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Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome and thank you for joining the BASF Analyst Conference Call First Quarter 2019 Results. [Operator Instructions]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 Opportunities and Risks on Pages 123 to 130 of the BASF Report 2018. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements.And I would now like to turn the conference over to Stefanie Wettberg, Head of Investor Relations. Please go ahead.
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 2019 results. On the call with me today are Hans Engel, Chief Financial Officer; and Marc Ehrhardt, President of BASF's Finance division. Hans will provide you with an overview of the result and update on the Wintershall DEA merger and the outlook for 2019. Marc will present the financial figures in detail.Please be aware that we have already posted the speech on our website at basf.com/q12019.With this, I'm giving the floor to Hans.
Yes. Thank you, Stefie. Good morning, ladies and gentlemen. Welcome to our Q1 call and thank you for joining us. The first quarter of 2019 was as difficult as we had expected. Global economic growth continued to be negatively impacted by geopolitical developments and the ongoing trade conflict between the United States and its trading partners. The overall cautious market sentiment persisted. As a result, BASF experienced a slowdown in demand from key customer industries, particularly automotive. To make this a bit more tangible, the global automotive production recorded a 6% decline compared to the prior year quarter.From a regional perspective, demand in China was especially dampened by the trade conflicts. In Europe, the uncertain situation related to the Brexit continued to negatively impact economic development. Despite these headwinds, we are committed to our strategy and continue to implement the announced measures to support profitable growth. For example, the embedding process to move our organization closer to the customers is well on track and will be finalized by the end of the third quarter 2019.Turning to BASF Group's financial figures for Q1 2019 compared to the prior year quarter in more detail. Sales in the first quarter of 2019 increased by 3% to EUR 16.2 billion. Prices were down by 2%, mainly driven by the isocyanates and cracker products businesses. Higher prices in the Surface Technologies, Agricultural Solutions and Industrial Solutions segments could only partially offset the anticipated price declines in Materials and Chemicals.Due to the overall cautious ordering behavior of our customers, sales volume of BASF Group declined by 4%. Portfolio effects amounted to plus 6% and were related to the acquisition of agricultural solutions businesses from Bayer. The transfer of BASF's paper and water chemicals business to Solenis at the end of January 2019 slightly reduced the positive portfolio effect. Currency effects amounted to plus 3% and were mainly caused by the appreciation of the U.S. dollar against the euro.EBITDA before special items decreased by 12% to EUR 2.7 billion. EBITDA amounted to EUR 2.8 billion, compared to EUR 3.0 billion in Q1 2018. EBIT before special items came in at EUR 1.7 billion, 24% lower than Q1 2018. As expected, the decline was driven by considerably lower contributions of the Materials and Chemicals segments due to lower margins in the isocyanates and cracker products businesses. Lower earnings in Other and in Nutrition & Care segment contributed to the decline. Considerably higher earnings in Agricultural Solutions and Industrial Solutions limited the decline in earnings.Special items in EBIT amounted to plus EUR 26 million, compared to minus EUR 18 million in Q1 2018. Special income from divestitures in the Agricultural Solutions and Industrial Solutions segments exceeded integration costs for the acquired businesses and assets from Bayer and the costs for other restructuring measures. EBIT decreased from EUR 2.3 billion in Q1 2018 to EUR 1.8 billion in Q1 2019. The tax rate was 25.4%, compared to 24.1% in the first quarter of 2018. Income after taxes from our discontinued Oil & Gas operations increased by 55% to EUR 274 million compared to Q1 2018. The main drivers were higher volumes, especially in Russia and the suspension of depreciation and amortization of Wintershall's assets since Q3 2018. The price of a barrel of Brent crude oil averaged USD 63 in Q1, compared to USD 67 in the prior year quarter. Net income amounted to EUR 1.4 billion, compared to EUR 1.7 billion in Q1 2018. Reported earnings per share decreased from EUR 1.83 to EUR 1.53 in Q1 2019. Adjusted EPS amounted to EUR 1.65, this compares to EUR 1.93 in the prior year quarter.In the first quarter of 2019, cash flows from operating activities amounted to EUR 373 million, EUR 858 million below the figure for the prior year quarter. This was primarily due to higher level of cash tied up in net working capital, especially for trade accounts receivable in the Agricultural Solutions segment. Payments made for property, plant, equipment and intangible assets increased by EUR 114 million and amounted to EUR 741 million. Free cash flow came in at minus EUR 368 million.Following the approval of all relevant authorities, BASF and LetterOne have successfully completed the merger of Wintershall and DEA. In September 2018, BASF and LetterOne had signed a transaction agreement to merge their respective Oil & Gas businesses in a joint venture. With Wintershall Dea, we create a leading independent European exploration and production company with international operations in core regions.To effect the merger, LetterOne contributed all shares in DEA Deutsche Erdöl AG into Wintershall Holding GmbH against the issuance of new shares. The shareholders have decided to rename the company Wintershall Dea. The joint venture is headquartered in Kassel and Hamburg. Upon formal registration of the corresponding capital increase, BASF will hold 67% and LetterOne 33% of Wintershall Dea's ordinary shares, reflecting the value of the respective exploration production 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 initial shareholding of BASF in Wintershall Dea of 72.7%. 