BASF Roundtable Agricultural Solutions

Transcription

1 BASF Roundtable Agricultural Solutions Transcript - Q&A Session by topic November 12, 2012 London 1

2 Crop Protection Business Performance Ronald Köhler (MainFirst): A more short-term oriented question: Your Q3 was obviously fantastic, 11 percent sales growth, 80 percent EBIT growth. We were all a little bit surprised. At the Q3 conference call you highlighted that you had a shift of the Clearfield licence, as an explanation. I still struggle a little bit. I guess it s 20, 30 million or so. If you could a little bit elaborate on that. Obviously, this kind of leverage you showed in Q3 Put it that way: Q4 is heading to another good quarter, is developing quite strongly. Should we look for something similar or was there something we should be aware of that the leverage will not be as strong in Q4? Dr. Andreas Kreimeyer: The Clearfield licence was mentioned by Hans-Ulrich Engel and explained. So I don t have anything to add there. We don t give a forecast for the fourth quarter. The next press conference will be at the end of February. Then you can ask all the questions regarding the fourth quarter. Ronald Köhler (MainFirst): But there was, besides Clearfield, nothing unusual? Markus Heldt: There was a strong season in Latin America... In our portfolio, in the last couple of years, the Latin American business has increased in importance. With the dynamics and the strong season in Latin America kicking in in quarter 3, that obviously is an accelerator. Norbert Barth (Baader Bank): Can you elaborate a little bit on how you see the current situation by volume and prices development and perhaps also in the main regions? Starting in the North America region, you mentioned that for Q1 you expect some negative or slowing-down impact. Can you be more precise and give a little bit feeling what that means? Markus Heldt: Obviously, this year, as I mentioned before, year-to-date we have a price increase of 2 percent. With the positive fundamentals we don t see a reason why that underlying positive trend should not continue in the future. It s obviously largely driven by soft commodity price development and portfolio mix. So as long as we bring innovative new products to the market, which give us enough differentiation potential, we believe there is scope for value pricing and for improved pricing also in the future. 2

3 Coming back to the US situation on fungicides I think it was also mentioned in the third-quarter analyst call: Yes, the situation in the market was challenging in the US. Basically, we have really stopped sales July/August to avoid a problem with inventory in the US, managed existing inventories very carefully. We have a slightly higher inventory than we had planned and anticipated, but we know from the farmers liquidity, the adoption, especially in corn and in soybeans, and the interest based on the high liquidity to go for productivity and yield, that the momentum and the optimism under normal growing conditions to continue ramping up the plant health market in North America is very clear and very obvious. Thomas Gilbert (UBS): Given that I have you here, I may as well ask a boring accounting question because each and every one of your peers does it in a different way: Mix does it show up in volume or price when you report numbers? Do you show your sales to the distributor, so ex-production, or at the farm gate when you show your sales volumes? Bayer, Syngenta, they all do it in a different way. How do you account for it? Markus Heldt: We always report net sales and nothing has been changed. We always report FX, volume growth and pricing separately, so we are not mixing it up. We are trying to be as transparent as possible. There has been a consistent reporting. We haven t changed anything in the last couple of years. Thomas Gilbert (UBS): But when you sell a kilogram of a higher priced product, is that in the price When it gets out of BASF to the distributor and then from the distributor to the farmer, when you do you book the sale in the P&L? Markus Heldt: That s sales. Sales for me means: distributor list price minus discount minus rebate, net/net, what is basically invoiced by BASF, not gross sales. I am not aware that anybody is reporting gross sales because that doesn t help anybody either. So it s net sales. As I said, the three buckets are clearly defined in BASF and we are having no intention to change the reporting, to show how much is driven by volume, on a comparable basis to last year. If you have Xemium: Obviously, you look at the growth of volume on an introduction like Xemium. And FX is shown separately and pricing as well. 3

