4 – Segment reporting

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 comprises 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 is made up of the Petrochemicals, Monomers and Intermediates divisions.

The Performance Products segment consisted of the Dispersions & Pigments, Care Chemicals, Nutrition & Health, Paper Chemicals and Performance Chemicals divisions until the end of 2014. 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 will be 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 comprises 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.

The Oil & Gas segment is composed of the Oil & Gas division with its Exploration & Production and Natural Gas Trading business sectors.

Activities not assigned to a particular division are reported in 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 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.

Sales in Other declined quarter-on-quarter, due primarily to lower volumes as well as the disposal of BASF’s 50% share in the Ellba Eastern Private Ltd. joint operation in Singapore at the end of 2014. Income from operations in Other were also considerably below the level of the first quarter of 2014. This was primarily attributable to valuation effects for the LTI program: As a result of the positive performance of BASF shares, higher provisions were recognized than in the previous first quarter. A liability for the anniversary bonus and negative currency effects were also among the factors that weighed down earnings.

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 fell by €161 million compared with the previous first quarter. In the Natural Gas Trading business sector, earnings rose as a result of higher sales volumes and more favorable procurement conditions, while earnings in the Exploration & Production business sector declined on account of the lower prices of oil and natural gas, despite increased production. Furthermore, the sale to the MOL Group of shares in non-BASF-operated oil and gas fields in the British North Sea had led to special income of €132 million in the first quarter of 2014.

The Oil & Gas segment’s other income relates to income and expenses not included in the segment’s income from operations, the interest result as well as the other financial result. As in the previous first quarter, other income resulted primarily from the currency translation of intercompany loans.

Higher income taxes were especially the product of currency-related changes in the value of deferred taxes. These pertain to the currency-driven increase in temporary differences in the calculation of taxable income in Norway. The lower amount of tax-free income in the first quarter of 2015 also led to an increase in the tax rate. The first quarter of 2014 had included tax-free special income from the sale of shares in North Sea oil and gas fields to the MOL Group.