BASF Conference Call Speech (including slides) September 28, 2018
BASF and LetterOne sign agreement to merge Wintershall and DEA Dr. Hans-Ulrich Engel, Chief Financial Officer, BASF Mario Mehren, Chief Executive Officer, Wintershall BASF Conference Call, Ludwigshafen September 28, 2018
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. Page 2
BASF Conference Call September 28, 2018
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements. These statements are based on current estimates 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 are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in the Opportunities and Risks Report from page 111 to 118 of the BASF Report 2017. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements.
2 September 2018
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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
BASF Group’s strategic rationale for the merger of 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
3 September 2018
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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
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
4 September 2018
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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
Key elements of the definitive transaction agreement
Existing shareholding structure . BASF’s oil and gas business is bundled in the Wintershall Group consisting of Wintershall Holding GmbH and its subsidiaries.
100% 100% LetterOne’s oil and gas business comprises DEA Deutsche Erdöl AG and its subsidiaries. Wintershall DEA Deutsche Holding GmbH Erdöl AG . LetterOne will contribute all its shares in DEA Deutsche Erdöl AG into Wintershall Holding GmbH against the issuance of new Post-merger shareholding structure shares to LetterOne.
. BASF will initially hold 67% and LetterOne 33% of Wintershall DEA’s ordinary shares reflecting the value of the respective E&P 67% (72.7%) 33% (27.3%) businesses of Wintershall and DEA.
5.7% Wintershall Holding, renamed: Wintershall 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%. DEA Deutsche Ordinary shares Erdöl AG Preference shares* * 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. 5 September 2018
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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
Three-tier corporate governance structure of Wintershall DEA
. Responsible for day-to-day operations and overall management in Management Board accordance with business plans and annual budget
. Responsible for supervision of the Management Board Supervisory Board . Co-determination level of one third
. Shareholders will coordinate their interests based on the framework Shareholders’ Committee of a shareholders’ agreement
6 September 2018
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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
Focused activities along the whole value chain
Upstream Midstream
Exploration – Development – Production Transportation
Growing profitably Contributing 1 with E&P activities 2 stable earnings
7 September 2018
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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
Strong financial and operational performance
Combined KPIs (pro-forma) of Wintershall DEA
Sales 2017 EBITDA 2017 1P reserves** Production 2017***
DEA 31% DEA 27% DEA 23% DEA 22%
€4.7 €2.8 2.2 210 billion billion billion million boe boe
Wintershall 69%* Wintershall 73%* Wintershall 77% Wintershall 78%
* Including the gas transportation business ** As of December 31, 2017 *** Thereof: 67% gas, 33% liquids
8 September 2018
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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
Geographically diversified footprint with significant growth potential in core regions
Combined share of production and 1P reserves Norway by region, end of 2017 (pro-forma) Denmark U.K. Germany Netherlands Europe Russia . 1P reserves: 30% 1P reserves: 52% Algeria Production: 35% Libya Egypt Production: 43% North Africa Mexico Middle East 1P reserves: 11% Production: 10%
Latin America 1P reserves: 7% Production: 12% Brazil
Core region Development region Argentina Wintershall production activities DEA production activities 9 September 2018
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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
Leading position of Wintershall DEA in core regions
Largest independent producer in North West Europe 2018E Largest international producer in Russia* 2018E
kboe/d kboe/d * Based on directly owned assets 250 250 200 200 150 150 100 100 50 50 0 0 Wintershall Shell ONGC OMV ExxonMobil Mitsui & Co Sinopec Mitsubishi Oil India Exillon Wintershall Chrysaor Centrica INEOS Engie Chevron OMV Apache EnQuest AKER DEA Group Corporation Energy DEA
Largest independent producer in Argentina 2018E Among Top 5 international producers in North Africa** 2018E
kboe/d kboe/d ** Excl. NOCs 80 800
60 600 40 400 20 200 0 Wintershall Bridas Pampa Techint Pluspetrol CNOOC Sinopec DowDuPont Capsa Corporacion DEA Energy Energia Group America 0 Holdings Eni BP Apache Wintershall Shell Sinopec Repsol Total Equinor Gazprom DEA Group 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 10 September 2018
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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
Balanced portfolio across the whole E&P lifecycle