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.In 2018, the combined business of Wintershall and DEA had pro forma sales of EUR 5.7 billion, EBITDA of EUR 3.6 billion and net income of EUR 1.1 billion. As a result of the merger, Wintershall Dea has a regionally balanced footprint with superior growth opportunities.Based on underlying exploration and production projects, the company is on track to reach a daily production of 750,000 to 800,000 barrels of oil equivalent per day between 2021 and 2023 from currently 590,000. This equals an annual production growth rate of 6% to 8%. Wintershall Dea expects to realize synergies of at least EUR 200 million per year as of the third year following the closing of the transaction.Both shareholders are committed to the profitable growth path of Wintershall Dea and set a solid capital basis for the joint venture. Wintershall Dea targets an investment grade credit rating. Following closing, the joint venture has no shareholder loans outstanding with BASF or LetterOne. BASF and LetterOne envisage to list Wintershall Dea through an IPO in the second half of 2020, subject to market conditions. Let me briefly explain the impact of the closing on the financial reporting of BASF Group.BASF's participating interest in Wintershall Dea will be reported in the consolidated financial statement of the BASF Group according to the equity method as of May 1, 2019, with an initial valuation at fair value. The gain from the transition from full consolidation to the equity method will be shown in income after taxes from discontinued operations for the second quarter of 2019. As of May 1, 2019, BASF will report its share of Wintershall Dea's net income in EBIT before special items and EBIT of the BASF Group, reported under Other.And now I will hand things over to Marc to give you some more details regarding the business development of our segments.
Good morning, ladies and gentlemen. Let me highlight the financial performance of each segment in the first quarter of 2019 compared with the figures of the first quarter of 2018, restated to reflect our new segment structure.In the Chemicals segment, sales were considerably lower than in the first quarter of 2018, especially in the Petrochemicals division. Sales declined slightly in Intermediates division. In both divisions, sales development was driven by lower volumes and prices. In the Petrochemicals division, lower volumes were primarily due to preparations for scheduled maintenance shutdowns as well as significantly lower capacity utilization of the condensate splitter in Port Arthur, Texas. Volume development in the Intermediates division was dampened by weak customer demand in the automotive, coatings, textile and wind turbine industries. Prices declined significantly, particularly in the Petrochemicals division. This was due to higher product availability in the market, especially of steam cracker products in North America as well as lower raw material prices. EBIT before special items decreased considerably compared with the prior year quarter. This was largely due to lower margins in the Petrochemicals division, especially from steam cracker products as well as lower volumes in both divisions.Sales in the Materials segment declined considerably compared with the very strong first quarter of 2018. The sales decrease was primarily due to lower isocyanate prices in the Monomers division. Sales volumes were slightly below the level of the prior year quarter. Demand declined, especially in the Performance Materials division. In particular, demand was weaker for polyurethane systems and engineering plastics in the Asian and European automotive and consumer goods industries.In both divisions, EBIT before special items declined considerably compared with the first quarter of 2018. This was mainly a result of the lower isocyanates margins in the Monomers division. In the Performance Materials division, higher margins were unable to compensate for the lower volumes. In addition, mainly due to currency effects, fixed costs in both divisions were slightly higher than in the prior year quarter.In the Industrial Solutions segment, sales were slightly below the figure of the prior year quarter. Sales in the Dispersions & Pigments division were on level with the first quarter of 2018 while sales in the Performance Chemicals division declined slightly. The overall decrease was primarily due to the transfer of BASF's paper and water chemicals business to the Solenis Group. In addition, volumes declined in the Dispersions & Pigments division. By contrast, we increased our sales volumes in the Performance Chemicals division, especially of oilfield and mining chemicals as well as fuel and lubricant solutions. Sales development was also positively influenced by currency effects as well as higher prices in both divisions.We considerably increased EBIT before special items compared with the first quarter of 2018. This was primarily due to considerably higher earnings in the Performance Chemicals division as a result of higher prices, volume growth and positive currency effects. The Dispersions & Pigments division also slightly increased EBIT before special items mainly due to higher prices and positive currency effects.EBIT included special income in the Performance Chemicals division from the transfer of BASF's paper and water chemicals business to the Solenis group.We achieved considerable sales growth in the Surface Technologies segment compared with the first quarter of 2018, especially in the Catalysts division. In precious metals trading, sales increased to EUR 1,064 million from EUR 685 million in the first quarter of 2018. Sales also rose considerably in the Construction Chemicals division. In the Coatings