BASF Conference Call Speech (including slides) September ...
Transcript of BASF Conference Call Speech (including slides) September ...
Dr. Hans-Ulrich Engel Vice Chairman of the Board of Executive Directors and Chief Financial Officer, BASF
Mario Mehren Chief Executive Officer, Wintershall
The spoken word applies.
BASF and LetterOne sign agreement to merge Wintershall and DEADr. Hans-Ulrich Engel, Chief Financial Officer, BASF Mario Mehren, Chief Executive Officer, Wintershall BASF Conference Call, LudwigshafenSeptember 28, 2018
BASF Conference Call Speech (including slides) September 28, 2018
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BASF Conference Call September 28, 2018
September 20182
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements. These statements are based on currentestimates and projections of the Board of Executive Directors and currently available information.Forward-looking statements are not guarantees of the future developments and results outlined therein.These are dependent on a number of factors; they involve various risks and uncertainties; and they arebased on assumptions that may not prove to be accurate. Such risk factors include those discussed inthe Opportunities and Risks Report from page 111 to 118 of the BASF Report 2017. BASF does notassume any obligation to update the forward-looking statements contained in this presentation aboveand beyond the legal requirements.
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BASF Conference Call September 28, 2018
Hans-Ulrich Engel Ladies and gentlemen, good morning and thank you for joining us on
short notice.
I am delighted to tell you more about the agreement we signed late
last night with LetterOne on the formation of Wintershall DEA. We will
create significant value for both shareholders of the joint venture by
forming the leading independent European exploration and production
company, seizing additional growth opportunities, generating
synergies of at least €200 million per year and last but not least IPO
Wintershall DEA.
In the following, I will briefly highlight Wintershall DEA’s main
characteristics, the key elements of the transaction agreement and the
corporate governance structure of the company. Mario will later
provide you with further operational details.
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BASF Conference Call September 28, 2018
September 20183
BASF Group’s strategic rationale for the mergerof Wintershall and DEA This merger is an important value-creating step on BASF’s strategic path
Value creation through additional growth opportunities, realization of synergies and the envisaged IPO
Creating the leading independent European exploration and production company with strong international operations and significant scale
Combined business with pro-forma 2017 sales of €4.7 billion, EBITDA of €2.8 billion and net income of €740 million
Broadening and balancing the regional asset footprint: 2017 pro-forma production of 210 million boe and 2.2 billion boe 1P reserves
Portfolio upgrading across the whole E&P lifecycle, leveraging strategic partnerships and technologies
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BASF Conference Call September 28, 2018
[Chart 3: BASF Group’s strategic rationale for the merger of Wintershall and DEA]
Yesterday night, BASF and LetterOne signed a definitive transaction
agreement to merge their respective oil and gas businesses in a joint
venture, which will operate under the name Wintershall DEA. This
merger is an important value-creating step on BASF’s strategic path.
By combining these two German-based entities, we create the basis
for further profitable growth. Wintershall DEA will become the leading
independent European exploration and production company with
strong international operations and significant scale. In 2017, the
combined business had pro-forma sales of 4.7 billion euros, EBITDA
reached 2.8 billion euros and net income amounted to 740 million
euros.
We will strengthen the portfolio footprint of the combined business and
realize synergies, thus creating significant additional value.
Furthermore, BASF and LetterOne envisage to list Wintershall DEA
through an Initial Public Offering (IPO).
The merger will lead to a more balanced regional footprint with even
stronger operating companies. In 2017, pro-forma hydrocarbon
production totaled 210 million barrels of oil equivalent (boe); this
equals a production of around 575,000 boe per day.
Through leveraging strategic partnerships and sharing technological
expertise, Wintershall DEA will enhance its access to growth
opportunities.
