Report of the Supervisory Board
For our anniversary in 2015 celebrating BASF’s 150 years of existence, we had expected more favorable conditions. Over the course of the year, the business environment deteriorated as political and macroeconomic challenges increased. Oil prices and growth both dropped sharply. Sales and earnings fell in this difficult environment, primarily from the divestiture of our natural gas trading and storage business; cash flow was increased. The entrepreneurially demanding journey to further shape the “We create chemistry” strategy will be continued, and has the full support of the Supervisory Board.
Monitoring and consultation in an ongoing dialog with the Board of Executive Directors
In 2015, the Supervisory Board of BASF SE exercised its duties as required by law and the Statutes with the utmost care. We regularly monitored the management of the Board of Executive Directors and provided advice on the company’s strategic development and important individual measures, about which the Supervisory Board was regularly and thoroughly informed by the Board of Executive Directors. This occurred in the form of written and oral reports on, for example, all of the company’s and the segments’ major financial KPIs for the general economic situation in the main sales and procurement markets, and on deviations in business developments from original plans. Furthermore, the Supervisory Board tackled fundamental questions of corporate planning, including financial, investment, sales volumes and personnel planning, as well as measures for designing the future of research and development.
The Supervisory Board discussed in detail the reports from the Board of Executive Directors, and also deliberated on prospects for the company and its individual business areas with the Board of Executive Directors. Outside of Supervisory Board meetings, the Chairman of the Board of Executive Directors also promptly informed the Chairman of the Supervisory Board regarding current developments and signiﬁcant items. The Supervisory Board was always involved at an early stage in decisions of major importance. The Supervisory Board passed resolutions on all of those individual measures taken by the Board of Executive Directors which by law or the Statutes required the approval of the Supervisory Board. In the 2015 business year, these concerned approval for the swap with Gazprom of investments in WINGAS’s natural gas trading and storage business for further shares in a gas field in western Siberia, as well as the completion guarantee for the Nord Stream 2 natural gas pipeline project.
Supervisory Board meetings
The Supervisory Board held ﬁve meetings in the 2015 reporting year. With the exception of one meeting at which one member of the Supervisory Board was absent, all Supervisory Board members attended all Supervisory Board meetings in 2015. The members of the Supervisory Board elected by shareholders and those elected by the employees prepared for the meetings in separate preliminary discussions.
A significant component of all Supervisory Board meetings was the Board of Executive Directors’ reports on the current business situation with detailed information on sales and earnings growth, as well as on opportunities and risks for business development, the status of important current and planned investment projects, developments on the capital markets, and significant managerial measures taken by the Board of Executive Directors. Innovation projects were also discussed, including science symposia and the Creator Space tour as part of the activities in honor of BASF’s 150th anniversary.
In its meetings, the Supervisory Board additionally discussed the further development of the BASF Group’s business activities through acquisitions, divestitures and investment projects. Significant matters of consultation comprised the divestiture of the pharmaceutical custom synthesis business as well as portions of the active pharmaceutical ingredients business to Siegfried Holding AG; the above-mentioned BASF stake in the Nord Stream 2 project company for constructing an additional natural gas pipeline through the Baltic Sea with Gazprom, E.ON, ENGIE, Shell and OMV; the divestiture of the industrial coatings business; and the conclusion of the sale of the 25% share in the SolVin joint venture. Ongoing topics in the Board of Executive Directors’ reports furthermore included major capital-intensive investment projects, such as the construction of a TDI complex in Ludwigshafen, Germany; an MDI plant in Chongqing, China; and an acrylic acid plant in Camaçari, Brazil, all of which began operations in 2015. Changes in the regulatory environment and their implications for the company’s business activities were also discussed.
At its meeting of February 25, 2015, the Supervisory Board reviewed and approved the Consolidated Financial Statements, Management’s Report and the proposal for the appropriation of profit for the 2014 business year as presented by the Board of Executive Directors. The meeting on April 30, 2015, served to prepare for the Annual Shareholders’ Meeting.
