basf se (basfy) management on q1 2019 results - earnings call transcript - water absorbing chemicals
BASF SE (OTCQX:BASFY)
At 2: 30 a. m. on May 3, 2019, ETCompany participant stefanie Wettberg-2019 earnings call for the first quarter
Engel, head of investor relations-
Chief Financial Officer Mark Earhart
Thomas wrigsworth, chairman of BASF's Financial Conference
Christian FAZ, parribas
UBS LtdCharlie Weber
Morgan Stanley Andreas hyin
Peter Clark, berberg
, France Industrial Bank general manager MayerBaader-
, A qie tan in the de shi
Thank you, ladies and gentlemen, for your support.
My name is Emma. I'm the telephone operator of your choir.
Welcome and thank you for attending BASF's 2019 performance analyst conference call in the first quarter.
In today's recorded speech, all participants will be listening-only mode.
There will be a question after the speech --and-answer session. [
This presentation contains forwarding-
Look at the report.
These statements are prepared on the basis of the current estimates and forecasts of the executive board and the information currently available. Forward-
The outlook statement does not guarantee the future development and results outlined therein.
These factors depend on many factors.
They involve various risks and uncertainties based on assumptions that may be inaccurate.
These factors include the discussion of opportunities and risks of BASF's report on pages 2018 123rd to 130.
BASF does not assume any obligation to update the forward date
The appearance statement contained in this presentation is beyond the legal requirements.
I would now like to hand over the meeting to Stefanie Wettberg, head of investor relations.
Good morning, ladies and gentlemen.
On behalf of BASF, I would like to welcome you to our analyst and investor conference call on the first quarter's 2019 performance.
I spoke to Hans Engel, chief financial officer, today;
And Mark Earhart, president of BASF's finance department.
Hans will provide you with the results and updated overview of the Winter Hill DEA merger and 2019 outlook.
Marc will detail the financial data.
Please note that we have made a presentation on BASF's website. com/q12019.
With this, I give the floor to Hans. Hans EngelYeah.
Good morning, ladies and gentlemen.
Welcome to our Q1 call. thank you for joining us.
The first quarter of 2019 was as difficult as we expected.
Global economic growth continues to be negatively affected by geopolitical developments and ongoing trade conflicts between the United States and its trading partners.
The overall cautious market sentiment remains.
As a result, BASF has experienced a slowdown in demand in major customer industries, especially in the automotive industry.
To make this more specific, global car production fell by 6% compared to the previous quarter.
From a regional perspective, China's demand is particularly affected by trade conflicts.
In Europe, uncertainty related to Brexit continues to have a negative impact on economic development.
Despite these adverse factors, we are committed to our strategy and continue to implement the announced measures to support profitable growth.
For example, the embedding process of moving our organization closer to our customers is on track and will be completed by 2019 at the end of the third quarter.
In more detail, the BASF Group's financial data for 2019 in the first quarter.
Sales rose 3% in the first quarter of 2019 to 16 euros. 2 billion.
Driven primarily by the business of ocyanate and biscuit products, prices fell by 2%.
Price increases in surface technology, agricultural solutions and industrial solutions can only partially offset the impact of the expected decline in prices of materials and chemicals.
Due to the overall cautious ordering behavior of our customers, the sales volume of BASF Group decreased by 4%.
The portfolio effect is over 6% related to the acquisition of the agricultural solutions business from Bayer.
At the end of January 2019, BASF's paper and water chemicals business moved to Solenis, which slightly reduced the positive portfolio effect.
The monetary impact reached 3%, mainly due to the appreciation of the US currency. S.
Dollar against euro.
EBITDA decreased by 12% to 2 euros before special items. 7 billion.
EBITDA is 2 euros.
By contrast, 8 billion euros.
2018 in the first quarter.
Before Special Items enter at a price of 1 euro.
7 billion CM, 24% cm less than Q1 2018.
As expected, this decline is driven by a significant reduction in the contribution of the materials and chemicals sector, due to the low profit margin of the isate and cracking product business.
The decline in income from other sectors and the nutrition and care sectors has led to this decline.
Revenue from agricultural solutions and industrial solutions has increased significantly, limiting the decline in income.
EBIT for special items is 26 million plus Q1 € 18 million minus 2018.
The special income divested by the agricultural solutions and industrial solutions sector exceeds the cost of the integration of Bayer's acquisition business and assets and other restructuring measures.
EBIT fell from 2 euros.
3 billion to 2018 euros in the first quarter.
8 billion in the first quarter, 2019.
The tax rate is 25.
4%, contrast 24.
The first quarter of 2018 was 1%.
Compared to 55% in the first quarter, after-tax revenue from our discontinued oil and gas operations increased by 0. 274 billion to 2018 euros.
The main drivers are the increase in production, especially in Russia, and the suspension of depreciation and amortization of winterwell's assets since 2018 in the third quarter.
Brent crude averaged $63 in the first quarter, compared with $67 in the same period last year.
Net income is 1 euro.
Compared with 4 billion euros.
7 billion in Q1 2018.