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BASF Conference Call September 28, 2018
September 20184
Creation of the leading European E&P Independent with international operations and significant scale: Wintershall DEA A clear strategy for profitable growth based on solid project pipeline with access to high-potential acreage
Focus on core regions and activities with limited exploration risk
World-class partnerships in key countries
Success through operational excellence and technological expertise
Track record as cost-efficient operator with low reserve replacement costs and low production costs
High quality portfolio across the whole E&P lifecycle with strong free cash flow
Major operator in the non-cyclical European gas transportation business
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BASF Conference Call September 28, 2018
[Chart 4: Creation of the leading European E&P Independent with international operations and significant scale: Wintershall DEA]
Wintershall DEA has a clear strategy for profitable growth based on a
solid project pipeline. As a mid-size E&P company, the joint venture
will continue to focus its activities on core and development regions
where Wintershall and DEA built up specific know-how. Exploration
activities are near- and greenfield and operated with a limited
exploration risk profile.
The company will further strengthen its world-class partnerships in key
countries and leverage operational excellence and technological
expertise. Wintershall DEA will be one of the most cost-efficient
operators with low reserve replacement costs and low production
costs. The joint venture will also be a major operator in the non-cyclical
European gas transportation business which provides earnings
stability. And last but not least, Wintershall DEA has a superior growth
portfolio across the whole E&P lifecycle and generates strong free
cash flows.
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BASF Conference Call September 28, 2018
September 20185
Key elements of the definitive transaction agreement
BASF’s oil and gas business is bundled in the Wintershall Group consisting of Wintershall Holding GmbH and its subsidiaries. LetterOne’s oil and gas business comprises DEA Deutsche Erdöl AG and its subsidiaries.
LetterOne will contribute all its shares in DEA Deutsche Erdöl AG into Wintershall Holding GmbH against the issuance of new shares to LetterOne.
BASF will initially hold 67% and LetterOne 33% of WintershallDEA’s ordinary shares reflecting the value of the respective E&P businesses of Wintershall and DEA.
To reflect the value of Wintershall’s gas transportation business, BASF will receive additional preference shares.* This will result in a total shareholding of BASF in Wintershall DEA of 72.7%.
* Preference shares will be converted into ordinary shares in Wintershall DEA no later than 36 months after closing but in all cases before an IPO.Initially, it was intended to reflect the value of the gas transportation business through a mandatory convertible bond.
Ordinary sharesPreference shares*
Wintershall Holding GmbH
DEA Deutsche Erdöl AG
100% 100%
Wintershall Holding,renamed: Wintershall DEA
67% (72.7%) 33% (27.3%)
DEA Deutsche Erdöl AG
5.7%
Existing shareholding structure
Post-merger shareholding structure
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BASF Conference Call September 28, 2018
[Chart 5: Key elements of the definitive transaction agreement]
To effect the merger, LetterOne will contribute all its shares in DEA
Deutsche Erdöl AG into Wintershall Holding GmbH against the
issuance of new shares of Wintershall to LetterOne. Wintershall will
then be renamed Wintershall DEA. BASF will initially hold 67 percent
and LetterOne 33 percent of Wintershall DEA’s ordinary shares
reflecting the value of the respective exploration and production
businesses of Wintershall and DEA. To reflect the value of
Wintershall’s gas transportation business, BASF will receive additional
preference shares following the closing resulting in a total
shareholding of BASF in Wintershall DEA of 72.7 percent. No later
than 36 months after closing but in all cases before an IPO, these
preference shares will be converted into ordinary shares of Wintershall
DEA.
Initially, it was intended to reflect the value of the gas transportation
business through a mandatory convertible bond. However, we now
agreed to replace the bond with preference shares, which offer a
higher degree of flexibility in terms of capital structuring.
Closing of the transaction is expected in the first half of 2019, subject
to approvals of merger control and foreign investment authorities as
well as several mining authorities and the German Federal Network
Agency. In the medium term, BASF and LetterOne envisage to list
Wintershall DEA through an IPO.
