Plastics Toward new levels of performance John Feldmann 1
BASF s Plastics segment Chemicals 22% 10% Agriculture & Nutrition 24% 20% Oil & Gas Plastics Styrenics Performance Polymers Polyurethanes 19% Performance Products 2 2006 Group sales*: 52.6 billion Euro *including other activities: 2.5 billion Euro (5%)
BASF Plastics A good mix of commodities and specialties Styrene Styrenics Polystyrene and copolymers Foams Specialties Performance Polymers Polyamide intermediates Polyamides Engineering Plastics Polyurethanes Basic products Systems Special elastomers Electric & Electronic Construction Packaging Electric & Electronic Footwear Automotive 3
Plastics The material of choice for the 21 st century Shaping functionality and design Easy and efficient to convert Driving energy and resource efficiency 4
Global consumption of plastics in million to; annual growth rates 14 Japan +2.9 % +6.3 % +4.2 % 11 Asia excl. Japan 24 41 53 10 14 75 136 25 47 66 1990 2006 2015 Western Europe 1990 2006 2015 Asia 1990 2006 2015 NAFTA Global Consumption 1990: 86 million to 2006: 208 million to 2015: 328 million to Global Growth 1990-2006: +5.5 % p.a. 2006-2015: +5.0 % p.a. 5
Per capita consumption of plastics in kg; annual growth rates +5.5 % +3.0 % 2 21 34 1980 2006 2015 Asia excl. Japan +3.0 % 40 104 136 1980 2006 2015 Western Europe +2.0 % 46 107 140 1980 2006 2015 NAFTA 50 90 108 1980 2006 2015 Japan 6
1 Plastics our track record of profitable growth 2 A strong portfolio based on performance 3 Toward new levels of performance 7
Plastics On track to profitable growth Sales in million Euro EBIT before special items in million Euro Third consecutive year of increased profitability 12000 1200 Main drivers 10000 8000 6000 4000 2000 0 2001 2002 2003 2004 2005 2006 1000 800 600 400 200 0 Portfolio optimization with focus on products and solutions that offer differentiation potential in their markets Reduction of complexity in commodity businesses Implementation of dedicated customer interaction models Styrenics Performance Polymers Polyurethanes 8
Strong profitability growth Index 700 600 500 400 300 200 100 0 2001 2002 2003 2004 2005 2006 EBIT grew significantly stronger than sales Cost reduction through operational excellence and relentless restructuring Drivers for improvement: Significant higher sales prices and margins High capacity utilization Portfolio optimization toward higher margin products 9 Fixed costs indexed (including depreciation and amortization) Sales indexed EBIT before special items indexed
Optimized portfolio toward specialty business Selected milestones in Plastics since 2001 Major investments Global network of Engineering Plastics compounding plants PU basic products (TDI, MDI, PO) Global network of PU system houses Acquisitions in Engineering Plastics (Honeywell, LATI NAFTA, Leuna-Miramid, Ticona PA 6.6) BASF Plastics Powerful partnerships Dow (PU) Shell (SM/PO) Regional partners (e.g. Huntsman, Toray, Alfa) Major divestitures / closures Polyolefins (Basell) Fibers (Honeywell) Polystyrene NAFTA (INEOS) Closure of selected styrenics plants (PS, Spain; EPS, NAFTA; ABS, Netherlands) 10
1 Plastic our track record of profitable growth 2 A strong portfolio based on performance 3 Toward new levels of performance 11
Balanced portfolio of chemical building blocs and higher value-added products Estimate 2007 (in % of sales) 36% 31% Formulated materials 75% 64% 50% 19% Chemicals & basic materials Customized solutions 12
Major plastic segments Growth p.a. in % 2006 2015 8 7 PET (bulk) BASF products, circle size = consumption 2006 Global markets 2006 Total plastics market: 208 million to BASF relevant market: 45 million to 6 5 4 3 2 PC PBT POM PA* EPS PPO PMMA PA** ABS PUR PS HDPE PVC LDPE & LLDPE 0 5 10 15 20 25 PP Share of global plastic consumption 2006 in % Market growth 2006-2015 Annual consumption and production growth rate worldwide: 5% Growth by major regions Asia (excl. Japan): 6% NAFTA: 3% Europe: 3.5% 13 * Engineering Plastics & Extrusion ** Spin polyamides, accessible market
Segmentation of global plastics market high 10 BASF products, circle size = consumption 2006 PUR specialties Performance differentiation 5 PP PE ABS PS PET (bulk) PVC PC PMMA PA** ASA PA* PPO PUR basic product POM EPS PBT 14 low 0 Raw 0material Main pricing elements 5 Performance or pricing criteria 10 costs * Engineering Plastics & Extrusion ** Spin polyamides, accessible market
