4 – Reporting by Segment and Region

In 2018, BASF’s business was conducted by 13 divisions in five segments until a binding agreement between BASF and LetterOne was signed on September 27, 2018, to merge their oil and gas activities; from that date until the end of the year, business was conducted by 12 divisions in four segments. The divisions are allocated to the segments based on their business models.

BASF adjusted its segment structure as part of its updated strategy. The changes effective as of January 1, 2019, affect all segments except the Agricultural Solutions segment. Since then, the 12 divisions are allocated to six segments. The composition of a number of divisions has changed as well. The propylene oxide and propylene glycol business will be transferred from the Petrochemicals division to the Monomers division. The superabsorbents business will be allocated to the Petrochemicals division rather than the Care Chemicals division. The styrene, polystyrene and styrene-based foams business, which previously fell mainly under Performance Materials and a small part under Other, will be bundled in Petrochemicals.

The new segment structure will enable an even more differentiated steering of the businesses, taking into account market-specific requirements and the competitive environment. It will further increase the transparency of the segments’ results and highlight the importance of the Verbund and value chains to business success. The aggregation of the segments based on business models reflects the divisions’ focal points, their customer groups, the focus of their innovations, their investment relevance and sustainability aspects.

The Chemicals segment comprises the classic chemicals business with basic chemicals and intermediates. It continues to form the core of BASF’s Production Verbund and contributes to the organic growth of BASF’s key value chains. Customers include the chemical and plastics industries as well as internal outlets. The segment’s competitiveness will be augmented through technological leadership and operational excellence. The Chemicals segment was composed of the Petrochemicals, Monomers and Intermediates divisions until December 31, 2018. As of January 1, 2019, the Monomers division is allocated to the new Materials segment.

The Performance Products segment consisted of the Dispersions & Pigments, Care Chemicals, Nutrition & Health and Performance Chemicals divisions until the end of 2018. They focus on tailor-made solutions enabling customers to improve the application properties of their products and optimize production processes, for example. Close customer contact and meeting the demanding requirements of a wide range of industries were crucial to business success.

The divisions in this segment were separated into two segments as of January 1, 2019.

• The new Industrial Solutions segment comprises the Dispersions & Pigments division and the Performance Chemicals division. This segment develops and markets ingredients and additives for industrial applications such as polymer dispersions, pigments, resins, electronic materials, antioxidants and admixtures. Its customers come from key industries such as automotive, plastics and electronics.
• The new Nutrition & Care segment combines the Care Chemicals and Nutrition & Health divisions. This segment produces ingredients for consumer products in the area of nutrition, cleaners and personal care. Its customers include food and feed producers as well as the pharmaceutical, cosmetics, and the detergent and cleaner industries.

Until the end of 2018, the Functional Materials & Solutions segment bundled industry and customer-specific system solutions, services and innovative products, especially for the automotive, electronics, chemical and construction sectors, as well as applications for household, sports and leisure. An in-depth understanding of applications, the development of innovations in close cooperation with customers, and adaptation to different regional needs were key success factors. The segment was made up of the Catalysts, Construction Chemicals, Coatings, and Performance Materials divisions. The divisions of this segment were allocated to two new segments as of January 1, 2019:

• The new Materials segment consists of the Performance Materials division and the Monomers division, formerly pertaining to the Chemicals segment. This segment offers advanced materials and their precursors for new applications and systems. Its product portfolio includes isocyanates and polyamides as well as inorganic basic products and specialties for plastics and plastics processing in various industries.
• The new Surface Technologies segment comprises the Catalysts, Coatings and Construction Chemicals divisions. It offers a platform for chemical surface solutions. Its product spectrum includes catalysts and battery materials for the automotive and chemical industries, surface treatments, colors and coatings as well as cement modifications and construction materials.

The Agricultural Solutions segment comprises the Agricultural Solutions division, which was previously known as Crop Protection and was renamed after the acquisition of significant businesses from Bayer and the associated expansion of its portfolio. As an integrated provider of crop protection and seeds, Agricultural Solutions will continue to grow, primarily organically through innovation, and through targeted portfolio enhancement. Its portfolio comprises fungicides, herbicides, insecticides and biological crop protection products, as well as seeds and seed treatment products. Furthermore, Agricultural Solutions offers farmers innovative solutions, including those based on digital technologies, combined with practical advice.

Activities that are not allocated to any of the continued operating divisions continue to be recorded under Other. These include other businesses such as commodity trading, engineering and other services, rental income and leases, steering the BASF Group by corporate headquarters, and cross-divisional corporate research. Cross-divisional corporate research, which includes plant biotechnology research, 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.

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

Discontinued operations and all remaining activities after divestiture not previously reported under Other are reported under Other as of January 1, 2019. The latter includes, for example, participating interests accounted for using the equity method or supply obligations assumed in the context of divestitures. Reclassification affects the remaining activities for the leather and textile chemicals business, previously recorded in the Performance Products segment, and the remaining activities for the industrial coatings business, previously recorded in the Functional Materials & Solutions segment. Furthermore, the following will also be reported here in the future: remanent fixed costs resulting from organizational changes or restructuring; function and region-related restructuring costs not allocated to a division; idle capacity costs from internal human resource platforms.

Since the signing of the binding agreement between BASF and LetterOne to merge their oil and gas activities, the former Oil & Gas division has been reported as a discontinued oil and gas business. The segment of the same name was dissolved. The assets and liabilities of the oil and gas business were reclassified to a disposal group as of the end of the third quarter of 2018. Since then, they are included in Other.

The oil and gas business focuses on exploration and production in oil and gas-rich regions in Europe, North Africa, Russia, South America and the Middle East. It benefits from strong partnerships and its technological expertise. In Europe, it is also active in the transport of natural gas together with its Russian partner Gazprom.

The same accounting rules are used for segment reporting as those used for the Group, which are presented in Note 1. Transfers between the segments are generally executed at adjusted market-based prices, taking into account the higher cost efficiency and lower risk of intragroup 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. Assets not used by the segments are reported under Other.

Income from operations of Other increased by €200 million year on year from minus €691 million to minus €491 million. The costs for cross-divisional corporate research increased by €35 million to €414 million, and the costs of corporate headquarters were €25 million higher at €249 million. Income from other businesses fell by €43 million to €38 million. The line item foreign currency results, hedging and other measurement effects increased by €239 million to €327 million. This was due to an increase of €195 million to €262 million from the release of provisions for the LTI program. The line item miscellaneous income and expenses amounted to minus €193 million compared with minus €257 million in the previous year.

In the United States, sales to third parties in 2018 amounted to €14,775 million (2017: €13,909 million) according to location of companies and €14,062 million (2017: €13,127 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 €12,958 million compared with €9,279 million in the previous year.

In China, sales to third parties in 2018 amounted to €7,595 million (2017: €5,976 million) according to location of companies and €6,731 million (2017: €6,676 million) according to location of customers. In China, intangible assets, property, plant and equipment, and investments accounted for using the equity method amounted to €4,162 million compared with €4,206 million in the previous year.