division, sales were on a level with the prior year quarter. The sales increase was due to the higher prices in all divisions as well as positive currency effects in volume growth in the Catalysts and Construction Chemicals divisions.In Coatings, slight volume growth for surface treatments and decorative paints was unable to completely offset the considerable decline for automotive OEM coatings. The segment's EBIT before special items was on the level with the prior year quarter.EBIT before special items in the Construction Chemicals division improved considerably primarily due to higher margins. In the Catalysts division, earnings rose slightly as a result of the sales growth. By contrast, the Coatings division recorded considerably lower EBIT before special items mainly due to weaker automotive business.First quarter sales in the Nutrition & Care segment matched the level of the prior year quarter. Considerably higher sales in the Nutrition & Health division were offset by slightly lower sales in the Care Chemicals division. Positive currency effects, especially relating to the U.S. dollar, increased sales slightly in both divisions. By contrast, sales were negatively impacted by lower prices, especially in the animal nutrition business. Sales volumes in the Care Chemicals division decreased significantly, mainly as a lower -- result of lower volumes in the home care, cleaning and industrial formulators business. By contrast, the Nutrition & Health division considerably increased sales volumes primarily due to higher volumes of aroma ingredients because of significantly improved product availability from our plant in Ludwigshafen and Kuantan.EBIT before special items was considerably below the figure for the first quarter of 2018. A considerable improvement in earnings in the Care Chemicals division, mainly from higher margins, could not compensate higher fixed costs in the Nutrition & Health division. In the prior year quarter, an insurance refund for production outages in 2017 was received, reducing fixed costs. In addition, margins declined in the animal nutrition business. EBIT included an impairment in connection with the optimization of production sites within the Nutrition & Health division in Europe.The Agricultural Solutions segment posted considerable sales growth compared with the first quarter of 2018. This was primarily due to the portfolio effects from the acquisition of the businesses and assets from Bayer in August 2018. In the first quarter of 2019, the sales contribution from the acquired businesses is reported entirely as a portfolio effect.We also achieved a higher price level in the legacy businesses, while volumes were considerably lower year-on-year, mainly due to weather-related factors. Especially in the United States, herbicide and fungicide volumes declined due to adverse weather conditions and an extended period of cold.EBIT before special items was considerably higher than in the first quarter of 2018. This was largely due to the contribution from the acquired businesses. EBIT included special income from divestitures in accordance with the conditions imposed by antitrust authorities within the scope of the acquisition of the Bayer businesses. In the first quarter of 2019, these exceeded the special charges for the integration of the acquired businesses.Sales in Other increased considerably compared with the prior year quarter. This was mainly due to the remaining activities of BASF's paper and water chemicals business, which are not part of the transfer to Solenis and have since been reported under Other.EBIT before special items was considerably below the figure for the first quarter of 2018. This was largely due to foreign currency results and valuation effects for our long-term incentive program.Let's now turn to our cash flow for the first quarter of 2019. Cash flows from operating activities amounted to EUR 373 million, EUR 858 million below the figure for the prior year quarter. This was primarily due to the higher level of cash tied up in net working capital, especially for trade accounts receivable. The seasonal increase in trade accounts receivable in the Agricultural Solutions segment was higher than in the prior year quarter due to the businesses acquired from Bayer.Cash flows from the investing activities amounted to minus EUR 837 million in the first quarter of 2019, compared with minus EUR 634 million in the prior year quarter. The increase in cash flow -- outflow was mainly due to higher payments made for financial assets and securities as well as for intangible assets and property, plant and equipment.Cash flows from financing activities amounted to EUR 620 million in the first quarter of 2019, after EUR 201 million in the prior year quarter. The year-on-year increase was primarily due to higher net additions to financial and similar liabilities. Free cash flow declined from EUR 604 million in the prior year quarter to minus EUR 368 million, mainly as a result of lower cash flows from operating activities.Turning to our balance sheet at the end of Q1 2019 compared to the year-end 2018. Total assets rose by EUR 5.5 billion to EUR 92 billion. Noncurrent assets increased by EUR 2.2 billion. The new IFRS 16 standard on leases contributed half of this increase. Since January 1, 2019, the new standard requires that almost all leased assets are reported as fixed assets.Current assets amounted to EUR 46.5 billion, compared to EUR 43.2 billion at the year-end 2018. This increase was mainly driven by higher accounts receivables related to the acquired agricultural solutions businesses from Bayer and its seasonality. In the Northern Hemisphere, the seed season begins in the first quarter, which leads to a corresponding increase in accounts receivable. Net debt increased by EUR 1.2 billion to EUR 19.4 billion, mainly because of a higher usage of our U.S. dollar commercial paper program. Our equity ratio was 41.1% at the end of March 2019.And with that, back to Hans for the outlook.
