29 – Statement of cash flows and capital structure management

Statement of cash flows

Cash provided by operating activities contained the following payments:

Interest payments comprised interest payments received of €156 million (2015: €194 million) and interest paid of €615 million (2015: €652 million).

Cash provided by operating activities also included €262 million in benefits paid (2015: €248 million), which are covered by a contractual trust arrangement.

Cash used in investing activities included €2,828 million in payments made for acquisitions (2015: €215 million), especially for the acquisition of the global surface treatment provider Chemetall from Albemarle Corporation, Charlotte, North Carolina. In the previous year, payments had especially been made for the acquisition of a 66% share in a company into which TODA KOGYO CORP., Hiroshima, Japan, contributed its business with cathode materials for lithium-ion batteries, patents and production capacities.

Payments of €664 million were received for divestitures (2015: €651 million) primarily from the sale of the industrial coatings business to the AkzoNobel Group and from the sale of the global polyolefin catalysts business to W. R. Grace & Co., Columbia, Maryland. In the previous year, payments had been received from the sale of portions of the pharmaceutical ingredients and services business to Siegfried Holding AG, Zofingen, Switzerland, as well as the sale of the 50% share in Styrolution Holding GmbH, Frankfurt am Main, Germany, to the INEOS Group completed in 2014.

The payments made for property, plant and equipment, and intangible assets in the amount of €4,145 million included investments for 2016, to the extent that they already had an effect on cash.

Cash and cash equivalents were not subject to any utilization restrictions, as in the previous year.

Capital structure management

The aim of capital structure management is to maintain the financial flexibility needed to further develop BASF’s business portfolio and take advantage of strategic opportunities. The objectives of the Company’s financing policy are to secure solvency, limit financial risks and optimize the cost of capital.

Capital structure management focuses on meeting the requirements needed to ensure unrestricted access to capital markets and a solid A rating. BASF’s capital structure is managed using selected financial ratios, such as dynamic debt ratios, as part of the company’s financial planning.

As a part of risk management, activities in countries with transfer restrictions are continuously monitored. This includes, for example, regular analysis of the macroeconomic and legal environment, shareholders’ equity and the business models of the operating units. The chief aim is the reduction of counterparty, transfer and currency risks for the BASF Group.

The equity of the BASF Group as reported in the balance sheet amounted to €32,568 million as of December 31, 2016 (December 31, 2015: €31,545 million); the equity ratio was 42.6% on December 31, 2016 (December 31, 2015: 44.5%).

BASF prefers to access external financing on the capital markets. A commercial paper program is used for short-term financing, while corporate bonds are used for financing in the medium and long term. These are issued in euros and other currencies with different maturities. The goal is to create a balanced maturity profile, achieve a diverse range of investors and optimize our debt capital financing conditions.

Currently, BASF has the following ratings:

Rating agency Moody’s last confirmed their rating of “A1/P-1/outlook stable” on November 28, 2016. Standard & Poor’s adjusted their BASF rating from “A+/A-1/outlook negative” to “A/A-1/outlook stable” on March 14, 2016, and confirmed it most recently on August 10, 2016. This adjustment was largely based on the weaker market environment, especially for basic and agricultural chemicals, limited overall volumes growth, and the considerable drop in the price of crude oil. Uncertainty with regard to economic development in China was taken into consideration, as well. Rating agency Scope has also been evaluating BASF’s creditworthiness since September 2016. They rated BASF at “A/S-1/outlook stable.”

BASF continues to strive for at least a solid A rating, which ensures unrestricted access to financial and capital markets.