Independent Auditor’s Report¹

To BASF SE, Ludwigshafen am Rhein

Report on the Audit of the Consolidated Financial Statements and of the Group Management Report

Opinions

We have audited the consolidated financial statements of BASF SE, Ludwigshafen am Rhein, and its subsidiaries (the Group), which comprise the statement of income, statement of income and expense recognized in equity, balance sheet, statement of cash flows and statement of changes in equity for the financial year from January 1 to December 31, 2022, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of BASF SE for the financial year from January 1 to December 31, 2022.

In accordance with German legal requirements, we have not audited the content of those components of the group management report specified in the “Other Information” section of our auditor’s report.

The group management report contains cross-references that are not required by law and which are marked as unaudited. In accordance with German legal requirements, we have not audited the cross-references and the information to which the cross-references refer.

In our opinion, on the basis of the knowledge obtained in the audit,

• the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, as well as the IFRSs in the version adopted by the International Accounting Standards Board and the additional requirements of German commercial law pursuant to Section 315e (1) HGB [Handelsgesetzbuch: German Commercial Code], and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as of December 31, 2022, and of its financial performance for the financial year from January 1 to December 31, 2022, and
• the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the group management report does not cover the content of those components of the group management report specified in the “Other Information” section of the auditor’s report. The group management report contains cross-references that are not required by law and which are marked as unaudited. Our audit opinion does not extend to the cross-references and the information to which the cross-references refer.

Pursuant to Section 322 (3) sentence 1 HGB [Handelsgesetzbuch: German Commercial Code], we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and the group management report.

Basis for the Opinions

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Section 317 HGB and the EU Audit Regulation No 537/2014 (referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German pro­fessional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2)(f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the group management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from January 1 to December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.

Recoverability of goodwill

For information on the accounting principles applied, please refer to Note 1.4 to the consolidated financial statements. The underlying assumptions used in the measurement and the disclosures on the impairment tests performed are included in Note 14 to the consolidated financial statements.

The financial statement risk

Intangible assets in the consolidated financial statements of BASF SE include goodwill in the amount of EUR 7,696 million. Goodwill accounts for 9.1 % of total assets and thus has a material impact on the Parent Company’s net assets. Goodwill is tested for impairment annually, irrespective of any indication of impairment. If any indications of impairment arise during the financial year, an ad hoc goodwill impairment test is also carried out during the year. The goodwill impairment test involves the carrying amount being compared with the recoverable amount of each cash-generating unit. If the carrying amount exceeds the recoverable amount, an impairment loss must be recognized. The recoverable amount is the higher amount of fair value less costs to sell and value in use of the cash-generating unit.

Impairment testing of goodwill is complex and based on a number of assumptions requiring judgment. These include the forecasts for future cash inflows in the detailed planning period, the assumed growth rate for subsequent periods and the cost of capital. These assumptions have a material impact on the recoverability of goodwill. The growth forecasts of the Board of Executive Directors are associated with risks and can be revised in light of volatile raw materials prices and an unstable macroeconomic environment.

Based on the impairment tests conducted, the Company did not identify any need to recognize impairment losses. However, the Group’s sensitivity analysis showed for the cash-generating units Catalysts (not including Battery Materials) and Surface Treatment in the Surface Technologies segment that a reasonably possible change in the cost of capital, the EBITDA margin of the last detailed planning year or the long-term growth rate would reduce the respective value to the recoverable amount.

There is the risk for the consolidated financial statements that any existing impairment as at the reporting date was not identified. In addition, there is a risk that the disclosures in the notes on the key assumptions are not appropriate.

Our audit approach

With the involvement of our valuation specialists, we assessed, among other things, the appropriateness of the key assumptions as well as the Group’s methods of calculation.

We examined the forecast for the expected business and earnings development and the resulting cash flows in the detailed planning period, in particular with respect to whether the expected development of the relevant sales markets was given appropriate consid­eration and was consistent with the current budgets adopted by the Board of Executive Directors and the Supervisory Board. We compared internal growth forecasts with industry expectations and those of significant competitors and we assessed whether the assumptions contained in the planning regarding the future development of margins and the amount of investments were appropriate. Our review of the appropriateness of the budgets adopted by the Board of Executive Directors and the Supervisory Board also included a comparison of planning in past business years with the results actually achieved. For selected cash-generating units, we examined whether reasons for not reaching budgeted figures in the past were given appropriate consideration in current planning, to the extent that this was relevant.

