Basf Se

XETRA:BAS

Earnings Call Transcript 2021-Q1

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Good morning, ladies and gentlemen. On behalf of BASF, I would like to welcome you to our conference call on the first quarter 2021 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 of the BASF report 2020. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements.On the call with me today are Martin Brudermüller, Chairman of the Board of Executive Directors; and Hans Engel, Chief Financial Officer. Please be aware that we have already posted the speech on our website and also the slides at basf.com/q12021.This brings us to the point where I give the floor to Martin Brudermüller.

[Martin Brudermuller]

Yes. Good morning, ladies and gentlemen. Thank you very much for joining us today.Let me begin with the highlights of the first quarter of 2021. We had a strong start to the year. The positive earnings momentum of the fourth quarter of 2020 continued. On a comparable basis, we posted record earnings for the first quarter. EBIT before special items rose by 42% to EUR 2.3 billion compared with the prior year quarter.Overall, we were able to grow sales volumes by 9%. All segments and regions contributed to this strong volume growth. Prices increased by 13%. They rose significantly in the Surface Technologies, Chemicals and Materials segments.In our upstream chemicals business, earnings rose considerably due to higher prices and volumes compared with Q1 2020. Cracker margins increased in all regions, most pronounced in the U.S. Higher demand in some outages, especially on the U.S. Gulf Coast, led to tighter supply-demand balances. In some commodity product lines, such as isocyanates, stronger demand supported margin increases.As a result of the recovery of the global automotive production, we also achieved considerably higher earnings in our Surface Technologies segment.Let us now turn to the macroeconomic data. The indicators for Q1 are estimates as most of the countries have not yet published their figures for the quarter. Global chemical production volume increased by 10% in Q1 2021, mainly due to the above-average growth in China. The country continued its strong recovery which started in Q2 2020. The rest of Asia and Europe also experienced a recovery in chemical production. The U.S. recorded a decline in chemical production because of the strong freeze on the Gulf Coast in the first quarter.With an increase of 9%, BASF Group's sales volumes grew in the same order of magnitude as global chemical production.On this slide, our volume growth by region is depicted. Sales volumes are compared with volumes in the respective prior year quarters. During the past 4 quarters, we recorded double-digit volume growth in Greater China across almost all segments. In Q1 2021, volumes in Greater China rose by 43% compared with the prior year quarter, which was heavily impacted by the pandemic.Our sales volumes are -- continued to grow in Europe and North America after turning positive already in Q4 2020. According to the current macroeconomic estimates, our growth in these regions was above market growth.Moving on to the volume development by segment. In the first quarter of 2021, the absolute volume increase was most pronounced in the Surface Technologies, Materials, Agricultural Solutions and Chemicals segments. Overall, we benefited from our diversified portfolio serving a broad range of customer industries, which nicely recovered during recent months.Let us now look on our -- at our sales and earnings development in Q1 2021 compared with the prior year quarter. Sales increased by 16% to EUR 19.4 billion, As just shown, higher prices and volumes were the driver for this. Currency effects of minus 6% were mainly related to the devaluation of the U.S. dollar as well as the Brazilian real.EBIT before special items came in at EUR 2.3 billion, 42% higher than Q1 2020. We achieved considerably higher earnings in the Materials, Chemicals and Surface Technologies segments. EBIT before special items of the Agricultural Solutions segment matched the strong level of the prior year quarter. The Industrial Solutions segment recorded slightly lower EBIT before special items, while earnings in the Nutrition & Care segment declined considerably.Let me provide you with further details on the quarterly earnings development by segment. In the Chemicals segment, EBIT before special items rose considerably compared with the first quarter of 2020 in both divisions, especially in Petrochemicals. Earnings development was driven by higher margins as a result of a recovery in demand, an improvement in income from equity-accounted companies and lower fixed cost.In the Materials segment, the considerable increase in EBIT before special items was mainly driven by a considerably higher earnings contributions from the Monomers division due to improved isocyanate margins. EBIT before special items rose slightly in the Performance Materials division. Volume growth more than offset lower margins from higher raw material prices.In the Industrial Solutions segment, EBIT before special items was slightly below the prior year quarter. Considerably higher earnings in the Dispersions & Pigments were unable to completely offset the significantly lower earnings contribution from Performance Chemicals. This was mainly due to lower margins as a result of increased raw material prices and negative currency effects. The increase in earnings in Dispersions & Pigments primarily resulted from lower fixed costs and volume growth. The division's earnings were weighted down by negative currency effects.EBIT before special items in the Surface Technologies segment rose considerably compared with the first quarter of 2020. This was largely driven by volume growth in both divisions. The positive development in earnings was supported by lower fixed costs, especially in the Catalysts division.In the Nutrition & Care segment, EBIT before special items decreased considerably compared with the stronger prior year quarter. The decline in earnings impacted both divisions and primarily reflected lower margins as a result of lower sales. The development of sales was primarily impacted by negative currency effects mainly related to the U.S. dollar.In Agricultural Solutions, EBIT before special items was on a level with the first quarter of 2020. The division showed a strong performance with considerable volume growth and lower fixed costs. The negative currency effects mainly from the U.S. dollar and the Brazilian real unfortunately offset the positive development.In Other, EBIT before special items declined considerably. This was mainly due to higher additions to provisions for variable compensation components as a result of the strong first quarter. Expenses for the long-term incentive program also contributed to the decline in earnings after positive valuation effects from the program in the prior year quarter.And now Hans will give you more details.

