27. Statement of Cash Flows and Capital Structure Management

Capital structure management

The aim of capital structure management is to maintain the financial flexibility needed to further develop BASF’s business portfolio and take advantage of strategic opportunities. The objectives of the company’s financing policy are to ensure solvency, limit financial risks and optimize the cost of capital.

Capital structure management focuses on meeting the requirements needed to ensure unrestricted access to the capital market and a solid A rating. The capital structure is managed using selected financial ratios, such as dynamic debt ratios, as part of the company’s financial planning.

The equity of the BASF Group as reported in the balance sheet amounted to €40,923 million as of December 31, 2022 (December 31, 2021: €42,081 million); the equity ratio was 48.4% on December 31, 2022 (December 31, 2021: 48.2%).

BASF prefers to access external financing on the capital markets. A commercial paper program is used for short-term financing, while corporate bonds are used for financing in the medium and long term. These are issued in euros and other currencies with different maturities. The goal is to create a balanced maturity profile, achieve a diverse range of investors and optimize BASF’s debt capital financing conditions. Since 2020, BASF has employed green corporate bonds to finance the development of sustainable products and projects with a clear environmental benefit.

BASF currently has the following ratings, which were most recently confirmed by Fitch on November 30, 2022, and by Moody’s on January 18, 2023. Standard & Poor’s confirmed BASF’s A rating on August 1, 2022, and adjusted its outlook from stable to negative.

BASF strives to maintain a solid A rating, which ensures unrestricted access to financial and capital markets.

• For more information on BASF’s financing policy, see the Management’s Report

Statement of cash flows

Cash flows from operating activities contained the following payments:

The noncash earnings from investments that are accounted for using the equity method are eliminated from other items in cash flows from operating activities. That resulted in a loss of €4,499 million, mainly from Wintershall Dea AG, in 2022 and a gain of €960 million in the previous year.

• For more information, see Note 10

In order to optimize precious metal stocks, the Group sells precious metals and concurrently enters into agreements to repurchase them at a set price. The cash flows resulting from the sale and repurchase in the amount of €502 million were reported in cash flows from operating activities.

In 2022, cash flows from investing activities included €13 million in payments made for acquisitions. These related to an adjusted purchase price payment for Solvay’s polyamide business (2021: €600 million for the acquisition of BASF Shanshan Battery Materials Co., Ltd).

Payments received from divestitures in the amount of €691 million resulted primarily from the sale of shares in the Hollandse Kust Zuid wind farm in the amount of €382 million, the sale of the kaolin minerals business in the amount of €225 million, and the sale of the production site in Quincy, Florida, and associated attapulgite business in the amount of €60 million. Payments received for divestitures in the amount of €1,030 million in 2021 were mainly from the sale of the pigments business.

• For more information on acquisitions and divestitures, see Note 3

Payments made for property, plant and equipment and intangible assets amounted to €4,375 million, €843 million higher than in the previous year.

Cash and cash equivalents in the amount of €2,516 million consist primarily of cash on hand and bank balances with maturities of less than three months. As in the previous year, these were not subject to any utilization restrictions in 2022. However, the repayment of funds from Russia is currently only possible to a limited extent.

The reconciliation according to IAS 7 breaks down the changes in financial and similar liabilities and their hedging transactions into cash-effective and non-cash-effective changes. The cash-effective changes presented on the left correspond to the figures in cash flows from financing activities.

Loan liabilities do not contain any interest components.

Other financing-related liabilities primarily comprise liabilities from accounts used for cash pooling with BASF companies not included in the Consolidated Financial Statements. They are reported in miscellaneous liabilities within the balance sheet item other liabilities that qualify as financial instruments.

Assets/liabilities from hedging transactions form part of the balance sheet items derivatives with positive and negative fair values respectively and include only those transactions which hedge risks arising from financial indebtedness and financing-related liabilities secured by micro hedges.

• For more information on receivables and miscellaneous assets, see Note 18
• For more information on liabilities, see Note 21
• For more information on the statement of cash flows, see the Management’s Report