Basic and formulated materials Main businesses Spin polyamides, polyamide intermediates Styrene, polystyrene, ABS, styrenic foams Polyurethane basic products BASF relevant markets* Market size in 2006: 31 million to Market growth 2006-2015: ~4% p.a. Research and Development > 20 R&D projects How we succeed: Standard products at appropriate quality and supply reliability Lowest cost provider with minimum complexity Investments in best-inclass world-scale plants Transactional pricing Supply/demand balance 15 * w/o Polyamide intermediates, Styrene
Profitable growth in PU basic products Supply / demand balance remains favorable Global capacity utilization in % 100 TDI utilization Global capacity in kto 8000 Rates above 90% indicate favorable market conditions 95 90 MDI utilization 7000 6000 Market growth 2001-2005: ~7% p.a. 2006-2015: ~5% p.a. 85 80 5000 4000 BASF volume growth 2001-2005: ~13% p.a. 2006-2015: above market 75 70 65 60 3000 2000 1000 0 2000 2006 FC 2010 MDI BASF MDI others TDI BASF TDI others Additional BASF capacities + 400 kto MDI in China 2010 onwards (JV with partners) + 300 kto TDI in Europe 2011 onwards (JV with DOW) 16
Formulated materials and customized solutions Main businesses Polyurethane systems and specialties Styrenic specialties Engineering Plastics BASF relevant markets Market size in 2006: 14 million to Market growth 2006-2015: ~5% p.a. Research and Development >50 R&D projects How we succeed: Constant flow of innovations for customers products and processes Customized offerings with superior performance Very active sales force with high technical expertise Value pricing Opening up new horizons for plastics applications Close and fruitful cooperation with customers 17
Nanotechnology enables product innovation in Engineering Plastics Ultradur High Speed Increased flowability of polymer melt by 100% through nanoparticles High level of material properties is retained Reduction of cycle time in production (by 30%) and defect rate (to 0%) Potential reduction of global CO 2 emissions by 220,000 to p.a. (assuming re-placement of all PBT plastics worldwide by Ultradur High Speed) Lower production costs for customers Ultradur High Speed: completely filled mold Standard polymer: only partially filled mold Expected sales in 2010: 25 million Euro 18
Profitable growth through innovative marketing approach in polyurethanes Elastocool Best insulation solutions for growing market of appliances Global product platform with regional production Dedicated marketing team focuses on customers with global requirements and high volumes High performance products at very competitive costs Global availability and logistical reliability Global partnership with local service contact Expected sales in 2010: 400 million Euro 19
Styrenics specialty providing breakthrough solution for body panels Permaskin from Luran S UV-resistant polymer based on acrylic rubber, formed and adhesively bonded to exterior body panels Cost effective use for weather resistant applications without the need for painting and/or coating Excellent surface quality, maintenance free Enhanced surface protection for materials like wood, PUR, metal, etc. Joint customer development with Permacoat Expected sales for body panels in 2010: 50 million Euro 20
Indexed margin comparison in polyamide value chain Basic material: Caprolactam Higher value-added product: Engineering Plastics Margin, indexed 120 100 80 upper bandwidth Margin, indexed 120 100 80 upper bandwidth lower bandwidth 60 lower bandwidth 60 40 average value = 89 standard deviation = 18 40 average value = 103 standard deviation = 8 20 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 21
Shift to higher value-added products as key to success 22 Share of global sales volumes indexed (year 2000 = 100) 140 120 100 80 60 40 20 0 41% 59% Engineering Plastics CAGR of Engineering Plastics 9% 60% 40% 70% 30% 2000 2005 FC 2010 Intermediates (e.g. Caprolactam), spin polymers, fibers (only 2000) Shift from basic materials to higher value-added products Acquisition of selected Engineering Plastics businesses since 2003 Establishment of global network of specific compounding facilities Intensifying partnerships with customers at early stages of product / application development Strengthening application development capabilities Focusing on innovative concepts and customer solutions
High share of PU specialties and systems ensure robustness and profitability Comparison of top 3 players by sales volumes Share of annual sales 100% 80% 60% 40% 20% BASF with highest share of PU specialties and systems among top 3 players Forward integration into additional margin business Global network of >30 system houses More resilient to raw materials and basic products volatility BASF Competitor 1 Competitor 2 Industry Average Special elastomers PU Systems Basic materials 23