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BASF Conference Call September 28, 2018
September 20186
Three-tier corporate governance structure of Wintershall DEA
Management Board
Supervisory Board
Shareholders’ Committee
Responsible for day-to-day operations and overall management in accordance with business plans and annual budget
Responsible for supervision of the Management Board Co-determination level of one third
Shareholders will coordinate their interests based on the framework of a shareholders’ agreement
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BASF Conference Call September 28, 2018
[Chart 6: Three-tier corporate governance structure of Wintershall DEA]
BASF and LetterOne agreed on a corporate governance structure
which leads to joint control and determines our reporting. Later on,
I will explain the impact on BASF’s statement of income in detail.
BASF determined Mario Mehren as the Chief Executive Officer and
the Chairman of the Management Board; LetterOne determined Maria
Moraeus Hanssen as the deputy CEO and Chief Operating Officer of
Wintershall DEA. In total, the Management Board will comprise five
members with distinct responsibilities.
Wintershall DEA will have a Supervisory Board with a co-
determination level of one third. The Supervisory Board shall initially
consist of four representatives of BASF, two representatives of
LetterOne and three employee representatives. In preparation of an
IPO, the Supervisory Board shall later be composed of four
representatives of BASF, two representatives of LetterOne, four
employee representatives and two independent members.
The shareholders BASF and LetterOne will coordinate their interests
in a Shareholders’ Committee.
Wintershall DEA will be headquartered in Kassel and Hamburg.
With that I hand things over to Mario, who will tell you more about
Wintershall DEA.
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BASF Conference Call September 28, 2018
September 20187
Focused activities along the whole value chain
TransportationExploration – Development – Production
MidstreamUpstream
Growing profitably with E&P activities1 Contributing
stable earnings2
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BASF Conference Call September 28, 2018
Mario Mehren Welcome to our call also from my side.
[Chart 7: Focused activities along the whole value chain]
Let me highlight Wintershall DEA’s strategy, its strengths and key
capabilities as well as the position of the company within the E&P
industry.
Wintershall DEA has a focused business model and is active in the
exploration, development and production of natural gas and crude oil.
Going forward, our strategy is to further profitably grow our upstream
activities. We secure our lasting success by broadening our
technological expertise. Our focus is on increasing the yield from
producing fields as well as on operating as efficiently as possible.
In addition to exploration and production, we are also running
– together with our partner Gazprom and other companies – a well-
connected gas pipeline network in Europe, which contributes stable
earnings.
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BASF Conference Call September 28, 2018
September 20188
Strong financial and operational performance
1P reserves** Production 2017***Sales 2017
2.2billionboe
Wintershall 77%
DEA 23%
210million
boe
Wintershall 78%
DEA 22%
€4.7billion
Wintershall 69%*
DEA 31%
EBITDA 2017
€2.8billion
Wintershall 73%*
DEA 27%
** As of December 31, 2017* Including the gas transportation business *** Thereof: 67% gas, 33% liquids
Combined KPIs (pro-forma) of Wintershall DEA
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BASF Conference Call September 28, 2018
[Chart 8: Strong financial and operational performance]
The following slide depicts the financial and operational performance
of Wintershall DEA on a pro-forma 2017 basis. With sales of 4.7 billion
euros and an EBITDA of 2.8 billion euros, the company will be the
leading independent European E&P company.
Total production amounted to 210 million boe in 2017. The merger
leads to combined proven reserves of 2.2 billion boe and a healthy R/P
ratio of 10 years on a pro-forma basis at the end of 2017. This is in line
with our target range.
The 2P and 1P reserves stood at 3.9 billion boe which lead to an R/P
ratio of 18 years. Of these reserves, 46 percent are already developed
and will support production growth in the mid-term.
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BASF Conference Call September 28, 2018
September 20189
Geographically diversified footprint with significant growth potentialin core regions
Argentina
North Africa
Europe Russia
DEA production activities
Wintershall production activities
Norway
GermanyNetherlands
DenmarkU.K.
Mexico Middle East
Brazil
Development region
Algeria Libya Egypt
Combined share of production and 1P reservesby region, end of 2017 (pro-forma)
1P reserves: 30%Production: 35%
1P reserves: 52%Production: 43%
1P reserves: 11%Production: 10%
Latin America1P reserves: 7%Production: 12%
Core region
.