We assessed the appropriateness of the assumed growth rate for the period following the detailed planning period on the basis of industry-specific and macroeconomic studies. We evaluated the methodological appropriateness of the calculation and the appropriateness of the weighted average cost of capital. To this end, we calculated our own expected values for the assumptions and data underlying the weighted cost of capital rates and compared these with the assumptions and data used.

To assess the methodically and mathematically correct implementation of the valuation method for the cash-generating units Catalysts (not including Battery Materials) and Surface Treatment in the Surface Technologies segment, we verified the Company’s measurement using our own calculations and analyzed deviations.

In order to take forecast uncertainty into account, we examined the impact of potential changes in the cost of capital, the EBITDA margin of the last detailed planning year or the long-term growth rate on the recoverable amount by evaluating alternative scenarios as calculated by the Company (sensitivity analysis).

Finally, we assessed whether the disclosures in the notes on the key assumptions are appropriate. This also included an assessment of the appropriateness of the disclosures pursuant to IAS 36.134(f) on sensitivities in the event of a reasonably possible change in key assumptions underlying the evaluation.

Our observations

The calculation method used for impairment testing of goodwill is appropriate and in line with the accounting policies to be applied.

The assumptions and data of the Board of Executive Directors underlying the measurement are appropriate overall.

The disclosures in the notes on the key assumptions are appropriate.

Recoverability of the shareholding in Wintershall Dea

For information on the accounting principles applied and the underlying assumptions used in the measurement, please refer to Note 10.2 to the consolidated financial statements.

The financial statement risk

In the consolidated financial statements of BASF SE, shares in Wintershall Dea in the amount of EUR 4,364 million are reported under non-integral investments accounted for using the equity method. The shareholding in Wintershall Dea accounts for 5.2 % of total assets and thus has a material influence on the Group’s net assets.

If there are indicators for an impairment of an equity-accounted invest­ment, the Company determines the recoverable amount as of the reporting date and compares this with the carrying amount. The recoverable amount is the higher of fair value less costs to sell and the value in use of the investment. The higher value in use determined for the investment as recoverable amount is determined using the discounted cash flow method. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.

The determination of the recoverable amount of the investment in the Wintershall Dea is complex and based on assumptions requiring judgment. These include, in particular, the distinction between cash-generating units for accounting purposes, the assessment of the increasingly restricted influence on the investments in Russia, including due to government interventions, as well as the estimates of long-term oil and gas prices, the forecast production volumes of Wintershall Dea’s oil and gas fields based on expected license terms and production profiles, and the cost of capital.

There is the risk for the consolidated financial statements that a decline in the value of the investment as of the balance sheet date was not identified. There is also the risk that the related disclosures in the notes are not appropriate.

Our audit approach

We obtained an understanding of the Company’s process for the identification of indications of impairment as well as for the determination of the recoverable amount based on explanations provided by the staff in accounting. In doing so, we assessed, among other things, whether the calculation of the recoverable amount of the invest­ment in Wintershall Dea was consistent with the relevant accounting principles and whether the key assumptions made for this calculation were appropriate.

To assess whether the IFRS criteria for control or significant influence regarding Wintershall Dea’s Russian investments have been fulfilled, we gained an understanding of the Russian government’s decrees, inspected the correspondence with the co-owners and evaluated the accounting decision based on this at the level of Wintershall Dea.

We discussed the projected development of production volumes and oil and gas prices with the persons responsible for planning. We evaluated the production profiles used to measure the assets of the exploration and production business assets, while taking into account assessments by experts contracted by Wintershall Dea. In order to assess its suitability as a basis for calculation, we had the oil and gas price scenario used by the Company explained to us. To assess its appropriateness, we compared the oil and gas price scenario used by BASF with the published expectations of com­petitors, analysts, international institutions and other market participants.