1 Plastics our track record of profitable growth 2 A strong portfolio based on performance 3 Toward new levels of performance 24
25 Ecovio Foam Bio-degradable packaging foam
Elastocoast Flexible Polyurethane protection for dikes along seashores 26
Our strategy for profitable growth Good position in growth markets Intensified exploitation of growth opportunities in markets and applications that have no or only limited plastics experience Investments in new capacities closely tied to market needs Close cooperation with customers Capex budget 2007-2011: 2.4 billion Euro Active portfolio optimization Rigorous improvement of product portfolio to better serve future market needs Focus on activities which offer differentiation in the market and profitable growth opportunities for BASF Divestiture of businesses with low differentiation potential Excellent innovation platform Process innovation with leapfrog technologies Products and applications developed with customers R&D spending average 2007-2011: 150 million Euro p.a. 27
Targets Plastics 2010 2006 2010 19% of sales as customized solutions > 30% of sales as customized solutions EBIT after cost of capital of 514 million Euro Earning a premium on cost of capital 28
BASF Plastics Our unique strengths Well balanced customer portfolio in all regions Innovative product portfolio with tendency to higher value-added products Well positioned in commodity type businesses through lean business models, partial backward integration and operational excellence Market leadership in specialties and systems through a customer oriented and innovation driven growth strategy Global network of state of the art production facilities, modern compounding plants and superior system houses in all major markets close to our customers 29
Disclaimer This presentation contains forward-looking statements under the US Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance or achievements of BASF to be materially different from those that may be expressed or implied by such statements. Such factors include those discussed in BASF s Form 20-F filed with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking statements contained in this presentation. 30
31
Glossary ABS ASA EPS MDI PA PBT acrylonitrile-butadiene-styrene copolymer (BASF brand Terluran ) offers superior surface quality, mechanical properties and chemical resistance; applications include electrical and electronic equipment and automotive components. acrylonitrile-styrene-acylate copolymer (Luran S); resistant to weathering, aging and chemicals; primary applications include exterior automotive components, electrical and electronic equipment. expandable polystyrene (Styropor and Neopor ); advantages include heat insulation, low weight and moisture resistance; primary applications include building insulation and packaging. diphenylmethane diisocyanate is a versatile isocyanate that can be used to make flexible foams as well as semi-rigid and rigid polyurethane plastics; applications include furniture interiors, automotive components and shoe soles. polyamide (nylon) 6 and 6.6 (Ultramid ) offers toughness and strength as well as heat and chemical resistance; applications include automotive engine intake manifolds and flame retardant plastics for electrical components such as switches. polybutylene terephthalate (Ultradur ); engineering plastic with high stiffness, strength, dimensional stability and heat and aging resistance; applications include electrical connectors and automotive components. 32
Glossary (continued) PO POM PS propylene oxide, raw material for polyols which are combined with isocyanates to make polyurethanes. polyoxymethylene (Ultraform ); engineering plastic with high stiffness, strength, resilience and low wear; applications include clips and fasteners as well as mechanical and precision engineering devices such as shafts and gears. polystyrene; mainly used in packaging and household appliances. PU, PUR polyurethanes offer a wide variety of applications, e.g. seats, steering wheels, fenders, and dashboards in automotive. SM TDI to styrene monomer toluene diisocyanate is an isocyanate used primarily in the manufacture of flexible foams; applications include foam cushions for furniture and automotive components. metric ton 33