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BASF Conference Call September 28, 2018
[Chart 9: Geographically diversified footprint with significant growth potential in core regions]
When you look at the map on slide 9, you see the production asset
footprint of the combined business. I would call it “a perfect match”
with a strong presence in Western Europe, Russia, Latin America and
in North Africa.
Our strategy to concentrate on core regions will remain in place and
we will further establish partnerships in each region or country and
combine the regional expertise with our technological expertise to
create value for our shareholders. Examples are Gazprom in Russia
and Equinor (formerly Statoil) in Norway.
In addition to our existing core regions – that’s where we are already
producing – we have so-called development regions. In these regions,
we are evaluating projects and are conducting for example exploration
activities.
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BASF Conference Call September 28, 2018
September 201810
Leading position of Wintershall DEA in core regions
Source: Wood Mackenzie UDT. Note: North West Europe consists of production in UK, Germany, Norway, Denmark, the Netherlands; North Africa consists of production in Egypt, Algeria and Libya
Largest independent producer in North West Europe 2018E
Largest independent producer in Argentina 2018E
0
20
40
60
80
WintershallDEA
BridasEnergy
Holdings
PampaEnergia
Techint Pluspetrol CNOOC SinopecGroup
DowDuPont Capsa CorporacionAmerica
kboe/d
0
50
100
150
200
250
WintershallDEA
Chrysaor Centrica INEOS Engie Chevron OMV Apache EnQuest AKER
kboe/d
0
200
400
600
800
Eni BP Apache WintershallDEA
Shell SinopecGroup
Repsol Total Equinor Gazprom
kboe/d ** Excl. NOCs
Among Top 5 international producers in North Africa** 2018E
Largest international producer in Russia* 2018E
0
50
100
150
200
250
WintershallDEA
Shell ONGC OMV ExxonMobil Mitsui & Co SinopecGroup
MitsubishiCorporation
Oil India ExillonEnergy
kboe/d * Based on directly owned assets
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BASF Conference Call September 28, 2018
[Chart 10: Leading position of Wintershall DEA in core regions]
To dive a little bit deeper, the following benchmark shows Wintershall
DEA’s leading position in its core regions. Based on the expected
production volumes in 2018, the company will be:
• the largest independent producer in North West Europe,
• the largest independent producer in Argentina,
• the largest international producer in Russia and
• among the top 5 international producers in North Africa.
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BASF Conference Call September 28, 2018
September 201811
Balanced portfolio across the whole E&P lifecycle
Europe
Russia
Latin America
North Africa/ Middle East
Norway: Njord area, Skarv, Vega, Gjøa, Maria, Edvard Grieg, Brage
Germany: Mittelplate, Emlichheim, Völkersen
Yuzhno Russkoye Cenomanian
Achimgaz
Wolgodeminoil
Egypt: West Nile Delta, Disouq, Golf of Suez
Algeria: Reggane Nord
Libya: Al Jurf C137, C96/97
Argentina: Cuenca Marina Austral 1 (Canadon-Alfa, Carina-Aries, Vega Pleyade), Aguada Pichana
Mexico: Ogarrio oil field
Norway: Asta Hansteen, Nova, Dvalin, Snorre
Yuzhno Russkoye Turonian Achimov blocks 4 and 5
Egypt: Giza, Fayoum and Raven in West Nile Delta
Algeria: Reggane Nord development phase III
Libya: Concessions NC193 and NC195
Argentina: Cuenca Marina Austral 1 follow-up projects (Fenix, Leo) and significant growth potential in Vaca Muerta shale play
EuropeDevelopmentExploration Production
Libya: Exploration wells in theCyrenaica Plateau, Sirte Basin
Abu Dhabi: Appraisal of the gas/condensate field Shuwaihat
Yuzhno Russkoye, additional layers
Norway: ~22,000 km² exploration acreage with 50 licenses
Argentina: Exploration Mendoza CN-V
Brazil: Seven offshore exploration licenses
Mexico: Four exploration licensesshallow water Gulf of Mexico
NL/DK/UK: ~5,500 km² offshore exploration acreage with 35 licenses
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BASF Conference Call September 28, 2018
[Chart 11: Balanced portfolio across the whole E&P lifecycle]
Wintershall DEA has a solid project pipeline with access to high-
potential acreage. Along the whole E&P value chain from exploration,
development and production, the company has a balanced portfolio of
producing assets and projects, which will fuel future growth.
