After a weaker fourth quarter in 2011, our business recovered in the first quarter of 2012. Sales rose in almost all segments and amounted to €20.6 billion, an increase of 6% compared with the same quarter of the previous year. This was primarily attributable to higher sales prices and positive currency effects.

By contrast, income from operations before special items decreased as expected, declining by €200 million to €2.5 billion. Increased raw material costs could not be fully passed on in all business areas, which put pressure on margins.
BASF Group 1st Quarter 2012
After weaker fourth quarter 2011, business recovers in first quarter 2012 Sales increase by 6% to €20.6 billion owing to higher prices and positive currency effects Volumes grow in Oil & Gas and Agricultural Solutions segments; adjusted for effects of supply chain optimization for steam cracker products, total sales volumes slightly above level of previous first quarter Increased raw material costs cannot be fully passed on in all business areas Income from operations before special items decreases by 7% to €2.5 billion At €1.6 billion, operating cash flow below level of previous first quarter; net debt reduced by €1.5 billion to €9.4 billion since beginning of 2012Our sales volumes matched the level of the first quarter of 2011. Volumes increased in the Oil & Gas and Agricultural Solutions segments; however, sales volumes declined in the chemicals business1. Adjusted for effects resulting from the optimization of our supply chain for steam cracker products, total volumes were slightly above the level of the previous first quarter. We were partly able to pass on increased raw material costs by raising our sales prices in several business areas. Positive currency effects also contributed to sales growth. Portfolio measures reduced sales by 1%, a result of the divestiture of our styrenics business, which was contributed to the Styrolution joint venture as of October 1, 2011.

1 Our chemicals business includes the Chemicals, Plastics, Performance Products and Functional Solutions

Outlook
After a weak fourth quarter in 2011, our business recovered in the first quarter of 2012. However, we were only partly able to pass on increased raw material costs.

We expect global economic growth to continue over the course of 2012. Uncertainty on the financial markets dampens growth prospects, however. Positive stimulus for the chemical industry will mainly come from the emerging markets. We confirm our outlook for 2012: We continue to aim to exceed the 2011 record levels in sales and income from operations.
Outlook confirmed: we aim to improve sales and earnings and expect to earn a high premium on our cost of capital Opportunities can arise from stronger growth in the global economy and in our customer industries New strategic excellence program, STEP, will help strengthen our competitiveness and profitability Risks arise from, for example, the national debt crises in Europe and the United States as well as from inflationary trends in AsiaOpportunities and risks
In 2012, we may be presented with opportunities arising from stronger growth in the global economy and our customer industries. Furthermore, a stronger U.S. dollar would have positive effects on our earnings.

We also see opportunities in the implementation of our “We create chemistry” strategy, further improving our operational excellence and strengthening our research and development activities. We will continue to concentrate on portfolio optimization, restructuring and increasing efficiency as well as on product innovations and expanding our business in growth markets. For example, the new strategic excellence program STEP serves to strengthen our competitiveness and profitability. It is expected to contribute around €1 billion to earnings each year by the end of 2015. STEP – which follows on from our excellence program NEXT, completed in 2011 – comprises more than 100 projects that aim to lower costs and raise profit margins.

However, there are also risks to the development of our business. Economic growth could be impaired by the national debt crises in Europe and the United States as well as by inflationary trends in Asia. Increasing raw material costs could also negatively affect our margins and dampen demand.

The statements on opportunities and risks made in the BASF Report 2011 remain valid