Earnings per share are reported to decline from 1 euro. 83 to €1. 53 in Q1 2019.
Adjusted earnings per share are 1 euro.
In contrast, this is equivalent to 1 euro.
The previous quarter was 93.
In the first quarter of 2019, cash flows from operating activities decreased by 0. 373 billion euros and 0. 858 billion over the same period of the previous year.
This is mainly due to the high level of cash occupied by net working capital, especially trade receivables in the agricultural solutions section.
Payments for property equipment and intangible assets increased by 0. 114 billion euros to 0. 741 billion euros.
Free cash flow is 0. 368 billion euros.
Following the approval of all the relevant departments, BASF and Railcom successfully completed the merger of winterwell and DEA.
In September 2018, BASF and Railcom signed a deal to merge their oil and gas operations into a joint venture.
Through Wintershall Dea, we have created a leading independent exploration and production company in Europe to carry out international business in the core region.
In order to achieve the merger, LetterOne contributed all of the shares of DEA deutscherdoel AG to Wintershall Holdings Limited when issuing new shares.
Shareholders decided to change the name of the company.
The joint venture is headquartered in Cassel and Hamburg.
After the official registration of the corresponding capital increase, BASF will hold 67% and 33% of winter will Dea common shares of the respective exploration and production business value of winter will DEA.
To reflect the value of the winterwell gas transport business, BASF will receive additional preferred shares.
This will result in BASF's initial total shareholding in Wintershall Dea at 72. 7%.
Not later than 36 months after the close, but in all cases before the IPO, these preferred shares will be converted to common stock of Wintershall Dea.
In 2018, the combined business of Wintershall and DEA was expected to have sales of 5 euros.
EBITDA for 7 billion euros.
Net income was EUR 6 billion. 1 billion.
Due to the merger, Wintershall Dea has a balanced footprint and superior growth opportunities in the region.
According to potential exploration and production projects, the company is expected to reach 750,000 to 800,000 barrels per day of oil equivalent from the current 2023 barrels to 590,000 barrels per day during 2021.
This is equivalent to a production growth rate of 6% to 8% per year.
Wintershall Dea expects to achieve a synergy of at least 0. 2 billion euros per year in the third year after the end of the transaction.
Both shareholders are committed to Wintershall Dea's profitable growth path and have laid a solid capital foundation for the joint venture.
The goal of Wintershall Dea is an investment-grade credit rating.
After the joint venture was closed, BASF or Railcom did not have outstanding shareholder loans.
BASF and Railcom are expected to pass the IPO in the second half of 2020 according to market conditions.
Please allow me to briefly explain the impact of the closing on the BASF Group financial report.
As of May 1, 2019, BASF's participation interest in Wintershall Dea will be reported in the combined financial statements of BASF Group under the Equity Act, with an initial valuation of fair value.
The proceeds from the transition from full merger to equity law will be shown in the after-tax income that ceased operations in 2019.
As of May 1, 2019, BASF will report its share in Wintershall Dea Net income before special projects and BASF Group's EBIT reports under other projects.
Now, I will hand things over to Marc and give you more details about the business development of our department.
Good morning, ladies and gentlemen.
Let me highlight the financial performance of each segment in 2019, which reflects our new segment structure compared to the 2018 figures.
Sales in the chemicals sector, particularly in the petrochemical sector, were significantly lower than in 2018.
Sales in the intermediate product sector declined slightly.
In these two sectors, the decline in sales and prices has driven the development of sales.
In the petrochemical sector, the decline in production is mainly due to the preparation of planned maintenance downtime, as well as a significant reduction in capacity utilization of condensate diverters in Port Arthur, Texas.
Due to weak customer demand in the automotive, paint, textile and wind turbine industries, the volume development of the intermediate sector has been suppressed.
Prices in the petrochemical sector in particular have fallen sharply.
This is due to the high supply of products on the market, especially steam cracking products in North America, and the low price of raw materials.
Compared with the previous year quarter, EBIT fell sharply before special projects.
This is mainly due to the low profit margin in the petrochemical sector, in particular the steam cracking products, and the lower production in both sectors.
Sales in the materials sector fell sharply compared to strong in 2018.
The main reason for the decline in sales is the decline in isocyanate ate prices in the unit sector.
Sales were slightly lower than in the previous year quarter.
Decreased demand, especially in the performance materials sector.
In particular, the demand for polyurethane systems and engineering plastics in the automotive and consumer goods industries in Asia and Europe is weak.
In both departments, EBIT dropped significantly before special projects compared to 2018.
This is mainly due to the lower edge of the ocyan acid salt in the monomer department.
In the performance materials sector, a higher profit cannot compensate for a lower volume.
In addition, fixed costs in both sectors were slightly higher than in the previous year quarter, mainly due to monetary impact.
In the field of industrial solutions, sales were slightly lower than in the previous year quarter.
Sales in the dispersion and pigment sector were flat compared to 2018, while sales in the performance chemicals sector declined slightly.
The overall decline was mainly due to the transfer of BASF's paper and water chemicals business to the Solenis group.