In addition to strategically signiﬁcant individual measures, the Supervisory Board also addressed BASF’s strategy and long-term business prospects in individual business areas and regions. At its meeting on July 22, 2015, the Supervisory Board, together with the Board of Executive Directors, reassessed the implementation of the “We create chemistry” strategy established in 2011. Focus areas included the Agricultural Solutions and Oil & Gas segments, the further development of research and development, and the opportunities and risks for the company posed by Industry 4.0. The restructuring of the pigments business was also conferred upon.
At the meeting on October 22, 2015, the Board of Executive Directors reported on the region Europe’s organizational and business-model enhancement as well as on the restructuring of the business with paper, water, oilfield and mining chemicals.
At its meeting of December 17, 2015, the Supervisory Board discussed the Board of Executive Directors’ operative and financial planning including the investment budget for 2016, and as usual empowered the Board of Executive Directors to procure necessary financing in 2016. An additional focus topic was consultation on the further development of the Agricultural Solutions segment.
The Supervisory Board thoroughly considered the personnel issues of the Board of Executive Directors during the meetings of February 25, July 22, and December 17, 2015. Based on preparations conducted by the Personnel Committee, the Supervisory Board determined the targets for the Board of Executive Directors for the 2015 business year at its meeting on February 25, 2015. The meeting on July 22, 2015, dealt with the composition of the Board of Executive Directors. The terms of office expiring on April 29, 2016, for Chairman Dr. Kurt Bock, Vice Chairman Dr. Martin Brudermüller, and members Dr. Hans-Ulrich Engel and Dr. Harald Schwager were each extended by five years, up to the conclusion of the Annual Shareholders’ Meeting in 2021. According to preparations made by the Personnel Committee, the Supervisory Board determined the performance evaluation of the Board of Executive Directors for the 2015 business year at its meeting on December 17, 2015.
At its meetings on October 22 and December 17, 2015, the Supervisory Board also addressed topics pertaining to its own organization. For example, the Strategy Committee was deployed at the meeting on October 22, 2015. At both meetings, the Supervisory Board also advised on the change in BASF SE’s Employee Participation Agreement, which provides the material legal foundation for the Supervisory Board. The changes made to the Employee Participation Agreement mainly concerned the implementation of the law introducing a minimum percentage of women and men on the Supervisory Board.
The Supervisory Board of BASF SE has four committees: 1. the committee for personnel matters of the Board of Executive Directors and the granting of loans in accordance with Section 89(4) of the German Stock Corporation Act (Personnel Committee); 2. the Audit Committee; 3. the Nomination Committee; and 4. the Strategy Committee, newly established in 2015. Following each Committee meeting, the chairpersons of the Committees reported in detail about the meetings and the activities of the Committees at the subsequent meeting of the Supervisory Board.
The Personnel Committee met three times during the reporting period. With the exception of one meeting at which one member was absent, all committee members participated in the meetings. At its meeting on February 25, 2015, the Personnel Committee advised on the targets for the Board of Executive Directors for the 2015 business year. Topics at the meeting on July 22, 2015, included succession planning for the Board of Executive Directors, including the extension of their terms for Dr. Kurt Bock, Dr. Martin Brudermüller, Dr. Hans-Ulrich Engel and Dr. Harald Schwager, and the determination of target figures for the proportion of women on the Board of Executive Directors of BASF SE. At the meeting on December 17, 2015, the Personnel Committee particularly focused on the Board of Executive Directors’ performance evaluation and matters concerning their compensation.
The Audit Committee is responsible for all the tasks listed in Section 107(3)(2) of the German Stock Corporation Act and in Subsection 5.3.2 of the German Corporate Governance Code in its version of June 24, 2014. The Audit Committee met ﬁve times during the reporting period. All committee members attended all meetings. Its core duties were to review BASF SE’s Financial Statements and Consolidated Financial Statements, as well as to discuss the quarterly and ﬁrst-half ﬁnancial reports with the Board of Executive Directors prior to their publication.