With the involvement of our valuation specialists, we also satisfied ourselves of the methodological appropriateness of the calculation and the appropriateness of the weighted average cost of capital. We compared the assumptions and data underlying the capital costs, in particular the risk-free rate, the market risk premium and the beta factor with our own assumptions and publicly available data.

In order to assess the accuracy of the measurement of the investment in Wintershall Dea, we verified selected calculations taking into account risk-based considerations.

Finally, we assessed whether the disclosures in the notes on the recoverability of the investment in Wintershall Dea are appropriate.

Our observations

The underlying calculation method for the impairment test of the investment in Wintershall Dea is appropriate and consistent with the applicable accounting principles.

The Company’s assumptions and data underlying the measurement are appropriate. The related disclosures in the notes are appropriate.

Other Information

The Board of Executive Directors and/or the Supervisory Board are responsible for the other information. The other information comprises the following components of the group management report, whose content was not audited:

• the components of the integrated non-financial statement, which are marked as unaudited
• the corporate governance statement included in the Corporate Governance section of the group management report, and
• information extraneous to management reports and marked as unaudited.

The other information also includes the remaining parts of the annual report. The other information does not include the consolidated financial statements, the group management report information audited for content and our auditor’s report thereon.

Our opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

• is materially inconsistent with the consolidated financial statements, with the group management report information audited for content or our knowledge obtained in the audit, or
• otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report

The Board of Executive Directors is responsible for the preparation of consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU, as well as the IFRSs in the version adopted by the International Accounting Standards Board and the additional requirements of German commercial law pursuant to Section 315e (1) HGB, and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the Board of Executive Directors is responsible for such internal control as it has determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud (i.e., fraudulent financial reporting and misappropriation of assets) or error.

In preparing the consolidated financial statements, the Board of Executive Directors is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, the Board of Executive Directors is responsible for the preparation of a group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the Board of Executive Directors is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.

The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the group management report.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the group management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

We exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a material misstatement resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
• Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
• Evaluate the appropriateness of accounting policies used by the Board of Executive Directors and the reasonableness of estimates made by the Board of Executive Directors and related disclosures.
• Conclude on the appropriateness of the Board of Executive Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inade­quate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consoli­dated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU, as well as the IFRSs in the version adopted by the International Accounting Standards Board and the additional requirements of German commercial law pursuant to Section 315e (1) HGB.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.
• Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with [German] law, and the view of the Group’s position it provides.
• Perform audit procedures on the prospective information pres­ented by the Board of Executive Directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the Board of Executive Directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assump­tions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the actions taken or safeguards applied to eliminate independence threats.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

Other Legal and Regulatory Requirements

Report on the Assurance on the Electronic Rendering of the Consolidated Financial Statements and the Group Management Report Prepared for Publication Purposes in Accordance with Section 317 (3a) HGB

We have performed assurance work in accordance with Section 317 (3a) HGB to obtain reasonable assurance about whether the rendering of the consolidated financial statements and the group management report (hereinafter the “ESEF documents”) contained in the electronic file „basf-gruppe-2022-12-31-de.zip“ (SHA256- hash value: 9039e1d9b85b8fc3ffc4bcfa42d4785835ebea74588d4d1c387c8c37797d6032) made available and prepared for publication purposes complies in all material respects with the requirements of Section 328 (1) HGB for the electronic reporting format (“ESEF format”). In accordance with German legal requirements, this assurance work extends only to the conversion of the information contained in the consolidated financial statements and the group management report into the ESEF format and therefore relates neither to the information contained in these renderings nor to any other information contained in the file identified above. 

In our opinion, the rendering of the consolidated financial statements and the group management report contained in the electronic file made available, identified above and prepared for publication purposes complies in all material respects with the requirements of Section 328 (1) HGB for the electronic reporting format. Beyond this assurance opinion and our audit opinion on the accompanying consolidated financial statements and the accompanying group management report for the financial year from January 1 to December 31, 2022 contained in the “Report on the Audit of the Consolidated Financial Statements and the Group Management Report” above, we do not express any assurance opinion on the information contained within these renderings or on the other information contained in the file identified above.