In addition, the number of dispersion and pigment departments has declined.
In contrast, we have increased sales in the performance chemicals sector, particularly in oil fields and mining chemicals, as well as in fuel and lubricant solutions.
The sales development of the two departments is also positively affected by the monetary effect and price increase.
Compared to 2018, we have significantly increased EBIT before special projects.
This is mainly due to rising prices, volume growth and positive monetary effects, resulting in a substantial increase in revenue in the performance chemicals sector.
Prior to the special project, EBIT in the dispersion and pigment sector also increased slightly, mainly due to price increases and positive monetary effects.
EBIT includes special income from BASF's paper and water chemicals business to the performance chemicals division of the Solenis group.
Compared to 2018, we have achieved considerable sales growth in the field of surface technology, especially in the Catalyst sector.
Trading sales of precious metals increased from 1. 064 billion euros in 2018 to 0. 685 billion euros.
Sales in the construction chemicals sector have also increased significantly.
In the paint sector, sales were flat from the previous quarter.
Sales growth is due to price increases in all sectors, as well as a positive monetary impact on the volume growth in the catalyst and construction chemicals sectors.
In terms of coatings, the slight volume growth of surface treatment and decorative paints cannot completely offset the sharp decline in automotive OEM coatings.
The department's EBIT before special projects was flat with the previous year's quarter.
Before EBIT's special projects in the construction chemicals sector, the situation has been greatly improved mainly due to higher profit margins.
In the catalyst sector, revenue grew slightly due to sales growth.
In contrast, mainly due to the weakness of the car business, the paint department recorded much lower EBIT records before special projects.
First-quarter sales in the nutrition and care sector were flat with the previous quarter.
Sales in the nutrition and health sector increased significantly, but sales in the health chemicals sector decreased slightly, which offset the impact.
Positive monetary effects, especially those related to the United StatesS.
The dollar's sales in both sectors increased slightly.
In contrast, lower prices have had a negative impact on sales, especially in the animal nutrition industry.
Sales in the care chemicals sector decreased significantly, mainly due-
Results of reduced number of home care, cleaning and industrial formulators business.
In contrast, sales in the nutrition and health sector have increased significantly, mainly due to a significant increase in product availability at our plants in Ludwig and koutan.
The EBIT before the special project was significantly lower than the figure in 2018.
Revenues in the care chemicals sector have increased significantly, mainly due to higher profit margins, which cannot compensate for higher fixed costs in the nutrition and health sectors.
In the quarter of the previous year, insurance refunds that were discontinued in 2017 were received, reducing fixed costs.
In addition, the profit margin of animal nutrition business has also declined.
EBIT includes injuries related to the optimization of production sites in the European nutrition and health sector.
Sales in the agricultural solutions sector increased significantly compared to 2018.
This is mainly due to the portfolio effect of the acquisition of business and assets from Bayer in August 2018.
In the first quarter of 2019, the sales contribution of the acquired company was fully reported as a portfolio effect.
We have also achieved a higher price level in our traditional business, and this year's trading volume has been greatly reduced --on-
Mainly due to weather this yearRelated factors.
Especially in the United States, the number of herbicides and fungicides has declined due to bad weather conditions and long-term cold.
The EBIT before the special project was much higher than in 2018.
This is mainly due to the contribution of the acquisition enterprise.
EBIT includes special income from divestiture under the conditions specified by the antitrust authorities within the scope of the acquisition of Bayer business.
In the first quarter of 2019, these exceeded the special cost of the acquisition business integration.
Compared with the same period last year, sales in other regions increased significantly.
This is mainly due to the remaining activities of BASF's paper and water chemicals business, which are not part of the transfer to Solenis, which have since been reported under other items.
The EBIT before the special project was significantly lower than the figure in 2018.
This is mainly due to our long-term foreign currency results and valuation.
Regular incentive plan.
Now let's take a look at the cash flow in 2019.
Cash flows from operating activities amounted to 0. 373 billion euros, a decrease of 0. 858 billion euros over the previous quarter.
This is mainly due to the high level of cash occupied by net working capital, especially trade receivables.
Due to the business acquired from Bayer, the seasonal increase in trade receivables in the agricultural solutions sector was higher than in the previous quarter.
In the first quarter of 2019, the cash flow from investment activities was 0. 837 billion euros, compared with 0. 634 billion euros in the same period last year.
The increase in cash flow outflow is mainly due to the increase in payment of financial assets and securities and intangible assets and property, factories and equipment.
In the first quarter of 2019, cash flow from financing activities was EUR 0. 62 billion, compared to EUR 0. 201 billion in the previous year. The year-on-
The annual growth was mainly due to a larger net increase in financial and similar liabilities.
Free cash flow fell from 0. 604 billion euros in the previous quarter to a negative 0. 368 billion euros, mainly due to reduced cash flow from operating activities.
At the end of the first quarter, compared to last year, we turned to the balance sheet, 2019-end 2018.
Total assets increased by 5 euros.
EUR 5 billion to EUR 92 billion. Non-
Current assets increased by 2 euros. 2 billion.