Let me briefly mention some of the major projects:
• Together with our partners, we will develop the Turon layers of
the giant gas field Yuzhno Russkoye and thus prolong the
plateau production for several years.
• Another example is the Nova oil discovery in Norway.
Wintershall will develop the project as operator. To secure a cost
efficient and an environmentally friendly development, we will
use a subsea tie-back and the existing infrastructure in this area.
As both companies did in the past, Wintershall DEA will continue to
actively manage and upgrade its portfolio. The combination of the
portfolios offers further possibilities to enhance the value of the assets.
We will apply our technological expertise, further increase the share
of own-operated assets and ultimately optimize the free cash flow.
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BASF Conference Call September 28, 2018
September 201812
Well-positioned to further grow production
* Restated: 51% Libya onshore, incl. 50% Achimgaz Source: Wood Mackenzie, Wintershall
0
200
400
600
800
1,000
2010* 2017
750-800
~575
Wintershall DEA
~425
Wintershall DEA production growth (pro-forma)
kboe/day
Wintershall DEA
2021-2023
Wintershall DEA production growth vs. international peers
0% 3% 5% 8% 10% 13% 15%
Production CAGR 2017-2023
Wintershall DEA
Wintershall
DEA
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BASF Conference Call September 28, 2018
[Chart 12: Well-positioned to further grow production]
Based on the underlying E&P projects, I would like to give you an
indication on the growth opportunities of Wintershall DEA within the
next years. Through the merger, the company is on track to reach a
production level of 750,000 to 800,000 boe per day by 2021 to 2023
from currently 575,000 boe per day. This equals an annual production
growth rate of 6 to 7 percent. If you compare this to our peer group,
you can see that we are well positioned with respect to future growth.
To deliver shareholder value, Wintershall DEA will set the focus on
project execution and operational excellence.
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BASF Conference Call September 28, 2018
September 201813
Competitive cost position supported by highreserve replacement ratio
171%
189%
224%
0% 50% 100% 150% 200% 250%
Production costs*US$/boe; five-year average 2013-2017
Reserve replacement ratio%; five-year average 2013-2017
11.1
8.6
8.0
0 5 10 15 20
12.4
Average peersPeers
Wintershall
Wintershall DEA
Wintershall
DEA**
Wintershall DEA
147%
* Production costs include also transportation expenses and production relevant taxes; ** DEA figures only available for the last 3 years; Source: IHS, own calculation. Peer group represents an average of the E&P industry
DEA**
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BASF Conference Call September 28, 2018
[Chart 13: Competitive cost position supported by high reserve replacement ratio]
Cost efficiency is key for Wintershall. We strictly manage our costs
and we are one of the companies with the lowest production costs in
the industry. We have several initiatives in place which target to further
reduce our costs. This focus will also be kept in the merged entity.
Both companies, Wintershall and DEA, continuously invested in the
reserve replacement and also secured their leading positions with
respect to the reserve replacement. Strict cost management for
investment projects and stringent selection criteria for new projects
are also key to replace the reserves in a profitable manner.
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BASF Conference Call September 28, 2018
September 201814
Merger offers synergy potential of at least €200 million per year*
Portfolio upgrading through combining businesses and active portfolio management
- Focus on most profitable assets and most promising discoveries
- Cash flow and capital expenditure optimization
Cost synergies through joint procurement, exploration and R&D
Combination of operating companies in Germany and Norway
Combination of corporate functions
* As of the third year following the closing of the transaction
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BASF Conference Call September 28, 2018
[Chart 14: Merger offers synergy potential of at least €200 million per year]
By combining the German-based companies Wintershall and DEA we
will be able to realize significant synergies.
