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 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 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 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, we exited the natural gas trading and storage business, previously operated together with Gazprom, and starting October 1, 2015, are concentrating 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 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.

In the third quarter of 2015, sales in Other amounted to €685 million compared with €977 million in the third quarter of 2014. In the period from January to September 2015, sales amounted to €2,130 million compared with €2,909 million in the same period of the previous year. The decline in sales was mainly attributable to decreased raw material trading and the disposal of our share in the Ellba Eastern Private Ltd. joint operation in Singapore, completed at the end of 2014. Sales were furthermore reduced by lower plant availability since June 2014 following a plant outage at the Ellba C.V. joint operation in Moerdijk, Netherlands.

Income from operations in Other decreased by €45 million to minus €72 million in the third quarter of 2015 as compared with the same quarter of the previous year. This was mainly attributable to fewer provision reversals for the long-term incentive program.

Income from operations fell in the period from January to September 2015 by €272 million to minus €850 million. Along with expenses for the anniversary bonus, the addition of provisions for the long-term incentive program contributed to this decline; the same period of the previous year had included income from their reversal. A further factor was the missing contribution from Styrolution Holding GmbH, after the sale of our 50% share in the fourth quarter of 2014.

The reconciliation reporting for 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 rose in the third quarter of 2015 by €209 million, largely due to special income from the asset swap with Gazprom and the associated reclassification of Wintershall Noordzee B.V.

The Oil & Gas segment’s other income 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 in the third quarter as well as the first three quarters of 2015 largely consisted of currency effects from Group loans.

Income tax fell in the third quarter of 2015 and in the first three quarters of 2015 compared with the corresponding periods of the previous year. In the third quarter of 2015, gains from the swap of assets with Gazprom did not result in tax burdens. The first three quarters of 2014 had included tax-free special income from the sale of shares in North Sea oil and gas fields to the MOL Group.