[Hans-Ulrich Engel]

Yes. Thank you, Martin. Good morning, ladies and gentlemen.Let me turn to the financial figures of the BASF Group compared with the prior year quarter in more detail. EBITDA before special items increased by 23% to EUR 3.2 billion. EBITDA amounted to EUR 3.2 billion compared with EUR 2.4 billion in Q1 2020. EBIT before special items came in at EUR 2.3 billion, 42% higher than in Q1 2020. Special items in EBIT amounted to minus EUR 10 million compared with minus EUR 184 million in Q1 2020. EBIT rose by 59% to EUR 2.3 billion in Q1 2021.At EUR 68 million, net income from shareholdings improved by EUR 236 million compared with the prior year quarter. This is primarily attributable to the positive earnings contribution of EUR 51 million from Wintershall Dea after minus EUR 165 million in the first quarter of 2020. The nonintegral equity-accounted shareholding in Solenis also contributed to the increase in net income from shareholdings with EUR 28 million.Net income almost doubled from EUR 885 million in the prior year quarter to EUR 1.7 billion in Q1 2021. The tax rate decreased from 26.6% to 19.4%, due among other factors to the higher earnings contribution from at-equity consolidated companies. Reported earnings per share increased from EUR 0.97 in the prior year quarter to EUR 1.87 in Q1 2021. Adjusted EPS increased by 59% to EUR 2.Let's move to our cash flow development in Q1 2021. Cash flows from operating activities were at minus EUR 525 million, an improvement of EUR 505 million compared with the prior year quarter. This was mainly driven by the increase in net income. The increase in net working capital led to cash tied up of EUR 2.8 billion. This was largely attributable to higher trade accounts receivable as a result of seasonal factors.Cash flows from investing activities amounted to minus EUR 435 million.

[Operator]

Ladies and gentlemen, please remain on the line.[Technical Difficulty]

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Can you hear us again?

[Operator]

You're back on the line. Please continue.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Thank you. We continue with the cash flow.

[Hans-Ulrich Engel]

Okay. I'm sorry for the inconvenience. I continue with cash flows from financing activities amounted to EUR 710 million, mainly from the increase in financial and similar liabilities. Free cash flow improved by EUR 618 million to minus EUR 981 million, as a result of higher cash flows from operating activities in conjunction with lower payments made for property, plant and equipment and intangible assets.Turning to our balance sheet at the end of March 2021 compared with year-end 2020. Total assets increased by EUR 4.5 billion to EUR 84.8 billion on account of higher current assets. They rose by EUR 4.8 billion to EUR 34.6 billion. This was primarily due to higher trade accounts receivable. All segments contributed to the increase, especially the Agricultural Solutions segment as a result of seasonal effects. Other receivables and miscellaneous assets rose mainly because of higher precious metal trading items and higher fair values of derivatives.At EUR 50.2 billion, noncurrent assets remained on the level of December 31, 2020. Net debt rose by EUR 1.3 billion to EUR 16 billion. Compared with the respective figure at the end of March 2020, net debt declined by EUR 2.8 billion.Equity amounted to EUR 39 billion at the end of March 2021, an increase of EUR 4.6 billion compared with year-end. This was driven by net income and higher other comprehensive income, mainly due to actuarial gains and translation effects. On March 31, the equity ratio was 46%.And now I will hand things back to Martin.

