4 – Reporting by Segment and Region

As of January 1, 2019, we have 11 divisions grouped into six segments as follows:

• Chemicals: Petrochemicals, Intermediates
• Materials: Performance Materials, Monomers
• Industrial Solutions: Dispersions & Pigments, Performance Chemicals
• Surface Technologies: Catalysts, Coatings
• Nutrition & Care: Care Chemicals, Nutrition & Health
• Agricultural Solutions: Agricultural Solutions

The Construction Chemicals division was part of the Surface Technologies segment until December 21, 2019. The division was reclassified to Other as a discontinued operation with the agreement on the sale of BASF’s construction chemicals business to an affiliate of Lone Star. The prior-year figures have been restated accordingly.

The composition of a number of divisions also changed at the beginning of 2019. The propylene oxide and propylene glycol business was transferred from the Petrochemicals division to the Monomers division. The superabsorbents business was reallocated from the Care Chemicals division to the Petrochemicals division. The styrene, polystyrene and styrene-based foams business, which previously mainly fell under the Performance Materials division and a small part under Other, is bundled in the Petrochemicals division.

The divisions are allocated to the segments based on their business models and according to their focal points, customer groups, the focus of their innovations, their investment relevance and sustainability aspects.

The Chemicals segment comprises the Petrochemicals and Intermediates divisions and is the cornerstone of BASF’s Verbund structure. It supplies the other segments with basic chemicals and intermediates, contributing to the organic growth of our key value chains. Alongside internal transfers, customers include the chemical and plastics industries. The segment’s competitiveness is strengthened by technological leadership and operational excellence.

The Materials segment is composed of the Performance Materials division and the Monomers division. The segment offers advanced materials and their precursors for new applications and systems. Its product portfolio includes isocyanates and polyamides as well as inorganic basic products and specialties for plastics and plastics processing.

The Industrial Solutions segment consists of the Dispersions & Pigments and the Performance Chemicals divisions. The segment develops and markets ingredients and additives for industrial applications, such as polymer dispersions, pigments, resins, electronic materials, antioxidants and additives. Its customers come from key industries such as automotive, plastics and electronics.

The Surface Technologies segment bundles chemical solutions for surfaces with the Catalysts and Coatings divisions. Its product spectrum includes catalysts and battery materials for the automotive and chemical industries, surface treatments, colors and coatings.

The Nutrition & Care segment comprises the Care Chemicals division and the Nutrition & Health division. The segment produces ingredients and solutions for consumer applications in the areas of nutrition, home and personal care. Its customers include food and feed producers as well as the pharmaceutical, cosmetics, detergent and cleaner industries.

The Agricultural Solutions segment consists of the division of the same name. As an integrated provider, its portfolio comprises fungicides, herbicides, insecticides and biological crop protection products, as well as seeds and seed treatment products. Furthermore, Agricultural Solutions offers farmers innovative solutions, including those based on digital technologies, combined with practical advice.

Activities that are not allocated to any of the segments are recorded under Other. These include other businesses, which comprise commodity trading, engineering and other services, as well as rental income and leases. Discontinued operations and all remaining activities after divestitures not previously reported under Other have also been reported here since January 1, 2019. These remaining activities include, for example, equity-accounted participating interests assumed in the context of divestitures or supply obligations. The remaining activities for the leather and textile chemicals business, previously recorded in the Performance Products segment, and the remaining activities for the industrial coatings business, previously recorded in the Functional Materials & Solutions segment, were reclassified to Other. Discontinued operations include the business of the former Construction Chemicals division and the oil and gas business. Following the merger of the oil and gas businesses of Wintershall and DEA, the equity-accounted interest in Wintershall Dea GmbH, Kassel/Hamburg, Germany, and the resulting contribution to earnings have also been reported under other businesses since May 1, 2019. The assets and liabilities of the oil and gas business were already presented under Other following the signing of the binding agreement between BASF and LetterOne to merge their oil and gas activities in the third quarter of 2018 until closing of the transaction.

The following activities are also presented under Other:

• The steering of the BASF Group by corporate headquarters.
• 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.
• Results from currency translation that are not allocated to the segments; earnings from the hedging of raw materials prices and foreign currency exchange risks; and gains and losses from the long-term incentive (LTI) program.
• Miscellaneous income and expenses include expenses and income in connection with contaminated sites, project costs that are not allocated to the segments and, since the beginning of 2019, remanent fixed costs resulting from organizational changes or restructuring, function and region-related restructuring costs not allocated to a division, and idle capacity costs from internal human resource platforms.

Income from operations of Other declined by €161 million year on year, from minus €506 million to minus €667 million. The costs for cross-divisional corporate research decreased by €17 million to minus €397 million, and the costs of corporate headquarters were €18 million lower at minus €231 million. Income from other businesses declined by €2 million to €15 million. The line item foreign currency results, hedging and other measurement effects decreased by €413 million to minus €89 million. This was due to expenses resulting from the addition to provisions for the LTI program in 2019, compared with income from the release of provisions in the previous year, as well as negative currency effects. The line item miscellaneous income and expenses rose by €219 million to €35 million and includes the gain on the sale of our share of the Klybeck site in Basel, Switzerland.

The same accounting rules are used for segment reporting as those used for the Group, which are presented in these Notes. Transfers between the segments are generally executed at adjusted market-based prices, taking into account the higher cost efficiency and lower risk of intragroup 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. Assets not used by the segments are reported under Other.

Income from operations (EBIT) before special items is used for the internal steering of the segments and complements the key management indicator, ROCE. EBIT is calculated from gross profit on sales, selling expenses, general administrative expenses, research and development expenses, other operating income and expenses, and income from companies accounted for using the equity method. To calculate EBIT before special items, this figure is then adjusted for special items. Special items arise from the integration of acquired businesses, restructuring costs, certain impairments, gains or losses resulting from divestitures and sales of shareholdings accounted for using the equity method, and other expenses and income that arise outside of ordinary business activities. EBIT and EBIT before special items are alternative performance measures that are not defined under IFRS and are to be considered as being complementary to the indicators defined by IFRS.

In the United States, sales to third parties in 2019 amounted to €14,211 million (2018: €14,202 million) according to location of companies and €13,506 million (2018: €13,496 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 €12,115 million on December 31, 2019, compared with €12,958 million in the previous year.

In China, sales to third parties in 2019 amounted to €7,216 million (2018: €7,501 million) according to location of companies and €6,734 million (2018: €6,644 million) according to location of customers. In China, intangible assets, property, plant and equipment, and investments accounted for using the equity method amounted to €4,299 million on December 31, 2019, compared with €4,162 million in the previous year.