Results of Operations, Net Assets, Financial Position

BASF Group sales rose by €1,090 million to €15,606 million compared with the third quarter of 2017. This was primarily attributable to higher sales prices in all segments. Volumes growth and the acquisition of the Bayer businesses in August 2018 also contributed to the sales increase. Negative currency effects had an offsetting impact.

Factors influencing BASF Group sales, 3rd quarter 2018

Income from operations (EBIT) before special items¹ declined by €232 million to €1,470 million, mainly due to the significantly lower contribution from the Chemicals segment. EBIT before special items also decreased considerably in the Functional Materials & Solutions and Agricultural Solutions segments, but fell only slightly in the Performance Products segment. This was partially offset by improved earnings in Other.

Special items in EBIT totaled minus €75 million in the third quarter of 2018, compared with €122 million in the prior-year quarter. In addition to the integration costs incurred in the Agricultural Solutions segment in connection with the acquisition of significant businesses from Bayer, expenses for restructuring measures and other charges also contributed here. The prior-year quarter included special income in the Performance Products segment from the transfer of BASF’s leather chemicals business to the Stahl group.

EBIT² declined by €429 million year on year to €1,395 million.

Income from operations before depreciation, amortization and special items (EBITDA before special items)³ decreased by €254 million to €2,263 million and EBITDA³ by €465 million to €2,190 million.

The financial result improved by €46 million to minus €138 million, primarily due to interest income on income tax and lower other financial expenses from currency hedges. The main offsetting effect came from higher interest expenses as a result of the increase in financial indebtedness.

Income before taxes and minority interests declined by €383 million to €1,257 million. The tax rate decreased from 23.2% to 17.9%. Contributing factors included the decline in taxable income in Germany, as well as the decrease in tax expenses due to the reduced tax rate in Belgium.

Income before minority interests from continuing operations declined by €228 million to €1,032 million.

Income before minority interests from discontinued operations, which comprise BASF’s oil and gas activities, rose by €86 million to €235 million in the third quarter of 2018. This was mainly attributable to higher prices and volumes as well as an offshore lifting in Libya in the third quarter of 2018; in the previous year, this took place in the second quarter. The price of a barrel of Brent crude oil averaged $75 in the third quarter of 2018 (third quarter of 2017: $52). Gas prices on the European spot markets also saw strong gains compared with the prior-year quarter.

Minority interests decreased by €6 million to €67 million.

Net income declined by €136 million to €1,200 million.

Earnings per share in the third quarter of 2018 amounted to €1.31 (third quarter of 2017: €1.45). Earnings per share adjusted³ for special items and amortization of intangible assets amounted to €1.51 (third quarter of 2017: €1.40).

Net Assets

Total assets rose from €78,768 million as of the end of 2017 to €85,579 million.

Noncurrent assets decreased by €5,363 million to €42,260 million. This was primarily due to the reclassification of assets in the amount of approximately €12.5 billion to “Assets of disposal groups.”⁴ Of this figure, around €12.2 billion related to the oil and gas business. Additions from the acquisition of significant businesses from Bayer in the amount of around €7.1 billion had an offsetting effect.⁵

Current assets amounted to €43,319 million as of the end of the third quarter of 2018, compared with €31,145 million as of December 31, 2017. This includes assets of disposal groups in the total amount of €13,797 million, mainly from the disposal group for the oil and gas business (around €13.3 billion).⁴ Excluding the disposal groups, current assets declined by around €1.6 billion. The main driver was the €4,063 million decrease in cash and cash equivalents from the purchase price payment to Bayer. Lower trade accounts receivable also contributed to the decline. The increase in inventories, other receivables and miscellaneous assets had an offsetting effect. The transaction with Bayer resulted in the addition of current assets in the amount of €873 million.

Financial Position

Equity rose from €34,756 million as of December 31, 2017, to €36,641 million. The equity ratio decreased from 44.1% to 42.8% as a result of the increase in total assets.

Noncurrent liabilities declined from €29,132 million to €26,841 million. All items except financial indebtedness contributed to this decrease. The €1,028 million increase in noncurrent financial indebtedness was due to the issue of bonds with a carrying amount of around €1.9 billion. In addition to the bonds issued in the first half of 2018, two bonds in Australian dollars and Japanese yen with an aggregate carrying amount of €173 million were issued in the third quarter. The main offsetting effect was the reclassification of a eurobond with a carrying amount of €750 million to current financial indebtedness in the first half of the year.

Current liabilities amounted to €22,097 million as of the end of the third quarter of 2018, compared with €14,880 million at the beginning of the year. The liabilities of disposal groups amounted to €5,307 million.⁶ Current liabilities attributable to continuing operations, including the liabilities assumed from the transaction with Bayer, rose by around €1.9 billion. This was primarily due to the increase in current financial indebtedness, primarily from the issue of U.S. dollar commercial paper in the amount of approximately €1.3 billion, of which €241 million in the third quarter, as well as the reclassification of a eurobond mentioned above. The main offsetting effect was the scheduled repayment of two eurobonds with a combined carrying amount of around €0.8 billion.

Overall, financial indebtedness grew by €2,458 million to €20,490 million. Net debt⁷ increased by €6,541 million as against December 31, 2017, to €18,026 million in connection with the purchase price payment for the acquisition of significant businesses from Bayer.

In the third quarter of 2018, cash flows from operating activities amounted to €2,930 million, €865 million below the figure for the prior-year quarter. This was mainly due to the change in net working capital, in particular the year-on-year increase in cash tied up in inventories and the decline in cash released from receivables. The change in miscellaneous items had an offsetting effect: A change in pension provisions led to a release of cash in the third quarter of 2018, compared with tied-up cash in the prior-year quarter. In addition, higher disposal gains, primarily from the transfer of BASF’s leather chemicals business to the Stahl group, were reclassified to cash flows from investing activities in the prior-year quarter.

Cash flows from investing activities amounted to minus €8,301 million in the third quarter of 2018, compared with minus €1,048 million in the prior-year quarter. The increase in tied-up cash was primarily due to the net payments made for acquisitions and divestitures. These totaled €7,184 million in the third quarter of 2018 and mainly related to the purchase price payment to Bayer. This amounted to €7,206 million including liquid funds assumed. In the prior-year quarter, net payments of €21 million were received. Payments made for property, plant and equipment and intangible assets, and cash tied up by changes in financial assets and miscellaneous items were slightly higher year on year, at €979 million and €138 million, respectively.

Cash flows from financing activities amounted to €391 million in the third quarter of 2018, after minus €660 million in the same period last year. This was due to the increase in debt issued as well as lower repayment of financial indebtedness compared with the third quarter of 2017.

Free cash flow amounted to €1,951 million, compared with €2,831 million in the prior-year quarter. The decrease was primarily attributable to lower cash flows from operating activities.

Our ratings have remained unchanged since the publication of the BASF Report 2017. Rated “A1/P-1/outlook stable” by Moody’s, “A/A-1/outlook stable” by Standard & Poor’s and “A/S-1/outlook stable” by Scope, BASF enjoys good credit ratings, especially compared with competitors in the chemical industry. These ratings were most recently confirmed by Scope on October 10, 2018, by Moody’s on June 29, 2018, and by Standard & Poor’s on October 18, 2017.