We conducted our assurance work on the rendering of the consolidated financial statements and the group management report contained in the file made available and identified above in accordance with Section 317 (3a) HGB and the IDW Assurance Standard: Assurance Work on the Electronic Rendering of Financial Statements and Management Reports Prepared for Publication Purposes in Accordance with Section 317 (3a) HGB (IDW AsS 410 (06.2022)). Our responsibility in accordance therewith is further described below. Our audit firm applies the IDW Standard on Quality Management 1: Requirements for Quality Management in Audit Firms (IDW QS 1).

The Company’s Board of Executive Directors is responsible for the preparation of the ESEF documents including the electronic rendering of the consolidated financial statements and the group management report in accordance with Section 328 (1) sentence 4 item 1 HGB and for the tagging of the consolidated financial statements in accordance with Section 328 (1) sentence 4 item 2 HGB.

In addition, the company’s Board of Executive Directors is responsible for such internal control that they have considered necessary to enable the preparation of ESEF documents that are free from material intentional or unintentional non-compliance with the requirements of Section 328 (1) HGB for the electronic reporting format.

The Supervisory Board is responsible for overseeing the process of preparing the ESEF documents as part of the financial reporting process.

Our objective is to obtain reasonable assurance about whether the ESEF documents are free from material intentional or unintentional non-compliance with the requirements of Section 328 (1) HGB. We exercise professional judgement and maintain professional scepticism throughout the assurance work. We also:

• Identify and assess the risks of material intentional or unintentional non-compliance with the requirements of Section 328 (1) HGB, design and perform assurance procedures responsive to those risks, and obtain assurance evidence that is sufficient and appropriate to provide a basis for our assurance opinion.
• Obtain an understanding of internal control relevant to the assurance on the ESEF documents in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing an assurance opinion on the effectiveness of these controls.
• Evaluate the technical validity of the ESEF documents, i.e. whether the file made available containing the ESEF documents meets the requirements of the Delegated Regulation (EU) 2019/815, as amended as at the reporting date, on the technical specification for this electronic file.
• Evaluate whether the ESEF documents provide an XHTML rendering with content equivalent to the audited consolidated financial statements and the audited group management report.
• Evaluate whether the tagging of the ESEF documents with Inline XBRL technology (iXBRL) in accordance with the requirements of Articles 4 and 6 of the Delegated Regulation (EU) 2019/815, as amended as at the reporting date, enables an appropriate and complete machine-readable XBRL copy of the XHTML rendering.
   

Further Information pursuant to Article 10 of the EU Audit Regulation

We were elected as group auditor at the Annual General Meeting on April 29, 2022. We were engaged by the Chair of the Audit Committee on November 16, 2022. We have been the group auditor of BASF SE without interruption since financial year 2006.

We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the Audit Committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

Other matter – Use of the Auditor´s Report

Our auditor´s report must always be read together with the audited consolidated financial statements and the audited group management report as well as the examined ESEF documents. The consolidated financial statements and group management report converted to the ESEF format – including the versions to be published in the German Federal Gazette [Bundesanzeiger] – are merely electronic renderings of the audited consolidated financial statements and the audited group management report and do not take their place. In particular, the ESEF report and our assurance opinion contained therein are to be used solely together with the examined ESEF documents made available in electronic form.

Information on the Supplementary Audit

We issue this opinion on the consolidated financial statements and the group management report as well as for the electronic rendering of the consolidated financial statements and the group management report presented to us for audit for the first time, contained in the provided electronic file „basf-gruppe-2022-12-31-de.zip“ (SHA256- hash value: 9039e1d9b85b8fc3ffc4bcfa42d4785835ebea74588d4d1c387c8c37797d6032) and prepared for publication purposes, based on our audit duly completed on February 21, 2023, and our supplementary audit completed on March 14, 2023, which relates to the first-time submission of the ESEF documents.

German Public Auditor Responsible for the Engagement

The German Public Auditor responsible for the engagement is Dr. Axel Thümler.

Frankfurt am Main, February 21, 2023, limited to the assessment of the ESEF documents specified in the information on the supplementary audit: March 14, 2023

KPMG AG
Wirtschaftsprüfungsgesellschaft

[Original German version signed by:]