Exploration Development Production Europe . Norway: ~22,000 km² exploration . Norway: Asta Hansteen, Nova, Dvalin, . Norway: Njord area, Skarv, Vega, acreage with 50 licenses Snorre Gjøa, Maria, Edvard Grieg, Brage . NL/DK/UK: ~5,500 km² offshore . Germany: Mittelplate, Emlichheim, exploration acreage with 35 licenses Völkersen . Yuzhno Russkoye, additional layers . Yuzhno Russkoye Turonian . Russia Yuzhno Russkoye Cenomanian . Achimov blocks 4 and 5 . Achimgaz . Wolgodeminoil North Africa/ . Libya: Exploration wells in the . Egypt: Giza, Fayoum and Raven in . Egypt: West Nile Delta, Disouq, Cyrenaica Plateau, Sirte Basin West Nile Delta Golf of Suez Middle East . Abu Dhabi: Appraisal of the . Algeria: Reggane Nord development phase III . Algeria: Reggane Nord gas/condensate field Shuwaihat . Libya: Concessions NC193 and NC195 . Libya: Al Jurf C137, C96/97
Latin America . Argentina: Exploration Mendoza CN-V . Argentina: Cuenca Marina Austral 1 follow-up . Argentina: Cuenca Marina Austral 1 . Brazil: Seven offshore exploration projects (Fenix, Leo) and significant growth (Canadon-Alfa, Carina-Aries, Vega licenses potential in Vaca Muerta shale play Pleyade), Aguada Pichana . Mexico: Four exploration licenses . Mexico: Ogarrio oil field shallow water Gulf of Mexico
11 September 2018
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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
Well-positioned to further grow production
Wintershall DEA production growth (pro-forma) Wintershall DEA production growth vs. international peers
Production CAGR 2017-2023
kboe/day DEA 1,000 Wintershall DEA 750-800 Wintershall 800
600 ~575
~425 400
200
0 2010* 2017 2021-2023 0% 3% 5% 8% 10% 13% 15%
Wintershall DEA Wintershall DEA
* Restated: 51% Libya onshore, incl. 50% Achimgaz Source: Wood Mackenzie, Wintershall 12 September 2018
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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
Competitive cost position supported by high reserve replacement ratio Production costs* Reserve replacement ratio US$/boe; five-year average 2013-2017 %; five-year average 2013-2017 147% 12.4 Wintershall 8.0
Wintershall DEA 8.6 DEA** 224%
DEA** 11.1 Wintershall DEA 189%
Wintershall 171%
0 5 10 15 20 0% 50% 100% 150% 200% 250% Peers Average peers
* 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 13 September 2018
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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
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 14 September 2018
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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
Pipeline network connecting major European distribution hubs with 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-term financing 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. 15 September 2018
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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
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.
16 September 2018
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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
Expected timeline and next steps of the Wintershall DEA merger
Letter of intent signed Transaction agreement signed Merger to be closed* Integration to be finalized Envisaged IPO
December 2017 September 2018 H1 2019 H1 2020 H2 2020**
Preparation and implementation of integration
Preparation of IPO readiness
* Subject to approvals of merger control and foreign investment authorities as well as several mining authorities and the Bundesnetzagentur; ** At the earliest 17 September 2018
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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.
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BASF Conference Call September 28, 2018
Impact of the merger on BASF’s statement of income As of signing of the transaction agreement As of closing of the merger
Statement of income BASF Group Other Sales revenue . Oil & Gas segment’s sales Sales . BASF’s share of net Income from operations before depreciation and amortization and earnings are no longer (EBITDA) income generated by Gross profit on sales included in sales and EBIT Amortization and depreciation2 Wintershall DEA will be Income from operations (EBIT) Income from operations of BASF Group – Special items accounted for at equity EBIT before special items Financial result retroactively as of January 1, and will be reported in the Thereof costs for cross-divisional corporate research 2018. Prior-year figures will costs of corporate headquarters EBIT before special items Income before taxes and minority interests other businesses Income taxes be restated. of Other. foreign currency results, hedging and other Income before minority interests measurement effects Income from discontinued operations . Earnings will be presented in miscellaneous income and expenses Minority interests the income before minority Net income interests of the BASF Group as a separate item, income from discontinued operations. At-equity consolidation . Between signing and (share of net income shown in EBIT before special items) closing, depreciation will be suspended. . Oil & Gas will not be reported as a segment of BASF Group anymore.
18 September 2018
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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.
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BASF Conference Call September 28, 2018
Outlook 2018 for BASF Group*
Outlook 2018 Now Previous Sales Slight increase Slight increase EBIT before special items Slight decline Slight increase EBIT Considerable decline Slight decline
2017 Restated (continued operations) Previous Sales €61.2 billion €64.5 billion EBIT before special items €7.6 billion €8.3 billion EBIT €7.6 billion €8.5 billion
*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. 19 September 2018
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[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.