Through active portfolio management, we will focus on the most
profitable assets and the most promising discoveries. The cash flow
and capital expenditures will be optimized. Synergies are also
targeted through joint corporate functions, procurement, exploration
and R&D activities. Especially the portfolio overlap of the operating
companies in Germany and Norway offers substantial cost synergy
potential. We will form a joint headquarters with two locations.
In total, we expect a synergy potential of at least 200 million euros per
year as of the third year following the closing of the transaction.
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BASF Conference Call September 28, 2018
September 201815
Pipeline network connecting major European distribution hubswith stable earnings contribution Major operator in the non-cyclical European gas transportation business
- Germany as distribution hub for Europe; direct connections to European hubs
- GASCADE is number two in the German market with a pipeline grid of ~2,400 km
- Participation in Nord Stream 1 (15.5%), OPAL (40%), NEL (25.5%)
- Financing of Nord Stream 2*
Gas transportation business generates stable earnings and cash flows
- Non-regulated pipelines: long-term ship-or-pay contracts; earnings independent from demand fluctuations
- Regulated pipelines: fixed tariffs
* Gazprom is the sole shareholder of Nord Stream 2 AG. ENGIE, OMV, Shell, Uniper and BASF/Wintershall have committed to provide long-termfinancing for 50% of the total cost of the project, which is currently estimated to be €9.5 billion. Each European company will fund up to €950 million.
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BASF Conference Call September 28, 2018
[Chart 15: Pipeline network connecting major European distribution hubs with stable earnings contribution]
In addition to our exploration and production activities, the natural gas
transportation business of Wintershall is also part of the merger.
Wintershall DEA – with its partner Gazprom and other companies –
will be active in the construction and operation of natural gas pipelines
in Europe. Our pipeline network is well connected to major European
hubs, and the transit pipeline Nord Stream 1 is contributing to supply
security in Europe. We form a major part of the German gas
distribution hub for Europe.
As a major operator in the non-cyclical gas transportation business,
Wintershall DEA will generate stable earnings and cash flows from its
regulated and non-regulated pipelines.
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BASF Conference Call September 28, 2018
September 201816
Solid financial policy for Wintershall DEA
Wintershall DEA is committed to long-term profitable growth with appropriate financial resources.
The company targets an investment grade credit rating. Its capital structure will be consistent with the rating target.
The joint venture will be financed on a stand-alone basis through third-party loans and/or bonds effective from closing; shareholder loans will be repaid.
An Initial Public Offering (IPO) is envisaged in the medium term.
Following the IPO, Wintershall DEA strives to offer an attractive dividend to its shareholders.
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BASF Conference Call September 28, 2018
[Chart 16: Solid financial policy for Wintershall DEA]
Let’s now move on to the financing strategy of Wintershall DEA.
First of all, Wintershall DEA will be committed to long-term profitable
growth, which will be supported by appropriate financial resources.
Following the closing, Wintershall DEA targets an investment grade
rating. To achieve such a rating target, the capital structure will be set
up accordingly.
The joint venture will be financed on a stand-alone basis through
diversified debt financing instruments such as third-party loans and
bonds. Shareholder loans will be repayed.
As already mentioned, in the medium term an IPO is envisaged by the
shareholders BASF and LetterOne. Going forward, Wintershall DEA
strives to offer an attractive dividend to its shareholders.
And with that, back to Hans.
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BASF Conference Call September 28, 2018
September 201817
Expected timeline and next steps of the Wintershall DEA merger
* Subject to approvals of merger control and foreign investment authorities as well as several mining authorities and the Bundesnetzagentur; ** At the earliest
Letter of intent signed Transaction agreement signed
Mergerto be closed*
Integrationto be finalized
Envisaged IPO
December 2017 September 2018 H1 2019 H1 2020 H2 2020**
Preparation of IPO readiness
Preparation and implementation of integration
Page 33
BASF Conference Call September 28, 2018
Hans-Ulrich Engel
[Chart 17: Expected timeline and next steps of the Wintershall DEA merger]
Thank you, Mario. Now let’s have a brief look at the expected timeline
and next steps of the merger.