4 Products Neil Tyler (JP Morgan): First question on AgCelence: Could you talk a little bit more about the historic development there, because it appears that the vast majority, if not all of the growth has come from the North American region and very little from Latin America. Markus Heldt: The history obviously started in the US, the branding, the positioning as a product and as a concept in crops like corn and soybean. In the meantime, we have adopted that concept largely in Latin America; there is a soybean production system where AgCelence is the umbrella brand across the growing cycle in soybean, starting from seed treatment to portfolio application, to the harvest. There is very successful growth in Latin America as well. And we are rolling out that AgCelence concept on a global scale in crops like canola, in countries like India and China. As you could see on one of the slides, there is a rapid growth of the AgCelence sales potential and opportunity on a global scale. But historically, it started in the US, that s right. Why do we discover it now? Because we have realized that the corn grower in China or in Indonesia, the soybean grower in India, who has not sprayed any fungicides, has not used any technology on his acres, is realizing significant yield benefits from spraying a fungicide. So it is a yield plus quality of crop impact that is driving the adoption rate of the AgCelence strategy on a global scale. Andrew Benson (Citi Investment Research): You are pretty bullish on both Xemium and F500. Can you just explain how you are going to position those side by side to drive the growth? What are the likely key areas of success for both products? Markus Heldt: Obviously, we see in the last couple of years a continued growth on F500 in the segments where we are currently already selling, plus new countries and new crops where we are continuing to see the yield and performance benefits for growers around the globe. The Xemium introduction is fully complementary. We don t see any cannibalisation between F500 and Xemium. As I have mentioned in my statement, the biggest advantage of Xemium, also compared to other recent introductions, is the broad use: more than 100 crops, more than 50 countries in record time being brought to the market. Together, if you look at F-500 and Xemium, obviously it is an important tool also in our post-patent and life-cycle management strategy for F500, because mixtures of both products will be patent-protected beyond 2020, which obviously is an important element in a post-patent strategy. In terms of crops and countries, no cannibalisation between those two chemistries, highly synergistic, because they are bringing different modes of action and they are complementing each other in the programmes we are developing. 4

5 Andrew Benson (Citi Investment Research): So you might use them in mixtures? Markus Heldt: As well, yes, not only in two mixtures of F500 and Xemium, but there is also two and three mixtures with different active ingredients, which are complementing in a spray programme. Market Jeremy Redenius (Sanford C. Bernstein & Co.): I d just like to hear your expectation about the growth of the global crop protection chemicals industry over the next five to ten years. I ask because when I look back from around 1997 to 2008, the global industry grew about 2 percent per annum. I think that is probably about fair for the next five to ten years. I am curious about your thoughts on a growth rate over the long term. Markus Heldt: Obviously, the global ag chem market is going through some transformation and change, driven by the need for technology, the need for innovation, the complementary fit with biotechnology, whereas perhaps ten years ago we were expecting that the global ag chem market would be substituted, replaced by biotechnology. I think our current knowledge and understanding is: both technologies are fitting together and they are adding. There is obviously a very significant factor of glyphosate and devaluation of glyphosate a couple of years ago. I think if you eliminate the glyphosate impact which has clearly distorted the global ag chem market development, we expect for the next couple of years on average at least a growth rate in the range of 4 to 5 percent of the global ag chem market on a euro basis. So obviously currency plays a major role as well. But if we define as a starting point on a euro basis, 2011 we see the global market in the lower mid-40 billion euro. That market will grow, we believe, to the high 40s by the end of 2015, to the mid-50s by the end of So we don t share necessarily the pessimism on ag chem. We see it as an optimistic growth opportunity in the future: mega trends, technology lead, innovation-driven, complementary to biotechnology. Tony Jones (Redburn): From a BASF perspective, why do you think is it that the generic crop protection suppliers have failed to take a bigger chunk of this industry over the last few years? This is a big market debate point. Maybe a little bit of a suggestion on what you expect the impact of that to be on your 8 percent growth rate in crop protection. Thanks. 5