Yes. Thank you, Marc. To the outlook. We confirm our outlook 2019 for the BASF Group as provided at the end of February. Our outlook continues to assume that the trade conflict between the U.S. and its trading partners will ease over the course of the year and that the potential Brexit will not cause wider economic repercussions. Furthermore, we assume that our customer industries will maintain their growth trajectory.We anticipate slightly higher sales in 2019, largely as a result of volume growth and portfolio effects. EBIT before special items is targeted to be slightly above the 2018 level, however, at the lower end of the range. ROCE is expected to be slightly above our cost of capital percentage, but slightly below the 2018 level. It will be negatively impacted by the higher capital base due to the assets acquired from Bayer.Let me reiterate that the second quarter will be a comparably weak quarter. Firstly, the second quarter of 2018 still benefited from high margins in isocyanates, that means comparables are tough.Secondly, costs associated with the implementation of our strategy and a higher number of planned turnarounds compared to Q2 2018 will negatively impact earnings. The decisive factors to achieve our targets for 2019 are an improved business performance, solid customer demand and first contributions from our excellence program in the second half.And now, Marc and I are glad to take your questions.
[Operator Instructions] We begin with Thomas Wrigglesworth from Citi.
So my first question, following on to your comments around 2Q. You've guided in Chemicals to a slight increase in EBIT before special items. Obviously, at some point, you're going to have to achieve the level of absolute EBIT that you achieved in the year prior. 1Q is well below in 2019. Should we expect 2Q to be a similar level? And if not, how are you going to -- what kind of step up should we expect in the second half? I appreciate there is an -- you suffered from the Rhine water levels. Could you remind us exactly what the impact for Chemicals was in that? And if not -- and then if the required component to get growth beyond that, how are you going to achieve that, specifically in Chemicals? That's my first question.Second question, just on net debt pre and post the divestiture of Oil & Gas. You haven't mentioned any transfer of debt into the new entity, but I think, previously, you've talked about shareholder loans. So what will net debt look like once, effectively, the JV is fully set up, net debt for BASF that is?
Okay. So Thomas, thanks for your questions. First, on Chemicals. As you rightly say, we're guiding for chemicals on a full year basis for a slight increase. What we see in Q1, as we had expected, is a decrease. I already mentioned that Q2 will also be tough for the Chemicals segment. This is in particular due to the fact that we have 2 cycle turnarounds in Q2, the Port Arthur cracker in the U.S. goes to a full 5-year turnaround, and the same happens in Antwerp. That was factored in when we gave the guidance for the Chemicals segment. We are expecting a second half that will be significantly stronger than the first half of the year 2018 in Chemicals.You asked with respect to the effects from the low Rhine water level. We had a total effect of EUR 250 million, if I recall that correctly, for the year 2019. The vast majority of that was in the Chemicals segment, and we obviously are not expecting this to repeat in the year 2019. So as a result of that, we stick to the guidance that we gave at the end of February also for the Chemicals segment, despite the rough start that we're having there. But as I said, this was fully expected.What's going to happen during the course of the year obviously remains to be seen. You know that we think that trade conflicts will ease. We think that there's a good chance that there is an agreement between the U.S. and China in particular. And we've also seen in the meantime that China has implemented a number of measures to stimulate the economy, not the least the introduction of a reduction of value-added tax from 16% to 13% as of April 1. Still too early to say what this actually means, but it should work as a stimulus for the economy. Hope this helps to put things in perspective.On your second question, which was on Oil & Gas. Wintershall DEA, what's going to happen there. The company, on May 1, repaid the shareholder loans. This is an amount for BASF, order of magnitude low single-billion euros. And I look at Marc, and I think Marc will use that to work on our current net debt level, which is slightly above EUR 19 billion.
Okay. So just -- I want to just qualify your comments, sorry, around -- so when you talk about the improving the economy and the trade elements, is that because it's a volume driver that you expect to improve the second half? Or is there a -- are you expecting a margin component as well? And I mean that from a kind of spread price over cost rather than fixed cost absorption. Is it volume-reliant second half?
Yes. We would expect this to be a volume driver, definitely. And then when you look at supply and demand balances, this should also have a positive impact on margins.
The second question or questions are from Laurent Favre, Exane BNP Paribas.
I've got 2 questions on ag please. The first one is on your legacy business. Volumes down 8%. I think 2 of your 3 largest competitors have published in the past 8 days volumes that were a lot closer to 0, minus to slightly up. And I'm -- appreciate that you don't make a season out of Q1, but I'm just wondering where you think you've underperformed or whether you think that this could be coming back in the second quarter.And the second question is on the Bayer legacy business or the acquired Bayer assets. Could you give us a bit of context as to the performance of Q1? And I don't know what's the best on your side in terms of disclosure, but organic growth in Q1 year-on-year or usual seasonality perhaps then between Q1 and Q2 of the acquired assets. Basically, anything we can work with to think about the next quarters for the Bayer acquired assets.