[Martin Brudermuller]

Thank you, Hans.Before I turn to the outlook, I would like to share a product example that illustrates BASF's efforts to contribute to a circular and low-carbon economy.Customers from the PVC industry are increasingly facing pressure with regards to resource-efficient products. Catering to this customer demand, BASF is now offering part of its plasticizer portfolio based on circular feedstocks.For this purpose, either renewable or chemically recycled feedstocks are used at the beginning of the value chain instead of fossil resources. The alternative feedstock is allocated to the sales products according to the third-party certified mass balance approach. The mass balance approach enables us to process renewable and recycled feedstocks together with fossil raw materials in our existing efficient product network and to allocate their share to specific products.Biomass balance plasticizers have a lower carbon footprint than conventional ones and help save fossil resources. Ccycled plasticizers are contributing to the recycling of plastic waste and also help to save fossil resources.With these products, we make another step towards the circular economy. Same specifications and technical properties as those of conventional plasticizers enable our customers to easily transition to produce special editions.Ladies and gentlemen, let's conclude the with BASF Group's outlook. Based on the development of sales and earnings in the first quarter of 2021, the stronger-than-expected recovery of the global economy and much higher raw material prices than planned, we raised the 2021 forecast for the BASF Group as follows.For the full year, we now expect sales of EUR 68 billion to EUR 71 million. We anticipate EBIT before special items of between EUR 5.0 billion and EUR 5.8 billion for 2021. The return on capital employed is expected to be between 9.2% and 11.0%. Regarding our accelerated sales, we now expect EUR 19 billion to EUR 20 billion. And no changes have been made to the forecast for the expected CO2 emissions.This outlook is based on the following adjusted assumptions regarding the global economic environment in 2021. Gross domestic product, industrial production and chemical production are all expected to grow by 5%. The average euro-dollar exchange rate assumption of $1.18 per euro remains unchanged. The average annual oil price, Brent crude, is expected to reach USD 60 per barrel.Overall, the market environment continues to be dominated by a high level of uncertainty. Risks could arise if restrictions on macroeconomic activity continue for longer than expected as a result of measures to fight the corona pandemic. Opportunities could arise from a faster vaccination rate and a more rapid recovery of the economy as a whole as well as continuation of positive margin trend.And now we are glad to take your questions.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Yes. I would now like to open the call for your questions. [Operator Instructions] We start with Christian Faitz. We will then have Thomas Wrigglesworth and then Gunther Zechmann. But now it's Christian Faitz, Kepler Cheuvreux.

[Christian Faitz, Equity Analyst]

Two questions, please, in terms of outages. First, will Q2 still see some skip marks from the taxes freeze? If so, can you give us an idea of the impact?And then second, would you see your sales into automotive being hampered in Q2 by the chronic semi supply shortage in the automotive industry? That's it from my side.

[Hans-Ulrich Engel]

Yes. Christian, this is Hans. Thanks for your 2 questions. I'll take the first one on the outages and the impact of the freeze at the U.S. Gulf Coast. How did this hit us, no question about that. But we were through the worst after about 3 to 4 weeks. So middle of March, we were done. All of our plants were back up and running.What we still see is that about 15% of the U.S. cracker capacity is out. Chlorine plants of our competitors are still affected, so still ongoing supply chain distortions. But in the BASF system, we actually -- or at the BASF sites, we were actually lucky compared to where competitors are. So what we said in Q2 with respect to the expectations still stands. It's an impact in Q1 of upper double-digit million on EBIT, but that is it. And there shouldn't be any further impacts from the U.S. freeze in our Q2 earnings.

[Martin Brudermuller]

Christian, on semiconductors, I'm certainly not a specialist for that, but you also know that we sell some chemicals into this industry. And I tried also to understand that by talking to a lot of people of this industry. I mean, first of all, you saw that automotive production was up compared certainly to prior year quarter, but it is also a little bit lower compared with the fourth quarter. So there is, very obviously, if you follow the OEMs, some restriction in production volumes, wherewith connected with semiconductors.As it looks like when the pandemic came last year, some of the tier suppliers obviously have given up some of their reservations for chips. And these chips have now been taken or these capacities have now been taken over by others. It looks also like I hear that China ordered a lot to get independent from that.And what I also learned is that the automotive chips have lower margins than many other applications. So also the producers now have dedicated their capacities to other higher-margin production. And that means also, it's most probably not so quickly coming back because they are sold out. And that is also one of the reasons when we say uncertainty for the year. And there are some announcement that, let's say, this production in cars could come back in the second half. But it could also be that this whole semiconductor issue is a little bit a longer one that reaches into 2021.So this is one of the question marks where we say we do not know how production levels in the car industry will be in the second half. And it doesn't look like now people have to really stop production, but there is uncertainty with it. And it is more a structural topic, and it is a very strong demand in the semiconductor industries in various applications. So I hope that helps you a little bit with planning.

[Christian Faitz, Equity Analyst]

Yes. Very helpful. And as always, at the Q1 reporting level, I wish you a good and short AGM.

[Hans-Ulrich Engel]

Thank you.

