4 – Segment reporting

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

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

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 is allocated to the Petrochemicals division rather than the Care Chemicals 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 prior-year figures have been restated accordingly.

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 accounts, customers include the chemical and plastics industries. The segment’s competitiveness is augmented through technological leadership and operational excellence.

The Materials segment is composed of the Performance Materials division and the Monomers division. It 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 in various industries.

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

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

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

The Agricultural Solutions segment consists of the division of the same name. As an integrated provider, its product 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 continued operating divisions are recorded under Other.

These include other businesses, which comprise commodity trading, engineering and other services, 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 businesses, 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.

As a consequence of the merger of the oil and gas businesses of Wintershall and DEA, the equity-accounted interest in Wintershall Dea GmbH, Kassel, Germany, and its 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.

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. This 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; earnings from the hedging of raw materials prices and foreign currency exchange risks; and gains and losses from the long-term incentive (LTI) program
• 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; idle capacity costs from internal human resource platforms

The same accounting rules are used for segment reporting as those used for the Group. 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.

The relevant measure used for the internal steering of the segments is income from operations (EBIT) before special items. It is based on EBIT, which 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. EBIT is 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.