6 Markus Heldt: That's a good question, Tony. Obviously, we have been wrestling with the generic impact on our own strategies long-term for quite some time. They have taken quite a lot of share. So it is not that the generic companies haven t conquered quite a lot of the established space of R&D-based companies. Now, what have they failed? I think it s better to really ask the generic guys. A lot of the generic impact has vanished because of the devaluation of glyphosate, which was historically a honey hole of generic companies. But with the pricing and the changes there, obviously that opportunity has diminished. I would also say that a lot of generic companies have not been innovative enough to catch up with R&D-based companies. Their offerings and solutions are just not competing with real break-through new innovations. And partly perhaps the geographical footprint was not good enough to have a stronger impact. But they will remain a formidable challenge for the R&D-based companies and, obviously, our strategies will be tailored to address that challenge also down the road. So it is not that generic companies are not having an impact on our positioning, pricing and regional strategies. Dr. Andreas Kreimeyer: I would like to add something. In my presentation I touched the point of an agricultural solution provider. This is a totally different business model than selling generics at low price. Our experience is that many farmers and many corporations doing agricultural business expect today from their suppliers to give them also insights on how to tackle specific challenges, specific diseases and how to apply them. This is something that today at least many generic providers cannot offer. This is something that we use to differentiate from these generic players. Growth, Financial Targets Richard Logan (Goldman Sachs): On the slide that you presented with the sales target of 6 billion by 2015: I wondered with regard to that, EBITDA margins staying at 25 percent, are you able to give an indication for each of those buckets what your margin expectations are, i.e. above or below the 25 percent, and the relative size of those? Markus Heldt: It s a good question. As you know, Richard, we are not breaking down the EBITDA margin by bucket. If we just look at the key pieces, the AgCelence market, I have given you an indication of where we see the long-term future of that growth opportunity. We have talked about the Xemium launch and the further growth of F500. I have given you an outline on the herbicide dynamics and growth opportunity. Becker Underwood: Again, the financials are known. They are the most promising and most encouraging, highly profitable growth opportunities in the future. They will also be the largest contributors in terms of top and bottom-line growth until

7 Dr. Andreas Kreimeyer: But you can expect that we do everything to maintain our margin target of 25 percent, as you said. If any of the insecticides, herbicides, fungicides is below this, we do everything to keep the 25 percent on all. Neil Tyler (JP Morgan): Just going back to Richard Logan s earlier question on the growth outlook, I d like to ask about your thoughts on margin development if you look at those five baskets contributing to the growth. Your comments on the emerging market basket suggest that you ve got to the sort of inflection point where you ve invested a lot in fixed assets already and are now going to start to reap the benefits of that. I wonder if you could confirm if that s the right way to think about that. Then, looking at the remaining four, certainly, the majority of those would look to be higher margin than the existing business. If I look at things like your new product launches and Becker Underwood and the AgCelence component as well, is the 25 percent EBITDA margin outlook for the next four or five years reasonably conservative from your perspective? Dr. Andreas Kreimeyer: I think, comparing this with most of our peers in the market, the 25 percent is a not too bad target figure. We want to have this on average; I mentioned this. On average means, indications and regions. Markus will not be able to break this down, this margin per country or per region and then per indication per region. It would not be possible here. We strive for 25 percent on a global scale and Markus knows very well where to finetune if he doesn t achieve this. Markus Heldt: Nothing to add. Laurent G. Favre (Bank of America Merrill Lynch): My question is on capex. You have mentioned that one of the areas of capex is actually insourcing of intermediates. Could you talk about whether that is in products where the Verbund is currently in shortage or is that molecules that you are currently getting from the outside? And if it is the case, then what is the strategic rationale for getting this insourcing of products? Dr. Andreas Kreimeyer: Sometimes we have a demand for raw materials where it doesn t make sense for BASF to build an own plant. So we source them in from third parties. If the business then grows, we ask every time again: Is it now the right moment to invest into an own intermediates plant to supply our internal requirements? Here, particularly in this area, we have one or two raw materials where we now say: We will insource them and we will invest ourselves. This is the main reason why we increase capex for raw materials and insourcing of raw materials and switch them to own production. 7

