4 – Reporting by segment and region

BASF’s business is conducted by thirteen operating divisions aggregated into five segments for reporting purposes. The divisions are allocated to the segments based on their business models.

The Chemicals segment entails the classical chemicals business with basic chemicals and intermediates. It forms the core of BASF’s Production Verbund and is the starting point for a majority of the value chains. In addition to supplying the chemical industry and numerous other sectors, Chemicals ensures that other BASF segments are supplied with chemicals for producing downstream products. The Chemicals segment comprises the Petrochemicals, Monomers and Intermediates divisions.

The Performance Products segment consists of the Dispersions & Pigments, Care Chemicals, Nutrition & Health and Performance Chemicals divisions. Customized products and solutions allow customers to make their production processes more efficient or to give their products improved application properties. As of January 1, 2017, the activities of the Monomers and Dispersions & Pigments divisions for the Electronic Industry will be merged in the global business unit Electronic Materials in the Dispersions & Pigments division within the Performance Products segment. BASF thereby strengthens its position as a strategic partner for the large electronic producers.

The Functional Materials & Solutions segment bundles system solutions, services and innovative products for specific sectors and customers, especially the automotive, electrical, chemical and construction industries, as well as applications for household, sports and leisure. It is made up of the Catalysts, Construction Chemicals, Coatings, and Performance Materials divisions.

The Agricultural Solutions segment includes the Crop Protection division. It provides innovative solutions in the areas of chemical and biological crop protection, seed treatment and water management as well as for nutrient supply and plant stress. Plant biotechnology research is not assigned to this segment; it is reported in Other.

The Oil & Gas segment comprises the division of the same name. As part of an asset swap at the end of the third quarter of 2015, BASF transferred to Gazprom the natural gas trading and storage business previously operated together with Gazprom. Since October 1, 2015, the segment has concentrated on the exploration and production of oil and gas-rich regions in Europe, North Africa, Russia, South America and the Middle East as well as on the transport of natural gas together with partner Gazprom.

Activities not assigned to a particular division are reported under Other. These include the sale of raw materials, engineering and other services, rental income and leases, the production of precursors not assigned to a particular segment, the steering of the BASF Group by corporate headquarters, and cross-divisional corporate research. Cross-divisional corporate research, which has been restructured in the context of the newly developed innovation approach, works on long-term topics of strategic importance to the BASF Group. Furthermore, it focuses on the development of specific key technologies, which are of central importance for the divisions. Plant biotechnology research is also part of cross-divisional corporate research.

Earnings from currency conversion that are not allocated to the segments are also reported under Other, as are earnings from the hedging of raw material prices and foreign currency exchange risks. Furthermore, income and expenses from the long-term incentive (LTI) program are shown here.

Transfers between the segments are generally executed at adjusted market-based prices which take into account the higher cost efficiency and lower risk of Group-internal transactions. Assets, as well as their depreciation and amortization, are allocated to the segments based on economic control. Assets used by more than one segment are allocated based on the percentage of usage.

Income from operations of Other decreased by €106 million year-on-year to minus €1,091 million. Income from other businesses fell by €131 million to €39 million. The line item foreign currency results, hedging and other measurement effects decreased by €111 million to minus €331 million. Higher additions to provisions in comparison with the previous year for the long-term incentive (LTI) program were partially compensated by lower currency losses. The costs for cross-divisional corporate research as well as costs of corporate headquarters decreased by €7 million and €11 million, respectively. The line item miscellaneous income and expenses amounted to minus €182 million compared with minus €300 million in the previous year, which included expenses for BASF’s 150th anniversary celebrations among other things.

The reconciliation reporting Oil & Gas reconciles the income from operations in the Oil & Gas segment with the contribution of the segment to the net income of the BASF Group.

Income from operations in 2016 declined significantly in comparison with the previous year. This was essentially a result of lower oil and gas prices in the first three quarters of 2016 compared with the same period of the previous year as well as the asset swap with Gazprom on September 30, 2015. This resulted in a lack of earnings contributions from the divested gas trading and storage business and the 50% share in Wintershall Noordzee B.V., Rijswijk, Netherlands, beginning in the fourth quarter of 2015. Furthermore, the transaction led to earnings of €314 million in the previous year. The share in the Yuzhno Russkoye natural gas field contributed lower income from operations, as the excess amounts received over the last ten years were compensated in 2016, as contractually agreed with our partner, Gazprom.

Impairments for exploration and production licenses in the Oil & Gas segment dampened income from operations by €609 million in 2015.

The Oil & Gas segment’s other income relates to income and expenses not included in the segment’s income from operations, interest result and other financial result. As in the previous year, other income largely consisted of currency effects from Group loans.

Positive income taxes in 2016 were primarily a result of the calculation of taxable income in Norway.

In the United States, sales to third parties in 2016 amounted to €12,831 million (2015: €13,831 million) according to location of companies and €11,985 million (2015: €13,302 million) according to location of customers. In the United States, intangible assets, property, plant and equipment, and investments accounted for using the equity method amounted to €10,342 million compared with €9,262 million in the previous year.