The new IFRS 16 standards on leasing accounted for half of this increase.
Since January 1, 2019, the new standard requires that almost all leased assets be reported as fixed assets.
Current assets amounted to 46 euros.
By contrast, 5 billion euros.
Year 2 billion-end 2018.
This increase is mainly due to an increase in accounts receivable related to Bayer's acquired agricultural solutions business and its seasonality.
In the northern hemisphere, the seed season starts in the first quarter, which leads to a corresponding increase in accounts receivable.
Net debt increased by 1 euro.
€ 2 billion to 19.
4 billion, mainly because we have higher usage rates in the United States. S.
Business Paper Project in USD.
Our equity ratio is 41.
At the end of March 2019, 1%.
With this, return to Hans's vision. Hans EngelYeah.
Thank you, Mark. To the outlook.
According to the provisions of the end of February, we confirm the prospect of BASF Group 2019.
Our view continues to be that trade conflicts between the United States and the United StatesS.
This year, its trading partners will relax and the potential Brexit will not have a broader economic impact.
In addition, we believe that our customer industry will maintain their growth trajectory.
We expect sales to increase slightly in 2019 due to sales growth and portfolio effects.
Before special items are positioned at a level of just over 2018, EBIT is at the low end of the range.
ROCE is expected to be slightly higher than our percentage of capital costs, but slightly lower than the 2018 level.
Due to assets acquired from Bayer, it will be negatively affected by a higher capital base.
Let me reiterate that the second quarter will be a relatively weak quarter.
First of all, the profit margin of ocyan salt in the second quarter of 2018 is still high, which means it is more difficult.
Second, the cost associated with the implementation of our strategy and more planned turnaround times will have a negative impact on revenue compared to the second quarter 2018.
The decisive factor in achieving our 2019 goals is the improvement of business performance, the stability of customer needs and the first contribution of our excellence program in the second half of the year.
Mark and I are happy to answer your question. Question-and-
Ladies and gentlemen, I would like to open the phone now for your question. [
Please limit your question to only two at the time so that everyone has a chance to ask their questions.
We started with Thomas wriggleworth at Citi.
Thomas, please continue.
Thank you, Stefanie. Thanks, Hans. Thanks, Marc.
So, my first question, after comments around 2Q.
Before special items, you have directed a slight increase in EBIT for chemicals.
Obviously, at some point, you have to reach the absolute EBIT level you reached the year before.
1Q is much lower than 2019.
Should we expect 2Q to reach a similar level?
If not, how will you--
What progress should we expect in the second half?
I appreciate it--
The river Rhine makes you feel bad.
Can you remind us of the effect of this on chemicals? And if not --
Then, if you get the components needed to grow beyond that, how will you achieve that in chemicals?
This is my first question.
Second, the net debt before and after the oil and gas divestiture.
You didn't mention any debt transfer to a new entity, but I think you 've talked about shareholder loans before.
So what will net debt look like once the joint venture is fully established? Thank you. Hans EngelOkay.
Thank you for your question, Thomas.
Chemicals are the first.
As you are correct to say, we will guide a small increase in chemicals throughout the year.
As we expected, what we saw in the first quarter was a decline.
I have mentioned that the second quarter was also difficult for the chemicals sector.
This is especially because we had two cycles of turnaround in the second quarter, harbor biscuits in the United StatesS.
The same is true of Antwerp.
This is taken into account when we provide guidance for the chemicals section.
In terms of chemicals, we expect the second half to be much stronger than the first half of 2018.
You asked about the impact of the low water level in the Rhine.
If I remember correctly, our total effect in 2019 was 0. 25 billion euros.
The vast majority of them are in the chemical sector, and we obviously do not want that to happen again in 2019.
So, we therefore adhere to the guidance we provided for the chemicals section at the end of February, even though we had a hard start there.
But as I said, this is completely predictable.
Clearly, what will happen this year remains to be seen.
We think the trade conflict will be eased.
We believe that there is a good chance of an agreement between the United States and the United States. S.
At the same time, we also see that China has implemented some measures to stimulate the economy, especially reducing value.
As at April 1, VAT increased from 16% to 13%.
It's too early to say what that actually means, but it should act as a stimulus to the economy.
It is hoped that this will help to see the problem correctly.
The second question about oil and gas.
DEA, winterwell, what happens there.
The company repaid the shareholder loan on May 1.
This is a single billion euro low for BASF.
I look at Mark and I think Mark will use it to address our current net debt level, just over € 19 billion.
Thomas. And so just --
Sorry, I want to qualify your comment--
So when you talk about the improvement of the economic and trade elements, is it because that is the quantitative driver that you want to improve in the second half of the year? Or is there a --
Are you looking forward to the margin section as well?
I mean, in terms of the spread of costs rather than the absorption of fixed costs.
Is the second half of the year dependent? Hans EngelYes.
We will definitely hope this is a volume driver.
Then, when you look at the balance between supply and demand, this should also have a positive impact on profit margins.
Thank you very much.
Thank you very much.