8 This is a general question of BASF that we ask ourselves every time again, not only with respect to Crop Protection, but with respect to any individual business. If you have an intermediate or a building block for synthesis and we get this from a third party, we ask ourselves every day again: Does it make any sense to build it ourselves and to make it ourselves? Paul Walsh (Morgan Stanley): Just moving on from the capex question towards investments in future M&A: Obviously, following Becker Underwood, can we expect further M&A to be part of the growth strategy, i.e. is the 6 billion target including any further M&A or can that be exceeded if there is M&A on the horizon and where can we expect that? I know you can t be specific on targets, but the order of magnitude, what you are looking for would be helpful. Dr. Andreas Kreimeyer: We do not exclude mergers and acquisitions in crop protection and the plant bio area. If there is a target that makes sense, then we will consider doing it. You know this very well: BASF doesn t plan a budget for mergers and acquisitions, but we have a full list of interesting ideas that we check every time again. If something is available, if it fits and if the price is right, we try to go for it, of course. In the 6 billion, investments are not included. So the 6 billion is growth on our own strength. If we do anything there with respect to mergers and acquisitions, this comes on top. Paul Walsh (Morgan Stanley): On that list, are we talking about relatively small deals or does that list span small to big deals? Dr. Andreas Kreimeyer: I thank you very much that you don t ask for names of companies. We don t rule out anything. There is a general acquisition strategy of BASF that, if we buy something, we would like to be able to digest it also. Jeremy Redenius (Sanford C. Bernstein & Co.): I have a question on management compensation in Crop Protection. Could you describe the performance criteria and incentives? Can you talk about if they are sales growth-related, EBITDA-related, market share gain? How is the management team incentivized in Crop Protection? Dr. Andreas Kreimeyer: The compensation scheme for the Crop Protection team is not different from any division of BASF; we have general management compensation schemes. They go around profitability. This is the first and most important target, achieving a certain profitability for our shareholders. There is definitely a difference between divisions what the target level is. In agrochemicals e.g., they have a higher target than some other divisions within BASF, but the general rule is EBIT after cost of capital and profitability as a whole for the division. At the end of the year, we 8

9 compare what was target and what was achieved and then we have general rules how to compensate this with respect to variable compensation schemes. Markus Heldt: Just to add one minor point on sales force management: We are compensating on the basis of consolidated profitability growth. They know what they are striving for in places like North America, and in other regions like Latin America we are compensating the sales forces, the guys on the road, after they are collecting. So we changed that five years ago. Whereas in the past there was a strong focus on sales and volume and market share, now we are rewarding the sales force after we have collected from our customers. So there is a strong element of quality and risk mitigation in our compensation programmes which were adjusted and introduced a couple of years ago. Jeremy Redenius (Sanford C. Bernstein & Co.): So absolute dollars or euro. Markus Heldt: Profit. Dr. Andreas Kreimeyer: We changed this. A couple of years ago, we compensated via sales and growth. Then every sales guy went out there just to generate sales and growth. This was not necessarily every time in favour of profitability. Therefore, we changed this. Emerging Markets Sophie Jourdier (Liberium Capital): Good morning! A question for Markus, please. I just wondered whether you could give us some more detail about your business in China. I know it is small today. But you talked about it being encouraging. Where do you see your market position? What is the make-up of the businesses between, say, herbicides, fungicides, insecticides? Which crops are you particularly targeting? In terms of products, is it the premium products, the branded products and, therefore, how do you approach pricing? Markus Heldt: Thanks, Sophie. Obviously, we are a bit of a late follower in China. BASF has decided only a couple of years ago to enter the Chinese ag chem market more aggressively because there was a lot of concern about IP protection, FTO. That s why we had a very limited presence in the Chinese market. Our market share right now is below 3 percent. We have increased our resources significantly in the Chinese market in the last 24 months. We have now added altogether about 100 additional people, sales, marketing, technical staff to really capture the opportunities in the Chinese market. We are currently evaluating an investment in China to service the Chinese market with a dedicated formulation filling and packaging activity to really be closer to the 9

10 Chinese market. That is a reflection of our optimism and the opportunities we see in the Chinese market. The largest growth opportunity with our portfolio is fungicides in the vegetable and in the corn market. It is quite surprising: If you look a bit closer, the pricing in China for those innovations, if they are rightly positioned and priced, is very similar to the European prices. There is a perception that Chinese farmers only use cheap technology; that is definitely not the case. So in a lot of the arable crops and vegetable crops there is a significant opportunity to bring innovative solutions to the market. We have started e.g. last year with COFCO, one of the largest tomato producers in the world, who is in partnership with Heinz and with Unilever, a value chain model to really provide BASF technology to those tomato producers in China to meet the requirements of the value chain on a global level. We are very impressed and positively surprised about the opportunities in China. But it requires a step-by-step approach to build the organisation, to develop the infrastructure and make sure that we are really optimizing our strategy based on our portfolio. Herbicides are also nicely growing in China because the Chinese market is suffering from expensive labour and obviously farmers are trying to switch to chemical solutions instead of hand weeding as they have been doing for many, many years. So it is a market in transformation. BASF clearly is a later starter, but has a strong commitment to grow and participate in this market. If you look at the latest Chinese governmental five-year plan, there is a strong pressure to switch to innovative new solutions. We believe the opportunity to be part in that transformation of Chinese agriculture is a great moment for BASF. Ronald Köhler (MainFirst): Emerging countries you highlighted, obviously, four regions. Asia and Latin America we know quite a lot, but I would be interested in some details on Eastern Europe and Africa which you also highlighted. Is it possible to say where you are right now? You obviously highlight the growth, but especially in Africa I was thinking: Is it a region which is already contributing meaningfully or is it very small? Markus Heldt: In the East European countries we have really seen a double-digit growth over the last couple of years and we see continued double-digit growth in countries like Bulgaria, Romania, Ukraine, Russia. We ve added more than 200 people in the East European countries, significant extra resources, sales marketing, technical area. And we see further technology adoption in the East European markets that will help us to continue having that track record also in the future. Contribution from Africa: As I mentioned, four years ago we have started. We expect to double our business by the end of this year. It s on a lower level, obviously, than the East European countries. 10

