Letter from the Chairman
of the Board of Executive Directors
BASF maintained its good performance in 2012. We exceeded the 2011 record levels in sales and income from operations. The Oil & Gas and Agricultural Solutions segments achieved new records, while development in our chemicals business was weaker than we had anticipated at the beginning of the year. Net income therefore did not match the previous year’s level.
“Innovations lie at the core of our competitiveness, and we have lots of good ideas.”
For the chemical industry, 2012 was a mixed year: Growth in worldwide chemical production (excluding pharmaceuticals) slowed from 3.8% in 2011 to 2.6%. The emerging markets of Asia showed markedly weak growth in the first half of the year. The upswing in demand expected for the second half of the year failed to materialize. In this environment, we were unable to increase sales volumes in the chemicals business. At the same time, raw material costs were higher than in the previous year.
For the capital markets, 2012 was a volatile, yet successful year overall. The BASF share performed well, trading at €71.15 at the end of December, 32% above the previous year’s closing price. With dividends reinvested, BASF shares gained 37%, once again significantly outperforming the German and European stock markets as well as worldwide chemical industry indices.
For you, stability and reliability are especially important in times like these. This is why we stand by our dividend policy: At the Annual Shareholders’ Meeting at the end of April 2013, we will propose a dividend increase of 4.0% to €2.60, representing a dividend yield of 3.65%.
A year of the “We create chemistry” strategy
We see excellent growth opportunities for the chemical industry, and especially for BASF. More and more people are living on this planet. They need more resources as well as more and better nutrition – and they strive to improve their quality of life. Chemistry creates the necessary preconditions for this and helps to use natural resources more efficiently. Examples include better automotive catalysts, lighter-weight vehicles, and crop protection products that are even more effective and can thus be applied more sparingly. In this report, you will find additional innovations and products with which we aim to achieve sustainable growth by combining economic success with environmental protection and social responsibility. We have summed this up in our corporate purpose: “We create chemistry for a sustainable future.”
In order to even better fulfill the expectations of our customers in emerging markets, we opened an Innovation Campus in Shanghai in 2012. We are also investing in the development and production of battery materials: High-performance and more affordable batteries are the main requirements for increasing electromobility. In the past year, we have acquired a range of smaller battery chemical manufacturers, started producing cathode materials in the United States, and reinforced our research activities. We are aware that we will need perseverance to achieve market success.
We want to grow profitably with health products and functional crop care. In 2012, we acquired Equateq, a U.K.-based producer of highly concentrated omega-3 fatty acids, and made a public takeover bid to the shareholders of Pronova, a producer of omega-3 fatty acids headquartered in Norway. We were already able to conclude this transaction by the end of January 2013. Highly concentrated omega-3 fatty acids are a growing market worldwide that will benefit from increasing consumer awareness of the positive effects of omega-3 products. In the United States, we acquired Becker Underwood, a leading provider of technologies for biological seed treatment and biological crop protection products.
Plant biotechnology is an important element of feeding a growing world population. Yet there is a lack of acceptance in large parts of Europe for the development and cultivation of genetically modified plants. We have therefore moved our plant biotechnology activities from Europe to the United States.
We have also set a course for further growth in the Oil & Gas segment. Along with our successful exploration activities, we have gained access to additional oil and gas reserves. We will acquire shares in producing fields in the North Sea as part of an asset swap with Statoil. We want to expand our cooperation with Gazprom in oil and gas production in Western Siberia and, in return, completely transfer our 50% share in the gas trading and storage business to our longtime partner.
Growth track 2013
2013 will be a demanding year: We anticipate that the environment will remain volatile. The global economy is expected to grow slightly faster than in 2012. Our goal is to grow once again in 2013 and improve income from operations. We have undertaken measures to align ourselves even more closely with our customers and increase operational and technological excellence, such as the optimization of our organization and segment structure. We will also keep a tight rein on costs. With our STEP program, we are improving our productivity and internal processes in all divisions and regions. Starting at the end of 2015, STEP is expected to contribute around €1 billion to earnings each year.
Innovations lie at the core of our competitiveness, and we have lots of good ideas. Therefore, we will once again increase our research and development spending in 2013, after expenditures of €1.7 billion in the past year.
We will also raise our capital expenditures in 2013, both in the emerging markets as well as in Europe. There are new opportunities in North America, as well, where energy and raw material costs have fallen drastically due to the production of shale gas. This is an important factor for the chemical industry. In Europe, the discussion surrounding shale gas is one-sided, limited to an ecological perspective. In fact, Europe needs more growth, and must improve its competitiveness. This requires a balanced discussion of opportunities and risks – the current energy policy does not provide the conditions for this.
There is great energy to be found in BASF. Our second global survey showed that our employees have a strong sense of identification with the company. My heartfelt thanks go to them, for our success is only possible through their competence and high level of commitment.
I would also like to thank you for your trust in the past year. I hope you will continue to place your trust in us. We innovate to make our customers more successful, and we aim to generate attractive yields for our shareholders. My colleagues and I are working hard to achieve this.
Dr. Kurt Bock