[Martin Brudermuller]

Thank you very much.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now it's Thomas Wrigglesworth, Citi.

[Thomas P. Wrigglesworth, Director and Chemicals & Basic Materials Analyst]

Two questions. Just to draw you a little further on to 2Q. If we take out the ag seasonality, looking at the rest of the Chemicals' upstream and downstream business, where is the reason to be thinking that actually the run rate of profitability seen in 1Q will not persist into 2Q? That's my first question.And my second question, a bit more kind of strategic. Obviously, the excellent program is coming to its kind of last year. What in these results can you -- do you pull from this about the success of that program? How do you see that influencing this set of results?

[Hans-Ulrich Engel]

Yes. Thank you, Thomas, for your questions. This is Hans. I'll take the first question, run rate profitability in Q2. You alluded already to seasonality that we have in the business. If we leave this aside and based on what we're currently seeing in our order books, the expectation is that the momentum that we had in Q1 carries on in Q2.Looking at the daily sales also that we have in the month of April, they continue to be strong. So expectation is that we'll see a very solid Q2, obviously much, much stronger than the extremely weak Q2 of last year.

[Martin Brudermuller]

So maybe, Thomas, just a few remarks on the Excellence Program in general. I mean, first of all, we delivered on our target for the end of last year. The composition of the components were a little bit different because one of the other things. We pushed more on cost reduction during the pandemic. Others, for example, from OpEx, we got a little bit less. So -- but we are on track, and it's now I think very important. And believe me, Hans and myself, we keep the pressure on the organization that now not we are carried away by growth and by nice margins, not to look on the cost.So we want to clearly deliver the EUR 2 billion at the very end of the year. You know that, that has also to do with the reduction of people. We had -- we told you we are a little bit delayed over there because certainly, in times of when economics is not so nice and people don't sign contracts to leave. But the rough number I can give you at the end of the first quarter is about 5,750 left of the 6,000. So I think we are very well on track here. And also in terms of onetime costs, I think we are totally in line with what we've said that this might cost EUR 100 million to EUR 150 million this year. So on track, Thomas.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now Gunther Zechmann, Bernstein.

[Gunther Zechmann, Research Analyst]

A couple of questions, first on the outlook for the year. So you increased the sales outlook by EUR 7 billion, but you kept the CO2 emission target flat. The accelerator sales target goes up by EUR 1 billion. So what's the message here? That you accelerate the products 7x more ESG-friendly, or that increase in guidance is mainly driven by pricing rather than volume, or a combination of the 2? So if you could give some color around squaring that up, please.And the second one, if you could just comment on stocking levels across the value chain, please, particularly in China with the strong volume growth you've seen in Q1.

[Martin Brudermuller]

I mean, this is -- yes, it is a combination of all the effects, certainly. I mean, there is a strong price push, which increases our sales and which then also carries on margins. And we think this is also going on in Q2 and further in the year. And you are right, I mean, CO2, that was a very clear commitment that we keep that on the level of 2018. So we will progress also on all the measures we have here, that is via both on buying in green energy from outside, so we have done some contracts also to purchase. We have also released these messages in the U.S., for example. We have also intensified our OpEx measures. You know that by a wider range of measures, we also collect every year a quite significant share just to bring down our CO2 over here. So that is roughly how we, overall, with all the measures, get it in line. And that is a very clear target. You know that this is also related to the LTI. So all the people are very eager to not release more CO2 than on the level of 2018. But it is a stretch.

[Hans-Ulrich Engel]

Gunther, your question on stocking, restocking and in particular, on China. As always, we can try to assess, but we don't have really firm data. But if you see what happened since Q4 around the globe, a significant pickup in demand. If you think about the fact that China has, in our business, the double-digit volume growth since April of last year, month-after-month, it looks to us like the inventory levels across the various chains at our customers continue to be relatively low. Demand -- end consumer demand, so strong, obviously also fueled by a number of stimulus packages that there is just no time to rebuild inventories. And inventories, in particular, end of Q2 around the globe, but China end of Q1 were very, very low. And I think this is exactly what we're seeing. And to a certain extent, this reminds me of the situation that we had in the second half of 2009 and then going into 2010.There's another reason for us to believe that inventory levels continue to be on, what I would call, a moderate level. And that is the significant increase in the meantime in prices. These are situations where customers tend to be careful with putting in their orders and with buying. So actually, I would think, overall, that's good news also for the remainder of the year.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So we'll now continue with Andrew Stott, and we'll then have Tony Jones, followed by Matthew Yates. So now Andrew Stott, UBS.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Questions on ag. So if you look at Q1, the balance between price and currency was minus 6%. Obviously, I get the fact that quite a lot of your competitors are dollar-based, so that doesn't really help you. But a simple question, do you think you can improve upon that balance as you go through this year? So in other words, currencies in any case, I guess, will naturally get a bit better for you. But do you think you can push on pricing in crop protection through the year?

