4 – Segment reporting

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 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, Chemicals ensures that other BASF segments are supplied with chemicals for producing downstream products. The Chemicals segment comprises the Petrochemicals, Monomers and Intermediates divisions.

The Performance Products segment consists of the Dispersions & Pigments, Care Chemicals, Nutrition & Health and Performance Chemicals divisions. Customized products and solutions allow customers to make their production processes more efficient or to give their products improved application properties. 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.

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. It is made up of the Catalysts, Construction Chemicals, Coatings, and Performance Materials divisions.

The Agricultural Solutions segment includes the Crop Protection division. It provides innovative solutions in the areas of chemical and biological crop protection, seed treatment and water management as well as for nutrient supply and combating plant stress. 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. It focuses on exploration and production in oil and gas-rich regions in Europe, North Africa, Russia, South America and the Middle East. In Europe, it is also active in the transport of natural gas together with 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 production of precursors not assigned to a particular segment, the steering of the BASF Group by corporate headquarters, and cross-divisional corporate research. Cross-divisional corporate research, which was restructured in 2016 in the context of the newly developed innovation approach, 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. Plant biotechnology research is also part of cross-divisional corporate 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.

In the first half of 2017, sales of Other rose to €1,086 million compared with €962 million in the same period of the previous year. This was largely the result of price increases in raw materials trading.

Income from operations fell compared with the previous first half, from minus €392 million to minus €424 million in the first half of 2017. Miscellaneous income and expenses and other businesses contributed to this development. By contrast, the rise in the item “foreign currency results, hedging and other measurement effects” resulted primarily from valuation effects for the LTI program. Releases of LTI provisions were higher in the first half of 2017, whereas additions had outweighed releases in the same period of 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 the first half of 2017 grew significantly year-on-year, essentially due to the higher levels of prices and sales volumes. The rise in volumes came mainly from higher sales volumes of gas, in addition to an offshore lifting in Libya in June 2017. No offshore lifting had taken place in the first half of 2016. The share in the Yuzhno Russkoye natural gas field yielded higher earnings contributions.

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.

Income of €2 million recorded under income taxes in the first half of 2017 and €102 million in the first half of 2016 was primarily the result of effects from the calculation of taxable income in Norway. Earnings contributions from companies accounted for using the equity method also contribute to the comparatively low level of income taxes.