26. Capital Structure Management and Statement of Cash Flows

26.1 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 €36,646 million as of December 31, 2023 (December 31, 2022: €40,923 million); the equity ratio was 47.3% on December 31, 2023 (December 31, 2022: 48.4%).

BASF prefers to access external financing on the capital markets and, when advantageous, via bank loans. 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 8, 2023, and by Moody’s on September 4, 2023. Standard & Poor’s adjusted BASF’s A rating to A– and its outlook from negative to stable on August 2, 2023.

BASF continues to strive for a solid A rating, which ensures unrestricted access to financial and capital markets.

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

26.2 Statement of cash flows

Accounting policies

Cash flows from operating activities are determined using the indirect method whereby changes in balance sheet items are adjusted for currency translation effects and changes in the scope of consolidation and thus cannot be derived directly from the consolidated balance sheet.

BASF reports interest paid and dividends received in cash flows from operating activities. Income tax payments from ongoing business are also allocated to cash flows from operating activities. In the case of material transactions, however, these are reported in the corresponding section of the statement of cash flows.

Cash flows from financing activities include payments for leases in which BASF is lessee as well as dividend payments.

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 included in cash flows from financing activities 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 17
• For more information on liabilities, see Note 20
• For more information on the statement of cash flows, see the Combined Management’s Report

Payments are netted in cash flows from investing activities and cash flows from financing activities if they are items with a high turnover rate, represent large amounts and have short-term maturities.

Explanation of the statement of cash flows

To improve the understanding and interpretation of the statement of cash flows, the presentation of cash flows from operating activities was modified in the 2023 fiscal year. In the future, effects from equity-accounted companies will be presented more transparently; changes in net working capital, consisting of inventories, trade accounts receivable and payable, as well as changes in other operating assets and liabilities will be structured more clearly. The prior-year figures were adjusted accordingly.

Cash flows from operating activities contained the following payments:

In order to optimize precious metal stocks, the Group sells precious metals and concurrently enters into agreements to repurchase them at a set price. Cash flows resulting from the sale and repurchase in the amount of -€447 million (2022: €502 million) were reported in cash flows from operating activities.

Factoring agreements in the amount of €560 million had a positive impact on cash flows from operating activities in 2023 (2022: €266 million).

In 2023, cash flows from investing activities included €5 million in payments made for acquisitions. As in the previous year, these related to an adjusted purchase price payment for Solvay’s polyamide business (2022: €13 million).

Payments received from divestitures amounted to €32 million and related solely to immaterial transactions. In the previous year, payments received resulted 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.

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

Payments made for property, plant and equipment and intangible assets amounted to €5,395 million, €1,020 million higher than in the previous year. This also includes capitalized interest in the amount of €80 million (2022: €40 million).

Cash and cash equivalents in the amount of €2,624 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 2023. However, the repayment of funds from Russia is currently only possible to a limited extent. These amounted to €21 million as of December 31, 2023 (2022: €99 million).

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.