The second question comes from Laurent Favre of BNP Paribas.
Good Morning, everyone.
I have two questions on ag.
The first is your traditional business.
Volume fell by 8%.
I think in the last eight days two of your three biggest competitors have published a number closer to zero minus a slight increase. And I'm --
I appreciate that you didn't play a season in the first quarter, but I'm just wondering where you think you're not doing well or if you think it might come back in the second quarter.
The second problem is Bayer's legacy business or acquired Bayer assets.
Can you give us an introduction to the performance of Q1?
I don't know what the best side you have in terms of disclosure, but organic growth in the first quarter --on-
There may be a year or usual seasonality between the first and second quarters of the acquired assets.
Basically, we can consider the next quarter of Bayer's acquisition of assets. Thank you. Hans EngelYes. Yes.
Thank you for your question, Laurent.
First on your volume.
If I see this correctly, I think at least one competitor has recently said that their sales have fallen far more than we have. So --
I think it has something to do with your geographical footprint.
What we have experienced is obviously that we started very, very slowly in the ag solution business of crop protection products in North America.
This is driven by bad weather conditions, there is a lot of snow on the Arctic ground, and then the flood.
What we are going to face is a sense of compression that has a significant impact on the sales of q1 herbicides and fungicides.
But as you said correctly, Q1 gives you an indication.
Let's see what the second quarter will look like, and then we can have a look--
In the northern hemisphere.
So yes, we have a 8% drop in sales, and I think the price of our traditional business is up 4% at the same point in time.
Overall, we are still calm, collecting and fully prepared for the business in the second quarter, let's see how this will go.
It's definitely in North America, it's--
For reasons already explained, the start to the first quarter was weak.
Q2 based on what I 've seen so far in April, I don't have the final figures yet, but, compared to what we did in February and experienced, there's definitely an increase in sales.
Now the problem with the Bayer business is that I can't give it to you-Q1 2018.
What I can tell you is that this is a qualitative statement that the business in the first quarter was generated better than we planned.
Therefore, we have seen very strong canola business in Canada and the United States. S.
We have seen a good development in the cotton business.
So from this point of view, you will see the contribution that the business has brought, and I think it is a structural effect in our over 50% ag business.
When I saw that the profitability of the business was exactly what we expected.
What I want to say to you is very honest, we talked about this, I think when we last met, when you bought a company in the second half of the year, sitting there doesn't produce anything, but as a CFO you'll be a little worried about the cost.
You look at the forecast and planning for the first and second quarters and you tell the business person to show me the figure.
They certainly brought the first quarter figures.
Avreexcellent. Thank you.
Sun Yanzi WettbergOkay.
The next question comes from Christian Faitz of Kepler Cheuvreux. Your turn.
Yes, Christian Faitz.
Good morning, gentlemen, Stefie.
Two questions if you can.
First of all, I just wanted to hear from you about the sharp drop in automotive OEM and coatings, while sales across the paint industry fell by only 2%.
My understanding is that the OEM business obviously outweighs the refining business as well and is a key driver in this department.
So which segment is performing so well?
The second problem is also the agricultural problem, which is related to the weak sales of what you call the herbicide in the United States. S.
Is this more of a product of your wheat straw or a grass Ester? Thanks.
Hans Engel Christian, I will start with the second part of your question.
Overall, this is a very slow start to the herbicide, especially in North America.
So I'm talking about the fear, and then the grass, but as I said, the overall development of the season remains to be seen.
So your problem with the paint production, yes, OEM has played a strong role, we have seen the decline in the paint production.
Our car refin paint business is doing well in q1.
We have experienced what we would like to see in the Chemetall business, which is a good solid volume growth.
Then, we have a small decorative paint business in Brazil compared to the previous year.
This is definitely better than our 2018 performance.
I hope that explains why you can't see our overall paint business decline in the automotive industry, where production is down by a negative 6%.
Thank you very much.
As usual, HDM is shorter.
Thank you, Hans Engel.
Sun Yanzi WettbergThank you.
The next one on our list is Tony Jones, reborn.
Good morning, Tony Jones. I had two.
First, the downstream division.
Margins are much better than most people expect and you call for better pricing and cost management.
I just wanted to explore how sustainable you think this year is.
Related to this, the improvement section is driven by some internal changes that you are making?
Maybe you can give an update.
Secondly, can you provide a little bit about the divestiture of assets such as sales of construction chemicals and other assets?
Thank you very much.
Thank you for your question.
I'll walk down first, then Mark will handle the divestiture further.
What I want to say downstream is that we have seen some improvement in profit in general.
We have looked at pricing in an all-round way, which has had a positive impact.
We have seen that the price of raw materials in the first quarter has also contributed to the development of this profit.
The quantity does not necessarily work together, but the raw material prices in the first quarter and our own price plan drove the improvements we saw there.
We look forward to further progress.
When you take our margin level in the fourth quarter as an example of last year, we are absolutely not satisfied.
But when you look seriousover-
In the first quarter, you will see a comprehensive improvement, and we are fully committed to moving along this route and making further improvements.
