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 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.

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 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 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, which includes plant biotechnology research, 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 translation 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.

Sales in Other rose from €1,086 million in the first half of 2017 to €1,219 million in the first half of 2018 as a result of higher sales volumes and prices in raw materials trading.

Income from operations amounted to minus €372 million in the first half of 2018, compared with minus €424 million in the prior-year period. This was due to the improvement in the foreign currency result and the line item miscellaneous income and expenses.

Reconciliation reporting for Oil & Gas reconciles the income from operations in the Oil & Gas segment with the segment’s contribution to the net income of the BASF Group.

Income from operations improved considerably. Oil and gas prices rose. In Norway, we recorded both lower depreciation as a result of higher reserves and volumes growth.

Other income in the Oil & Gas segment relates to income and expenses not included in the segment’s income from operations, interest result and other financial result. As in the prior-year period, other income largely consisted of the foreign currency measurement of intragroup loans.

The significant increase in income taxes in the first half of 2018 was primarily attributable to stronger earnings contributions from Norway.