Yes. Yes. Laurent, thanks for your question. First, on your volume. If I see that correctly, I think there's at least one competitor who has stated very, very recently that their decline in volumes was significantly more than what we have. So -- and I think it has to do with your geographic footprint. What we've experienced is obviously a very, very slow start in our ag solutions business for crop protection products in North America. This is driven by the inclement weather conditions, a lot of snow on the ground, arctic chill, then followed by floods. What we'll face there will be a compressed feel that had a significant impact on sales of both herbicides and fungicides in Q1. But as you rightfully said, Q1 gives you an indication. Let's see what Q2 will look like, and then we can talk about the business on -- in the Northern Hemisphere.So yes, there is 8% volume decline that we have, I think, at the same point in time, we had a 4% price increase in our legacy business. And overall, we are still calm, collected and fully prepared for the business in Q2 in our legacy ag business, and let's see how that will develop. It is -- definitely, in North America, it is a -- was a weak start in Q1 for the reasons already explained. Q2, based on what I've seen so far, the month of April, I do not yet have the final figures, but volumes definitely have picked up compared to what we've experienced in February and in March.Now on your question with respect to the Bayer business. Problem is that I can't give you [indiscernible] [ bumps ] there for Q1 2018. What I can tell you, this is a qualitative statement, is that what the business has generated in Q1 was better than what we had planned for. So we've seen very strong canola business, both in Canada and in the U.S. We've seen very good development in the cotton business. So from that perspective, and you see what the contribution is that, that business brings, I think there's a structural effect in the -- in our ag business of more than 50%. And when I look at the profitability of that business, that is fully in line with what we had expected.I want to say, to be very honest with you, and we talked about that I think when we saw each other last time, when you buy a business in the second half of the year and you sit there and you produce nothing but cost, then as a CFO you get a little bit concerned. And you look at the forecast and the planning for Q1 and Q2, and you tell the business people, show me, bring the numbers. And they definitely brought the numbers in Q1.
The next questions are from Christian Faitz, Kepler Cheuvreux.
Two questions, if I may. First of all, I'm just trying to put my head around your statements of considerable decline in automotive, OEM and coatings, while the overall Coatings segment saw a volume decline of only 2%. My understanding always was that the OEM business is the key driver in this division, clearly also outweighing the refinish business. So which subdivision performed so well?Then second question, also agriculture question, pertaining to your remarks that herbicides saw weaker sales in the U.S. Is this more your dicamba product or also glufosinate?
Christian, I'll start with the second part of your question. It's herbicide, in general, and in particular in North America, a very slow start. So refers to dicamba and then also to glufosinate. But as I said, remains to be seen how this season will develop overall.Then your question on volumes in Coatings. Yes. OEM plays a strong role and we have seen a decline in volumes there. Our Automotive Refinish business did okay in Q1. We experienced what we would like to see in our Chemetall business, which is good solid volume growth. And then we have a small decorative paint business in Brazil that compared to prior year, does definitely better than where we were in the first quarter of 2018. And I hope that explains why you don't see the decline in our Coatings business, overall, that we are experiencing in the automotive industry where production declined by minus 6%.
The next on our list is Tony Jones, Redburn.
I had 2. Firstly, on the downstream divisions. Margins were much better than most expected and you called out better pricing and cost management. I just wanted to explore how sustainable you think that is over the year. And also, related to that, is the improvement partly driven by some of the internal changes that you're making? And maybe you could give an update on that. And then secondly, could you provide a bit of color on how things are going for divestments, things like Construction Chemicals and other asset sales?
Tony, thanks for your question. I'll take downstream and then Marc will address the divestitures more. On downstream, what we've seen, overall, I want to say, is some margin improvement. We've worked on pricing across the board and that has a positive effect. We've seen that raw material prices in Q1 also helped with this margin development. Volume did not necessarily cooperate, but raw material prices in Q1 and our own price initiatives have driven the improvement that we're seeing there. We expect to continue and to improve. When you look at margins level that we were at in Q4, as an example, of last year, we were definitely not satisfied with that. But when you look quarter-over-quarter, you see nice improvements there across the board and we are fully committed to go along this line and further improve.
Tony, this is Marc. Just on status of our divestment projects. First of all, the Construction Chemicals, divestment there we're fully on track also to reach our goal of reaching definitive agreement with a buyer at the end of this year. There we expect to -- we're putting finishing touches on the materials to start going out to the market and we expect that to be later this month.And then on the pigments business, there, we're still in the preparation phase in getting all our ducks in a row to drive the finishing touches on the carve-out and then seeing how we're going to bring that asset to the market, but that's a stage behind Construction Chemicals. There we're still confirming. Hope to have a transaction some time at the end of next year.