11 But we believe with a dedicated strategy, a good understanding of the markets, a good understanding of where the opportunities are, where the export crops are and where different business models are needed you can do one business model in South Africa, you need a different one in Egypt and another one in Mozambique and adjusting the business model, the structure and the go-to-market approach to those specifics in Africa we believe is a critical success factor in the future. In the next five years, we want to double our business in Africa, but that requires the resources and the focus to make it happen. Ronald Köhler (MainFirst): Can you say the size of Africa right now and Eastern Europe? Markus Heldt: No. As you know, we are not breaking down the detailed sub-regional segments. The fastest growth has been in the East European countries in the last couple of years and we expect, as I mentioned before, the same growth record there in the foreseeable future. Africa is starting on a much lower base, but with a very steep growth opportunity and a growth record, as shown on one slide. B ecker Underwood Thomas Gilbert (UBS): Can you provide in an as concrete example as possible why Becker Underwood s technology is not cannibalising what you do with Monsanto? As far as I understand, what it does is: It is developing nutrient-efficient crops: nitrogene absorption, better uptake. That is exactly what nitrogene absorption does. I am obviously wrong, because you are shaking your head. Can you walk me through, in a concrete example, what it does and why it is different? Markus Heldt: I think that is a good question, Thomas. In the Becker Underwood portfolio we are talking about seed enhancement. So you have a chemical seed treatment take F500, take Fipronil as a starting point chemistry. They will be complemented with biological solutions from Becker Underwood which are complementing any GM technology that might come down the road. So they are complementary, they are not conflicting or competing with regard to the seed treatment or the seed enhancement segment. This is one segment which is currently the core business of Becker Underwood. The second one is the foliar application where we are looking at combining conventional chemistry fungicide, insecticide sprayed on a crop like vegetables or tomatoes or strawberries and complement it later in the growing cycle closer to the harvest with a biological solution again complementary technology, a good fit between existing chemistry and biological products because of the value chain, farmer concerns on residues in the crop. 11

12 So I don t see any conflict with the Monsanto cooperation, the technology that BASF Plant Science is developing together with Monsanto. Plant Biotechnology Ronald Köhler (MainFirst): I have a question on the R&D in biotech which you book into Others. In your Fact Book actually you stated around 150 million euros. Now you stated 11 percent of 1.6 billion, meaning around 170 million for today. So I guess 150 is 2011, 170 is Can you a little bit elaborate on that development? Is that something we should look forward to go on in that direction? Additionally, you said actually, it will be consolidated in Agricultural Solutions end of the decade, if I rightly understand, so meaning: It will stay in Others, so to say, as long as it is not consolidated. Is my understanding right on that? Dr. Andreas Kreimeyer: First of all to research and development cost in the plant biotech area. This is between 150 and 200 million euros. We cannot give exactly the figure here. This depends a little bit on the progress of the project development, whether we get new projects on hand, whether we have to stop something because it is not developing as forecasted and expected. So the ballpark is 150 to 200 million. This is the 11 percent in 2011, by the way. This will change. You will see this because we report it. The question of being an operating division end of the decade: The general idea today is that we will have then a segment Agricultural Solutions with two operating divisions, Crop Protection and Plant Biotech. Ronald Köhler (MainFirst): And as long as it is not there, it s still part of Others? Dr. Andreas Kreimeyer: Then it is under Others, yes. By the way, we have corporate research, the 400 million euros that I mentioned; this is also consolidated in Others. Part of it is Plant Biotech. Tim Jones (Deutsche Bank): I really want to ask a couple of questions in respect to one issue, so technically one question. The 1.8 billion target that you have by 2020, can you talk a little bit about how you risk-adjust your assumptions behind that target or are you just assuming that everything works fantastically? Secondly, what would you like analysts to walk away with assumption-wise vis-à-vis your share of that 1.8 billion? If you don t want to give a number, then just tell us whether it s more or less than a half. Thirdly, with regard to the contribution of that business: Presumably, it is very, very high. Again, you won t want to give a number. But are you comfortable with the concept of it being very, very high? Give a number, please, if you can. 12

