BASF On Course for Further Success: Record Earnings In 2006 - Optimistic For 2007

In 2006, BASF – The Chemical Company (NYSE:BF)(FWB:BAS)(LSE:BFA) reached important goals. For the first time in the company’s history, sales passed the €50 billion mark, and income from operations (EBIT) before special items climbed to a new record of more than €7.2 billion. "Our ambitious team has achieved this using its own strength. The economic tailwind also aided us. Our value-enhancing acquisitions in the areas of catalysts, construction chemicals and resins for paint and printing systems have helped us to grow in highly innovative areas and have brought us closer to our customers. At the same time, we have broadened our competence and have become more resilient to cyclicality,” said BASF’s Chairman, Dr. Jürgen Hambrecht, at the company’s Annual Press Conference in Ludwigshafen, Germany. In 2006, BASF again earned a high premium of €2.1 billion on its cost of capital and grew faster than the market. Sales increased by 23 percent to almost €53 billion. The businesses acquired in 2006 contributed €4.2 billion to this amount. EBIT before special items climbed 18 percent to more than €7.2 billion. BASF is making good progress in integrating the businesses it acquired in 2006 and is on track to largely complete the process as planned by the middle of 2007. The company expects to achieve full synergies of approximately €290 million per year by 2010. This amount is significantly higher than expected. Optimistic outlook for 2007: Strong sales growth Hambrecht’s outlook for the further course of 2007 was positive. BASF is basing its business planning for 2007 on the following assumptions: Global economic growth of 3.2 percent and a similar increase in global chemical production (excluding pharmaceuticals) An average oil price of around $55/barrel for Brent crude with a downward trend in the following years An average euro/dollar exchange rate of $1.30 per euro Moderately higher interest rates in the course of the year, primarily in Europe "In 2007, we want to further expand our position as the world’s leading chemical company. We want to further increase BASF’s value and again earn an attractive premium on our cost of capital. We will derive additional energy from the newly acquired businesses, from our investments in growth markets and from our broadened research and development activities,” said Hambrecht. For the full year, BASF expects significantly higher sales in 2007 compared with 2006. This will be driven by both the businesses acquired in 2006 as well as organic growth in the company’s existing businesses. Despite the significant decline in the price of oil and the associated impact on the earnings of the Oil & Gas segment, BASF has set itself the ambitious goal of at least matching the record level of EBIT before special items that it posted in 2006. Due to the sustained strengthening of its earnings power, BASF expects to at least earn its cost of capital in any given year, irrespective of the economic situation. BASF’s Chief Financial Officer, Dr. Kurt Bock, noted that BASF improved earnings at all levels of the income statement compared with its strong performance in 2005. "The company’s financial strength – measured in terms of cash provided by operating activities – increased further. In combination with a solid balance sheet, this provides us with the financial leeway we need,” he said. Bock also pointed out that BASF bought back shares for almost €1 billion in 2006 and was planning to buy back additional shares in 2007 under the ongoing program. Chemicals segment posts record sales The Chemicals segment posted record sales of €11.6 billion. This 43 percent increase was due in particular to the first-time inclusion of the new Catalysts division. EBIT before special items reached a new high of €1.7 billion. Higher volumes and price increases led to an improvement in sales and EBIT before special items in the Plastics segment. Sales rose by 9 percent to €12.8 billion, while EBIT before special items climbed 18 percent to €1.2 billion. Sales in the Performance Products segment rose by 23 percent to more than €10 billion as a result of the newly acquired businesses. EBIT before special items declined, however, due to integration and restructuring costs and declining margins, in particular for acrylic monomers. Sales in the Agricultural Products & Nutrition segment were at approximately the previous year’s level segment (minus 2 percent), while EBIT before special items declined (minus 37 percent). Unfavorable weather conditions for the use of fungicides, low prices for agricultural produce and high energy costs negatively impacted BASF’s business with crop protection