The next question is from Andrew Stott, UBS.
A couple of questions. Just wonder if you could help me on cash flows to start with. So of the EUR 400 million swing year-on-year, I just wondered how much of that structure you mentioned that the seeds business obviously takes a bit more in Q1. Just try and help me a bit on how you see working capital sales this year.Staying with cash flow, EUR 300 million swing as well in miscellaneous items. Is there any guidance for the full year? And also, what is that EUR 300 million? I assume it's to do with the restructuring. So that's the first question on cash flow.And the second question was really coming back to the guidance in the Q1 base. So I suppose my main question is EUR 1.73 billion a clean number? Because I'm assuming you've got cost of operational access in there and I'm assuming you've got cost of Bayer integration in there. So is there a clean number you can give us?
All right. Thanks, Andrew. Marc will start with the cash flow and then I'll take your question on the clean 1.73.
Okay. Andrew, so, first of all, to your second question regarding the cash flow, those EUR 300 million we've got in the miscellaneous. Those are reclassification effects in the P&L due to the Solenis transaction and one of the divestments we had to do that the authorities required us to do it so we could consummate the Bayer acquisition. So I would see them as one-offs that should not be coming back.Regarding our overall cash flow, I think it's a shift in seasonality that you see, because of the seeds business being so strong in the first quarter that we have that part in the rise of accounts receivables. Over the year, the effect that you should factor into your calculations is just the drop in our income, and that should give you a good idea where we'll come out.
So there's no material effect from building inventory for the turnarounds in that Q1 inventory number or there is?
There's a little bit in there because in, really, 2 cracker turnarounds that we have, we obviously have a bit more inventory sitting there. And we also go through turnarounds in other parts of the Petrochemicals business, in particular in the acrylic acid chain. Bayer, in particular, has 3 plants in Asia. And when you look at inventory development, balance sheet I think shows an increase there, order of magnitude EUR 400 million. And yes, that's partially driven by the preparation for the big turnarounds that we have in Q2.Your question, Andrew, on guidance and how clean is the EUR 1.73 million number that we have in EBIT before special items. There is, and I want to say, a mid-digit million impact there from integration. In other words, the Bayer assets and businesses that we are integrating. Most of the costs resulting from PPA and the restructuring is obviously special item and is sitting there, but it's mid-double-digit million figure that runs through the underlying EBIT in Q1.And then I'm just trying to think if there's anything else. No insurance payment, nothing like that. So other than that, this is really a clean figure.
Okay. And sorry, just to follow up on that. The Q2 year-on-year, you're obviously saying another tough quarter, but you have got Oil & Gas in there now for 2 months of the 3. And you're saying that April looks better on crop protection. Do we assume that you're going to be somewhat better than the minus 24%? I know you don't guide quarterly, but just to get an idea, there's so many moving parts at the moment.
As you and I know, BASF doesn't guide on quarter. But to give you an idea there, yes, it's correct that we will have our share of the net profit of Wintershall Dea from -- net profits from May 1 on. In our EBIT, we roll that net profit like we do for other equity-consolidated activities. We roll that in our EBIT, so EBIT will benefit from that. There is a word of caution, though. When you think about the Wintershall Dea and the results that we show for Wintershall for the year 2018 and for the first quarter of 2019, please keep in mind that when this was moved into discontinued business, we stopped depreciation and amortization. This is not we stopped it, we...
Froze it, it's frozen.
[indiscernible] IFRS requires you to do. That's one thing.The second thing that you need to keep in mind, please, is that this will be the year where Wintershall Dea does not only move together. It starts working on the integration and on the restructuring. And as we said, the expectation is that workforce will be reduced from the current level of 4,000 to 3,000. And my assumption is that we'll see a good part of the onetime costs related to that in the year 2019. So this is -- these are 2 things that you should please keep in mind.
Good. The next question is from Charlie Webb, Morgan Stanley.
I have 2 very simple questions. First off, you just touched on the turnaround effects that you expect, and I think most of them fall in Q2 or a large portion of them fall in Q2. Can you remind us what the impact is for the full year and how we should we think about the phasing of that for the remainder of the year?And then second question, just on the Rhine comment. Obviously, we've heard or we've seen some news that the Rhine is still at fairly low levels. Obviously, it hasn't been impacting in Q1 and you're guiding that it won't be an impact this year versus to last year. Do you have any sense on where those levels are? Is there a degree of risk that we should be aware of as we think about potential impact for 2019?