13 Peter Eckes: The 1.8 billion, there is not a risk adjustment to it. But what you have to keep in mind: If you look in general at Agricultural Solutions I think that's true for Crop Protection as well as for Plant Biotech once you have really put a product into stage 2 that s the moment when we assigned these gross trade sales, too I think there is not a lot of doubt that you actually can make it all the way to the end. That s a little bit different from some other industry where there is still a very significant risk that something is really making it to the end. In that respect, there is no risk adjustment to it. The second part of your question? Tim Jones (Deutsche Bank): You said the 1.8 billion is the growth number, so it includes your and your partner s share. My question was really: What would you like us to walk away with on the assumption of what your share is? A precise number would be fantastic, on average, I suspect. Knowing BASF well, you won t give us that. So perhaps you could answer if it is more or less than a half? Peter Eckes: I think it is a very good question. This is not an easy thing in the communication with analysts. So let me first address the third one and that actually will naturally lead to the second one. In general, as I said, it is an unusual business model that we are having. Once we have a number of products in the market, what we will have at the end is a licence income. You don t have operating assets as you have in the other businesses. That means you have basically your administration cost plus the R&D cost that you have then to deduct from the licence income. So the quality of the profit will be very different from the rest of the BASF portfolio, very different. So we are not talking about 20, 30 percent or so, we are talking more in the order of 70, 80 percent results there. Now, if we look then at the partner, we cannot disclose really a lot of details, because our licence income and our sales are very close to the EBIT of our partner. That is the reason why we have also to be mindful there in our communication. So the gross trait sales actually include the entire value to us and the partner and usually, as a ballpark figure, you can take a 50/50 share at the end of the results of that. We have published for the Monsanto collaboration that actually the profit split at the end is 60 percent going to Monsanto and 40 percent going to BASF. Chris Counihan (Credit Suisse): Just looking at the trait technology platform, if we look back at 12 months, 24 months ago, in particular across the yield and stress sort of things, is there anything that s performing ahead timelines, behind timelines, any big variations that we have seen over the development of that portfolio? Dr. Peter Eckes: Pretty much along what we have expected. There is, I would say, no outlier one or the other way. 13

14 Andrew Stott (Bank of America Merrill Lynch): The drought tolerance peak sales target you put out there: I am just lost. Why is this not a huge market potential? Why is it such a small number on a ten-year view? If you think of the size of the addressable market, what you are claiming today in terms of yield benefit you have g ot the best partner in terms of distribution, across the US at least why only 250 to 500? Dr. Peter Eckes: When you look at what geographies you are focusing on with this type of products, it s the western part of the Corn Belt which, from the geography, is big, but it has its limitation. So really, it s focused on these geographies. If you have an extreme year such as 2012 I can tell you, walking some fields this summer in the core of the so-called I States, you get obviously a different attention to the topic of drought than you got in previous years. So we ll see how that maybe changes a market. But first of all, the business case is really focusing on the western part of the Corn Belt. Andrew Stott (Bank of America Merrill Lynch): Could you just remind me what the range of acres is that you assume in that? Dr. Peter Eckes: We are talking about, let s say, in the order of 10 million acres. Steven Wilson (Lapides Asset Management): I am curious if you just could talk a little bit about how you price for value against some of these productivity enhancements that are derived from the traits and the characteristics you talked about and just weave into that one example where you put up with the soybean rust and you showed a Brazilian differential. How valid is that to North America or other geographies? Or do you have to go through a completely new set of data to prove the validity in a different region? Dr. Peter Eckes: If you look first of all at the trait, the trait in general will be applicable broader to soybean. In that respect you would expect that you can use the same trait also across regions. Now we have to see clearly: Asian Soybean Rust is a disease that is almost only focused in South America. So there is only very, very little emergence of soybean rust in North America. In that respect: Can that change? Not very likely, because a prerequisite for soybean rust to spread is that it is actually overwintering. In North America winters are so strong that soybean rust will not overwinter. There are only a few pockets in the southern part of the US where actually Asian Soybean Rust can survive. As history already has shown, this is not enough of an inoculum that it will spread from the South to the North. So I think in our business case it is all focused on South America. 14