products in important agricultural regions. Sales and EBIT before special items rose in the Fine Chemicals division, but EBIT declined as a result of extensive restructuring measures. BASF expects this segment’s earnings to improve significantly in 2007 thanks to its portfolio of innovative crop protection products and its restructuring efforts in the Fine Chemicals division. The increase in prices for crude oil and natural gas and the expansion of the gas trading business meant that sales and EBIT before special items in the Oil & Gas segment reached new record levels of €10.7 billion and €3.2 billion, respectively. BASF will publish its Financial Report and Corporate Report on March 14, 2007. BASF is the world’s leading chemical company: The Chemical Company. Its portfolio ranges from chemicals, plastics, performance products, agricultural products and fine chemicals to crude oil and natural gas. As a reliable partner to virtually all industries, BASF’s high-value products and intelligent system solutions help its customers to be more successful. BASF develops new technologies and uses them to meet the challenges of the future and open up additional market opportunities. It combines economic success with environmental protection and social responsibility, thus contributing to a better future. BASF has over 95,000 employees and posted sales of €52.6 billion in 2006. BASF shares are traded on the stock exchanges in Frankfurt (BAS), London (BFA), New York (BF) and Zurich (AN). Further information on BASF is available on the Internet at www.basf.com. On February 22, 2007 you can obtain further information on the Internet at the following addresses: Annual press conference report (from 7:30 a.m. CET)corporate.basf.com/pcon-report (English)corporate.basf.com/pk-bericht (German) Press release (from 7:30 a.m. CET)corporate.basf.com/pressrelease (English)corporate.basf.com/pressemitteilungen (German) Live transmission Annual Press Conference(from 10:30 a.m. CET)corporate.basf.com/pcon (English)corporate.basf.com/pk (German) Speech Dr. Jürgen Hambrecht/Dr. Kurt Bock(from 10:30 a.m. CET)corporate.basf.com/pcon (English)corporate.basf.com/pk (German) Photos from the Annual Press Conference(from 1:00 p.m. CET)corporate.basf.com/photos (English)corporate.basf.com/fotos (German) Live transmission Analyst Conference (from 3:00 p.m. CET)corporate.basf.com/share (English)corporate.basf.com/aktie (German) Information about BASF sharescorporate.basf.com/share (English)corporate.basf.com/aktie (German) Note to Editors: You can also access our Corporate Press Photo DVD on the Internet:corporate.basf.com/pressphoto-cd (English)corporate.basf.com/pressefoto-cd (German) Forward-looking statements This release contains forward-looking statements under the U.S. 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 release. Important figures from Annual Press Conference Report Million € 2006  2005  Change in % Sales 52,610  42,745  23.1  Income from operations before interest, taxes, depreciationand amortization (EBITDA) 9,723  8,233  18.1  Income from operations (EBIT) before special items 7,257  6,138  18.2  Income from operations (EBIT) 6,750  5,830  15.8  Income before taxes and minority interests 6,527  5,926  10.1  Net income 3,215  3,007  6.9  Earnings per share (€) 6.37  5.73  11.2  Income from operations (EBIT) in percent of sales 12.8  13.6  -  Cash provided by operating activities 5,940  5,2503 13.1  Additions to long-term assets1 10,039  2,523  297.9  Excluding acquisitions 2,425  1,937  25.2  Amortization and depreciation1 2,973  2,403  23.7  Segment assets (as of December 31)2 38,599  29,180  32.3  Personnel costs 6,210  5,574  11.4  Number of employees (as of December 31) 95,247  80,945  17.7  1 Intangible assets and property, plant and equipment (including acquisitions) 2 Intangible assets and property, plant and equipment, inventories and business-related receivables 3 Before external financing of pension obligations Segment Reporting Million ¤   Sales     EBITDA   EBIT before special items EBIT   4th Quarter 2006  2005  in % 2006  2005  in % 2006  2005  in % 2006  2005  in % Chemicals 3,448  2,211  55.9  775  513  51.1  592  379  56.2  571  296  92.9  Plastics 3,260  3,037  7.3  379  342  10.8  253  221  14.5  241  207  16.4  Performance Products 2,830  2,155  31.3  209  258  (19.0) 152  177  (14.1) 33  148  (77.7) Agricultural Products & Nutrition 1,196  1,203  (0.6) 152  174  (12.6) 74  118  (37.3) (55) 58  (194.8) Agricultural Products 718  720  (0.3) 116  181  (35.9) 54  124  (56.5) 58  118  (50.8) Fine Chemicals 478  483  (1.0) 36  (7) .  20  (6) .  (113) (60) (88.3) Oil & Gas 3,105  2,536  22.4  946  886  6.8  780  753  3.6  780  753  3.6  Other(a) 635  578  9.9  119  49  142.9  16  (57) .  