Your second question was on Rhine and Rhine water level. Okay. I'll try to address that. What have we done in the meantime? We've done the preparation that we could do in a relatively short period of time. Rhine water levels have 2 impacts on BASF. One is the impact that the Rhine water level and the temperature of the Rhine water can have on our cooling water situation. We've used the time since last summer to improve that, overall, and to reduce the dependency on the intake of water from the River Rhine, so that's one mitigation measure that we have taken. We've also invested in additional storage capacity at the Ludwigshafen site to be able to cope better with situations like we've experienced them in Q3 and Q4 of last year. That is what we can do, there's not much more.Then what we do -- what we can do other than looking at the transportation situation, and what we've done there is we made additional reservations for barges, and that should all help if we would find ourselves in a similar situation again in 2019 or one of the following years. So that was the Rhine water level.Your second question was on turnaround. The heavy load of turnarounds will come in Q2, it then will expand into Q3. What I'll have to do, I have to look at the effect quarter-over-quarter. Based on my recollection, costs related to the turnarounds in Q2 is expected to be higher range, rough range, EUR 100 million to EUR 150 million in Q2 of this year than it was in Q2 of last year, but I'll have to check that quickly and get back to you.
Okay. We have 6 more persons on the line and only 15 minutes to go, so I would ask you to really stick to 2 questions at a time. We first now have Andreas Heine, then Sebastian Bray, then Peter Clark. We'll start now with Andreas Heine of MainFirst.
Two minor ones, I'll keep it very short. On the Surface Technologies, which is a strong outcome, I just want to confirm whether this is really sustainable or whether you had extra profit in the precious metal trading because there was quite some volatility in this precious metals, and you usually in the trading, can make profit of this? And the second, on Dispersions & Pigments, which was also above last year. Your competitor in pigments has given very weak comments on that one. So could you, for this time, differentiate a little bit between these 2, Dispersions & Pigments, as pigments is kind of noncore, as you're in process getting rid of it. And so I would like to understand how the Dispersions performance was.
Andreas, I'll take the first question on the trading. And I think you've diagnosed it correctly that the trading business is a volatile business, and we've seen the swing also following the precious metal prices and right now we've got a situation. You've probably observed that we've got a backwardation situation on palladium, so that is negatively impacting the trading results. But I'd say that trading will slow with the swing of the precious metals moving forward.
Was it then a benefit in Q1 and is a negative in Q2? Is that what you're saying?
So in Q1, we had sales going up 2%. That was a volume minus 3, price plus 3 because of the dollar positive effects.
What you say is, is the earnings different?
On the EBIT? Oh, sorry.
Yes. Because the precious metal is usually something that you can have quite something [indiscernible]...
We had a slight improvement in the EBIT, yes, we did.
Now I think it's important to put this in the overall perspective, Andreas. And when you look at the businesses that we have in Catalysts, you have the precious metal trading business. Trading obviously very low margin. You have the automotive catalyst business. You have our chemical catalysts business, you have the chemical refinery business -- or the refinery catalysts business, and you have the battery materials business. Automotive suffered in Q1, which was not a surprise. Chemical catalysts business developed very well. Our refinery business was fine or delivered what it was expected to do. Battery materials is a growth business for us, developing in line with expectations.So when I look at the Catalysts division, then I come to the conclusion that the earnings improvement is not driven by precious metals. The earnings improvement is driven by the good results that we generated in particular in the chemical catalyst business.What's going to happen in Q2? Looking at current price development in precious metals, remains to be seen. Looks right now like we find ourselves in a different environment than we did throughout the year 2018 where precious metal prices kept increasing, in particular, the palladium price going through the roof. Had somebody told me 5 years ago that we would see palladium prices above 1,500, I would have said, dream on. So interesting development there.Your second question was on Dispersions & Pigments. What do we see there sitting in our Dispersions & Pigments division? Dispersions business in Q1 was okay. We saw a slight volume decline there, and in EBIT, which was slightly below the level of Q1 2018. In the Pigment business, we had a similar development. We also -- and you know that business, had a lot of its customers sitting in Asia. And as a result of that, we also saw volume declines there. There was a bit of a price increase in that business, but EBIT, overall, declined. And then we had a third business that sits in that operating division, and that's the resins. And in resins, we had volumes slightly below, but prices significantly up. And as a result of that, strong growth in our EBIT compared to prior year quarter.
Okay. Now it's Sebastian Bray, Berenberg.
I would have 2, please. The first is more of a reporting one. But why is it that seeds and crop protection are not split separately in agriculture, given that the majority of peers put these 2 categories separately. And just to understand, am I right in saying that the -- of the assets acquired from Bayer, the vast majority of growth was actually from seeds? I think that is consistent with what has been mentioned earlier.And the second question is to reach -- in reaching the guidance for low EBIT growth during the year, low single-digit percentage, are -- is there any net benefits from cost savings included for the current year?