15 Steven Wilson (Lapides Asset Management): What about the general terms of pricing to value to extract as much as you can for your technology vis-à-vis the economic differential of the trait? Dr. Peter Eckes: I think you have two components. First of all, obviously the goal is to somehow try to have a combination of crop protection and this trait where you would substitute some sprays with the trait. Now there is an additional value for the farmer and that is a convenience piece. If e.g. the farmer can wait until really there is a full emergence of the disease and then come with the spray, that is a convenience to him. So there are both components, but it is mainly a substitution. But to make that clear: The idea is not that you will substitute one for the other. You will have a combination. I think we have seen in other fields that, yes, as Markus put it, mother nature will fight back. So that means: Part of a responsible agronomic practice is that you really combine these tools to make them also long-lasting. That is also where, I think, our support is important. Andreas just said that: We will give farmers advice how to use these tools in order to be long-term successful. I think that is also a benefit that we bring with our innovations. I think it is in both areas. Christian Faitz (Macquaire Capital): Just a very small question on the timeline of introducing the soybean rust-resistant soybeans: Can you remind us of the timeline, how many years of field rice you actually have to do to prove that there is a remaining resistance? Dr. Peter Eckes: We have just advanced that into stage 2. Now you can say on average, depending on the kind of trait, two to four years per stage. So we are talking about market introduction not earlier than the beginning of the next decade. Christian Faitz (Macquaire Capital): Just quickly on your decision to close down the GM activities in Europe. With that I would believe you also lost your phytophthora franchise. Would you believe you could introduce your phytophthora know-how somewhere else regionally? Are there any markets which would be open for that? Dr. Peter Eckes: If you look at the development, the varieties that we have developed are really fully focused on European varieties. So if you would try to now transfer that to another region, you would have to restart basically entire programmes. On that respect, Europe is the only region where you really could market these products. 15

16 Tatiana Vasilyev (Brown Brothers): With the kind of investment and commitment you guys have in this business, what would be your appetite to eventually invest into breeding and why? Dr. Peter Eckes: As highlighted, we are really investing in a technology platform. We are not a seed company, don t want to be a seed company. As I said, it s a little bit an unusual business model for BASF that we are focusing on. So we are not intending to sell then the product, but our partner will do so. And we do not intend to change that because we believe that actually the value we can create this way where we are with BASF is larger than the other way round. Lutz Grueten (Commerzbank): One question regarding the collaboration with Bayer: Listening to Peter Eckes, I got the feeling that this collaboration is delivering on track or at least in line with your own expectations. But then there was one slide of Mr. Kreimeyer mentioning the Patent Asset Index. Seeing that the patent with Bayer in that Index was down in 2011, how does it fit together with the bottom-up statement by Mr. Eckes? Dr. Peter Eckes: The Patent Asset Index was just looking at Yield & Stress traits overall. When we look at our collaboration clearly, you have seen that weighted in the Patent Asset Index we are a little bit more than twice as far advanced as any competitor. Our stronghold is the discovery. What we bring in the collaboration with Bayer CropScience is really the traits. They have the hybrids and they will intogress then our traits, what we provide into the collaboration with Bayer, into their hybrids and then they will bring the hybrids to the market. Lutz Grueten (Commerzbank): And why is that down in 2011? Dr. Peter Eckes: Again, you have to ask Bayer why it s down. It s looking on the yield and stress trait innovations and patents and ours is up. Dr. Andreas Kreimeyer: Just to explain this a little bit because I didn t do this during my presentation: The Patent Asset Index is done by a neutral agency. This is not something that we measure ourselves, but this is a collaboration partner. He is doing this analysis. You have to ask the right question to get the right answer; what we asked there is: How is the patent development in Yield & Stress equivalent to what we do with Monsanto? Therefore, we got this answer there. -end- 16