4 – Reporting by segment and region

Since January 1, 2015, BASF’s business has been conducted by 13 operating divisions aggregated into five segments for reporting purposes. The divisions are allocated to the segments based on their business models.

The Chemicals segment entails the classical chemicals business with basic chemicals and intermediates. It forms the core of BASF’s Production Verbund and is the starting point for a majority of the value chains. In addition to supplying the chemical industry and other sectors, the segment ensures that other BASF divisions are supplied with chemicals for producing downstream products. The Chemicals segment comprises the Petrochemicals, Monomers and Intermediates divisions.

Until the end of 2014, the Performance Products segment consisted of the Dispersions & Pigments, Care Chemicals, Nutrition & Health, Paper Chemicals and Performance Chemicals divisions. Customized products allow customers to make their production processes more efficient or to give their products improved application properties. The Paper Chemicals division was dissolved as of January 1, 2015. The paper chemicals business is being continued in the Performance Chemicals and Dispersions & Pigments divisions.

The Functional Materials & Solutions segment bundles system solutions, services and innovative products for specific sectors and customers, in particular for the automotive, electronic, chemical and construction industries. It is made up of the Catalysts, Construction Chemicals, Coatings, and Performance Materials divisions.

The Agricultural Solutions segment consists of the Crop Protection division, whose products secure yields and guard crops against fungal infections, insects and weeds, in addition to serving as biological and chemical seed treatments. Plant biotechnology research is not assigned to this segment; it is reported in Other.

Until September 30, 2015, the Oil & Gas segment comprised the Oil & Gas division with its Exploration & Production and Natural Gas Trading business sectors. At the end of the third quarter of 2015, BASF exited the natural gas trading and storage business, operated together with Gazprom to that point in time, and as of October 1, 2015, has concentrated on the exploration and production of oil and gas as well as on the transport of natural gas.

Activities not assigned to a particular division are reported under Other. These include the sale of raw materials, engineering and other services, rental income and leases, the production of precursors not assigned to a particular segment, the steering of the BASF Group by corporate headquarters, and corporate research.

With cross-divisional corporate research, BASF is creating new businesses and ensuring its long-term competence with regard to technology and methods. This includes plant biotechnology research.

Earnings from currency conversion that are not allocated to the segments are also reported under Other, as are earnings from the hedging of raw material prices and foreign currency exchange risks. Furthermore, revenues and expenses from the long-term incentive (LTI) program are reported here.

Transfers between the segments are generally executed at adjusted market-based prices which take into account the higher cost efficiency and lower risk of Group-internal transactions. Assets, as well as their depreciation and amortization, are allocated to the segments based on economic control. Assets used by more than one segment are allocated based on the percentage of usage.

Income from operations of Other decreased by €852 million year-on-year to minus €985 million.

The previous year had primarily included disposal gains of €458 million, shown under other businesses, from BASF’s share in Styrolution Holding GmbH, Frankfurt am Main, Germany.

Furthermore, the item foreign currency results, hedging and other measurement effects declined in comparison with 2014. This was partly due to higher currency losses. It was also the result of expenses arising from the addition to provisions for the long-term incentive program in the amount of €49 million in 2015; in the previous year, by contrast, income in the amount of €54 million had been recognized from the reversal of such provisions.

Miscellaneous income and expenses decreased especially as a result of expenses for BASF’s 150th anniversary celebrations in 2015.

The reconciliation reporting Oil & Gas reconciles the income from operations in the Oil & Gas segment with the contribution of the segment to the net income of the BASF Group.

Income from operations declined due to lower oil and gas prices, and the currency-related decrease in earnings contributions from BASF’s share in the Yuzhno Russkoye natural gas field. Impairments for exploration and production licenses dampened earnings by €609 million in 2015 and €230 million in 2014.

In 2015, the asset swap with Gazprom led to income in the amount of €314 million. In 2014, the sale of oil and gas investments in the North Sea to the MOL Group resulted in income of €132 million. As a result of the asset swap with Gazprom on September 30, 2015, the share of earnings from the exited natural gas trading and storage business as well as from the 50% share in Wintershall Noordzee B.V., Rijswijk, Netherlands, was no longer included in the income from operations in the fourth quarter of 2015.

Income from shareholdings in the Oil & Gas segment decreased significantly. This was due to the sale of VNG – Verbundnetz Gas AG, Leipzig, Germany, to EWE AG in 2014.

Other income in the oil and gas business relates to income and expenses not included in the segment’s income from operations, interest result and other financial result. As in the previous year, other income largely consisted of currency effects from Group loans.

Significantly lower earnings contributions from Norway, due in part to the impairments recognized there as well as to currency effects, led to a considerable decline in income tax and the tax rate.

In the United States, sales to third parties in 2015 amounted to €13,831 million (2014: €13,877 million) according to company location and €13,302 million (2014: €13,329 million) according to customer location. In the United States, intangible assets, property, plant and equipment, and investments accounted for using the equity method amounted to €9,262 million compared with €7,983 million in the previous year.