4 – Reporting by segment and region

BASF’s business is conducted by thirteen 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 classic chemicals business with basic chemicals and intermediates. The focus is on cost leadership in the value chains, efficient and reliable production and logistics processes, as well as process innovation. The segment 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 numerous other sectors, Chemicals ensures that other BASF SEgments are supplied with chemicals for producing downstream products. The Chemicals segment is composed of the Petrochemicals, Monomers and Intermediates divisions.

The Performance Products segment consists of the Dispersions & Pigments, Care Chemicals, Nutrition & Health and Performance Chemicals divisions. Tailored solutions play a key role. They enable our customers to improve the application properties of their products or optimize production processes, for example. Close customer contact and meeting the demanding requirements of a wide range of industries are crucial to business success. As of January 1, 2017, the activities of the Monomers and Dispersions & Pigments divisions for the electronics industry were merged into the global business unit Electronic Materials in the Dispersions & Pigments division within the Performance Products segment. BASF thereby strengthens its position as a strategic partner for the large electronic producers. The 2016 figures have been restated accordingly.

The Functional Materials & Solutions segment bundles system solutions, services and innovative products for specific sectors and customers, especially the automotive, electrical, chemical and construction industries, as well as applications for household, sports and leisure. An in-depth understanding of applications, the development of innovations in close cooperation with customers, and adaptation to different regional needs are key success factors. The segment is made up of the Catalysts, Construction Chemicals, Coatings, and Performance Materials divisions.

The Agricultural Solutions segment includes the Crop Protection division, which is active in the areas of chemical and biological crop protection, seed treatment and water management as well as for nutrient supply and combating plant stress. It offers farmers innovative solutions, including those based on digital technologies, combined with practical advice. Plant biotechnology research is not assigned to this segment; it is reported in Other.

The Oil & Gas segment comprises the division of the same name and focuses on the exploration and production in oil and gas rich regions in Europe, North Africa, Russia, South America and the Middle East. It benefits from strong partnerships and its technological expertise. In Europe, the segment is also active in the transportation of natural gas together with its Russian partner Gazprom.

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 steering of the BASF Group by corporate headquarters, and cross-divisional corporate research. Cross-divisional corporate research, to which plant biotechnology research also belongs, works on long-term topics of strategic importance to the BASF Group. Furthermore, it focuses on the development of specific key technologies which are of central importance for the divisions.

Earnings from currency conversion that are not allocated to the segments are also reported under Other, as are earnings from the hedging of raw materials 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 increased by €292 million year-on-year to minus €799 million. The costs for cross-divisional corporate research decreased by €16 million to €379 million, whereas the costs of corporate headquarters at €224 million were €2 million higher than in the previous year. Income from other businesses rose by €42 million to €81 million. The line item foreign currency results, hedging and other measurement effects increased by €303 million to minus €28 million. This was due to the provisions for the LTI program: Income in the amount of €68 million arising from their partial release in 2017 contrasted with expenses of €267 million from additions to provisions in the previous year. The line item miscellaneous income and expenses amounted to minus €249 million compared with minus €182 million in the previous year.

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 in 2017 increased significantly in comparison with the previous year. This is primarily attributable to the increase in oil and gas prices, a higher earnings contribution from our share in the Yuzhno Russkoje natural gas field, reversals of impairments in Norway and the Netherlands, and the sale of shares in the Aguada Pichana concession in Argentina. In connection with our share in the Yuzhno Russkoye natural gas field, the excess volumes received over the last 10 years prior to 2016 were compensated in the previous year as contractually agreed with our partner, Gazprom. An impairment regarding the exploration potential in Norway had an offsetting effect.

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 largely consisted of currency effects from Group loans.

Positive income taxes in 2017 were primarily a result of higher income in Norway.

In the United States, sales to third parties in 2017 amounted to €13,909 million (2016: €12,831 million) according to location of companies and €13,127 million (2016: €11,985 million) according to location of customers.

In the United States, intangible assets, property, plant and equipment, and investments accounted for using the equity method amounted to €9,014 million compared with €10,342 million in the previous year.