I'm Mark El hadoni.
Just in the state of our divestment project.
First of all, we are there to completely strip off construction chemicals to achieve our goal of reaching a final agreement with the buyer by the end of this year.
We are putting the finishing touches on the materials and starting to move towards the market, and we expect to be available later this month.
Then in the paint business, we are still in the preparation phase to keep all our ducks moving forward in a row to push the finishing touches of the engraving
Then look at how we are going to bring these assets to market, but this is a stage behind the construction chemicals.
We're still confirming.
Hopefully there will be a deal sometime at the end of next year.
Tony Jones is perfect.
Thank you very much.
The next question comes from Andrew Stott of UBS.
Good morning, Stephen, good morning, Hans and Mark.
A few questions.
I was just wondering if you could help me from cash flow.
In this swing year of 0. 4 billion euroson-
This year, I just wanted to know that the seed business you mentioned obviously needs more structure in q1.
Try to help me with your working capital sales this year.
Cash flows were EUR 0. 3 billion, as was the case in miscellaneous projects.
Is there any guidance throughout the year?
What is that 0. 3 billion euros?
I think it has something to do with restructuring.
So this is the first question about cash flow.
The second question is guidance for the first quarter.
So I guess my main problem is 1 euro.
73 billion clean numbers?
Because I'm assuming you have the cost of operating access there, I'm assuming you have the cost of Bayer integration there.
Can you give us a clean number? Thank you.
Okay, Hans Engel. Thanks, Andrew.
Marc will start with cash flow and then I will answer your question on clean 1. 73.
Mark El Tokai
Andrew, so the first is the second question about the 0. 3 billion euros cash flow that we get in Misc.
These are due to the Solenis transaction and one of the withdrawals that we have to do, and the authorities are asking us to do so we can complete the P & L re-classification effect of Bayer's acquisition.
So I think they're one.
Things that shouldn't come back.
Regarding our overall cash flow I think this is a seasonal shift and you will see that because the seed business is so strong in the first quarter that we have this part in the growth of accounts receivable.
The impact that you should consider in the calculation for a year is only a drop in our income, which should give you a good idea of where we will come out.
Andrew StottSo, in the first quarter inventory number, did not have a substantial impact on the building inventory of the turnaround?
Hans Engel has a little bit there, because we obviously have more inventory in the two cookie turnaround we have.
We also turn around in other parts of the petrochemical business, especially the acrylic chain.
Bayer, in particular, has three factories in Asia.
When you look at the stock development, I think the balance sheet shows that the stock has increased by 0. 4 billion euros.
Yes, this is partly driven by the preparations for our big shift in the second quarter.
Andrew, your question is how clean the guide and 1 euro are.
Before special items, we have 73 million numbers in EBIT.
Yes, I want to say a middle.
Integration has had millions of impacts.
In other words, Bayer assets and businesses that we are integrating.
It is clear that most of the costs incurred by the PPA and restructuring are special items and sit there, but it is now halfway throughdouble-
The number million runs through the underlying EBIT in q1.
Then I just thought if there was anything else.
No insurance payments, nothing like that.
So this is really a clean number.
I'm sorry just to follow up. up on that. The Q2 year-on-
Obviously you said another tough quarter this year, but you 've had two months of oil and gas in those three months.
You mean April looks better in terms of crop protection.
Do we think you will be a little better than minus 24%?
I know you won't be guiding every quarter, but there are too many activity sections at the moment to get an idea. Thank you.
As I know you, BASF has no quarterly guide.
But give you an idea there, yes, it is correct that we will get the share of winterwell Dea net profit from May-
Net profit in May 1.
In our EBIT, we achieve net profit like other merger activities.
We launch this feature in EBIT, so EBIT will benefit from it.
However, we should pay attention to one sentence.
When you think of the results that winter will Dea and we showed for winter will in 2018 and 2019, remember that when this was transferred to the discontinued business, we stopped Depreciation and amortization. This is not --
We stopped it, we-
That's what IFRS are asking us. -
You are required to do so by the international financial reporting guidelines.
This is one thing.
The second thing to keep in mind is that it will be a year for winterwell Dea to act not only together.
It began to work on integration and restructuring.
As we said, it is expected that the labor force will be reduced from the current 4,000 to 3,000.
My assumption is that we will see a good part.
Time costs associated with 2019. So this is --
Remember these two things.
Thank you very much Hans.
Sun Yanzi WettbergGood.
The next question comes from Charlie Webb at Morgan Stanley.
Good morning, Charlie Webb.
Two very simple questions, hopefully.
First of all, you just mentioned the turnaround effect you expected, and I think most of it fell in the second quarter, or mostly in the second.
Can you remind us what the impact is for the whole year? How should we consider the staging for the rest of the year?
The second question is in the comments on the Rhine.
It is clear that we have heard or seen some news of the Rhine, which is still at a fairly low level.
Obviously, it has no impact in the first quarter and you are guiding that there will be no impact this year and last year.
Do you have any feelings about where these levels are?
When we consider the potential impact of 2019, should we be aware of a certain level of risk?
