chemical production excluding pharmaceuticals again will continue to grow from our point of view in all regions. While the current uncertainties in financial markets will dampen growth perspectives, the chemical sector will benefit from positive impulses from emerging markets.
In Europe, we expect growth at a lower rate. However, please keep in mind that we saw a significant surge in demand in Europe in 2011. In Asia, excluding Japan, growth continues to be strong at approximately 8%. Despite an anticipated slowdown in growth due to lower export demand, China is expected to still grow strongly with nearly 9% this year.
Based on these assumptions, the outlook for the year 2012 is as follows. We strive to increase volumes in 2012 excluding the impact from acquisitions and divestitures. We aim to exceed again the record levels of sales and EBIT before special items achieved by BASF Group in 2011. However, in the first half of 2012, we will most likely not achieve the exceptionally high results of the comparable period of 2011. However, we expect to outperform during the second half, meaning higher results in the second half of 2012, in the second half of 2011.