At the meeting on July 21, 2015, KPMG – the auditor elected at the Annual Shareholders’ Meeting – was charged with the audit for the 2015 reporting year and auditing fees were agreed upon. The focus areas for the annual audit were discussed and defined together with the auditor. The Audit Committee categorically excluded any service relationships between auditor and BASF Group companies outside of the audit of the annual financial statements, including beyond prevailing legal limitations. These services may only be performed upon approval by the Audit Committee. For certain nonaudit services beyond the scope of the audit of the financial reports, the Audit Committee either granted approval for individual cases or authorized the Board of Executive Directors to engage KPMG for such services. The authorization of each service applies for one reporting year and is limited in amount.
One of the Committee’s core tasks in 2015 was preparing a proposal for the Annual Shareholders’ Meeting on April 29, 2016, on the election of the auditor for the 2016 business year. From August to December 2015, the Audit Committee selected the auditor to be recommended at the Annual Shareholders’ Meeting by means of a tendering process conducted in line with the regulations set forth by the new E.U. regulatory framework on statutory audit, effective as of 2016. After assessment and extensive discussion of the tenders submitted through the tendering process by a total of five auditing firms, the Audit Committee decided to recommend to the Supervisory Board that the previous auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, once again be nominated for election at the Annual Shareholders’ Meeting. KPMG has been auditor of BASF SE’s separate and consolidated financial statements since the 2006 business year.
Other important activities included advising the Board of Executive Directors on accounting issues and the internal control system. The internal auditing system and compliance in the BASF Group were each a focus at one meeting of the Audit Committee. In these meetings, the head of the Corporate Audit department and the Chief Compliance Ofﬁcer reported to the Audit Committee and answered its questions.
At the meeting on February 23, 2016, the auditor reported in detail on its audits of BASF SE’s consolidated and separate financial statements for the 2015 business year and discussed the audit’s results with the Audit Committee.
The Audit Committee once again conducted a self-evaluation of its activities in 2015. No new steps were found to be necessary in terms of the duties of the committee or the content, frequency and procedure of meetings.
The Nomination Committee is responsible for preparing candidate proposals for the election of those Supervisory Board members who are elected by the Annual Shareholders’ Meeting. The Nomination Committee is guided by the objectives for the composition of the Supervisory Board adopted by the Supervisory Board. No appointments to the Supervisory Board, or reappointments of former Supervisory Board members, took place in 2015. The Nomination Committee nevertheless met once in 2015 in order to focus especially on risk provision for succession planning for the Supervisory Board, and determine a control limit for the term of membership on the Supervisory Board as recommended by the revised German Corporate Governance Code. All committee members attended the meeting.
Newly established in 2015, the Strategy Committee held one meeting during the reporting period, attended by all members. The discussion centered on possible significant individual measures for the internal implementation of BASF’s “We create chemistry” strategy and strategic options for the further development of the BASF Group. Following this, the Strategy Committee was informed of progress in the preparation of potential individual measures that may require Supervisory Board approval should they be carried out.
Corporate governance and Declaration of Conformity
The Supervisory Board places great value on ensuring good corporate governance: In 2015, it was therefore once again intensely occupied with the corporate governance standards practiced in the company, the implementation of the German Corporate Governance Code’s recommendations and suggestions, and the implementation of the new law on the participation of women on the Supervisory Board and the Board of Executive Directors. At our meeting of October 22, 2015, we discussed the current recommendations and proposals made for the German Corporate Governance Code and their implementation at BASF.