[Hans-Ulrich Engel]

Yes. Andrew, this is Hans. Thanks for the question. I mean, you left the volume part aside. Let's not forget about the 7% volume increase that we had in the business. And yes, you're right, prices at 2%, which have to do a little bit with mix. Currency, as a company that reports in euros, well, that goes against us. This is a strong business in Q1 in the U.S., where Q1 over last year, the U.S. dollar to the euro was at $1.10. Now it's right around $1.20. Remains to be seen what's happening on the currency side. And there's certainly an environment there with soft commodity prices that have increased significantly that supports good, strong business. And also, in light of what we are seeing on the raw material side, it's a clear target for our friends in Ag Solutions to also bring prices up.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Okay. I think he's out already. So now it's Tony Jones, Redburn.

[Tony Jones, Partner of Chemicals Research]

Tony from Redburn. I had a question on the guidance from a different angle. So you've guided for sales about EUR 6 billion above consensus, but the midpoint on EBIT is broadly in line. Earlier in the call, you've already been calling out very strong Q2 at least at the start, good pricing margin trends. Do you expect something else to go wrong or something we don't see? Or does this also include a much bigger STI, LTI accrual than we normally would expect?

[Martin Brudermuller]

Tony, I'll take that. I mean, you know us, we are a little bit the cautious guys from Ludwigshafen. I think -- and as I mentioned, I think, in the speech, I mean, overall, we are positive, and this was also what we also, I think, radiated when we gave the guidance in February.We made the spend a little bit higher because of what I told you. I mean, Q1 was great, and Q2 so far, running on a very, very high level. We will have a strong base effect certainly from last year. But I think there is also some question marks in what's going on. So first of all, is the vaccination, let's say, campaign all over the world going in the direction and people return to normal life?Then there's also a little bit the question, people in the lockdown today, is there advanced sales so that they consume certain things which they buy now goods, which they use in the house and then later second half of when they have, let's say, their freedom to move again, they might spend more of their discretionary earnings or disposal income on leisure, on traveling, on entertainment, maybe investing less in goods?I told you about the semiconductor and the car industry. So we are not negative about that. But we also say it could be that one or the other thing is retarding and taking a little bit of the dynamics away in the second half. So this is why we have the spend like this.But I think as we told you in February, where we told you, we are expecting base assumption that we are at the higher end of the spend. This is also true what we would tell you today that we are positive about what we are going forward. But there is still uncertainty out there. We should not be carried away now by this very dynamic environment that everything with pandemic is done. So that is the reason why we have this a little bit wider numbers here out there. But you see us that we are positive. And also in the moment, I can only tell you the strong business is carrying on also in Q2.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now Matthew Yates, Bank of America.

[Matthew John Peter Yates]

I think a lot of questions have been asked already, but maybe 2 small ones. Can you just elaborate a little bit more on the nutrition division? To what extent some of the areas you've highlighted of having lower prices, lower production is just quarterly issues and not necessarily telling us anything about demand to be extrapolated?And then the second small part is, can you say anything about your maintenance plans in Ludwigshafen this year and how we perhaps need to factor that into our forecast over the coming quarters?

[Hans-Ulrich Engel]

Matthew, happy to take your question on nutrition. What do we see in Nutrition? Yes, compared to the very strong Q1 that we had in 2020, where we mentioned that towards the end of the quarter, we saw some prebuying going on. The results in nutrition are weaker. There are a number of factors in addition to this, what I call the comp problem that we have when we compare the quarters. We have the cost of bringing the vitamin A plant in Ludwigshafen on stream. That's -- that will start up around the middle of the year is my expectation based on everything that I see.We have a bit of a technical issue with certain grades of vitamins at this point in time. That's also reflected in our pricing. And then there's an element that benefits upstream. And that's very typical for situations like this, upstream showing first very strong results as a result of strong demand. And what you see then in the beginning is some margin pressure in our downstream segments, and that's hitting, in this case, also nutrition because -- while upstream, you price more or less on the basis of the spot raw material prices. Downstream, you price with formula pricing, averages of raw material prices over a certain period of time.There is a certain time lag, and that then typically in these kind of situations results in some margin pressure. And I think these are the reasons for the decline in earnings that we had in nutrition in the first quarter this year.

