Our Steering Concept

Our “Winning Ways” strategy pursues the goal of strengthening the autonomy of the operating divisions and their responsibility for their own business success, as well as increasing the competitiveness of the business units. To this end, we use a steering concept that includes both financial and sustainability-related indicators.

Steering concept of the BASF Group

At the beginning of 2024, we launched a new, optimized steering concept at both Group and segment level. The goal is to strengthen the autonomy of our business units and thus also their responsibility for business success.

We use three most important key performance indicators to steer the BASF Group: income from operations before depreciation, amortization and special items (EBITDA before special items), free cash flow as well as Scope 1 and Scope 2 CO₂ emissions.

EBITDA before special items is used to steer our profitability. It describes the operational performance of our businesses independent of age-related depreciation and amortization of assets and is particularly suitable for comparisons with businesses in similar sectors.

We use free cash flow to steer the ability to generate cash. The indicator shows the extent to which operating cash surpluses are available for the payment of dividends, the reduction of debt or for acquisitions.

We regard sustainability as a decisive factor for our long-term business success. This view is also reflected in our steering concept with Scope 1 and Scope 2 CO₂ emissions as the most important sustainability-related key performance indicator at Group level.

In addition, our return on capital is an important part of the steering concept. Return on capital employed (ROCE) depends significantly on strategic decisions such as acquisitions, divestitures and investments, making it a suitable medium-term target for the BASF Group. This is reflected in the ROCE target that we have set ourselves for 2028.

The key figures for steering the business units are based on the most important financial key performance indicators of the BASF Group. For example, the profitability of the segments is measured by their absolute contribution to EBITDA before special items.

To manage cash flow at segment level, we use a specific key figure, segment cash flow, which includes the elements of free cash flow that can be managed by the operating divisions. This key performance indicator also applies to all segments.

For the year 2025 as well as for the comparative period, the key performance indicators EBITDA before special items, as the most significant performance indicator, as well as ROCE and segment cash flow are reported excluding the discontinued coatings business, while free cash flow and CO₂ emissions include the businesses to be divested. For the calculation of performance-based compensation for the year 2025, EBITDA before special items including coatings (€7,098 million) is considered.

Value-based management throughout the company

A performance-related variable compensation system based on financial and non-financial targets is an important part of our value-based management. The performance management system has been adapted in line with the increased autonomy of the business units. Already since 2024, variable compensation for senior executives has been based on targets derived from the key performance indicators for the steering of the respective business unit or the BASF Group respectively. As planned, we introduced this differentiated bonus system for the majority of employees worldwide over the course of 2025. As part of this enhanced performance management system, BASF takes into account not only the ROCE of the BASF Group, but also other financial and nonfinancial key performance indicators of the operating division in which the relevant person works. For employees who do not work in an operating division, the targets of the BASF Group and the nonfinancial targets of the respective unit apply. This means that variable compensation is linked to our ROCE target and the performance of the relevant BASF unit. This is a further step toward Differentiated Steering with a high degree of accountability on the part of the business units.

Key figures in reporting

In line with the steering concept, in financial reporting we analyze, comment on and forecast the most important key performance indicators EBITDA before special items and free cash flow for the BASF Group, and EBITDA before special items and segment cash flow for the segments. We also forecast cash flows from operating activities and payments made for property, plant and equipment and intangible assets as key elements of free cash flow.

ROCE is managed as a medium-term target on the basis of factors that include capital expenditure in property, plant and equipment. These comprise additions to property, plant and equipment excluding additions from acquisitions, IT investments and restoration obligations as well as right-of-use assets arising from leases. Capital expenditure is therefore a key element of ROCE and is also forecast.

Calculation of EBITDA before special items

EBITDA is the result from income from operations reported in the Consolidated Financial Statements plus depreciation, amortization, impairments and reversals of impairments on property, plant and equipment and intangible assets. This is adjusted for special items that may arise from the integration of acquired businesses, from restructuring measures, from gains or losses resulting from divestitures and sales of shareholdings as well as from other expenses and income that may arise outside of ordinary business activities.

Calculation of free cash flow and segment cash flow

Segment cash flow measures the cash inflow and outflow of a segment and thus its contribution to the BASF Group’s free cash flow. It includes only those amounts that can be steered by the segment and is calculated from EBITDA, changes in inventories and trade accounts receivable, and other extraordinary adjustments (such as those related to divestitures), less payments made for intangible assets and property, plant and equipment. The BASF Group’s free cash flow also includes components of cash flows from operating activities that are not allocated to the segments as well as adjustments of other noncash effects.

Free cash flow is the cash flows from operating activities less payments made for intangible assets and property, plant and equipment.

Calculation of CO₂ emissions

We calculate the BASF Group’s absolute CO₂ emissions on the basis of greenhouse gas emissions, which are the sum of direct emissions from production processes and the generation of steam and electricity (Scope 1), as well as indirect emissions from the purchase of energy (Scope 2). For this target key figure, direct emissions from the generation of energy for third parties are not considered. Relevant emissions include other greenhouse gases according to the Greenhouse Gas Protocol, which are converted into CO₂ equivalents (for more information, see E1 Climate Change).

Calculation of ROCE and cost of capital

ROCE is calculated as the EBIT of the segments as a percentage of the average cost of capital basis.

To calculate the EBIT of the segments, we take the BASF Group’s EBIT and deduct the EBIT of activities recognized under Other, which are not allocated to the segments.

The cost of capital basis is calculated using the month-end figures and consists of the operating assets of the segments. They include property, plant and equipment as well as intangible fixed assets, integral investments accounted for using the equity method, inventories, trade accounts receivable, other receivables and miscellaneous assets as well as, if applicable, the assets of disposal groups, insofar as they are allocated to the segments. The cost of capital basis also includes customer and supplier financing.

We have integrated the cost of capital percentage into our ROCE target as a comparative figure. This is determined using the weighted cost of capital from equity and borrowing costs (weighted average cost of capital). To calculate a pretax figure similar to EBIT, the cost of capital is adjusted using the expected tax rate for the BASF Group for the business year. In addition, the projected net expense of Other is already provided for by an adjustment to the cost of capital percentage. The cost of equity is ascertained using the capital asset pricing model. Borrowing costs are determined based on the financing costs of the BASF Group. The cost of capital percentage for 2026 is 10% (2025: 10%).