The second problem is the water level of the Rhine and the Rhine. Okay.
I will try to solve this problem.
At the same time, what have we done?
We have prepared and we can do it in a relatively short time.
The Rhine water level has two effects on BASF.
One is the possible impact of the Rhine water level and the Rhine water temperature on our cooling water condition.
We have been using this time since last summer to improve this whole and reduce our dependence on the Rhine to get water, so this is a mitigation measure we have taken.
We also invested in additional storage capacity on the port Ludwig website in order to be able to better cope with the situation in the third and fourth quarters of last year.
That's what we can do. there's no more.
So what do we do? -
In addition to looking at the traffic conditions and what we did there, what we could do was we made an extra reservation for the barge, it should help if we encounter similar situations again in 2019 or the next few years.
This is the water level in the Rhine.
Your second question is turnaround.
The turnover load of Q2 will be very large.
It will then be extended to q3.
What I have to do is I have to look at the effect Quarter --over-quarter.
According to my memory, the cost associated with turnover in the second quarter is expected to be higher than in the second quarter of last year, with an approximate range of 100 million euros to 0. 15 billion euros in the second quarter of this year, but I have to check it as soon as possible, then call you back.
Charlie Webb Kay
Thank you very much.
Welcome, Hans Engel.
Sun Yanzi WettbergOkay.
We have 6 more people in line and only 15 minutes so I will ask you to stick to two questions at a time.
We have Andreas hyin first, then Sebastian Bray, then Peter Clark.
Let's start now with Andreas Heine.
Please continue. Andrea, in Heini recovers
Two small ones, I will keep it short.
On the face of it, this is a strong result, and I just want to confirm if this is really sustainable or if you have an extra profit in precious metal trading because this precious metal has considerable volatility, you can usually make a profit from the transaction?
The second is dispersion and pigments, which were also improved last year.
Your competitors in paint are very weak in this review.
So this time can you please make a little difference between the two dispersion and the pigment because the pigment is a non-dispersion
This is the core when you are getting rid of it.
So I would like to know how the dispersion performs. Thanks.
Mark EhrhardtAndreas, the deal for my first question.
I think you have correctly diagnosed that the trading business is a volatile business, and we have also seen fluctuations in the price of precious metals, and now we have a situation.
You may have observed that we have spot stock on palladium, so this has a negative impact on the results of the transaction.
But I would say that the deal will slow down as precious metals fluctuate.
Andres higny was a benefit of Q1 at the time, was the second quarter negative?
That's what you said?
In the first quarter, our sales rose by 2%.
Due to the positive impact of the dollar, this is a quantity minus three and the price plus three.
Are you talking about different incomes?
Mark El Hatton from EBIT? Sorry.
Andrea, in like nice
Because precious metals are usually what you have. . .
Marc EhrhardtWe had a little bit of improvement on EBIT and yes, we did.
Andreas Hino. Thanks.
Hans Engel now I think it's important to look at Andreas from a general perspective.
When you see our business in catalyst, you have the precious metals trading business.
Trading margin is obviously very low.
You have a car catalyst business.
You have our chemical catalyst business, you have chemical refining business-
Or refining the Catalyst business, you have the battery material business.
It's not surprising that the auto industry was hit hard in the first quarter.
The chemical catalyst business is developing very well.
Our refinery is doing well or achieving the desired goals.
Battery material is a growth business we are developing as expected.
So when I looked at the Catalyst department, I came to the conclusion that the increase in revenue was not driven by precious metals.
The increase in profits is driven by the good results we have achieved in our chemical catalyst business.
What happens in the second quarter?
The price trend of precious metals remains to be seen.
Now it seems that we find ourselves in a different environment than in the whole year of 2018, during which precious metals prices have been rising, especially palladium prices.
If someone had told me five years ago that we would have seen the price of palladium over 1500, I would have said the dream came true.
The development there is very interesting.
Your second question is about dispersion and paint.
What do we see in the dispersion and pigment departments?
The first quarter of the decentralized business can also.
We saw a slight drop in volume there and EBIT, just below Q1 2018.
We have similar developments in pigments. We also --
As you know, all customers are in Asia.
So we also saw a drop in volume there.
The price of the business rose slightly, but EBIT fell overall.
Then we have a third business in that operation department, which is resin.
In terms of resin, our sales are slightly lower, but the price has risen sharply.
Our EBIT growth is strong compared to the same period last year.
Andreas Hino. Thanks a lot.
Sun Yanzi WettbergOkay.
Now it's Sebastian Bray of Berenberg.
Good morning, thank you for answering my question.
Give me two, please.
The first is more reports.
But why is it that seed and crop protection are not separate in agriculture, because most peers separate these two categories.
To understand what I'm saying, right? -
Most of the assets acquired by Bayer actually grow from seeds?
I think that's what I mentioned earlier?
The second question is ---
When reaching the guidance of low EBIT growth during the year, low order
Digital percentage, is there any net income from cost savings this year? Thank you. Hans EngelOkay.
I will answer your last question first.