As we have signed the business combination agreement, we are now
entering the approval phase of the merger, which is expected to take
at least 6 months. Approvals are required by merger control and
foreign investment authorities as well as several mining authorities
and the German Federal Network Agency. We expect closing to take
place in the first half 2019.
In parallel, we start with the detailed preparation of the integration
phase. We expect that the integration will take roughly 12 months after
the closing. We will also work on preparing the IPO readiness. We
expect that a going public will not take place before the second half of
2020. The exact timing will obviously depend on market conditions.
Page 34
BASF Conference Call September 28, 2018
September 201818
Impact of the merger on BASF’s statement of income
Statement of income BASF Group Oil & Gas segment’s sales
and earnings are no longer included in sales and EBIT of BASF Group –retroactively as of January 1, 2018. Prior-year figures will be restated. Earnings will be presented in
the income before minority interests of the BASF Group as a separate item, income from discontinued operations. Between signing and
closing, depreciation will be suspended. Oil & Gas will not be
reported as a segment of BASF Group anymore.
Other BASF’s share of net
income generated by Wintershall DEA will be accounted for at equity and will be reported in the EBIT before special items of Other.
At-equity consolidation(share of net income shown in EBIT before special items)
Sales revenue
Gross profit on sales
Income from operations
Financial result
Income before taxes and minority interestsIncome taxesIncome before minority interestsIncome from discontinued operationsMinority interestsNet income
As of signing of the transaction agreement As of closing of the merger
SalesIncome from operations before depreciation and amortization (EBITDA)Amortization and depreciation2
Income from operations (EBIT)Special itemsEBIT before special items
Thereof costs for cross-divisional corporate researchcosts of corporate headquartersother businessesforeign currency results, hedging and other measurement effectsmiscellaneous income and expenses
Page 35
BASF Conference Call September 28, 2018
[Chart 18: Impact of the merger on BASF’s statement of income]
Let me also explain the impact of the merger on BASF’s statement of
income and how we will account for our share in Wintershall DEA in
future.
The signing has immediate effect on the reporting of BASF Group:
Sales and earnings of Oil & Gas are no longer included in BASF
Group’s reporting – retroactively as of January 1, 2018 and with the
prior-year figures restated. Until closing, which is expected in the first
half of 2019, earnings will be presented in the income before minority
interests of BASF Group as a separate item: “income from
discontinued operations.”
From the transaction closing date, BASF will account for its share in
the joint venture Wintershall DEA using the equity method and include
its share of Wintershall DEA’s net income in EBIT before special items
of the BASF Group. The gain from the transition from full consolidation
to the equity method will be shown in income from discontinued
operations as of the closing of the transaction.
Page 36
BASF Conference Call September 28, 2018
September 201819
Outlook 2018 for BASF Group*
Outlook 2018 Now PreviousSales Slight increase Slight increaseEBIT before special items Slight decline Slight increaseEBIT Considerable decline Slight decline
*Following the changed reporting of Wintershall Group after the signing of the definitive transaction agreement between BASF and LetterOne.For sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. For earnings, “slight” means a change of 1–10%,while “considerable” is used for changes of 11% and higher.
2017 Restated (continued operations) PreviousSales €61.2 billion €64.5 billionEBIT before special items €7.6 billion €8.3 billionEBIT €7.6 billion €8.5 billion
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BASF Conference Call September 28, 2018
[Chart 19: Outlook 2018 for BASF Group]
As a result of the changed reporting of Wintershall Group following the
signing of the definitive transaction agreement, BASF Group’s outlook
for the full year 2018 is adjusted.
We continue to expect a slight increase in sales compared to the
adjusted 2017 figure. We now expect a slight decline in EBIT before
special items compared to the adjusted 2017 figure, while EBIT is now
expected to decline considerably.
Before taking the accounting effects of the transaction into
consideration, a slight increase in sales and EBIT before special items
and a slight decline in EBIT was expected.
And now, Mario and I are glad to take your questions.