96  20  380.0    14,474  11,720  23.5  2,580  2,222  16.1  1,867  1,591  17.3  1,666  1,482  12.4  Full Year                         Chemicals 11,572  8,103  42.8  2,235  1,942  15.1  1,704  1,488  14.5  1,380  1,326  4.1  Plastics 12,775  11,718  9.0  1,715  1,504  14.0  1,216  1,031  17.9  1,192  1,015  17.4  Performance Products 10,133  8,267  22.6  1,177  1,227  (4.1) 848  890  (4.7) 669  863  (22.5) Agricultural Products & Nutrition 4,934  5,030  (1.9) 847  996  (15.0) 435  693  (37.2) 381  623  (38.8) Agricultural Products 3,079  3,298  (6.6) 663  907  (26.9) 378  671  (43.7) 447  681  (34.4) Fine Chemicals 1,855  1,732  7.1  184  89  106.7  57  22  159.1  (66) (58) (13.8) Oil & Gas 10,687  7,656  39.6  3.766  2,859  31.7  3,245  2,410  34.6  3,250  2,410  34.9  Other(a) 2,509  1,971  27.3  (17) (295) 94.2  (191) (374) 48.9  (122) (407) 70.0    52,610  42,745  23.1  9,723  8,233  18.1  7,257  6,138  18.2  6,750  5,830  15.8  4th Quarter Research and developmentexpenses   Assets (b)   Additions to long-term assets (b) Amortization and depreciation (c) Chemicals 66  25  164.0  10,473  6,146  70.4  227  105  116.2  204  217  (6.0) Plastics 34  33  3.0  6,911  6,639  4.1  194  175  10.9  138  135  2.2  Performance Products 85  62  37.1  9,727  4,863  100.0  217  98  121,4  176  110  60.0  Agricultural Products & Nutrition 105  97  8.2  6,054  6,637  (8.8) 56  199  (71.9) 207  116  78.4  Agricultural Products 89  80  11.3  4,458  5,156  (13.5) 35  26  34.6  58  63  (7.9) Fine Chemicals 16  17  (5.9) 1,596  1,481  7.8  21  173  (87.9) 149  53  181.1  Oil & Gas .  .  .  5,434  4,895  11.0  177  268  (34.0) 166  133  24.8  Other (a) 77  73  5.5  6,692  6,490  3.1  115  58  98.3  23  29  (20.7)   367  290  26.6  45,291  35,670  27.0  986  903  9.2  914  740  23.5  Full Year                         Chemicals 178  114  56.1  10,473  6,146  70.4  3,539  639  453.8  855  616  38.8  Plastics 145  135  7.4  6,911  6,639  4.1  631  490  28.8  523  489  7.0  Performance Products 288  214  34.6  9,727  4,863  100.0  4,490  347  .  508  364  39.6  Agricultural Products & Nutrition 404  373  8.3  6,054  6,637  (8.8) 466  296  57.4  466  373  24.9  Agricultural Products 334  303  10.2  4,458  5,156  (13.5) 88  74  18.9  216  226  (4.4) Fine Chemicals 70  70  .  1,596  1,481  7.8  378  222  70.3  250  147  70.1  Oil & Gas .  1  (100.0) 5,434  4,895  11.0  545  624  (12.7) 516  449  14.9  Other (a) 262  227  15.4  6,692  6,490  3.1  368  127  189.8  105  112  (6.3)   1,277  1,064  20.0  45,291  35,670  27.0  10,039  2,523  297.9  2,973  2,403  23.7  (a) "Other” includes the fertilizers business and other businesses as well as expenses, income and assets not allocated to the segments. This item also includes foreign currency results from financial indebtedness that are not allocated to the segments as well as from currency positions that are macro-hedged (€23 million in the fourth quarter (previous year: €23 million) and €86 million in 2006 (previous year: €(97) million)). (b) "Other” includes, in addition to the assets of the fertilizers business and other businesses, assets that are not allocated to the segments (financial assets, cash and cash and cash equivalents, marketable securities, financial receivables, deferred tax assets: December 31, 2006: €4,642 million; December 31, 2005: €4,755 million). (c) Additions to property, plant and equipment and intangible assets, adjusted as of September 30, 2006 following the purchase price allocations relating to the acquisitions of Engelhard Corp. and the construction chemicals business. Regions Sales bylocation of company Sales bylocation of customer Income from operations(EBIT) Million € 2006  2005  Changein % 2006  2005  Changein % 2006  2005  Changein % 4th Quarter                   Europe 8,733  7,011  24.6  8,141  6,639  22.6  1,343  1,246  7.8  Thereof Germany 6,365  4,722  34.8  3,277  2,514  30.4  995  903  10.2  North America (NAFTA) 2,852  2,401  18.8  2,904  2,382  21.9  189  123  53.7  Asia Pacific 2,108  1,647  28.0  2,309  1,754  31.6  32  (6) .  South America, Africa, Middle East 781  661  18.2  1,120  945  18.5  102  119  (14.3)   14,474  11,720  23.5  14,474  11,720  23.5  1,666  1,482  12.4  Full Year                   Europe 31,444  25,093  25.3  29,529  23,755  24.3  5,485  4,385  25.1  Thereof Germany 22,963  17,100  34.3  11,062  8,865  24.8  4,125  3,019  36.6  North America (NAFTA) 11,415  9,542  19.6  11,522  9,479  21.6  869  855  1.6  Asia Pacific 7,450  6,042  23.3  8,102  6,500  24.6  181  297  (39.1) South America, Africa, Middle East 2,301  2,068  11.3  3,457  3,011  14.8  215  293  (26.6)   52,610  42,745  23.1  52,610  42,745  23.1  6,750  5,830  15.8