Yes, net income is included, but it is expected to be available only in the second half of the year.
It will take a little time to implement these cost reduction measures, which we expect will have an impact there in the second half of 2019.
I think your second question is, where is the growth of the acquiring business actually coming from, which is obviously the seed.
As I said, we have a very strong start in the seed business, especially in North America.
It was very interesting to see this when I compared how the seed business developed into our traditional crop protection business to North America.
This is at both ends of the spectrum, one performing very well and the other facing challenges.
I think your first question is about the crop protection or the ag solution section, why don't we separate the seed from the crop protection.
This is BASF's cash.
This is the result that we keep it and show it this way.
It's also related to how we run our business in a way that is usually very closely linked to each other.
We hope to achieve full synergy between crop conservation portfolios and seed portfolios.
So we come to the conclusion that it is shown in this way.
If you give an example on page 80 of our annual report, we will provide you with related businesses such as fungicides, herbicides, pesticides, farm and crop care, as well as seeds and properties, we hope that this will create the necessary transparency that we want to see.
Sebastian Bray. Thank you.
Welcome, Hans Engel.
The next question comes from Peter Clark of Societe Generale, France.
Good morning everyone, Peter Clark. Thank you.
This is probably for you, Hans.
Two questions about inflection points
First of all, you may get a decent price even in the OEM business.
Just wondering where you see the end.
Secondly, the inflection point of the performance material EBIT.
I see the margin apparently changed a little while ago.
You were hit by a drop in sales.
I realize that these are macro. you believe in this macro stimulus in China and many cars, because I believe your car predicts that there may be a slight increase in transportation this year, including in China, so your view on these two inflection points is the absolute EBIT of coating profits and performance materials. Thank you. Hans EngelYes.
As you have already said, it is clear that it depends on the needs and then on the mood and the overall economic development.
The decline in the price of Isocyanate has benefited our performance materials business.
Yes, the profit has increased, but the profit has declined due to our volume of performance materials, which is one of the big suppliers of the car industry.
So once we see demand picking up there, it's obviously going to have an absolute impact not only on profit margins, but also on EBIT.
I haven't seen the April figures yet.
I mean they pay close attention as soon as they go out.
I will study and analyze it.
It's not fun in January, February and.
If you look at the car production data in China, especially indigits. That hurts.
But listen to our customers, read, what they're saying is, I think the three major producers in Germany have all made statements and they see the progress in the second half of the year, some people are already talking about some of the shoots they see in Asia, especially in China.
So, for me, it's too early to say that there are green buds.
But once I have the data for April, I can better comment on our current developments.
In general, the same is true of paint.
As I said before, OEM coatings are clearly in trouble, but the chemicals business, the finished product business and our decorative paint business in Brazil are compensated to some extent, but they can't fully compensate for what we lost in the OEM paint business.
So, as you guys, we hope the situation in the automotive industry can improve rapidly. Peter Clark.
Sun Yanzi WettbergOkay.
Three more people asked questions online.
Markus Myers, Chetan Udeshi and Georgina Iwamoto remember that the general meeting is scheduled to begin at 10: 00.
I really want to ask you a question that you 'd better ask briefly.
It's Markus Mayer, Baader-Helvea.
Hans engery now wants to answer briefly, as I need to leave here in three minutes.
There's only one problem on my side.
If you can help us
You already said that.
You have paid off on the positive side in q1.
Maybe you can separate that.
The difference between divestiture revenue and consolidation and structural costs in q1.
This will be very helpful.
The short answer to Hans engerso about this is that you see that we are generating positive special items, which means that the cost of restructuring exceeds the compensation for the income we receive from the divestiture, this is the proceeds from the fear-free transfer we have received from the water and paper processing business to our Solenis where we are now attended by 49% people.
Then, this is to comply with the EU's divestiture requirement, one of the divestitures that we have to carry out, so one of the Bayer assets that we have to divestiture produces a good profit, in both cases, there is an order of magnitude low. triple-digit millions.
It is now Chetan Udeshi of JPMorgan Chase.
Chetan UdeshiYes, hi.
One of my questions is to clarify the guidance because I think--
Correct me if I am wrong, but previously oil and gas was expected to be included in your EBIT in the second half.
It was two months ago.
So, you still haven't changed your guidance for the whole year, just to confirm that any potential other parts haven't changed in terms of guidance. Thank you.
Hans engerno, did not and did not expect.
As I tried to explain earlier, don't expect the impact of oil and gas to be two months earlier than what you put into the model.
Welcome, Hans Engel.
The last question comes from Georgina Iwamoto of Goldman Sachs.
Hans Engel, are you mute? No longer --
Stefanie Westberg, she's not there.
So this is the end of today's conference call.
Finally, I would like to mention that we are planning to hold a capital market day in Ghent, Belgium, on September 27 on activities to strengthen agricultural solutions, so please keep the date in the diary.
Thank you for joining us this morning and see you now.
Thank you, Hans Engel.
Ladies and gentlemen, the meeting is over and you can disconnect your call.
Thank you for joining us and wish you a happy day. Goodbye.