Letter from the Chairman of the Board of Executive Directors

We finished this business year with record numbers. We grew faster than the market and further increased earnings. I am proud of the BASF team that has again put all its energies into continuing the success story of BASF – The Chemical Company. I would like to extend my heartfelt thanks to all employees.

We have continued to strengthen our company to face global competition. The purchase and sale of businesses have afforded us greater cyclical resilience. The large acquisitions have to a great extent been integrated and are performing better than anticipated. The organization and working processes have been made leaner and more productive. Most notably, we have aligned ourselves to better meet the needs of our customers: Helping them become more successful is our number one priority.

Europe is our home market: We have underlined our commitment to this market with the conversion of BASF Aktiengesellschaft into a European Company (a Societas Europaea, or SE). This has helped us gain efficiency and flexibility and was also the motivation behind our delisting from the New York Stock Exchange.

We grow profitably

In 2007, we increased sales by 10% to almost €58 billion and once again earned a premium on our cost of capital of nearly €2.9 billion. We want to continue on our successful path. The global BASF team will enable the BASF Group to earn at least its cost of capital in any given year, independent of the economic cycle. In addition, we aim to earn our cost of capital in each and every one of our segments.

In 2007, the BASF share was one of the top performers, growing more than 42% compared with 2006. This is coupled with an attractive dividend, which we propose to increase to €3.90 due to our strong earnings. We have also set ourselves an ambitious goal in this area: We aim to increase our dividend each year, and in difficult years at least maintain its level. We plan to continue our share buyback program.

We shape the future

Globalization is making our business more complex, faster and more fiercely competitive. If we want to be successful tomorrow, we need to lay the groundwork today. This means finding solutions for the substantial challenges: Global demographic change, increasing urbanization and above all resource conservation and climate protection.

It is in these areas where we have taken steps. Not only have we set ourselves higher efficiency goals, we also help our customers with our innovative products and system solutions to save resources and energy. We were the first company in the industry that compiled and established an integrated carbon balance. We help make climate protection possible: By using our products and processes it is possible to save three times more greenhouse gases than are needed for the production and disposal of our products. Together with our customers, we want to further exploit this efficiency potential in the future. In addition, we are working on new energy strategies such as fuel cells, organic light-emitting diodes and renewable raw materials from plant biotechnology.

We ensure sustainable development

Our goal is clear: Climate protection is an integral part of our sustainability strategy and is decisive for the continued success of our company. Given the competitive global landscape, we believe our economic performance depends on a just and comparable political framework in all regions. Long-term success is built on a foundation of business success combined with environmental protection and corporate responsibility. We are a responsible corporate citizen – worldwide. We were a founding member of the Global Compact and the World Business Council for Sustainable Development and were one of the first signatories of the Responsible Care Global Charter.

This newly redesigned report will show you how we ensure sustainable development. For the first time, we have combined in one report comprehensive information on business performance with extensive facts on both our careful treatment of the environment and our corporate responsibility.

We grow with innovations

Success today is no guarantee of success tomorrow. A marked point of differentiation and our clear strengths are our innovations. We will, of course, continue to strengthen our efforts in this area. We are focusing our efforts on innovations in energy management, raw material change, nanotechnology, plant biotechnology and white (industrial) biotechnology. These will enable our customers and in turn ourselves to grow profitably. From 2015 on, we expect additional annual sales of up to €4 billion from innovations from these growth clusters. Each employee will make a contribution here. Our project “Marketplace of Innovations” is a milestone on this path. It creates a knowledge platform, fosters openness for new things and encourages employees to pursue extraordinary ideas.

We tap into new opportunities through our global network of over 1,800 research partnerships – the best in their respective fields. Take Monsanto for example, we are working with them on the development and marketing of crops, which thanks to genetic improvements, are higher yielding and more tolerant to drought than conventional strains.

We are looking with confidence to 2008, even taking into consideration the turbulent start to the year on the stock markets. For my colleagues on the Board and myself as well as for the global BASF team, this means focusing all our concen-tration and energies on making BASF even more profitable and cyclically resilient. We still aim to grow faster than the chemical market and improve our earnings slightly, despite the prospective weaker growth on the horizon. We place particular importance on improving our portfolio through acquisitions and divestitures, aligning ourselves even more closely to our customers’ needs, strengthening our innovation potential and developing our BASF team for the long-term. I would be pleased if you would accompany and support us on this path.

Sincerely yours,