Okay. I'll take your first -- your last question, first. Yes. There are net benefits included, but they are expected to come only in the second half of the year. It takes a little bit of time to implement these cost-reduction measures but we expect to have an impact there in the second half 2019. I think your second question was the one on where does the growth actually come from in the acquired businesses, and this is clearly in seeds. As I said, we had a very strong start in the seeds business, in particular in North America. It's quite interesting to see when I compare how the seeds business is developing into our legacy crop protection business is North America, these are 2 ends of the spectrum. One performing very well, and the other having its challenges.I think your first question was on the crop protection or ag solutions segment and why don't we split between seeds and crop protection. This is in -- for BASF, one cash-generating unit, and that was the result why we kept it and show it that way. It also has to do with the fact that we run our businesses in a way where they are typically linked very closely to each other. We want to achieve full synergies between a crop protection portfolio and a seed portfolio. And as a result of that, we came to the conclusion to show it this way. What we're providing you, if you look as an example at our annual report, Page 80 there, we're providing you there with the respective businesses, fungicides, herbicides, insecticides, farms and crop care as well as seed and trades, and we hope that, that will create the necessary transparency that we would like to see.
The next question is from Peter Clark, Societe Generale.
Hans, this is probably for you. Two questions on inflection points. Firstly, the Coatings margins. You're probably getting decent price even in the OEM business now. Just wondering where you see that is. An then secondly, the inflection point for Performance Materials' EBIT. I see the margin obviously turned a while ago. You're hit by the volume declines. I realize these are macro what you believe on those sort of macro stimulus thing in China and also a lot of auto because I believe your auto forecast is probably remaining for transportation to be slightly up this year, including in China. So just your view on those 2 inflection points, Coatings' margins and Performance Materials' absolute EBIT.
Yes. Yes. As you already stated, Peter, obviously it depends on demand, which then depends on sentiment and the overall economic development. The isocyanate prices coming down significantly benefited our Performance Materials business. Yes. There's a margin improvement, but then there is an EBIT decline as a result of the volume situation that we have in Performance Materials, and that's one of the segments that is a big supplier to the automotive industry. So once we see demand picking up there, this will also then have an impact obviously not only on margin, but also on EBIT in absolute terms.I haven't seen the April figures. I mean watching closely as soon as they are out. I'll study and analyze them. That was not a lot of fun in January, February and March. And if you look at production figures, in particular in China, that are down in automotive in the double digits. That hurts. But listening to our customers, reading what they have to say, I think all 3 big German producers came out with statements where they see improvement in the second half and some are already speaking about some green shoots they are seeing in Asia, in particular in China.So for me, it's too early to say that there are green shoots. But once I have my April figures, I'm in a better position to comment on what we have as current development. Same is true, by and large, for Coatings. As I said earlier, OEM coatings obviously in a difficult situation, but the Chemicals business, the refinished business and also our decorative paint business in Brazil compensating to a certain extent, but they are not fully able to compensate what we our losing in our OEM Coatings business. So as you, we are hoping that the situation in automotive will improve quickly.
Okay. Three more persons on the line to ask a question. Markus Mayer, Chetan Udeshi and Georgina Iwamoto keeping in mind that there's a general shareholders meeting is scheduled to begin at 10:00. I would really ask you to keep it short, preferably one question. So now it's Markus Mayer, Baader-Helvea.
I will also keep the answers short from now on because I need to get out of here in 3 minutes.
Okay. Only one question then from my side. Maybe you can help us. You already said, one-offs you had from the positive side in Q1. Maybe you can split up the one-offs from -- into the income from divestments versus the integration and the structuring costs in Q1. That would be very helpful.
So the very short answer on this is you see that we are generating positive special items, which means that the restructuring costs are more than compensated by the income that we had from the divestitures and this is the deconsolidation gain that we had from moving our water and paper treatment business into Solenis, where we now have 49% participation. And then it's one of the divestitures that we had to do in order to comply with the EU divestiture request. So one of the Bayer assets that we had to divest both generated nice gains. Order of magnitude there, in both cases, low-triple-digit millions.
So now it's Chetan Udeshi, JPMorgan.
My one question is just on clarification on the guidance. Because I think -- correct me if I'm wrong, but previously, the Oil & Gas was expected to be included in your EBIT from second half. Now it comes on sort of earlier, 2 months early. So you still haven't changed your sort of full year guidance, but just to confirm that there is no change in any of the underlying other segments in terms of guidance.
No, there is not and don't expect. As I tried to explain already earlier, don't expect the impact from Oil & Gas being 2 months earlier than what you may have put into your model to be overwhelmingly high.
The last question is from Georgina Iwamoto, Goldman Sachs.
You're on mute? No longer -- not there anymore.
She's not there. So this brings us to the end of today's conference call. To conclude, I would like to mention that we are planning a Capital Markets Day on our enhanced agricultural solutions activities on September 27, in Ghent, Belgium. Therefore, please save the date in your diary. Thank you for joining us this morning and goodbye for now.
Thank you.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.