At its meeting of December 17, 2015, the Supervisory Board approved the joint Declaration of Conformity by the Supervisory Board and the Board of Executive Directors in accordance with Section 161 of the German Stock Corporation Act, and carried out assessments of efﬁciency and independence. BASF complies with the recommendations of the German Corporate Governance Code in its version of May 5, 2015, without exception. This also applies to the Code’s recommendations made in 2015, such as the determination of a control limit for the term of membership on the Supervisory Board, which was fixed by the Supervisory Board at three regular statutory periods in office, or around 15 years.
Declaration of Conformity
An important aspect of good corporate governance is the independence of Supervisory Board members and their freedom from conflicts of interest. According to estimations of the Supervisory Board, all of its members can be considered independent as deﬁned by the German Corporate Governance Code. The criteria used for this evaluation can be found in the Corporate Governance Report. In cases where Supervisory Board members hold supervisory or management positions at companies with which BASF has business relations, we see no impairment of their independence. The scope of these businesses is relatively marginal and furthermore takes place under conditions similar to those of a third party. To avoid an individual case of potential conflict of interest, one Supervisory Board member refrained from participating in consultation on a particular matter at a Supervisory Board meeting in 2015. The Corporate Governance Report of the BASF Group provides extensive information on BASF’s corporate governance. It also includes the Compensation Report, containing full details on the compensation for the Board of Executive Directors and the Supervisory Board.
Annual Financial Statements of BASF SE and Consolidated Financial Statements
KPMG AG Wirtschaftsprüfungsgesellschaft, the auditor elected by the Annual Shareholders’ Meeting for the 2015 reporting year, has audited the Financial Statements of BASF SE and the BASF Group Consolidated Financial Statements, including the Management’s Report and the accounting records from which they were prepared, and have approved them free of qualiﬁcation. Furthermore, the auditor certified that the Board of Executive Directors had taken the measures incumbent on it under Section 91(2) of the German Stock Corporation Act in an appropriate manner. In particular, it had instituted an appropriate information and monitoring system that fulfilled the requirements of the company and is applicable for the early identification of developments that could pose a risk to the continued existence of the BASF Group.
The documents to be examined and the auditor’s reports were sent in a timely manner to every member of the Supervisory Board. The auditor attended the accounts review meeting of the Audit Committee on February 23, 2016, as well as the accounts meeting of the Supervisory Board on February 24, 2016, and reported on the main ﬁndings of the audit. The auditor also provided detailed explanations of the reports on the day before the accounts meeting of the Supervisory Board.
The Audit Committee reviewed the Financial Statements and Management’s Report at its meeting on February 23, 2016, and discussed them in detail with the auditor. The Chairwoman of the Audit Committee gave a detailed account of the preliminary review at the Supervisory Board meeting on February 24, 2016. On the basis of this preliminary review by the Audit Committee, the Supervisory Board has examined the Financial Statements and Management’s Report of BASF SE for 2015, the proposal by the Board of Executive Directors for the appropriation of proﬁt as well as the Consolidated Financial Statements and Management’s Report for the BASF Group for 2015. The Supervisory Board has reviewed, acknowledged and approved the auditor’s reports. The results of the preliminary review by the Audit Committee and the results of the Supervisory Board’s examination fully concur with those of the audit. The Supervisory Board sees no grounds for objection to the management and submitted reports.
At the Supervisory Board’s accounts meeting on February 24, 2016, we approved the Financial Statements of BASF SE and the Consolidated Financial Statements of the BASF Group prepared by the Board of Executive Directors, making the BASF SE Financial Statements final. We concur with the proposal of the Board of Executive Directors regarding the appropriation of proﬁt and the payment of a dividend of €2.90 per share.
The Supervisory Board thanks all employees of the BASF Group worldwide and the management for their personal contribution in the 2015 business year.
Dr. Andreas Kreimeyer left the Board of Executive Directors at the conclusion of the Annual Shareholders’ Meeting on April 30, 2015. He had been a member since 2003 and served in the end as Research Executive Director. The Supervisory Board expresses its very sincere thanks to him.
Ludwigshafen, February 24, 2016
The Supervisory Board
Chairman of the Supervisory Board