[Martin Brudermuller]

Matthew, on maintenance in Ludwigshafen, not very much I can tell you. I mean, first of all, that is nothing where you basically switch on and off. You know that if you want to have your assets in shape and with reliability, you have also to invest. Certainly, the factors are -- they are a little bit older, and some of the Ludwigshafen plants are older and depreciated. So you have to spend a little bit more, but you have to do that continuously. So there's nothing spectacular.But as you know, we keep our hands on costs. That means we certainly look that there is only done -- stuff done that is reasonable and is needed. We also connect that with the OpEx push we have. And you know that we are very much pushing on OpEx. That's always a super opportunity to get relatively cheap, smaller debottlenecks. Specifically, they are very interesting and attractive. You can partially combine that also with EHS and maintenance needs. And so I think with this, we are in an ordinary normal year. Maybe one remark here on the task, the turnarounds. There's also on the plant side, slightly lower than last year, nothing spectacular here also. Some of the plants in Ludwigshafen will also go to a turnaround. That is also then something that is a season coming up now, which is always towards the summer. So I would say a relatively ordinary normal year in terms of maintenance spending.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Okay. We will now move on to Jaideep Pandya, On Field Research. After that, we will have Laurent Favre and then Peter Clark. So now Jaideep Pandya, On Field Research.

[Jaideep Mukesh Pandya, Analyst]

The first question really is, if you just go back to sort of 2019 and compare current volume levels to 2019, it seems like volumes are up maybe 4%, 5%. But product spreads upstream are up more like 25%, 30%, in certain cases, even 50%. So would you say that the strength in the spreads that you're seeing currently is pretty much all sort of outage-related and taxes-related? Or is there something fundamental here with China not performing as well as it used to back in the day? That's my first question.And the second question really is just on ag. If you look at the mix in Q1 with very strong fungicide and canola coming back, how much of FX headwind did you have on EBIT? I'm just trying to understand, excluding the FX, would EBIT have been significantly better year-on-year?

[Hans-Ulrich Engel]

Yes. Jaideep, this is Hans. The first one is an easy one. That's why I can take it and try to answer it. Yes, EBIT would have been significantly stronger in Q1 without the FX impact. I don't have the exact figure for you. But if I recall that correctly, FX on a top line level is minus 8% in ag. So you can imagine what that does overall then also on the earnings level.Now with respect to your 2019 and 2021 comparison in Q1, where do we stand when we look at, in particular, upstream? It was quite amazing to see after the steep fall that we had in basically all commodities and then the trough point sometime in, I want to say, end of Q2. The type of increase that we've seen from there and the level of margins that we reached, if I think about our key commodities, we are currently in an environment that is very similar to where we were end of 2017, early 2018.Now we think that the key driver for that is really the strong demand. Yes, outages -- problems such as the U.S. freeze are certainly playing a role. And if you think about the fact that ethylene prices in the U.S., higher than ethylene prices in Asia, that's something that we haven't seen for years. And yes, 70% to 75% of U.S. capacity, cracker capacity being out for, let's say, roughly a month, as I mentioned earlier. Today, still 10% to 15% of cracker capacity being out, same being true for some other commodities, such as, for example, also the isocyanates. Then that is contributing, but we think that the underlying very strong demand is the key driver.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now Laurent Favre, Exane BNP Paribas.

[Laurent Guy Favre, Research Analyst]

Yes. Two questions as well, please. The first one is phrasing a question that has been asked a lot but a bit differently. Martin and Hans, when you look at the H1, I guess, comments you've just made, even at the top end of your new full year range, you seem to be assuming quite a bit of normalization in the second half in the upstream. And I was wondering in between TDI, MDI, crackers, polyamides, where do you see the risk of a sharper normalization? And where do you see actually the strong demand maybe carrying those strong numbers for a bit longer in terms of product chain as opposed to end markets?Second question, Hans, you've alluded to the margin squeeze downstream in Performance Chemicals, Nutrition & Care, maybe Coatings as well. All your peers are thinking that there will be more pressure in Q2/Q3 than Q1. I guess, you've got the Verbund integration, which is not helping. Should we expect more margin squeeze in Q2 and Q3?

[Martin Brudermuller]

So maybe, Laurent, I'll take the first one. I mean -- and building back actually on what Hans said, I mean, very strong and good favorable environment for most of the commodity lines that is carried by the strong demand, first of all, but also the supply/demand. And we talked about the freeze, but also the one or the other problem in other lines over there. You know that this is always something -- you cannot expect that this is staying like this forever. It can very quickly change, first of all, when it's easing on the supply situation; but then also, as I said, if there would be the negative parts coming in, in the Q2, which is not our base assumption. But if the demand would go -- would, let's say, lose a little bit of dynamics and the supply is really good, then you know how quickly actually some of the margins react.I mean if you look on acrylic acid today, on MDI, BDO actually in China, very good and high pricing, also good margins. It went up very, very quickly, but it could also that it eases also in the same way quickly down. So now to make a pledge or an assumption here that how many months this will carry on is simply very different but -- difficult. But I think all the indications we have and the intensively talked about with the businesses and the customers to get an outlook is so far really stable. That's why we said Q2 will be stable. I think also it's carrying on.But that -- this is the basic assumptions now. And now assumptions for the rest of the year, I doubt. And I mean, Hans mentioned about ethylene prices. Is this now the new normal for the rest of the year? I'm not so sure. So I think we should take what we get here but also not think that this is now carrying on forever.

[Hans-Ulrich Engel]

Your second question, Laurent, on margin squeeze in downstream and what's going to happen there in Q2. The situation that we have is Q1 compared to Q4 of last year, our raw material portfolio shows price increase of 14%, so 1-4, 14%. And we are in a situation where the downstream businesses, as a result of the demand, have pricing power. But whether or not they will be able to fully pass on the kind of raw material price increases that we've seen in Q1 and that continue remains to be seen as a result. Yes, there is a risk for further margin squeeze that we need to factor in. At the same point in time, our businesses have clearly understood the message here that they got and they need to go for further price increases.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now Peter Clark, Societe Generale.

[Peter Clark, Equity Analyst]

Yes. I'm down to one because Laurent just asked the one on downstream margin. But the question is more around the cash flow and the CapEx. I presume COVID is impacting the CapEx spend in Q1, which was down year-on-year. I think you gave guidance for EUR 3.6 billion or so for the full year. So I'm assuming this is going to step up quite sharply as we move through the year and potentially beyond that with the target you gave for the 5 years. So it's just on the CapEx and the cash flow implications around that.

[Hans-Ulrich Engel]

Yes. Yes, Peter, very good observation. Indeed, compared to the EUR 3.6 billion that we have in the budget for CapEx, Q1 is very low. That is not out of the ordinary. We typically see spending ramping up. It also depends on the time that the invoices are sent for the work that is done. And we'll see CapEx increase during the course of this year, no question about it, but that's clearly factored in.And you're asking the question with a look on cash flow. I think that the following is important to keep in mind. Number one, we have seasonally extremely strong business in Q1. This is a key season for our ag business. We have a significant increase in our accounts receivable in addition to that due to the general pickup of the business. All of that needed to be digested in the Q1 cash flow. Nevertheless, our operating cash flow is EUR 500 million stronger than in Q1 of last year. And our free cash flow is EUR 600 million stronger than the Q1 of last year.And then what you also want to keep in mind is that with this seasonally very strong Q, most probably on the accounts receivable side, we are seeing a peak at the end of Q1. So depending on how the rest of the year will go, whether prices will go up significantly, blah, blah, blah, I'd say most probably, there is a bit of a cushion in our cash flow as a result of this very strong business that we had in Q1.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

We have 6 more analysts on the line, and yes, not even 15 minutes to go. [Operator Instructions] The next one is Andreas Heine. We will then have Markus Mayer and then Sebastian Bray. So now Andreas Heine, Stifel.

[Andreas Heine, Managing Director]

I'll keep it to one. Agro, I was expecting the volume to be not as strong as it really was due to the weather it was in North America and in Europe, quite cold for much longer than last year. Have you seen any of this impact? Or was weather not an issue at all in the first quarter, which basically translates to Q2? Last year was very strong in Q1, less so in Q2, and I would expect the other way around this year. But given the volume you have posted in Q1, I'm not sure whether this is right.

[Hans-Ulrich Engel]

I'll take that, Andreas. So a good, strong business, as you are pointing out, with 7% volume increase. Order book for Q2 in the ag business, I checked yesterday with my friends at ag, looks very good, in particular on the fungicide side, where last year, as a result of the drought in Europe, we saw relatively weak business, had a very good start and continues to look good.So what may also play a role here are the much stronger soft commodity prices. There is higher interest in more yield, and that typically then leads to a situation where the farmers are willing to also spend more for the input because their expectation is that how they output will clearly be beneficial.So that's what I can say at this point in time. But weather is always a factor. Let's see what's going to happen now during the season. Too early to tell. But in any case, we have a strong, very strong, from my point of view, Q1 in the bag.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now Markus Mayer, Baader Bank.

[Markus Mayer, Lead Analyst of Chemicals]

I have a question on the outlook again. If I remember correctly, in the full year conference call, you said you have baked in a security buffer for potential logistical and supply issues in the guidance. And now I have not heard anything about that, so I guess, this buffer is completely out of the guidance. Or is there still a small buffer included in the guidance?

[Martin Brudermuller]

I mean, I think, I'll make a short answer here, right? We don't expect anything on the supply chain which is significant here. So I would leave it with that.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Then we have Sebastian Bray, Berenberg.

[Sebastian Christian Bray, Analyst]

I -- it was simply on the other segment. It's twofold. Firstly, is there a rule of thumb for tracking the percentage increase or decrease in BASF share price and somehow translating this into another number for the Other segment? The share price is up about 10% over Q1. The Other segment had a result which is by and large about EUR 300 million more negative than consensus was expecting. Is this something that can be used as a rule of thumb?And secondly, could you just remind us of the activities located in this business aside from corporate and commodity trading?

[Hans-Ulrich Engel]

Sebastian, I'm happy to take your question. First of all, we've tried many, many times, also for our own forecasting purposes, to come up with a meaningful formula on the long-term incentive program, on the provisions that we have there and how they will develop depending on the share price. We weren't able to come up with anything, and the reason for that is there is a relative component in there. There's an absolute component in there. There's relative component, always the question, how does our share price and share price development compare to the indices. And as a result of that, unfortunately, even though I tried many times, we didn't come up with anything that is meaningful. So sorry, I can't help there.Your second question was on, what else is -- I didn't get that fully. What else is in Other? Was that the question?

[Sebastian Christian Bray, Analyst]

That's right.

[Hans-Ulrich Engel]

Okay. Good. So what do we have in Other? We have in Other a number of things, what I call a hodgepodge of various businesses. They range from our raw material trading business to services that we are providing. And these services range from maintenance services that we're providing to third parties. We have rent in there. So tons of what I would call smaller things. The main driver actually on the sales side is the raw material trading. That represents roughly 60%, I want to say, of the sales in Other.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Okay. So now we have 3 more analysts. First one will be Georgina Iwamoto, then Chetan Udeshi and then Rob Hales to conclude. So now Georgina Iwamoto, Goldman Sachs.

[Georgina Iwamoto, Associate]

It's on catalysis. It looks like in recent years, the volumes there are actually outgrowing auto production a bit faster than we've seen historically. I was just wondering if maybe you could kind of comment on why that might be the case and if it's something that you expect to continue at a similar rate.

[Hans-Ulrich Engel]

Yes. Thanks, Georgina, for your question. Automotive Catalysts business, actually a very good development since end of Q3, early Q4, in particular, in our Asian business, driven there by China 6. And yes, I can confirm your observation, the growth rates that we have in the automotive Catalysts business are stronger than the production growth in automotive, which I think is a very good message. But then watching what competitors say with respect to their respective business, I always come to the same conclusion. This market must have more than 100%.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Okay. So we now have Chetan Udeshi, JPMorgan.

[Chetan Udeshi, Research Analyst]

So I just had one question, which is we all know about the seasonality in ag, which typically comes down in Q2 in terms of earnings versus Q1. I mean, looking at the current range, which, as you said, are strong. And I guess, maybe you could shed some light on how the LTIP provision will proceed through the year. But my simple question is, do we -- is it possible that Q2 may be similar to Q1 in terms of EBIT? Or is that too optimistic and assumptive?

[Hans-Ulrich Engel]

This is Hans, Chetan. I'd say that it's probably a bit -- that is probably too optimistic. I mean, we have also between Q1 and Q2 seasonality, which is driven by the fact that the seeds business for the row crops has its clear strength in Q1 and not in Q2. And I think we'll see this also reflected in this year.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

So now it's Rob Hales, Morningstar, to finalize this call.

[Rob Hales, Equity Analyst]

Just very quick on raw material inflation then. I'm just wondering, can you quantify your inflation expectations for the year and maybe versus last quarter?

[Hans-Ulrich Engel]

Rob, this is Hans again. Thanks for that question. On the raw material side, we have a price increase of 14% in Q1 compared to Q4. We are expecting further price increase but on a more moderate level than in Q2. And overall, most probably then raw material prices peaking in Q2, but this is going on a little bit. This is, I want to say, highly speculative. But Q1, as I said, 14%, going into Q2, further raw material price increases but on a more moderate level.

[Stefanie Wettberg, Senior Vice President of Investor Relations]

Okay. Ladies and gentlemen, this brings us to the end of our conference call. We will hold BASF's Annual Shareholders' Meeting right after this analyst conference call. It's starting at 10. It is, again, an entirely virtual shareholders' meeting. On July 28, we will present our second quarter results. Should you have any further questions at this time, please do not hesitate to contact a member of the BASF IR team.Thank you for joining us today, and goodbye for now.